Australia: The relevance of part time work and TPD claims

Life insurance update
Last Updated: 23 August 2011
Article by Gerry Davies and Paul Czarnota

Manglicmot v Commonwealth Bank Officers Superannuation Corporation Pty Limited [2011] NSWCA 204 (27 July 2011)

Member accepted redundancy – member unfit for full-time work but fit for part time work – policy did not provide TPD benefit as member fit for part time work – six months consecutive absence from work not due to injury or illness

Introduction

The NSW Court of Appeal has delivered an important decision which addresses the relevance of capacity for part-time employment to TPD claims.

In a decision which will be welcomed by the life insurance industry, the Court of Appeal has found that a member who is able to engage in suitable part-time work, but not full-time work, is generally precluded from recovering a TPD benefit. In doing so, it dismissed the member's appeal against Justice Rein's decision.

Notably, the court was unpersuaded by a line of authority (stemming from Chammas v Harwood Nominees Pty Limited) which supported the proposition that a member who is able to engage in suitable part-time work, but not full-time work, is entitled to a TPD benefit.

Background

The claim

Commonwealth Bank Superannuation Corporation ('the trustee') was the trustee of the Officers' Superannuation Fund ('the fund'). Roy Manglicmot ('the member') was a member of the fund.

In 1998, the member commenced employment with the Commonwealth Bank ('the bank') as a teller on a full time basis.

In 2000, the member suffered various injuries. From 2002, he was only able to work for the bank on a part time basis (15 hours per week), as a consequence of these injuries.

In July 2003, the bank informed the member that:

  • It was unable to offer him a 'continuing position' in his current team
  • It intended to examine all possible redeployment opportunities
  • If it was unable to redeploy him within six weeks, it would explore the available options, including retrenchment.

The member wanted to obtain alternative employment with the bank but no offer was forthcoming. The bank subsequently offered the member a redundancy which he accepted on 25 August 2003.

After accepting the redundancy, the member sought work from a number of prospective employers. However, each of the employers rejected the member's applications. In doing so, none of them made reference to the member's physical restrictions.

In November 2004, the member submitted a TPD claim to the trustee. The insurer of the fund, CommInsure, declined the claim on two occasions on the basis that, inter alia, the member did not cease work due to an injury or illness, and he had a capacity to return to work in his usual occupation or other suitable occupations. The trustee also declined the claim on both occasions.

Member's case

The member did not challenge the decisions made under the CommInsure policy. Rather, he claimed that the trustee breached duties owed to him as a member of the fund by virtue of entering into the CommInsure policy. Specifically, his position was:

  • The trustee entered into a group policy with CommInsure on 1 July 2003 which replaced a previous policy it had entered into with Hannover
  • The CommInsure policy was more restrictive than the Hannover policy
  • By entering into the more restrictive CommInsure policy, the trustee breached a fiduciary duty owed to members of the fund to act in their best interests and a similar duty under section 52(2)(c) of the Superannuation Industry (Supervision) Act (SIS Act).

The TPD definition under the Hannover policy was:

'having been absent from work through injury or illness for an initial period of six (6) consecutive months and in our opinion being incapacitated to such an extent as to render the Insured Person unable ever to engage in or work for reward in any occupation or work which he or she is reasonably capable of performing by reason of education, training or experience' [emphasis added].

The TPD definition under the CommInsure policy was:

'has been absent from all employment for six (6) consecutive months from the date of disablement and we consider, on the basis of medical and other evidence satisfactory to us, the member will not ever be able to resume any occupation, whether or not for reward,
where:
Occupation means an occupation that the person can perform, on a full time or part time basis, based on the skills and knowledge the person has acquired through previous education, training or experience' [emphasis added].

The member claimed that the Hannover policy provided a TPD benefit where the member was unfit for full-time work but fit for part-time work, while the CommInsure policy provided a TPD benefit only where the member was unfit for any work. He conceded that he was unable to recover a TPD benefit under the CommInsure Policy, but alleged that he would have been able to recover a TPD benefit under the Hannover policy if it had not been replaced. As such, he claimed to have suffered loss and damage by reason of the trustee's decision to enter into the CommInsure policy.

Trial judge's decision

Rein J of the NSW Supreme Court noted that:

  • By entering into the CommInsure policy, the trustee had obtained lower premiums
  • The trustee had secured CommInsure's agreement to match the terms of the Hannover policy
  • The trustee had obtained legal advice which indicated that there was no material difference between the respective TPD definitions.

