The Farting Dog of TPD Insurance: A Cautionary Tale
Risk insurance is often presented as a source of ‘peace of mind.’ When a policy is in place, both the client and the provider expect that the policy will respond to an adverse event and provide the financial resources required. However, as clients and advisors know, policy terms, conditions, and claim processes can be complex and may not always manifest as expected. Sometimes, the actual outcome can be far from what was initially perceived. One can face the legal challenges of court proceedings and still find that the policy does not deliver as anticipated.
Better to be in a confined space with a farting dog than to navigate those murky waters.
This sentiment is particularly relevant when considering Total and Permanent Disability (TPD) insurance. A recent instance highlighted the importance of caution. A financial advisor mistakenly assumed that, because their client had always worked in a single occupation, their ‘Any Occupation’ TPD cover would function similarly to ‘Own Occupation’ cover. This belief is perilous, as a legal case from several years ago demonstrates the problem of assuming similar coverage.
The Case of Mr. C: A Lesson in TPD Definitions
Mr. C, a 38-year-old installer of sprinkler systems, began experiencing back problems in 2006. Following several accidents, he was unable to work. He had TPD insurance inside his superannuation, the definition of which was:
“The insured person is unable to follow their usual occupation by reason of accident or illness for six consecutive months and in our opinion, after consideration of medical evidence satisfactory to us, is unlikely ever to be able to engage in any Regular Remunerative Work for which the insured person is reasonably fitted by education, training or experience.”
“An Insured Person is engaged in Regular Remunerative Work if they are doing work in any employment, business or occupation. They must be doing it for reward – or the hope of reward – of any type.”
Mr. C filed a claim, which the insurer rejected. The reason for the rejection: he was still capable of working in another occupation for which he was deemed to be reasonably fitted. Mr. C took the parties’ decision to court, and the Judge’s findings shed light on the interpretation of the policy’s specific language.
Court’s Findings and Interpretations
As an introduction to his findings, the Judge made it clear that the court’s understanding of the facts does not supersede the trustee’s own decision. The Judge needed to ensure that the decision of the Trustee complied with its duties.
To assist in the interpretation of Regular Remunerative Work, the Judge leaned on past rulings:
“The clause requires unfitness to work, without distinction between full-time and part-time work other than by regard to the work which the member is reasonably capable of performing by reason of education, training or experience.” (Manglicmot v Commonwealth Bank Officers Superannuation Corporation Pty Ltd (2011) NSWCA 204)
“…there does not seem to be anything unreasonable in construing the contract as providing that a person who is capable of undertaking regular part-time work is not totally and permanently disabled” and “The onus is on the plaintiff to show that he is not able to do any part-time work …” but “the work must be regular work not casual” (Hannover Life Re of Australasia v Dargan (2013))
The Dargan case also discussed the significance of “retraining and further education.” The court specified that there is no bar to the finding that work is within the plaintiff’s education, training, or experience by attending short qualifying course of training or retraining.
In Mr. C’s verdict, the Judge determined that:
- An ability to perform regular part-time work
- Or the ability to retrain to another occupation
…could be grounds for a claim denial under the relevant policy definition.
When considering medical reports, the Judge noted that “some of the doctors retained by the insurer seem to be a bit too optimistic as to Mr C’s chances of obtaining even part-time employment.” Although the Judge found that the trustee can act upon the insurer’s medical professionals, it was then quite reasonable for a trustee to come to the view that Mr C was not totally and permanently disabled.
The ruling was clear:
“I cannot be satisfied that the plaintiff has established that the Trustee’s decision or the Insurer’s decision were unreasonable. There was medical evidence both ways….The plaintiff’s case must be dismissed with costs.” (Source: Chapman v United Super Pty Ltd (2013), NSWSC 592 (22 May 2013)
Key Considerations Arising
This case highlights several important considerations:
Full-time vs. Part-time vs. Casual: Most clients will likely assume that if they work in an occupation full-time, their “Own Occupation” and “Occupations for which they are reasonably suited” should also be full-time. Many occupations do not lend themselves to part-time employment. Denial of a claim because the insured is capable of part-time work might be considered an unfair outcome, especially when the hours of part-time work are not specified other than the job being regular.
Retraining: A policyholder’s circumstances may mean that he or she is capable of taking a “short qualifying course of training or retraining” that would enable them to work in another occupation, either full-time or part-time.
Independent Medical Examinations: Optimism on the part of the insurer-funded or independent medical examiner was seen by the Judge but still considered on its merit bearing in mind the qualifications of the examiner.
Summary and Advice
Even if current retail products have similar wordings or can be categorized, challenges remain. Will an insurer interpret a “much the same” policy wording in the same way as another, or perhaps even the courts? Will current interpretations survive potential shifts in management, or subsequent rulings? If subtle differences exist, they can lead to not-so-subtle differences in policy interpretation.
The best approach for advisors is to communicate clearly with clients, even when the subject material is complex. Clients should be able to grasp the nature of their insurance policies, even if the conversations are not always simple:
“There are two broad categories of TPD definitions – Own Occupation and Any Occupation for which you are reasonably suited by training, education and experience. In considering these, it is difficult to predict how an insurer will interpret what is your Own Occupation and/or what is an Occupation for which you are reasonably suited, etc., because of the number of variables such as duties, qualifications, age, hours of work and so on. The best I can do is say that, in general terms, meeting the former definition would be easier than meeting the latter.”
Even when clients probe for more, the author’s advice is to stop short of providing too much detail. Doing so might be a guarantee of unwanted complications.
