The extent to which a life insurer is obliged to procure evidence

Despite an established body of life and disability insurance case law, particularly total and permanent disability (TPD) claims, an area that remains somewhat unclear is the extent to which a life insurer, when assessing a TPD claim, is obliged to procure evidence.

Trustee’s duty to make inquiries

A useful reference point is to consider obligations on the part of trustees of superannuation funds that are often the holders of group life policies held for the benefit of fund members.

Prior to the High Court’s decision in Finch v Telstra Super¹, the general view was that a claimant could only set aside a trustee’s decision in respect of a TPD claim in certain, limited, circumstances. In Telstra Super v Finch², Hansen AJA (as he was then) stated:

“The Court has power to set aside the discretionary decision of a trustee if the relevant discretion was not exercised by the trustee in good faith, upon real and genuine consideration, and in accordance with the purposes for which the discretion was conferred. However, the mere fact that a trustee makes an error as to a fact or some other matter or does not make all inquiries that may have been open to be made is not sufficient reason for the court to set aside a determination that was made in good faith, upon real and genuine consideration, and for a proper purpose.”

This statement derived from the decision of Karger v Paul³, which concerned a trust created by a testatrix who left all of her property to her husband and conferred on the trustees a power ‘in their absolute and unfettered discretion and upon the request of my said husband to pay or transfer the whole or part of the capital of my said estate to’ the husband.

In Finch the High Court decided there was a qualification to the principles in Karger when applied to trustees of superannuation funds, stating:

“…under Karger principles, particularly as they have been applied to superannuation funds, the decision of a trustee may be reviewable for want of ‘properly informed consideration’. If the consideration is not properly informed, it is not genuine. The duty of trustees to properly inform themselves is more intense in superannuation trusts in the form of the deed than in trusts of the Karger type…In the deed there was a power to take into account ‘information, evidence and advice the trustee may consider relevant’, and that power was coupled with a duty to do so. It would be bizarre if knowingly to exclude relevant information from consideration were not a breach of duty. And failure to seek relevant information in order to resolve conflicting bodies of material, as here, is also a breach of duty…

…consistently with s 14 of the Complaints Act, the duty of a trustee in forming an opinion of the present type is a duty to form a fair and reasonable opinion, or even a duty to form a correct opinion, there is because of the importance of the opinion and its place in the scheme a high duty on the trustee to make inquiries for ‘information, evidence and advice’ which the trustee may consider relevant…”

Finch was applied in a Victorian Court of Appeal decision of Alcoa of Australia Retirement Plan Pty Ltd v Frost⁴. In dismissing the trustee’s appeal, Nettle JA concluded the trustee had a duty to resolve conflicting opinions by seeking further relevant information:

“… since the trustee was not satisfied the claim was made out, the prima facie inconsistencies between Mr Kierce’s and Mr O’Brien’s reports required investigation, at least by way of further enquiries of those two experts if not by taking advice from further medical and other experts, in order to establish whether Mr Kierce and Mr O’Brien were or were not agreed as to the nature and extent of Mr Frost’s disability…

For the trustee to slough off responsibility for making those inquiries on the basis that Mr Frost failed to adduce sufficient evidence to satisfy the trustee that he was totally and permanently disabled is, in my view, to do the very thing which the High Court said in Finch was unacceptable.”

Nettle JA otherwise addressed the trustee’s submission that, if it had a duty to make further enquiries, it discharged that duty by inviting the claimant to submit further material, stating:

“Superannuation fund trustees are bound to give properly informed consideration to applications for entitlements and, if that necessitates further inquiries, then they must make them.

So to say does not mean that a trustee is required to do the impossible. Nor is it to suggest that a trustee is expected to go on endlessly in pursuit of perfect information in order to make a perfect decision…Like the judge below, I accept that a trustee is not under an obligation to go on endlessly seeking more and more information. It may also be that a trustee is not required to undertake any inquiries until and unless a claimant puts forward sufficient material to show that there is a case to be investigated…”

Life insurer’s duty to make enquiries

Although it has been argued that the scope of the duty applicable to life insurers should mirror those of trustees of superannuation funds, it appears there is a difference in the scope of the duty to make enquiries from the perspective of a life insurer. Cases involving life insurers have taken as a starting point that a claimant must ‘prove’ their claim, in the sense of establishing they prima facie meet the relevant TPD definition, absent which there may be no obligation on the part of the insurer to investigate the claim. In Heitman v Guardian Assurance Company Ltd⁵, Franklyn J said:

“In my opinion the onus is on the plaintiff to establish his right to payment in terms of the policy and consequently the onus is on him to provide to [the insurer] the evidence necessary for the opinion to be formed. That requires the provision of both medical evidence as to the incapacity and its extent and evidence to negate, because of the extent of the incapacity, the likelihood of him ever engaging in any occupation or work for which he ‘is then reasonably qualified by education, training or experience’…”

However, other decisions indicate that this proposition does not mean a claimant bears the onus of proof such as required in litigation. For instance, in Vidovic v Email Superannuation Pty Ltd⁶, Bryson J held:

“The formation by the trustee of an opinion is not analogous to a judicial or arbitral decision of a disputed question…There is no onus of proof on any person; there are no adversaries.”

