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Provided by: BT Financial Group
Topics covered: trauma cover, calculating sum insured
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Trauma insurance generates a range of views in the financial advice community. On one hand, it’s often generalised as the cover type easiest to understand – for example, if a client is diagnosed with a disease, it will provide them with their sum insured. It is also the most likely lump sum cover on which a claim will be made.
So what exactly is important when looking at trauma policies, how do you construct a sum insured, and what are the product choices you need to consider when recommending it as the best option for your client?
What is it called again?
We can hardly blame consumers for being confused about trauma when, as an industry, even we can’t agree on a name for it, often referring to it as any combination of recovery, critical illness, crisis or living insurance.
Trauma insurance can fill the gap between total and permanent disability (TPD) (for clients who are unlikely to work again) and income protection (for clients who are unable to work either temporarily or permanently).
Trauma payments require you to meet the definition of one of a list of specified sickness or injuries. So, rather than being about the level or length of the disability, trauma payments are generally based on being diagnosed with a specified sickness or injury.
How much cover is enough?
Deciding on the right amount of cover for your clients will involve a detailed discussion around what they may need if they were to be diagnosed with a specified sickness or injury and what kind of financial assistance they may require.
Income needs
If your client already has income protection insurance, then you may consider topping up their cover with trauma insurance, as income protection generally only covers 75% of income.
You may also want to consider any other forms of income, which contribute to the household. If your client was diagnosed with MS, would they need and/or prefer for their partner to take some time out of the workplace to look after them and their family? If so, your client may wish to allow between six months and two years of the after-tax income of their spouse so they have the option to take the time off work.
Medical costs
The cost to have access to the best medical care available, including the cost of treatment, potential travel and accommodation and ongoing therapy should also be considered. It can be difficult to quantify how much could be required, so how much is the right amount to recommend?
As costs and treatment options vary greatly from disease to disease and across different situations, advisers need to discuss these options with their clients to ensure the sums insured match the client’s expectations. Gone are the days of adding a nominal figure of $100,000, simply because it sounds like a decent amount of money.
Planning post treatment
Finally, it’s important to discuss what changes your client may like to make to their life as their illness progresses. Priorities could change – they may wish to reduce working hours or cease work entirely. You should discuss with your client how these objectives can be achieved, such as through replacing income or reducing debt, so that less employment income is required.
Trauma cover provides flexibility
Ultimately, trauma cover can give clients peace of mind by providing financial assistance at a time when they are facing catastrophic and frightening news. As it is not specifically related to income, the possibilities for cover can be broader, and so advisers should be well-versed on how the trauma sum insured can be tailored to provide different outcomes.
An informed recommendation can only be drawn out through a detailed conversation with your client about what they would like their lives to look like in the event of diagnosis of one of the trauma events. Having the right amount of cover, structured in the appropriate way, will make a world of difference for clients at a very difficult time.
To find out more about BT’s Protection Plans, call 1300 653 553 or visit www.bt.com.au.
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Source: Melissa Crawford, Owner and Insurance Strategist, 19Thirty
Client: White collar professional with history of drug use
Topics covered: underwriting, pre-assessments, engagement, positioning loadings and exclusions
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What is a pre-assessment?
A pre-assessment is an indication from an insurance company as to the possible terms they may offer a client. A pre-assessment is conducted prior to the submission of an application, based on information disclosed by the client to their adviser, which prompts the adviser to believe there may be amended terms. If done correctly, a pre-assessment can pre-empt any sub-standard terms and ensure faster completion of the application. But more importantly, says Melissa Crawford, the pre-assessment can form the basis of your advice.
Client example
John came to see Melissa in October 2014. He was a full financial planning client, looking for assistance with a broad range of matters, and Melissa was his insurance specialist in the firm.
At first glance it appeared to be a relatively simple case. John was working as a white collar professional, with no significant medical history, no hazardous activities and a perfect family history.
However, Melissa uncovered quickly that John had a potential underwriting ‘red flag’ – a history of multi-drug use. The drug use was largely confined to John’s younger days, mostly experimental, with some slightly longer-term usage. However, John confirmed he had been drug free for the past three years.
John’s drug history was uncovered through the completion of a comprehensive pre-assessment form, which is used by Melissa’s firm with all new clients. The form captures potential ‘red flags’ that typically cause delays in underwriting such as: BMI, upcoming travel, specific medical conditions, any drug/medication usage, pending medical tests, etc.
After John completed the pre-assessment form, a request was sent to all insurers on Melissa’s firm’s Approved Product List, with a request for possible terms.
A cross-section of responses was received:
What happened next?
The process uncovered two potentially favourable outcomes for the client, which could be worked into the overall advice strategy. The client was looking for advice on all cover types, and, based on his age, was interested in a cost-effective structure. Taking into account all the client’s circumstances and wishes, the offering for the life, trauma and TPD cover with 100% loading was the most attractive and aligned to the client’s best interests.
the client was aware of the potential implications of their medical history upfront
The pre-assessment information provided by the insurers helped Melissa to form the basis of the insurance recommendation to the client. She was able to determine which insurer would be the most appropriate for the client’s needs, based on the pre-assessment, without having to submit a full application.
