Total Permanent Disability – Insurer's duties when faced with overwhelming evidence that a claimant is not TPD

10 October 2017

It is well established that, where an element of the insurer’s liability under an insurance policy is expressed in terms of the opinion of the insurer, the insurer is obliged to act reasonably in considering and determining a claim for TPD1.  The insurer must also consider the correct question and, in the exercise of powers affecting the interests of both the insurer and the claimant, the insurer is under a duty of good faith and fair dealing, which requires it to have due regard for the interests of a claimant2.

But what if there is an overwhelming amount of material which tends to indicate that the claimant is not TPD?3 What are an insurer’s duties in this instance?

Even faced with an apparently unmeritorious claim, an insurer is always required to fairly consider the evidence before it.  A “light-on” assessment of a claim runs the risks of providing an unintelligible justification for an insurer’s decision which could lead to lengthy and costly litigation.

In Dotlic v Hannover Life Re of Australasia Limited [2017] NSWSC 986, the insurer had a very strong case that the claimant was not TPD within the relevant group life policy.  The Court considered that there was copious material available to the insurer upon which to make its decision reasonably.  In fact, Pembroke J considered that there was “precious little” evidence that the claimant was TPD, apart from a pro-forma medical report from the claimant’s GP.  Despite this, the Court looked closely at the manner in which the insurer had assessed and determined the claim.

The insurer had obtained expert medical reports and a vocational assessment, as well as medical records from other insurers which held records relevant to the subject incident.  In correspondence declining the claim, the insurer summarised all the material to which it had had regard, and expressly referred to the relevant policy provisions.  The Court commented that the insurer’s decision was careful and that its decline letter had referred to “all available evidence” and considered the “weight of evidence“.  The Court was persuaded that the “the conduct of the insurer was cautious and comprehensive.  It was certainly fair.”  Accordingly, the Court determined not to disturb the insurer’s decision to decline the claim on the basis that it had acted reasonably in forming its opinion.  Costs were awarded in the insurer’s favour.

The Court was persuaded by the considered and careful manner in which the insurer had dealt with the claim, despite the preponderance of evidence pointing to the claimant not being TPD.

While rigorous front-end handling of the claim by the insurer in Dotlic did not avoid litigation, the insurer did avoid the cost of a potentially far lengthier and costly hearing had its decision to decline the claim been found to have been formed unreasonably.

While an insurer is not required to undertake the sort of detailed consideration required of a Court hearing4, even when evidence is strongly against a TPD claim, insurers still need to demonstrate they have considered the claim reasonably, and provide intelligible reasoning.

This article was written by Anita Wear, Special Counsel and Jason Stevens, Partner.

1 Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233 at [65], TAL Life Ltd v Shuetrim [2016] NSWCA 68 at [60]-[62], Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113 at 77,536
2 Edwards, at 77,536
3 The Court commenting that the proceedings did not have any reasonable prospects of success
See Webber v Tiss Pty Limited [2005] NSWSC 67 at [8]

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