The reality is there will be few claims where a life insurer can assert that prima facie evidence of TPD has not been provided, especially where lodgement of a claim involves a treating doctor providing a statement as to the nature and extent of the claimed disablement. What is more common are situations where there is conflicting medical opinion but, on balance, the evidence before the life insurer supports a decline decision in circumstances where further investigations could ultimately lead to the claim being accepted, or where medical opinion may support disablement but the language used or conclusion expressed is unclear.

Regarding the latter situation, in Dumitrov v SC Johnson & Son Superannuation Pty Ltd⁷, counsel for Mr Dumitrov argued the insurer failed to make enquiries despite being on notice of medical evidence supporting a conclusion the claimant was TPD. After initially rejecting the claim, the insurer reviewed the TPD claim prompted by further medical evidence submitted by the claimant’s solicitors. However the insurer did not make further enquiries or reinvestigate the claim in circumstances where there were a number of reports from different medical practitioners which arguably indicated the claimant was unfit for work. One of the reports was not considered given much weight because it did not address the permanency of the claimant’s unfitness for work, or whether the TPD definition was met. Gzell J concluded that the insurer’s failure to make further inquiries of those medical practitioners constituted a failure by it to act reasonably and fairly.

Further certainty on this issue emerged from the recent NSW Supreme Court decision of Ziogos v FSS Trustee Corporation⁸. In that decision, Ball J reaffirmed that the claimant must first provide evidence indicating that he or she meets the relevant TPD criteria:

“It is apparent from the definition of ‘Total and Permanent Disablement’ that in order to be entitled to a benefit, the ‘Insured Member’ (that is, Ms Ziogos) had to provide proof to [the insurer’s] satisfaction that a certain state of affairs existed …the duty required [the insurer] to act with the utmost good faith in determining whether Ms Ziogos had provided proof to its satisfaction that a particular state of affairs existed.”

…it was up to Ms Ziogos to put material before it that brought about that state of satisfaction. Having regard to the terms of the policy, [the insurer] was not required by the duty of utmost good faith to undertake its own investigations.

In regard to the claimant’s evidentiary onus, Ball J appears to have been influenced by the TPD definition being premised by the phrase “having provided proof to our satisfaction that the Insured Member has become incapacitated…” His Honour then went on to discuss a life insurer’s obligation in assessing a claim to make enquiries, including seeking further evidence from an unrepresented claimant, stating:

If the onus was on Ms Ziogos to bring forward adequate material, then an obligation on [the insurer] arising from the duty of utmost good faith was to give her a reasonable opportunity to do so. Moreover, in some circumstances, the duty may go beyond that. If, for example, an unrepresented claimant failed to put forward sufficient material to enable [the insurer] to address the substantive issues that it was required to address (that is, whether the claimant suffered from TPD) then, in my opinion, the duty of utmost good faith would require it to say so and to give the claimant an opportunity to put forward additional material.

Conclusion

Although ultimately the extent of a life insurer’s obligations to make enquiries, or seek additional evidence from a claimant, depends on the particular circumstances of the claim, the cases discussed above indicate:

• The initial onus falls on a claimant to provide evidence indicating the requisite disablement before a life insurer is required to conduct further investigations;
• Although there is no clear requirement that a life insurer obtain further medical evidence to resolve conflicting medical opinion, there arguably is an obligation to seek clarification of medical views to the effect that a claimant is or is not unfit to work and whether any such incapacity is likely to be permanent, or otherwise satisfy the relevant TPD definition; and
• The duty to make enquiries, or seek evidence from an unrepresented claimant may be higher particularly if an unpresented claimant fails to put forward evidence sufficient to address the TPD definition. In that event life insurers should notify any deficiencies to the claimant and invite further evidence or submissions within a reasonable time frame.

This article was written by David Arribas, Senior Associate and Philip Hunter, Partner.

¹[2010] HCA 36.
²[2009] VSCA 318.
³[1984] VR 161.
⁴(2012) 36 VR 618.
⁵(1992) 7 ANZ Ins Cases 61-107.
⁶Unreported, NSW Supreme Court, 23 February 1995.
⁷[2006] NSWSC 1372.
⁸[2015] NSWSC 1385.