It provided greater certainty on the potential outcome for the client, and allowed Melissa to position the loading at the time of the advice presentation. As Melissa works for a firm that provides assistance to their clients on cashflow and budgeting, it also meant that the affordability of the insurance with the loading could be considered and factored into the overall plan as well.
The pre-assessment process also improved the application completion time, because once the full application was completed and submitted, it was matched to the pre-assessment advice. Melissa and the client were aware of the medical requirements at the time of application submission and could streamline the process. The time that is usually spent submitting an application, finding out requirements, awaiting the final decision and positioning with the client was significantly reduced. That time was effectively moved to the advice research and preparation time, which led to a faster completion.
Finally, the client was aware of the potential implications of their medical history upfront, saving Melissa an uncomfortable conversation after the full application had been completed – a time when most clients would assume their insurance was as good as finalised. By using the pre-assessment service, in addition to Melissa’s research, the firm was able to position the best likely terms with the client.
“All the additional features, benefits, bells and whistles will not matter to the client if there is likely to be only one insurer that will consider their application,” says Melissa.
Why pre-assessments?
Typically, there are questions in fact finds and questionnaires which relate to medical history, but these tend to be subjective and up to the client’s interpretation of their own health, or what they believe constitutes a ‘significant medical condition’. A pre-assessment questionnaire not only leads to better client outcomes and greater certainty upfront, but is also a great way to familiarise the client with the types of questions that will be asked during the insurance application. It prompts them to remember details and gather relevant information early in the process, and also helps to position the Duty of Disclosure in a tangible way.
Looking at this example, if Melissa hadn’t of used a pre-assessment service with John, his drug usage wouldn’t have come up until the application process. If the insurer chosen by Melissa was ultimately one which would decline the application based on John’s drug use, all the time she spent researching the product recommendation would have wasted. Similarly, she would potentially have had to repeat the application process with another insurer, to see if she could get a better outcome for her client.
This claims case study was presented at the Association of Financial Advisers (AFA) National Conference in 2014. Former AFL executive, Steve Woodhouse, was diagnosed with Parkinson’s Disease at age 50. Mr Woodhouse was fortunate to not only have appropriate cover in place to support him and his family, but also a supportive advice team to assist him with his trauma, income protection and TPD claims…
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Source: Case study presented by Steve Woodhouse at the 2014 AFA National Adviser Conference
Adviser: Ken Williams
Client: Steve Woodhouse
Claim type: Trauma, income protection and TPD
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Background
Prior to 2006, Steve Woodhouse was healthy and happy. Having embarked on a career in sports administration with the West Australian Football League from age 32, Mr Woodhouse had risen through the ranks to become the General Manager Football Operations for the West Coast Eagles Football Club.
As part of his salary package, the Board of the Club arranged insurance policies for the Club’s staff, picking up the premiums for trauma and income protection cover for Mr Woodhouse.
“I believe that was a very astute move on their part,” he said.
As well as increasing his awareness of the need for insurance, the policies led to Mr Woodhouse’s introduction to his adviser, Ken Williams.
“Ken got to know me as a client. They tailored the policies accordingly to my needs. I may not have paid enough attention to what I needed, but fortunately they did,” Mr Woodhouse said.
Making a claim
In June 2005 Mr Woodhouse was diagnosed with Parkinson’s Disease.
“You initially think of Michael J Fox and Muhammed Ali. You wonder if you’re going to die. You wonder if you’ll be able to keep working. You think you’re too young,” he recalled.
“I also started to wonder what was going to happen to me and to my family. I still had a mortgage, my wife was already working, I had investments… This is where your adviser really comes in. They are the vital person in the chain.”
A month after his diagnosis, Mr Woodhouse decided to look into whether his trauma insurance policy would cover him for his illness, and made contact with Mr Williams’ office.
“The product was terrific – the payment was made two weeks after I lodged my claim. Perhaps more importantly, the process was taken out of my hands by Ken and his team.”
Mr Woodhouse continued working until 2010, at which point his neurologist recommended he retire from the workforce.
“I once again knocked on Ken’s door and asked: ‘What do I do now?’”
With the help of Mr Williams, an income protection claim was lodged, and while Mr Woodhouse served out the waiting period, his adviser helped ‘keep him on the straight and narrow’.
He also put in a claim for TPD, which was held through another organisation and not administered by Mr Williams’ team.
“They (the other organisation) gave me no advice at all. But Ken and his team undertook to do that work for me, pro bono, and that claim was paid as well.”
“Don’t take the risk! It’s just not worth it!”
Mr Woodhouse’s personal experience has made him an advocate for insurance, and advice.
“People say it’s too expensive, why do I need it? But every time someone buys a house or a car they take out insurance. It’s amazing how we don’t do the same on our lives.”
