In this legal case, a carpenter who took out a life insurance policy with AIA Australia, took the insurer to court for refusing to pay his TPD claim. The original judgement found in favour of the insurer, because the insured’s injury did not meet the policy definition of ‘accidental injury’. This decision was upheld by the NSW Court of Appeal.
At a Glance
Source: Judges’ decision notes
Topics covered: policy wording, pre-existing conditions
Mr Preston, took out a Priority Protection policy with AIA Australia in 2008. The benefits under the policy included term life insurance (for which a separate premium was payable) and an ‘Accident Only’ Total Disablement benefit.
In his application for insurance, Mr Preston disclosed that in 1997 he had fractured both his legs when he fell off a ladder. Mr Preston stated that the treatment had included ‘surgery, pins and plates inserted’. The policy was issued on standard terms on or about 23 April 2008.
On 6 May 2009, Mr Preston twisted his left ankle while at work in his usual occupation as a carpenter. Following his work-related injury, Mr Preston received workers compensation payments. However, the workers compensation insurer ceased making periodic payments on and from 7 October 2009. Shortly prior to the cessation of workers compensation payments, Mr Preston notified the insurer that he intended to claim under the policy.
On 16 November 2009, Mr Preston completed a Disability Income Claim Form. He said in the form that the injury occurred when he was ‘walking down the edge of an embankment when left ankle rolled’. In answer to the question: ‘Have you ever had the same or similar injury … before?’, Mr Preston said ‘No’. In the space provided for details he recorded that:
‘An injury occurred approx. 1996 I had both legs damaged in a work related injury. Not same/similar as this injury.’
Mr Preston also reported that he could no longer perform all his duties as a trades carpenter because his leg could no longer take his weight without pain.
An initial payment of $3,224.46 was paid by the insurer, representing a TPD benefit for the period of 5 November 2009 to 4 January 2010, and a refund of premiums for the same period. The insurer requested further information from the client, including a Medical Attendant’s statement and Supplementary Report Form, indicating that further consideration would be given to the payment of benefits under the policy. It appears that much of the information requested by the insurer was not received.
Some correspondence ensued in which Mr Preston expressed his belief that premiums would be waived for the complete benefit period. However, on 10 April 2010, AIA Australia advised Mr Preston that before the Waiver of Premium Benefit was payable, additional medical evidence, as previously requested, had to be provided. The letter stated that the assessment of the claim could not proceed without the additional information.
On 28 January 2011, Mr Preston filed a statement of claim with the Supreme Court for breach of contract. During a hearing on 26 September 2012, the parties agreed that the first issue to be determined was whether the client’s ‘total disablement’ was due to ‘accidental injury’ as defined within the policy.
The policy provided that if the insured was ‘totally disabled’ for a period longer than 30 days, he would receive a monthly benefit throughout the ‘Benefit Period’ for as long as he continued to be totally disabled. The Benefit Period was five years and the monthly benefit payable was $3,000.00, subject to indexation.
The insured was taken to be totally disabled if he satisfied the definition of ‘Total Disablement’. That expression was defined to mean that:
Due to Accidental Injury, the [Insured] is:
- Unable to perform one or more duties of [the Insured’s] occupation, that is important or essential in producing income; and
- Following the advice of a Medical Practitioner; and
- Not working (whether paid or unpaid).
‘Accidental Injury” and ‘Injury’ were defined as follows:
‘Accidental Injury’ means a physical injury which is caused solely and directly by violent, accidental, external and visible means, which occurs while the benefit is in force and which results solely and directly and independently of a pre-existing condition or any other cause in total disablement. Sickness directly resulting from medical or surgical treatment rendered necessary by the physical injury will not constitute an ‘Accidental Injury’.
‘Injury’ means a physical injury which occurs whilst the Policy is in force and which results solely and directly and independently of a pre-existing condition or any other cause, in Total or Partial Disablement within one year of the date of its occurrence. Sickness directly resulting from medical or surgical treatment rendered necessary by the physical injury will not constitute an ‘Injury’.
Mr Preston argued that he had become totally disabled as a consequence of the injury to his left ankle on 6 May 2009 and that this injury was unconnected with the injuries sustained in 1996, from which he had fully recovered. He also believed the insurer had admitted liability, by depositing the original $3,224.46 into his account.
The Primary Judge found that there were two causes of the insured’s admitted disablement. The first of these was the 1996 injury, which had occurred well before the commencement of the policy. The second was the 2009 injury. His Honour concluded that the insurer’s reliance on the existence of a pre-existing injury as a ground for denial of liability “…was squarely within the questions for determination, and fairly litigated”.
In relation to the insurer’s alleged admission of liability, the Judge ruled that correspondence from the insurer to the client reserved the insurer’s right to continue to pay benefits subject to the completion of an ongoing investigation into the plaintiff’s condition.
Court of Appeal
Mr Preston challenged the Primary Judge’s finding that the 1996 injury was a major contributing factor in the deterioration of the left ankle at the time of the 2009 injury.
Numerous medical practitioners were called to give evidence, none of whom suggested that the two injuries were unconnected, although they varied in the significance they attributed to the earlier injuries.
The Court of Appeal found that Mr Preston had a pre-existing physical condition that was susceptible to aggravation, and the aggravation contributed to his total disablement, and therefore upheld the Primary Judge’s decision.
The appeal was dismissed and Mr Preston ordered to pay the insurer’s costs.
Commentary on policy wording
In handing down the Court’s decision, Judge Gleeson noted that the policy wording was ‘very restrictive’:
“…the wording of the Policy, like many similar policies, is very restrictive. No doubt this came as a surprise to the appellant when the insurer denied cover.”
Judge Gleeson continued:
“Whether the appellant was misled when taking out the Policy was not an issue in these proceedings; nor was it argued that the insurer’s conduct in apparently failing to draw to the insured’s attention, in clear and plain language, the restrictive terms of the cover provided under the Policy might have constituted unconscionable conduct. Hence these possible avenues for ameliorating what may seem a harsh result were not open before the Court below or on appeal.”
To read the Court of Appeal’s findings, click here.