Policing insurer reasonableness and disclosure deciding TPD claims

In 2015, MetLife’s handling of total and permanent disability (TPD) claims lodged by police officers relating to Post-Traumatic Stress Disorder (PTSD) was the subject of public scrutiny and complaint. In 2016 and 2017, the Supreme Court rejected claims by MetLife that its reinsurer was on risk for some of those claims (MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2016] NSWSC 980; MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2017] NSWCA 56).

Although MetLife’s reinsurance claims were ultimately rejected, the reinsurer was closely involved in MetLife’s prior management of particular claims in a manner now affecting subsequent outcomes. One such claim is now the subject of judgment in MX v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme & Anor [2018] NSWSC 923.

The plaintiff was an undercover police officer medically discharged in 2011 due to PTSD. He made a TPD claim under his superannuation fund’s policy with MetLife which was (until 2017) thought to be the subject of reinsurance with RGA. TPD benefits were subject to a standard requirement of incapacity that rendered the member unlikely ever to engage in any gainful profession, trade or occupation for which he is reasonably qualified by reason of education, training or experience (ETE clause). There was no issue that the Plaintiff suffered PTSD, but MetLife disputed its effects on his capacity for remunerative employment outside of the police force.

The decision is a useful general guide to insurers and their advisers as to the legal principles underpinning the interpretation of ETE clauses and finding TPD ([78]-[104]), but did not ultimately determine those matters or decide anything novel in relation to them. It also examines some particular reinsurance treaty issues related to the separate reinsurance proceedings (at [105]-[240]).

However, the decision is of more general significance and should be compulsory reading for insurers in relation to their general duties as decision makers dealing with superannuation fund claims (at [61]-[77]), particularly where reinsurance is in place that potentially gives rise to conflicts of interest, disclosure and waiver issues (at [241]-[358]).

Key Take-outs

• There is nothing wrong in insurers consulting and cooperating with reinsurers in parallel with considering particular insurance claims, as is commonly required by claims cooperation clauses. However, insurers need to take a long term view mindful of their own decision making and procedural fairness obligations to their insured in dealing with both reinsurers and insureds.
• In this case, extensive evidence was produced of MetLife’s dealings with its reinsurer, including the insurer receiving inconsistent legal advice on whether the claim should be accepted and sharing that advice with the reinsurer. Privilege was waived over the legal advice with the result that the Court found that the insurer’s first decision rejecting the claim should be set aside (see in particular [182]-[190] and [272]-[281]). That was because:
  • MetLife had probably already waived privilege in the legal advice by showing it to the reinsurer;
  • MetLife should have disclosed it to the insured; and
  • the insured could then have called for further examination of the claim and adopted and put arguments that one of the lawyers had used to conclude that the insured could qualify as TPD.
• Although cooperation with insurers is permissible, insurers need to take care to separate their own decision making from the influence of any reinsurer rights or requirements (see for example [254]). In particular, the insurer must decide itself whether it is satisfied of required matters in accordance with its duties:
  • to act reasonably in forming an opinion; and
  • of utmost good faith.
• In this case, the insurer’s first decision was set aside because:
  • it had not sufficiently separated its contractual duties to the reinsurer from its duties to the insured; had not disclosed to the insured its reinsurance obligations; and was inferred to have taken into account the irrelevant consideration of the reinsurer’s non-approval of the claim (see [266]-[271]).
  • the insurer’s failure to disclose reinsurance obligations and communications, and that it was taking them into account, denied the insured procedural fairness as he was not in a position to make submissions as to how to eliminate or reduce the conflict between the insurer’s duties to the reinsurer and to the insured (see [272]-[276])
• The decision also highlights the importance of insurers not only acting reasonably, but also demonstrating that reasonableness by exposing their reasoning when declining claims, in particular by incorporating in their written decisions a rational weighing of the medical, vocational and other evidence and therefore explaining their decisions.
• In this case, the Court was critical of the insurer’s first decision on the basis that it only recited material then gave a conclusion, without showing how the material had been evaluated, accepted, rejected, reconciled or otherwise dealt with to the extent that it was inconsistent with the decision reached (see [285]).
• Finally, the decision is a reminder that second decisions also commonly required in TPD claims must be genuine reconsiderations of the matter by insurers, and that care is required both in substance and in form. For example, in this case the insurer concluded that it had “not changed its opinion”. The Court held that those words evidenced the wrong approach and a failure to consider the matter afresh, and that the insurer had taken into account an irrelevant consideration, so that the second decision was also set aside (see [344]-[349]).