Lazarevic v United Super Pty Ltd [2014] NSWSC 96 - what constitutes a "reasonable" decision when deciding whether to refuse or accept an insurance claim for Total and Permanent Disability
On 20 February 2014, Hallen J of the New South Wales Supreme Court in Lazarevic v United Super Pty Ltd [2014] NSWSC 96 handed down a decision that clarified what constitutes a “reasonable” decision by an insurer and trustee when deciding when to refuse or accept an insurance claim for total and permanent disability (“TPD”).
The court also found that when deciding whether an insured is able to be engaged in regular remunerative work as defined under the relevant insurance policy, the test is “regular remuneration work for which the insured person is reasonably fitted by education, training or experience” and not regular remunerative work that the insured person, after appropriate training, might be able to perform1.
Background
The plaintiff was working as a scaffolder when he was injured. The first defendant (“the Trustee”) was the Trustee of the CBUS fund (“the Fund”). The plaintiff was a member of the Fund at the date of his injury. Under the Trust Deed, the Trustee agreed to pay the member plaintiff a benefit if he became TPD whilst employed. The Trustee had insured its liability to pay TPD benefits, with the second Defendant, Hannover Life Re of Australasia Ltd (“the Insurer”) under a Group Life Policy (“the Policy”).
On the day of his injury on 11 April 2008, the plaintiff was on a building site lifting a metal plank when he felt a sharp pain in his back. After seeing his general practitioner and then an orthopaedic specialist in May 2008, he lodged a claim for workers compensation on 9 May 2008 and received compensation payments from the workers’ compensation insurer. The plaintiff did not work in the 6 months following 11 April 2008 and had not worked since.
On 20 July 2009, the plaintiff made a TPD claim, stating that he was unable to lift anything over 5kg. This prevented the plaintiff from building and stripping scaffolds. The plaintiff set out his occupational history, education, training and experience, which included training and experience in scaffolding, as well as some experience in driving tractors.
The Trustee denied the plaintiff’s claim. The plaintiff sought to have his claim reviewed and the Trustee made three separate decisions over three years, denying the plaintiff’s claim on the basis that he was not TPD and that he could work part time as a forklift operator. The Insurer also made three decisions to deny the plaintiff’s claim.
The plaintiff sought, inter alia, a declaration that he was TPD within the meaning of the relevant definition of the term in the Trust Deed. He also sought declaratory relief that he was entitled to TPD benefits.
Issue
The issue was whether any of the Trustee’s or Insurer’s decisions were invalid on the basis of being unreasonable.
Decision
The Court held that an insurer must act reasonably in considering matters relating to entitlements arising from the insurance policy. If the view taken by the insurer can be shown to have been unreasonable on the material before it, the insurer’s decision can be overturned. The Court found that no trustee acting reasonably could have decided that the plaintiff was not TPD. The medical evidence was to the effect that the plaintiff was unable to engage in any regular remunerative work for which he was reasonably fitted by education, training or experience and that it was unlikely that he ever would so engage. The medical evidence demonstrated the plaintiff would not be able to work as a forklift operator and he had no training or sufficient experience as a forklift operator and no licence to operate a forklift.
Given that the policy referred to “regular remuneration work for which the insured person is reasonably fitted by education, training or experience”, the Court held the verb “is” should be given its ordinary meaning. The policy did not refer to regular remunerative work that the insured person, after appropriate training, might be able to perform2. It was further found that in assessing the availability of alternative work, the Court is to take a realistic and common sense approach and that there must be a real prospect, and not merely some theoretical possibility, that work will be available3.
The Court found that had the Trustee and Insurer made a reasonable and realistic assessment of the whole of the evidence, they would have concluded that the plaintiff was TPD within the meaning of the Trust Deed and Policy4.
The Court held that the Trustee did appear to make its own independent decision about the claim, but it was one that was not reasonable in circumstances5.
Outcome
The Court decided not to remit the matter back to the Trustee, given that the Trustee on numerous occasions had the chance to reach a different conclusion and did not. Instead, the Court decided to exercise the discretion that would normally be exercised by the Trustee and determined the matter in favour of the plaintiff.
1. Lazarevic v United Super Pty Ltd [2014] NSWSC 96 at 135
4. Ibid at 150.
5. Ibid at 154.