Don’t Underestimate The Process: A TPD Insurer’s Responsibilities

Life Insurance

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DATE PUBLISHED: October 21, 2019

A recent decision by the New South Wales Court of Appeal - MetLife Insurance Limited v MX [2019] NSWCA 228 – considered ‘afresh’ an insurer’s responsibilities in the initial assessment, as well as any subsequent assessments, of Total and Permanent Disability (TPD) claims. The Court upheld the decision of the trial judge that the first and second decisions of the insurer were flawed and dismissed the appeal with costs.

The Court revisited the general principles relevant to the assessment of a TPD claim, including:

  • an insurer is required to “act reasonably and fairly” in determining whether it is satisfied as to the extent of the insured member’s incapacity having regard to the terms and conditions of the relevant policy;
  • an insurer’s duties extend to “acting reasonably in the formation of an opinion and the formation of a reasonable opinion.” In this context, it is uncontroversial that an insurer’s decision can only be set aside if the process of consideration and the decision itself was not open to an insurer acting reasonably and fairly.[1]; and
  • an insurer must not take into account an irrelevant consideration.[2]


WAS REFERENCE TO THE FIRST DECISION AN “IRRELEVANT CONSIDERATION” IN REACHING THE SECOND DECISION?

Contrary to the trial judge’s view, Gleeson JA held that reference to the first decision was not an irrelevant consideration in making the second decision on the basis:

  • the insurer’s second decision necessarily involved a reconsideration of the previous decision “in light of additional materials”; and
  • it would have been “quite artificial” for the insurer to ignore its first decision, in particular, the materials and reasons relied upon in reaching its first decision.


WAS THE PROCESS OF CONSIDERATION UNDERLYING THE SECOND DECISION UNDERTAKEN REASONABLY AND FAIRLY?

Gleeson JA ultimately concluded there was no error in the trial judge’s finding that the Insurer’s second decision was vitiated because “the process of consideration underlying it was not undertaken reasonably and fairly.”

The Court provided the following reasons:

  • Whilst the Court acknowledged MX had no qualifications to express medical opinions, MX’s statements as to what he could not do, expressed by reference to his psychological symptoms, should “not be put out of consideration”; [3]   
  • The insurer did “not purport to weigh the significance” of evidence, including what MX had said about his vocational prospects or the nature and reasons for his volunteering activities, and the support for MX’s account in the affidavit of a witness, AX.[4]
  • The insurer’s reasons did not address whether the statements of MX (and AX) undermined or in any way affected the views of his treating medical practitioners.


LESSONS

Upon a reassessment of a TPD claim, the court held that an insurer’s reference to an earlier decision/s is “necessarily” a relevant, rather than an irrelevant, consideration.

Gleeson JA’s decision also provides a useful reminder for life insurers that the scope of its duty “to act reasonably and fairly” in the assessment of claims extends to the process of consideration in reaching a decision as well as the decision itself. This necessarily involves weighing the significance of all competing evidence and ensuring the process of consideration is adequately explained in the insurer’s reasons for its decision. 

For further information, please contact a member of the Life Insurance Team.

[1] Metlife Insurance Ltd v Hellessey [2018] NSWCA 307 at [8]

[2] Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233 [82]-[85]

[3] Nile v Club Plus Superannuation Pty Ltd [2005] NSWSC 55 at [61] (Brownie AJ)

[4] Ibid [66]

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