Before his illness, when his finances were stretched, Mr Woodhouse had approached his advice team about cancelling his cover.
“I thought I couldn’t afford it. But instead of letting it lapse they helped me reduce the premiums by extending out my waiting period.”
Mr Woodhouse has also passed on his knowledge to his children.
“It’s a relief to myself and my wife that our son has insurance in place. He has the advice, and he is covered.”
From career to carer
“Retirement was a bit of a shock,” admitted Mr Woodhouse. “At age 50 I never saw myself retiring until well after 65 – it was the best job of my life. I loved getting up every day, I loved the travel, I loved everything about footy. My career opportunities in the industry were extensive.
“But it eventually got to me.My wife went from seeing me have a career to being my carer.
“Parkinson’s is a long journey and there is unimaginable frustration along the way. But my insurance and the advice provided by Ken means I have financial security. I can continue on with my life in the same fashion as I did before. It’s taken the guess work out of it. I’ve not missed a beat looking after my family.
“Life now goes at a slower pace. It’s totally different to my old life, but it’s a good life. I’m so thankful for having the insurance and the comfort of wonderful advice.”
In the case of Birdsall v Motor Trades Association of Australia Superannuation Fund Pty Ltd and MetLife Insurance Limited, the Supreme Court of New South Wales delivered a judgment which considered, among other things, whether an insured’s unsuccessful job applications demonstrated Total and Permanent Disablement (TPD) under a group life insurance policy. TurksLegal Senior Associate, Ros Wicks, looks at this case in detail and examines the implications for insurers.
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Source: Ros Wicks and Bonnie Elena, TurksLegal
Topics covered: disability claims, occupation definition, claims evidence
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Background
On 7 May 2009, Mr Birdsall suffered an injury to his right wrist when attempting to lift a heavy gearbox at work. At the time of the injury Mr Birdsall was working as a motor vehicle mechanic with OTS Gas Mechanical (the Employer). Mr Birdsall suffered an exacerbation of this injury in May 2009 and ceased work.
Mr Birdsall subsequently returned to work with the Employer on a part-time basis performing administrative work until the end of 2010. The Employer terminated Mr Birdsall’s employment on the basis that it was unable to continue to offer him alternative duties.
In April 2011 Mr Birdsall made a claim for a TPD benefit to Motor Trades Association of Australia Superannuation Fund Pty Ltd (the Trustee) and MetLife Insurance Limited (‘MetLife’), the trustee and insurer respectively of the Motor Trades Association of Australia Superannuation Fund (the Fund). MetLife and the Trustee both considered Mr Birdsall’s claim for a TPD benefit and declined to pay a benefit in 2012.
Proceedings
Mr Birdsall commenced proceedings against the Trustee and MetLife in the Equity Division of the Supreme Court of New South Wales. The matter was heard by Justice Hallen. His Honour noted that TPD was relevantly defined in the Policy to mean:Where the Insured Person has been employed at any time during the six months prior to the Date of Disablement:
…as a result of Injury or Illness, he/she has been unable to work for an initial period of six consecutive months and in our opinion is incapacitated to such an extent as to render the Insured Person unlikely ever to engage in or work for reward in any occupation or work for which the Insured Person is reasonably capable of performing by reason of education, training or experience.
His Honour noted that TPD was defined in the Trust Deed to have the same meaning as TPD or an equivalent term as defined in the relevant Policy.
It was not in dispute that the evidence supported Mr Birdsall’s contention that he was unable to return to his usual occupation as a motor mechanic. However, Mr Birdsall disputed MetLife and the Trustee’s decision that he was not TPD as the evidence indicated that he was fit for an alternative occupation within his education, training or experience.
MetLife obtained a vocational assessment report and a functional capacity assessment report from Advanced Personnel Management (APM) which assessed Mr Birdsall as being capable of sustaining work at the sedentary demand level for an eight hour day. As at March 2011 Mr Birdsall was certified fit for suitable duties lifting up to five kilograms, no twisting and no repetitive right wrist movements by his general practitioner Dr Ho. Labour market research was conducted to ascertain the training requirements, current and forecast job availability of the occupations identified of customer service assistant, sales assistant and sales representative.
MetLife also obtained a copy of the worker’s compensation file from Allianz. The Allianz file included a copy of between 50 and 60 job applications made by Mr Birdsall which identified the party to whom the application for work had been made, the source of the job advertised, the date of the application, and the contact name at the organisation to which the application was made.
MetLife declined Mr Birdsall’s claim by letter to the Trustee in April 2012 on the basis that in MetLife’s opinion Mr Birdsall was fit to return to an occupation within his education, training and experience as the evidence confirmed that Mr Birdsall had the capacity to perform the occupations of a sales assistant, sales representative, and customer service assistant on a full time basis. The Trustee carried out its own assessment of Mr Birdsall’s claim and informed Mr Birdsall’s solicitors of its decision to decline the claim in June 2012.
Stage 1 – Was the decision to decline unreasonable?
