Background

The appellant was a Member of the First State Superannuation Scheme. The appellant commenced proceedings against MetLife Insurance Ltd (MetLife) as the provider of a Group Life Insurance Policy, Police Blue Ribbon (the Policy) to the FSS Trustee Corporation (the Trustee). The Policy insured Members of the First State Superannuation Scheme such as the appellant against death and total and permanent disability while employed by the New South Wales Police Force. The appellant claimed she had suffered a total and permanent disability (TPD) as defined by the Policy while employed with NSW Police. MetLife disputed that the appellant satisfied the definition and declined the appellant’s claim for the benefits claimed under the policy.

The trial proceeded by way of a separate question hearing.

The determination of the separate questions concerned the decision made by MetLife that it was not satisfied that the appellant met the definition of ‘TPD’ within the Policy, and that the appellant was therefore not entitled to be paid the relevant sum insured by the Trustee. The primary judge found that MetLife had not:

• breached its duty to the appellant;
• failed to act reasonably in considering and determining its opinion;
• formed an opinion that was not open to MetLife acting reasonably and fairly in the consideration of the appellant’s claims; and
• failed to consider and determine whether MetLife should form an opinion on the question of whether the definition of ‘total and permanent disablement’ in the Policy was satisfied.

The appellant’s proceedings were dismissed.

(The decision at trial was discussed in our 17 September 2018 edition of Legal Directions, ‘No constructive declinature’.)

The appeal

The appeal came before Bell P, Leeming JA and Emmett AJA of the New South Wales Court of Appeal on 15 May 2019.

On appeal, it was alleged that the primary judge:

• adopted an incorrect test of reasonableness, failed to consider whether MetLife acted fairly and reasonably in assessing and determining the appellant’s claim, and erred in holding there was no obligation for MetLife to give reasons declining the appellant’s claim (Grounds 1, 2 and 3);
• undertook a merits review (Ground 4);
• failed to treat the letters of 14 August 2015 and 7 January 2016 as separate declinatures (Grounds 5, 7 and 8);
• failed to conclude that MetLife failed to give reasons for the determination (Ground 6); and
• failed to conclude MetLife was in breach of its duty and obligations, and erred in his answers to the questions for separate determination (Grounds 9 and 10).

In relation to Grounds 1 and 2, the appellant argued that the primary judge applied an objective test of reasonableness to the exclusion of all other factors. The appellant argued that this was an incorrect application of the test of unreasonableness formulated by the Court of Appeal in Hanover Life Re of Australasia Ltd v Jones [2017] NSWCA 233. The appellant argued that in doing so, the primary judge failed to properly address whether MetLife acted fairly and reasonably in assessing the claim (Ground 2). The appellant submitted that a Court could only determine if the insurer acted in good faith in reaching its decision (even if the decision reached was objectively reasonable) if there were available to the Court a clear path of how the decision of the insurer was reached, together with reasons for the decision.

The appellant asserted that sole reliance on that test of unreasonableness also prompted the primary judge to conclude that MetLife was not obliged to give reasons for its decisions to decline her claim. The Court, while giving some consideration to whether an insurer is required to give reasons, ultimately found that MetLife did provide reasons, so Ground 3 did not arise.

In determining whether the primary judge failed to consider whether MetLife acted reasonably and fairly throughout the decision making process, the Court considered the particulars of breach of duty alleged by the appellant. These included:

• failing to give due regard to the interests of the appellant, in considering and forming its opinion
• failing to give any reasons for declining the appellant’s claims on 14 August 2015,
• preferring, without sound reasons for doing so, the opinions of medical experts engaged by MetLife over the opinions of the appellant’s treating doctors
• failing to seek the opinion of the appellant’s treating psychiatrist in relation to the content of the surveillance evidence
• disregarding the opinion of MetLife’s treating psychiatrist on the basis that the appellant’s treating psychiatrist had not seen the surveillance evidence
• failing to consider whether any of the alternative occupations alleged by MetLife to be within the appellant’s capacity to perform were within the Appellant ‘s education, training or experience, and
• failing to give any consideration to the real prospect of the appellant actually obtaining full time or part time employment within her education, training or experience, taking into account her physical and psychological capacity for work and her local labour market.

The Court addressed each of the above particulars of breach in detail and found the primary judge had made no error in concluding that the appellant failed to make out her allegation that MetLife did not act reasonably and fairly. The Court determined that:

The conclusions reached and judgements made by MetLife in relation to the evidence before it may not be the only conclusions that could fairly be reached on the basis of that material. However, they were conclusions that were open on the material. Had [the appellant] been able to demonstrate that the analysis of the material by MetLife was so wrong and defective, such that the conclusion reached was simply not open to it, that might be a basis for concluding that MetLife’s decision should not stand. However, [the appellant] fell well short of doing so.

Importantly, with regard to how MetLife reached its decision, the Court said:

• it was a matter for MetLife as to the weight that should be given to the different materials before it for the purposes of making its decision
• it was not a breach of duty to give more weight to the opinions of independent examiners over treating doctors
• MetLife were entitled to consider that the surveillance evidence indicated that the history provided by the appellant to her treating doctors was not reliable.

As to Ground 4, the Court found that the primary judge did not put himself in the shoes of the insurer and embark on a merits review. The Court said that the primary judge was required to consider the competing materials in order to address the complaints made by the appellant about MetLife’s treatment of certain evidence and whether that treatment breached its duty to act fairly and reasonably.

The manner in which the Court dealt with Grounds 5, 7 and 8 of the appeal is of interest to life insurers.

The appellant contended that MetLife ‘cherry picked’ aspects of multiple ‘determinations’. The appellant argued these determinations could not be conflated into a single set of reasons and – absent a single cogent decision on the claim – the reasons could not be used by MetLife to answer allegations of breach. The Court rejected this submission and found that it would be artificial to treat the two ‘declinature’ letters of 14 August 2015 and 7 January 2016 as separate determinations. Insurers can take comfort in this finding and also take the opportunity to revaluate their decision-making process, if necessary, to avoid further attack from insured Members looking to vitiate the insurer’s decision or decision-making process.

The Court did not need to deal with Ground 6 at any length, given it found MetLife did provide reasons to the appellant. While there was some doubt as to whether the insurer is required to give reasons, the Court preferred not to deal with the issue of whether an insurer has a freestanding or implied duty to give reasons in order to comply with its duty of good faith on this occasion. as MetLife was found to have provided adequate reasons. The decision is nonetheless a reminder that written reasons and evidence of how that material submitted by a Member in support of a TPD claim was considered by the insurer will assist in defending the reasonableness of an insurer’s decision.

The appellant was unable to make out any of her grounds of appeal. The appeal was dismissed with costs.

Conclusion

The decision of the Court of Appeal confirms the practical and balanced approach adopted by the primary judge to the first stage enquiry involving an opinion-based TPD clause. The decision usefully demonstrates circumstances where an insurer’s treatment of evidence and overall opinion will be sustained by a Court if the decision is found to be open to an insurer acting reasonably in considering material provided to it by an insured Member. This is so even where a different conclusion could have been reached on the material before the insurer.

Alex Bolton, Partner and Nathan Jessop, Senior Associate from Moray & Agnew acted for MetLife in the above matter.