NEWS

What Constitutes unreasonableness in TPD Claims – is the pendulum swinging back in favour of Insurers?

The New South Wales Supreme Court has taken the decision making processes of insurers and trustees to task in the first half of 2014 – has the recent decision in Birdsall v Motor Traders Association of Australia of Australia Superannuation Fund Pty Ltd [2014] NSWSC 632 swung the pendulum back in favour of insurers and trustees?

Background

In Lazarevic v United Super Pty Ltd [2014] NSWSC 96 and Folan v United Super Pty Ltd [2014] NSWSC 343, the Supreme Court of NSW handed down judgments 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”) and took the insurers and trustees to task about the reasonableness of their decision making.

In Lazarevic,1  and Folan, the insurer’s decisions indicated a failure to fairly consider and evaluate all of the evidence, which weighed heavily against the notion that the plaintiff was likely to ever engage in suitable work.

The underlying themes of both decisions appear to be that an insurer, in considering the validity of a TPD claim must evaluate all of the evidence, consider the actual likelihood of the insured obtaining work (rather than merely considering theoretical possibilities) and not pick or rely on evidence that would favour the denial of a claim.

The Decision in Birdsall v Motor Traders Association of Australia Superannuation Fund Pty Ltd

In Birdsall v Motor Traders Association of Australia of Australia Superannuation Fund Pty Ltd [2014] NSWSC 632, the Supreme Court of NSW again considered the reasonableness of the decision of the insurer and trustee in refusing a TPD claim. The evidence relied upon by the insurer and trustee in refusing the claim primarily involved:

  1. medical evidence that suggested the Plaintiff’s medical condition did not prevent him in engaging in other work 2;  and
  2. evidence which supported the availability of alternative employment and availability of employment which the Plaintiff could perform.3  

Notwithstanding, the insurer’s and trustee’s decision was still found to be unreasonable as the insurer failed to take into account the Plaintiff’s (unsuccessful) applications for alternative employment.

The Court, in making its own decision, considered that the Plaintiff did not satisfy the requirements for TPD under the Policy. Whilst the decision was ultimately successful for the insurer and trustee, the decision does not provide any comfort to insurers or trustees regarding the reasonableness of the decision making process.

Whilst reiterating that the primary test is “unreasonableness”, the decision in Birdsall repeats the themes underlying the decisions in Lazarevic and Folan and shows that the Court will consider all aspects of the matters taken into account (or not) in judging whether the decision of the insurer and trustee was unreasonable.

1 – See http://williamroberts.staging.elcomcms.com/News-and-Resources/Resources/Case-Studies/Lazarevic-v-United-Super-Pty-Ltd for our summary of this decision.
2 – see [133] to [137].
3 – see [138] to [145].
4 – see [146] to [147].

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