His Honour noted that the first stage of his determination was to decide whether the decision of MetLife and the Trustee to decline Mr Birdsall’s claim were decisions that no reasonable person could come to on the evidence before them.
His Honour noted that no submission was made that MetLife or the Trustee acted unreasonably by considering material without giving Mr Birdsall an adequate opportunity to respond to that material. Nor was there any submission that either acted unreasonably by failing to obtain additional material or by addressing the wrong question. What was submitted by Mr Birdsall was that MetLife and the Trustee acted unreasonably by failing to consider and analyse relevant material.
MetLife and the Trustee did not take into account that Mr Birdsall had applied for many different positions without success
His Honour found that neither MetLife nor the Trustee acted unreasonably in the way in which they analysed the material considered. In particular, each was entitled to take into consideration that a number of medical practitioners had concluded that Mr Birdsall’s medical condition did not prevent him engaging in work of the type that had been suggested in the vocational evidence.
However, His Honour found that in making the decisions to decline the claim, MetLife and the Trustee did not take into account that Mr Birdsall had applied for many different positions without success as there was no reference in either of the letters declining the claim to those applications or to Mr Birdsall’s many attempts to obtain alternative employment. MetLife and the Trustee submitted that a reference in the decline letters to the Allianz file led to the inference that each did consider the applications that were included in that file. His Honour rejected this submission.
Stage 2 – Was Mr Birdsall TPD?
His Honour went on to determine whether as at April 2011, six months after Mr Birdsall ceased employment with the Employer, he was TPD as defined in the policy.
His Honour noted that in making this determination, Mr Birdsall’s age (28 as at the date of hearing) was a relevant consideration. His Honour stated that the use of the word “ever” in the TPD definition should not be forgotten, as it allows the insurer to look well into the future. His Honour found that the language “unlikely ever” focuses on the duration of the occupational incapacity or inability to engage in or work for reward.
His Honour accepted, as had the Trustee and MetLife, that Mr Birdsall was unable to return to his pre-injury role as a mechanic. However, His Honour found that a number of the medical reports confirmed that Mr Birdsall was fit for his pre-injury hours and for suitable duties with restrictions, namely no pulling or pushing of more than 2 to 3 kilograms, no forceful gripping with the right hand or repetitive flexion or extension of the right wrist.
His Honour confirmed that the Court was required to consider not just the theory that a person is physically fit to carry out particular work that was regarded as suitable, but also the actual likelihood of obtaining regular employment for reward other than casual work, or other work of an intermittent nature.
His Honour noted that it was not necessary for the work to be work that Mr Birdsall had engaged in prior to his injury. His Honour was also of the view that the TPD definition did not exclude further training that it was reasonable for Mr Birdsall to undertake. His Honour stated there was nothing to suggest that as at the date Mr Birdsall’s disability fell to be assessed, he was not capable of completing any necessary training course likely to be required to enable him to use his transferrable skills and such a training course did not place this work outside the scope of work he was already reasonably fitted for by his existing education, or training, or experience.
His Honour found that Mr Birdsall was reasonably capable to carry out the work suggested
His Honour found that Mr Birdsall was reasonably capable to carry out the work suggested on a full time basis at the relevant time. His Honour noted that the evidence suggested that if any retraining was required, it would have been minimal and Mr Birdsall would have had the capacity to undertake it.
His Honour noted that he had considered carefully the applications made by Mr Birdsall for work, but came to the view that the mere failure to obtain a job that had been advertised by reference only to having made an application sent by email or facsimile transmission to a proposed employer, when one does not know what steps, if any, Mr Birdsall took, apart from submitting the application, did not lead to the conclusion that he would not ever obtain work which he was reasonably capable of performing by reason of education, training or experience.
After analysing the whole of the evidence, His Honour concluded that there were specific areas of work available that Mr Birdsall was reasonably capable of performing by reason of education, training or experience. In his view, Mr Birdsall had the ability to engage in such work for reward in an intellectual sense, as well as by reference to his education, training or experience and by reference to his medical condition and he dismissed Mr Birdsall’s claim.
Implications
His Honour’s decision is important in a number of respects. Firstly, this case is consistent with the decision in Dargan (2013) NSW CA 57, that the requirement of some reasonable retraining does not necessarily preclude a person from being reasonably fitted for a particular occupation.
This decision also demonstrates that in determining a claim for TPD, it is also relevant for the insurer to consider the claimant’s age. His Honour noted that the words “unlikely ever” in the definition focuses on the duration of the occupational incapacity or inability to engage in or work for reward and allows the insurer to look well into the future.
His Honour’s decision is also important in that it reflects a growing trend in the Supreme Court of New South Wales to subject insurer’s reasons to a high level of scrutiny, notwithstanding the warnings in cases such as Webber v Tiss (2005) NSW SC 67 at [8] that the reasons are intended to be read as practical commercial documents and are not to be overzealously scrutinised.
In this case His Honour found that a reference to the worker’s compensation file was not sufficient to infer that the insurer and Trustee had considered all of the documents included that were relevant to the definition and assessment of the claim.
