No right to rewrite an exclusion clause – according to Wright

(Hannover Life Re of Australia Ltd v Wright [2014] FCA 1163)

The Superannuation Complaints Tribunal does not have the power to redraft an exclusion clause for cover offered by a trustee of a superannuation fund in circumstances where the policy between the trustee and the reinsurer requires the exclusion clause to be in place.

The case

Ms Wright made an application to the Superannuation Complaints Tribunal on the basis that a total spine exclusion clause for her death and disablement cover was an overreaction to her disclosure that she suffered mild back pain. The Tribunal agreed and varied the wording of the exclusion clause to reduce the scope of the exclusion. 

Hannover appealed the Tribunal’s decision to the Federal Court of Australia on the basis that the Tribunal did not have the power to rewrite an exclusion clause. On 31 October 2014, Justice Foster delivered his judgment granting Hannover’s appeal.

The facts

Ms Wright was a member of UniSuper, a superannuation fund that offers death and disablement cover to its members. The Trustee of UniSuper is UniSuper Limited (USL). The optional insurance cover offered to Ms Wright by USL was reinsured with Hannover Life Re of Australasia Ltd (Hannover) pursuant to a group life policy. 

On 19 July 2011, Ms Wright applied to increase her death and disablement cover from one unit to ten units. As part of the process in increasing cover, USL and Hannover required Ms Wright to answer a number of questions relating to her medical history. In doing so, Ms Wright disclosed that she suffered intermittently from back pain. The symptoms included muscle tightness which Ms Wright treated with stretching and manipulative therapies. Ms Wright consulted an osteopath for her back pain and her last visit to the osteopath was in July 2011. 

Ms Wright was subsequently offered insurance for six units with the following exclusion:

Total and Permanent Disablement benefits shall not be payable for any disability caused by any disease or disorder of or injury to the spine, its intervertebral discs, nerve roots or supporting musculature and ligaments. This exclusion will apply above current levels.

Ms Wright was not satisfied with the exclusion clause and argued that “this special condition would seem to exclude every single muscle or spine injury which could conceivably occur. If I were to suffer paralysis because a meteor landed on my head… I would not be covered.” Ms Wright was also dissatisfied with the level of cover (she had applied for a total of ten units but had only been offered six units). 

Hannover submitted to the Tribunal that its underwriting guidelines provided that if an applicant had suffered mild back pain within 12 months of the application, the standard total spine exclusion clause was to apply.

The Tribunal affirmed the trustee’s decision in relation to the level of cover provided, that is six units instead of ten, but varied the exclusion clause to: 

Exclude any claim in relation to Ms Wright’s back that is related to, associated with or aggravated or exacerbated by her pre-existing muscle tightness and/or back soreness.

The Tribunal’s powers are set out in section 37 of the Superannuation (Resolution of Complaints) Act 1993 (Cth) (the "Act"). Section 37(5) of the Act states that the Tribunal, in making its determination, "must not do anything… that would be contrary to law, to the governing rules of the fund concerned and, if a contract of insurance between an insurer and trustee is involved, to the terms of the contract.”

The Federal Court of Australia applied the reasoning of three previous decisions.¹  These decisions held that: if the Tribunal cannot address the unfairness or unreasonableness identified by it without acting in a manner contrary to the governing rules of the fund or the relevant contract of insurance, the Tribunal must leave the perceived unfairness unaddressed;² and the Tribunal’s decision on unfairness or unreasonableness must be in relation to whether the decision was made in conformity with the governing rules or the policy and not some other perceived unfairness or unreasonableness relating to the conduct of the fund.³

The Court reviewed the wording of the policy between USL and Hannover and the UniSuper Regulations, and concluded that Hannover had a contractual right under the policy to impose terms and conditions on the cover granted to any particular member including by way of exclusions, and that a member of UniSuper who seeks additional death and disablement cover does so on these terms. 

By varying the terms of the exclusion clause, the Tribunal had done something that was contrary to the governing rules of the fund and to the terms of the policy. This was a breach of section 37(5) of the Act and on this basis the Court ordered that the Tribunal’s variation to the exclusion clause be set aside and the original total spine exclusion be re-instated.

William Roberts Lawyers acted for Hannover in the Federal Court of Australia.

1. Allsop J in Retail Employees Superannuation Pty Ltd v Crocker (2001) 48 ATR 359, Branson J in Colonial Mutual Life Assurance Society Limited v Brayley [2002] FCA 1333 and Kirby J in Attorney-General v Breckler (1999) 197 CLR 83

2. Colonial Mutual Life Assurance Society Limited v Brayley [2002] FCA 1333 at 33

3. Allsop J in Retail Employees Superannuation Pty Ltd v Crocker (2001) 48 ATR 359 at 27