Overview

On 31 August 2022, Justice Black of the New South Wales Supreme Court found in favour of MetLife in a ‘first stage enquiry’ into:

• MetLife’s declinature of a Total and Permanent Disablement (TPD) claim, and
• MetLife’s conduct in not reconsidering a claim upon receipt of further material.

The Court held that neither the declinature nor the failure to reconsider was a breach of a duty or obligation of MetLife.

The decision addresses issues which insurers and trustee’s grapple with on a daily basis, including:

• Whether there is a duty to reconsider of a claim upon receipt of fresh material and how many times an insurer is required to reconsider;
• No response to Procedural Fairness (PF) - an insurer can rely on a claimant’s failure to respond to support a finding that it has not breached any duties. Particularly, a claimant may not be able to establish breach based on arguments raised during litigation where those same arguments could have, and ought to have, been raised in response to PF.
• Whether a failure by an insurer to refer to specific documents in a decline letter necessarily equates to a breach of that insurer’s duties and obligations;
• How to weigh later-in-time medical evidence against contemporaneous medical evidence, particularly with respect to evidence concerning satisfaction of the ‘first limb’ (ie. absence from work for the ‘waiting period’) of TPD policies.

Background

Ms Hart was a police officer with the New South Wales Police Force (NSWPF). Ms Hart was covered under 2 group life insurance policies which covered certain members of a superannuation fund (Aware Fund). The two policies and claims were the PBR and Basic policies and claims. This article discussed the claim under the PBR policy. The Superannuation Complaints Tribunal (SCT) had earlier found that Ms Hart was not entitled to the TPD benefit under the Basic policy, and that finding was not later challenged.

The key events were:

• from 6 October 2010 - Ms Hart was placed on permanently restricted duties with NSWPF as a result of a back injury.
• 30 September 2011 (‘the Takeover Date’) - While MetLife had initially insured the relevant members of the Aware Fund (including Ms Hart), it ceased to insure those members as at the Takeover Date. On the Takeover Date, another insurer (‘the Incoming Insurer’) proceeded to insure those members for any new claims from the Takeover Date, except for certain claims in respect of which MetLife remained “on risk” pursuant to the IFSA Guidance Note No.11.00 (‘the Guidance Note’)
• 19 December 2014 - Ms Hart ceased work entirely as a result of post-traumatic stress disorder (PTSD).
• February 2018 - Ms Hart initially claimed TPD benefits from MetLife.
• October 2018 - Before MetLife had made a decision on the claims, Ms Hart made a complaint to the SCT. The SCT found that MetLife was not liable under the Basic policy. However in respect of the PBR Policy, the SCT found that MetLife had “constructively rejected” that claim, set aside that decision, and substituted a decision that the claim be accepted.
• November 2020/April 2021 - MetLife appealed the SCT determination to the Federal Court of Australia. On 30 April 2021, Derrington J made orders setting aside the determination of the SCT, and remitted the complaint. He found that MetLife was only ”on risk” for Ms Hart’s back injury. (MetLife Insurance Ltd v Hart [2021] FCA 410).
• May 2021 – Aware Fund asked MetLife to make a decision on the TPD claims.
• June/August 2021 - MetLife declined the TPD claim on 9 August 2021, after providing PF in June 2021.
• November 2021 - Ms Hart requested a reconsideration and provided new material in support of the claim. MetLife did not reconsider the claim.
• March 2022 - Ms Hart commenced proceedings against MetLife in NSW Supreme Court seeking payment of the TPD benefits. MetLife made a successful application to the Court for separate determination of the ‘first stage enquiry’. Accordingly, the Court was asked to consider:

1. Whether MetLife breached its duty and obligations in considering and declining the TPD claim on 9 August 2021?
2. Whether MetLife breached any duty or obligation in failing to reconsider the TPD claim? and
3. If the answer to question 1 and/or 2 was yes, whether Ms Hart was entitled to any relief (ie. that the Federal Court judgment be set aside, and the Court determine whether she is TPD (‘second stage enquiry’))

Justice Black answered both question 1 and 2 in the negative, and therefore it was not necessary to answer question 3.

As the earlier Federal Court judgment contained analysis of the operation of the Guidance Note and MetLife’s liability in respect of the TPD claim, there was a dispute in the NSWSC proceedings as to whether issue estoppel applied. The Supreme Court ultimately found it unnecessary to determine whether issue estoppel applied on the basis that it would reach substantially the same conclusions as were reached by the Federal Court.

Declinature of the Claim

MetLife declined the TPD claim on 9 August 2021 on the bases that:

• After 30 September 2021, it was only liable for Ms Hart’s back injury (and not her PTSD) as Ms Hart was ‘not at work’ on the Takeover Date only due to a back injury; thus
• MetLife was only on risk for TPD occurring after the Takeover Date as a result of the back injury that caused Ms Hart to be ‘not at work’ at the Takeover Date and any conditions related to that back injury, and therefore was not on risk in respect of PTSD.
• Ms Hart did not satisfy the ‘first limb’ of the TPD definition due to her back injury (which required that Ms Hart was absent from her occupation through injury or illness for 6 consecutive months) because, during that period, she was not absent from work due to back-related conditions. She was absent because of PTSD.