When determining a claim for TPD and drafting a decline letter, insurers should be diligent in considering every relevant issue and document and ensuring that each of these are referred to and discussed in its decline letter. This will reduce the likelihood of the insurer’s decision making process being open to attack.
TurksLegal has been established for over 30 years and provides specialist advice in the insurance, commercial and banking sectors. TurksLegal has the deep industry knowledge and expertise its clients rely on in overcoming the often technical and complex issues facing their businesses. TurksLegal is absolutely dedicated to providing its clients astute, effective and commercial solutions that support them in managing their daily business challenges.
The firm regularly produces ‘TurkAlerts’, which discuss recent court decisions and their impact on the insurance and advice industries.
In this legal case, the plaintiff sued his insurer after his group salary continuance claim was discontinued because he was deemed to be no longer disabled. The case highlights the difficulties insurers and the courts can experience when dealing with mental health claims.
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Source: Judges’ decision notes, with commentary by Terry Ward, claimant
Topics covered: mental health, disability claims, employer-sponsored insurance, occupation definition
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Background
Terry Ward was employed as a Director – Tax and Legal Services with a large accounting firm. In his capacity as Director, Mr Ward was responsible for around 20 direct reports, and worked between 50-60 hours a week in a specialised area of taxation law.
In early 2009, Mr Ward suffered a major depressive illness. He took six weeks off, utilising his sick-leave, before returning to work part-time. Unfortunately, while Mr Ward was keen to return to work, his performance deteriorated, and he found he was no longer able to perform all the tasks for which he was employed.
In November 2009, Mr Ward left work for the last time.
Group Salary Continuance policy
As part of his employment contract, Mr Ward was offered group salary continuance cover, as an ‘add on’ to his group life and disability cover, provided by MetLife. Mr Ward took out the policy because “it seemed like a good idea” and premiums were subsequently deducted from his salary.
Mr Ward said he did not receive any financial advice from his employer, and the only information he was able to find about the policy was a two-page flyer on his employer’s website. “I didn’t even know who the insurer was at the time,” he said.
While speaking with his firm’s human resources department following his depressive episode, Mr Ward became aware that he could be entitled to claim on his GSC policy.
He submitted the relevant forms and after three months of ‘negotiation’ Mr Ward began receiving monthly partial disability payments, dated from 31 August 2009 to 26 November 2009. He then received a full disability benefit, paid monthly.
He said he found the claims process “quite distressing”, and that he frequently had to chase up the insurer for his payments.
As part of his claim, Mr Ward was offered rehabilitation services, however he gained little benefit from his meeting with the rehab officer, who had limited experience dealing with white-collar professionals suffering from mental health concerns.
Payments ceased
In December 2010 MetLife determined that Mr Ward was no longer ‘disabled’ for the purposes of the policy and ceased claims payments.
Definition of disability under the policy
The term disabled or disability is relevantly defined to mean solely as a result of illness occurring whilst this policy is in force a covered person is:
Illness means sickness, disease or disorder.
Income producing duty means a duty of the covered person’s occupation that generates at least 20% of the covered person’s monthly income.
Occupation means the employment or activity in which the covered person is principally employed by the employer.
Definition of partial disability under the policy
Partially disabled or partial disability means a covered person:
After MetLife stopped the payments, Mr Ward contacted his firm and told them that the insurer considered he was capable of returning to work. The firm said they did not care what the insurer said, and requested an independent report, from someone other than Mr Ward’s regular doctor or psychologist.
“I saw another psychiatrist and then a work study sort of person. After they lodged their reports, the firm fired me for inability to meet my work contract obligations.”
Mr Ward said he felt like he was trapped between a rock and a hard place.
This was not the way I thought the policy should work
“The insurer said I was fine; the employer said I was unable to carry out the duties of my position. I felt I was a pawn: there was nothing I could do. The two parties who held my future in their hands had mutually incompatible positions and both refused to do anything to sort out the confusion. Basically it was my problem.
“This was not the way I thought the policy should work.”
Feeling he had no other option, Mr Ward sought legal counsel, and began proceedings against MetLife.
First court case
The primary issue for determination by the court was whether the claimant was disabled under the policy for the whole or part of the period from 1 January 2011 and the last day of the trial (being 27 September 2012). The policy will only respond to the appellant’s claim if he had an accrued entitlement for disability as a result of illness which occurred whilst he was covered.
In other words, Mr Ward needed to prove he was still disabled as a result of the original depressive episode which occurred during the time he was still employed by his firm, and therefore covered by the policy.
The trial judge found against Mr Ward, saying:
The trial judge said he believed Mr Ward could undertake a different vocation to the duties he performed in his original role, agreeing with the counsel for MetLife who suggested Mr Ward could become an independent tax consultant.
Further, the original trial judge determined that Mr Ward was not suffering from an illness because his symptoms were attributable to his personality type.
