Dowsley v Westpac Life Insurance Services Ltd: life insurance - death benefit

Background

In Dowsley v Westpac Life Insurance Services Ltd [2013] NSWSC 1208, in 2003, the plaintiffs took out a life insurance policy that allowed them to buy-back the death benefit under certain conditions.  The relevant provisions stated:

"31 You can buy-back the death benefit

31.1 Twelve calendar months after we pay the living benefit for any illness or condition except Angioplasty, you can increase the then death benefit for that Insured Person by up to 50% of the living benefit you were paid. Twelve calendar months later, you can increase the death benefit to bring it to the level that applied under the policy before we paid the living benefit...

31.2… you must request the buy-back in writing within 30 days of the applicable anniversary of the payment of the living benefit.  The offer lapses and will not be re-offered if we do not receive a written request within 30 days of the applicable anniversary of the payment of the living benefit."

In essence, there was an option to buy-back 12 calendar months after payment of the living benefit and a further option to buy back 24 calendar months after payment.

On 6 April 2004, the plaintiffs lodged a claim for the living benefit under the policy due to one of them (Mrs Dowsley) being diagnosed with cancer which, at the time, was said to be terminal.  On 9 June 2004, the defendant wrote to the plaintiff enclosing a cheque for $517,487.05 in settlement of the claim.  This cheque was presented on 16 June 2004.

However, Mrs Dowsley survived and, on 19 August 2005, the plaintiffs wrote to the defendant advising them that they wished to exercise the capacity to buy-back the death benefit.

On 1 November 2005, the defendant wrote to the plaintiffs stating its position that the anniversary of the payment was 11 June 2005 and that the written request for a buy-back was required by 11 July 2005.

On 14 March 2006, the defendant informed the plaintiffs that their request for the buy-back was refused.

On 2 May 2006, the plaintiffs wrote to the defendant seeking a review of that decision.  A review was also sought and/or a complaint made to the Financial Industry Complaints Service Ltd (“FICS”).

The response from FICS was that it was unable to deal with a complaint the dollar value of which exceeds $250,000 and therefore, given that the amount in dispute is $517,000, were unable to deal with the issue.

Issues

The Court held that the issues in dispute were as follows:

1. whether the policy required the plaintiffs to exercise the earlier option to be allowed to exercise the latter option ;
2. whether the terms of the policy should be strictly construed to require a request in writing; and
3. whether the plaintiffs had exercised any option within the relevant time limits.

Exercise of option

The Court resolved the first issue in favour of the plaintiffs finding that clause 31.1 would allow, at the second anniversary (or within 30 days thereof) for the insured to increase the Death Benefit by a further 99% to “bring it to the level that applied under the policy before [Westpac Insurance] paid the Living Benefit”.

The Court noted that, even though the “usual situation” would be that an insured would exercise a contractual right at the first anniversary and increase the death benefit by 50% and, at the second anniversary, increase the death benefit by a further 50%:.

“An insured can increase the Death Benefit by one per cent at the first anniversary and 99 per cent at the second anniversary. Likewise, 12 months after the first anniversary (or within 30 days thereof) an insured can exercise the contractual power to buy-back the Death Benefit and bring it to the level that applied prior to the payment of the Living Benefit.”

In essence, the Court adopted a textual approach of the provision.

Valid request in writing

The Court held that a valid written request was required under the policy.  The plaintiff’s letter dated 19 August 2005, did not purport to seek the capacity of the buy-back right which arose on the second anniversary.  It referred to an incorrect view that the buy-back option should have been made within 30 days of the benefit being paid (rather than the correct regime which was that the 30 day period ran from an anniversary of the payment).  However, it was clear that the plaintiffs’ correspondence dated 2 May 2006 did.  In other words, the Court held that the plaintiffs exercised their buy-back option in writing when the defendant received their correspondence dated 2 May 2006.

Time limits

In relation to whether the plaintiffs had exercised their option in time, the Court held that the relevant date that the payment was made by the defendant was 16 June 2004, when the defendant’s cheque was presented.

The first and second anniversaries were 16 June 2005 and 16 June 2006 respectively.  Therefore, 30 days after those anniversaries were 16 July 2005 and 17 July 2006 respectively.

In determining the issue, the Court followed Associated Dominions Assurance Society Pty Ltd v Balmford (1950) 81 CLR 161 which distinguished between descriptions of time where:

1. the description defined a period at the expiration of which an act may be done; and
2. the description defined a period within which an act must be done.

With respect to the second class, applicable here, the Court held that the act must be done “before the expiration of the last of the prescribed number of days”.  The Court followed Ward v Walton (1989) 99 FLR 21 which held that the term “within” “when applied to a period of time most usually means ‘before the end of’”.

From this interpretation, the Court emphasised, from that interpretation that a request made and received prior to a relevant anniversary date was made and received “within 30 days” of that date.  The Court stated that:

“One way of testing the proposition that only a written notification received after the anniversary date would be effective is to ask what would have happened if, on the anniversary date, Mr or Mrs Dowsley notified Westpac Insurance of the exercise of the buy-back option?  It must have been within the objective contemplation of the parties that a notification on that date would have complied with the condition.”

Practical implications

1. provisions in policies with multiple options and time limits must be construed or drafted carefully as they may allow policyholders to exercise several options and confer upon them time limits that may be less stringent than intended; and
2. in determining whether a policyholder has complied with a time limit for exercising an option under the policy, the request to exercise that option must be reviewed carefully to determine whether it correctly interprets the  time limit.