These bases were consistent with the findings made by the Federal Court. MetLife did not determine whether the second limb was met, in light of its finding that the first limb was not met.

Supreme Court proceedings

In the Supreme Court, Ms Hart alleged that MetLife had breached its duties and obligations by not having a reasonable basis for the above findings.

In doing so, Ms Hart alleged that MetLife, by not referring to specific documents in its declinature, failed to take into account several documents relevant to the determination of the above two issues.

The Court found that in some instances a lack of specific reference to a document (in MetLife’s declinature) did not establish that MetLife had not considered that document. For example, one of the documents alleged to have not been considered was contained within a bundle of documents that MetLife had indicated (earlier in the assessment of the claim) it had reviewed.

The Court found that whilst MetLife had not, in its PF or decline letter, referred to certain documents that did not have the effect that it breached any duty. The court reached that finding in respect of documents which it described as having “little probative weight” and being of “limited significance”. For example, the Court held it was not unreasonable for MetLife to not give any substantial weight to the opinion of a treating psychiatrist as to whether Ms Hart was ‘not at work’ at the Takeover Date due to PTSD, where that psychiatrist did not begin to treat Ms Hart until approximately three years after the Takeover Date and had no direct knowledge of her condition as at the Takeover Date. Similarly, the Court found that a statement made by Ms Hart three years after the Takeover Date, in relation to her health as at the Takeover Date, should be given significantly less weight than the contemporaneous documents MetLife had referred to in its declinature.   

The Court also found that existing authority provides support for the view that whether an insurer has breached any duty is to be determined in the context of the process that it adopted. Here, that context included the fact that MetLife had provided Ms Hart an opportunity to respond to its comprehensive ‘procedural fairness letter’, and it could have reasonably had regard to the fact that Ms Hart did not draw to its attention any additional documents as being inconsistent with the documents referred to in that letter or as supporting a different inference to that which MetLife had indicated it would likely draw when it made its decision on the TPD claim. Namely, Ms Hart’s failure to respond in any substantive manner to the procedural fairness letter was relevant to determining whether MetLife’s decision was fair and reasonable.

This finding will significantly assist insurers in future claims.

The Court also considered whether it was a breach of MetLife’s duties to adopt the relevant findings and analysis of the Federal Court judgment. The Court found that MetLife complied with its duties in adopting the Federal Court’s analysis where no good reason to depart from it had been shown.

Whether a Duty to Reconsider Claims Exists?

Ms Hart alleged that MetLife breached a duty or obligation by failing to reconsider the TPD claim on receipt of the further material provided after MetLife declined the claim. Ms Hart referred to authority that a superannuation trustee has a duty to reconsider a claim where fresh material gives rise to a “reasonable possibility of a different result”, and argued that the duties and obligations of a superannuation trustee and a group life insurer are sufficiently similar to suggest a similar duty or obligation is owed by an insurer. There was no policy term obliging MetLife to reconsider a claim.

The Court rejected Ms Hart’s argument, holding that there was no authority supporting an insurer having a duty or obligation to reconsider a claim, and such duty applying to superannuation trustees should not be extended to insurers generally or “TPD insurers”, The reasons for that conclusion included:

• the absence of any legislative requirement to reconsider, bearing in mind the extensive statutory regimes for the regulation of insurers and superannuation;
• the recognition of such a duty would have significant economic implications (such as the cost for insurers of reconsiderations and the associated costs of increased challenges at AFCA); and
• that it was not self-evident that such a duty would promote public policy where there is a countervailing public benefit in finality in determination of claims.

Guidance provided by the decision

This decision provides helpful guidance in a number of areas:

• Duty to reconsider - The common law does not impose a duty on an insurer to reconsider a claim on receipt of further evidence. However consideration should always be given to whether the policy terms require a claim to be reconsidered. Additionally a group life insurer may choose to reconsider a claim where requested by a trustee.
• No response to PF - an insurer can rely on a claimant’s failure to respond to PF to support that it has not breached any duties. Particularly a claimant may not be able to establish breach based on arguments raised during litigation, where those same arguments could have, and ought to have, been raised in response to PF.
• Failure to refer to non- material documents - By failing to refer to a specific document in its declinature, an insurer is not necessarily in breach of its duties where that document is not sufficiently material to the question the insurer must consider in determining the claim;
• It is not unreasonable for a life insurer to give substantially less weight to later-in-time medical evidence (particularly concerning the ‘first limb’ of a TPD definition) when that evidence is inconsistent with contemporaneous (to the first limb period) evidence. It is also not unreasonable to give substantially less weight to the opinion of a medical practitioner with no direct knowledge of the claimant’s health in the first limb period.
• A separate ‘first stage enquiry’ can be a useful and cost-effective process in litigation where the insurer is comfortable that it handled and assessed the claim in accordance with its duties.

Moray & Agnew acted for MetLife in this matter.

Further information / assistance regarding the issues raised in this article is available from the authors, Catherine McAdam, Partner and Jesse Thomson, Lawyer, or your usual contact at Moray & Agnew.