The Judge said: ‘In my view, consistent with the expert evidence of the plaintiff’s personality type and structure and having received payments under the policy, the plaintiff adopted a position which is best described as ‘a sense of entitlement’, inasmuch as he had a right to receive ongoing payments under the policy.
‘There has not been any attempt by the plaintiff to engage in meaningful work of any kind during the relevant period, notwithstanding the strong advice of his professional advisers that he should do so, albeit on a graduated basis…
‘Contrary to this advice, the plaintiff chose to allow himself to become more entrenched in his thinking about his alleged right to payments under the policy. He has focused and obsessed on his claim instead of putting some structure and responsibility into his life.’
Mr Ward found this element of the judgement particularly unfair and ill-informed. “I was made to feel like a crook,” Mr Ward said.
“Losing the first case was quite shattering,” said Mr Ward. “Not just because of the decision, but because of the way it was framed. The case that was put up in court by the insurer was that I was some sort of malingerer who had planned an early retirement, and that there was nothing wrong with me.”
Losing the first case was quite shattering
“You’re feeling quite vulnerable anyway, and to have people say that and for the judge to believe it, really shakes your self-confidence,” he added.
The question of Mr Ward’s ability to perform duties pursuant to his occupation was also examined closely. However, Mr Ward said he was never expressly asked by the insurer, at time of application or during the claim process, to specify the tasks he performed in his role.
“To be honest, I was quite annoyed, because I felt that I’d signed up for the contract in good faith, that if I was ever in a position where I couldn’t maintain the income that I used to earn that I would have this to fall back on. All of a sudden I was being told it didn’t mean what I thought it meant,” Mr Ward said.
“Nobody ever asked me what I did for a job. That’s why it came completely out of the blue when they cut off my payments, because they were saying I could go back and do my job, but no-one had asked me what my job was.
“I was left in a position where I’d had no income for a year, and I no longer had a job.”
Grounds for appeal
There were five grounds under which Mr Ward sought to appeal the original judgement. He contended that the trial judge erred in:
Court of Appeal ruling
Two of the three judges ruling on the case in the Court of Appeal found in favour of Mr Ward. In the decision notes, Judge McLure said the following in relation to Mr Ward’s health condition:
“The insurer must take an insured as it finds him or her, including their personality type and features. If those personality matters underlie, intensify or delay recovery from symptoms attributable to a major depressive disorder, they are not, casually or otherwise, relevantly separate. Moreover, there is no support in the expert evidence for allocating some of the plaintiff’s symptoms to his personality type and others to his mental illness.”
In regards Mr Ward’s skills and his ability to perform his Occupation (as defined in the policy), Judge McLure said:
“Having regard to the type of work undertaken by the appellant (advising clients on taxation and legal matters (focusing on the GST), supervising, managing and generating work for the staff in his team, marketing and other ‘rain making’ duties and his level of seniority reflected in his high charge out rate) the only reasonable finding open on the evidence is that the performance of the appellant’s duties involved problem-solving, multi-tasking and simultaneously managing a number of projects.
“The trial judge should have found that the appellant’s deficiencies in problem-solving, multi-tasking and managing a number of projects, in combination, impaired his capacity to perform all facets of his duties with the consequence that throughout the relevant period the appellant was unable to perform at least one or more duties of his position at [the firm] that generated at least 20% of his monthly salary as at mid-2009.”
The Court of Appeal ruled that the trial judge’s orders be set aside, and that MetLife pay Mr Ward the disability benefit for the relevant period.
High Court challenge
MetLife subsequently lodged a challenge with the High Court, arguing that the decision the Court of Appeal made was not one that they could have reached given the evidence presented. Specifically, MetLife has argued that lawyers for Mr Ward failed to effectively argue the case that Mr Ward was suffering from an illness.
On 14 November 2014, the High Court dismissed the challenge, upholding the WA Court of Appeal’s decision.
Implications
Mental health claims
Both trials devoted significant time to exploring Mr Ward’s condition, and what tasks he was able to perform. But as Mr Ward points out, defining the symptoms of a mental illness can be difficult, as can identifying a person’s ability to perform the tasks necessary to fulfil their occupation.
…people are getting more accepting of there being something wrong if you say you’ve had a mental health episode
“I have found that people are getting more accepting of there being something wrong if you say you’ve had a mental health episode. But then they have the view that there was something wrong a year ago, but now you’re better. They find it very hard to accept that there may have been a permanent change. If you’re a champion runner, and you break your leg, people don’t seem to have any issue accepting that your leg may heal but you’ll never be able to run at the same level again. But they don’t seem to accept that if you have some sort of mental sickness that yes, you will get better, but you very possibly won’t get back to the way you were before. And that was the case with me. I’d had quite a mentally and emotionally challenging job, which involved lots of quick decisions, and I needed to be across a number of different issues at any one time. I found that I just couldn’t do that anymore. I couldn’t concentrate on anything more than one thing at a time. Which made it impossible to do the job I had.”
The industry has devoted much discussion to the treatment of mental health conditions in recent years. In September 2013, the Financial Services Council issued new guidelines to ensure life company representatives are equipped with the knowledge and skills to engage with consumers who may have experienced mental health concerns (see: Insurers Required to Demonstrate Mental Health Awareness).
Most would agree that underwriting and claims processes have improved, but there is still room for the industry to examine additional approaches to managing clients with mental health conditions. One option could be to introduce a mandatory test or additional questionnaire, to be completed during underwriting or at claim time (see: New Approach to Assessing Mental Health Claims Needed). Further engagement with organisations such as Beyond Blue and the Mental Health Council of Australia is also recommended (see: Mental Health and Insurance Project).
Employer-sponsored insurance
The policy was offered by Mr Ward’s employer, as part of his employment contract. In relaying his experience, Mr Ward highlights that while a duty of care towards their employees may prompt employers to pursue insurance for them at a group level, this does not necessarily mean the employer is experienced/equipped to assist employees who subsequently claim on such policies.
“My memory of how it all took place is a bit hazy, but as far as I can remember, during a change to the company’s insurer, a form was sent around explaining what was changing and offering additional cover for salary continuance,” Mr Ward said. “It was just a matter of ticking a box, and the premium was calculated as a percentage of your salary, and that it would cover you for 75% of your income in the event you can’t do your job. I ticked the box and basically forgot all about it.
“Other than a regular deduction on my pay slip, that was all I heard about it. When I went and looked on the firm’s website there was no copy of the policy terms, but there was a two-page flyer with a description of what it did and a few things like the waiting period. It basically said ‘If you can’t earn your income, this will cover you, up until the age of 60’.
“In late November 2010, when I was really struggling at work after having gone back, I went to see the HR people, and asked them if the policy would cover my situation. They said yes, and that I’d need to submit a claim through the firm. I don’t think I even knew who the insurer was, it was just a policy through the firm and they would look after it.
“As soon as I’d done that, my employer basically washed their hands of it. When the insurer cut off the payments, I went back to my employer and asked them to speak to the insurer on my behalf, because they were the ones telling me I wasn’t fit to work. My employer said it was a private issue between me and the insurer.”
A financial adviser, engaged by the employer, may have been able to assist Mr Ward with his claim, and the subsequent issues. However, no such service was offered by the employer, and recent industry commentary would suggest that group insurance specialist advisers are leaving the industry, due to changes to regulatory reform and remuneration measures (see: Wholesale Definition a Solution to Corporate Remuneration Issue?).
Rehabilitation
During the initial claim process, Mr Ward was referred to a rehabilitation specialist by the insurer:
“They (the insurer) sent me to see one rehabilitation person. I spoke with her, and she had obviously been told nothing about my case, because she asked if I’d thought of getting a clerical job. When I explained what I did and the sorts of duties I was expected to do in my role and how I was having difficulty, she said there wasn’t much she could offer me.
“I think she was more related to helping people with a physical injury. She didn’t seem to have any experience with mental health issues, or with people holding professional jobs. She wanted to know exactly what I couldn’t do, and I found it really hard to explain that one of the core health problems was that I couldn’t make decisions quickly.
“The whole system seemed to be geared towards people with physical injuries, working 40 hour weeks who are paid by the hour. I was on a salary, based on performance not on how many hours I worked.”
Mental health claims are now the second highest cause of claim for income protection policies in Australia. Further, rehabilitation is being viewed as a way to assist claimants to return to work, improving claimant health and insurers’ claims durations. The recent experience of Mr Ward suggests insurers still have a way to go before all claims services are aligned to the needs of claimants.
To view a copy of the Court of Appeal’s decision, click here.
This case looks at a dispute between a claimant and their insurer, which was resolved by the Financial Ombudsman Service in June 2014. The insurer applied an offset clause to the claimant’s income protection benefit, reducing the payments. FOS overruled the insurer, ordering them to pay compensation. The case has implications for advisers recommending key person insurance for small business owners.
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Source: FOS Circular 18 – Determination 278412 (note: FOS does not supply the names of entities involved in disputes)
Topics covered: income protection, income offset clause, disclosure
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Background
The claimant jointly owned and operated a small business with his wife. He took out an income protection insurance policy in July 2002.
At the commencement of the policy, the insured monthly benefit was $2,500 and the waiting period was 90 days. At the request of the policy holder, the monthly benefit was increased to $6,250 with effect from 10 March 2003. When he applied for the increase to the monthly benefit in 2003, the insured provided information about the profitability of the family business, which was taken into account by the insurer in accepting the application.
The monthly benefit was subsequently increased by indexation. According to the insurer, at the time of claim, the monthly benefit was $8,045.
Claim lodged
The insured became totally disabled on or around 19 August 2011, and lodged a claim for income protection benefits. He was no longer able to work in the business, but the business was able to continue without his input and remained profitable. The waiting period on the policy expired on 17 November 2011, however the insurer did not pay any benefits.
The insured’s wife contacted the insurance company in February 2012, questioning why her husband was not entitled to any benefit under the policy, even though he could no longer earn any income by personal exertion.
The insurer responded in March 2012, saying that:
Policy definitions
Under the terms of the policy:
Monthly Earnings means the Insured Person’s normal monthly income from their personal exertion from salary, fees, commissions, bonuses and other payments received in the normal course of their employment, occupation or profession. If the Insured Person owns any part of a business, Monthly Earnings are the normal monthly income of the business due to the Insured Person’s activities less that person’s share of business expenses necessarily incurred in producing that income. Income which is received on an irregular basis and income which is received at periods longer than one month will be averaged and included in Monthly Earnings. Monthly Earnings do not include interest or dividend payments or any other form of unearned income. Monthly Earnings are always taken before the deduction of income tax.
Pre-disability Monthly Earnings means the greater of the Insured Person’s average Monthly Earnings in the 12 months and their average Monthly Earnings in the 36 months immediately preceding the commencement of Total Disability increased by the lesser of 7.5% and the CPI Indexation Factor each year since that date.
Further, the policy terms state that the insurer may limit the benefits paid as follows:
Total Disability Benefit
The amount of the monthly Total Disability Benefit will be reduced, where necessary, so that the total that month of:
does not exceed 75% of Pre-disability Monthly Earnings (see Section 4.2 for guaranteed minimum benefit).
Dispute lodged with FOS
The claimant’s wife then wrote to FOS and a dispute was registered on 18 June 2012.
Over the course of the dispute, the insurer obtained substantial financial information from the claimant and his wife, and also obtained a detailed report from a forensic accountant.
The insurer did not dispute the fact that the claimant was totally disabled under the terms of the policy, and entitled to claim.
In October 2013, the insurer advised that it had calculated that the claimant was entitled to monthly benefits of $1,861.39, from the date of disability until 30 June 2012. The insurer said it was arranging to pay these benefits in a lump sum to the claimant.
A further email from the insurer said that, having received a further report from the forensic accountant, the insurer had recalculated the benefits payable to the claimant. The email advised that the insurer was now willing to make a total, further ‘without prejudice’ payment of $28,024.81.
Disclosure
The wife of the claimant said she and her husband were not informed of the existence of the offset clause when applying for the policy, or that payments under the policy could be adjusted because of the profits of the business.
The insurer argued that the clause was contained within the Customer Information Brochure (CIB). While not specifically setting out the terms of the clause, the CIB contained a warning that ‘the Total Disability Benefit will be reduced if the Insured Monthly Disability Benefit is greater than 75% of Pre-Disability Monthly Earnings, less …any money received from your employer…’
There was no dispute that the claimant received a copy of the CIB, but the FOS panel said the document did not specify how the reduction would be calculated or that money received from the insured’s business could also be offset.
For this reason, the FOS panel found that the claimant was not clearly informed of the effect of the offset clause before the policy was entered into.
Determination
FOS convened a panel to review the dispute. It noted that the offset clause had been the subject of at least one previous dispute with the same insurer. In the previous dispute the panel determined that the only amounts that could be offset against benefits were amounts that were attributable to the claimant’s personal exertion.
Although not bound by the previous Determination, the panel in the new dispute agreed with the conclusions which were reached earlier, and considered that they should apply equally to the current dispute.
FOS said it was industry practice for insurers of income protection benefits to offer cover to a prospective insured who works in his own business on the basis that the prospective insured’s share of business profits, net of expenses, is personal exertion income and therefore insurable. It was therefore normal practice and appropriate for the insurer to accept the level of cover the claimant sought at time of application.
When he became totally disabled, the claimant ceased to earn any personal exertion income and any amounts subsequently payable to him from the business were “passive” income, in the nature of dividends on a shareholding, not amounts referable to his disability, and not able to be offset under the clause.
The Determination stated that:
Compensation payable
FOS deemed that the claimant was entitled to his full monthly benefit from 18 November 2011, when the waiting period under the policy expired.
However, under the FOS Terms of Reference, the maximum amount of compensation that the Panel can award for a dispute such as this is $7,500 per month.
Accordingly, the FOS panel determined that the insurer pay the claimant not less than:
(i) $7,500; and
(ii) The Insured Monthly Disability Benefit for that month less any Total Disability Benefit which the FSP has previously paid for that month, and
The insurer was also ordered to provide the claimant with detailed calculations of the amounts of the monthly benefits and of the interest component of the payments, and the return of any premiums that may have been paid by the insured since the date of the disability.
To view a copy of the Determination, click here.
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.
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Source: Judges’ decision notes
Topics covered: policy wording, pre-existing conditions
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Background
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.
Claim submitted
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.
Court proceedings
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:
‘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.
Primary judgement
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.
In this legal case study, Richard Swansson (plaintiff) successfully sued the adviser, Russell Harrison, and his licensee (Synchron) for damages of nearly $1.5 million because an act of non-disclosure left him uninsured. Mr Harrison has subsequently made changes to his client disclosure processes, and shares these below.