In these circumstances, Rein J found that the trustee had not breached any duty owed to the member under the general law or the SIS Act. He therefore entered judgment in favour of the trustee.

Rein J also expressed doubt (without determining the issue) as to whether the Hannover policy, in fact, provided a TPD benefit where the member was fit for part time work.

In addition, Rein J found that, leaving the issue of part-time employment to one side, the member would not have been entitled to the TPD benefit in any event. In this respect, he considered that the member had not satisfied the first limb of the definition which required the member to have been absent from all employment for six consecutive months as a result of injury or illness.

Court of Appeal's decision

The member appealed Rein J's decision. The Court of Appeal unanimously dismissed the appeal.

'Full time' versus 'Part time'

Giles JA identified the central question as being: 'whether the Hannover TPD clause provided TPD benefits where the member was unfit for full time work but fit for part time work'. If it did not provide TPD benefits in such circumstances, the appeal would fail as the Hannover TPD definition would have the same effect as the CommInsure TPD definition.

His Honour found that that there was no material difference, in relation to fitness for part time work, between the Hannover TPD definition and the CommInsure TPD definition. He found that both definitions required unfitness for work, without distinction between full time work and part time work. In other words, a member who was able to engage in suitable part-time work, but not full-time work, would be precluded from recovering a TPD benefit. In this respect, the critical passage from his judgment is as follows:

'The Hannover TPD clause defines total and permanent disablement. It is quite emphatic: the member must be unable ever to engage in or work for reward in any occupation or work. As further context, the member must have been absent from work for six months. Introduction of full time employment or part time employment into the wording, notions which themselves carry uncertainty (what is the standard for full time employment?) is in my view not warranted. The clause requires unfitness to work, without distinction between full time work 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' [His Honour's emphasis].

Notably, Giles JA reviewed a number of key authorities1 which dealt with the issue of whether a member who is able to engage in part-time work, but not full-time work, is entitled to a TPD benefit, including the well-known decision of Hodgson JA in Chammas v Harwood Nominees Pty Limited. A number of these authorities stand for the proposition that a member who can engage in part-time work, but not full-time work, is entitled to a TPD benefit. However Giles JA was unpersuaded by these authorities and commented that:

  • Least part of the reasoning to the result in Chammas was unclear
  • It is not sound to incorporate, uncritically, a limitation to full time employment to the common TPD definition2 or to the Hannover TPD clause
  • There has not been a consistent course of construction or application of the TPD definition in the authorities.

Breach of fiduciary duty / Section 52(2)(c)

Having decided that there was no material difference, in relation to fitness for part-time work, between the Hannover policy and the CommInsure policy, Giles JA held that the foundation for the action failed and that there was no breach of duty on the part of the trustee.

Giles JA proceeded to make a number of obiter remarks, including that section 52(2)(c) of the SIS Act does not materially add to the trustee's general law duty to act in the best interests of the fund.

Absence from work through injury or illness (first limb)

Giles JA concluded with some obiter remarks regarding the first limb of TPD definitions.

As indicated above, Rein J found that, leaving the issue of part-time employment to one side, the member would not have been entitled to the TPD benefit in any event. This was because he did not satisfy the first limb of the TPD definition; that is, 'he did not have six consecutive months absence from work as a result of his disability before choosing to end his employment with the bank'.

In light of the High Court's decision in Finch v Telstra Super Pty Limited, the trustee did not seek to advance the view that the six months' absence had to be prior to cessation of employment with the bank. However, the question remained as to whether the member's six months absence from work was as a result of injury or illness, in light of the fact that the member had accepted a redundancy.

Giles JA found that the conclusion on the evidence was that the member ceased work because of the redundancy, not because of injury or illness. However, the correct question under the first limb was not whether the member ceased work because of injury or illness, but whether the member's six months absence from work after 25 August 2003 (the date of redundancy) was because of injury or illness. While the redundancy could shed light on whether the subsequent six months absence from work was because of injury or illness, it did not determine it.

Giles JA noted that the member had unsuccessfully applied for positions after accepting the redundancy. The letters rejecting his applications made no reference to the member's physical restrictions. In the circumstances, he found that the member had not established that his six months absence from work from 25 August 2003 had been the result of injury or illness.

Conclusion / implications

In many TPD claims, the medical evidence indicates that the member is able to work on a part- time, but not full time, basis. The vexing question in these circumstances is whether the member is TPD.

Over the years, the courts have expressed differing views on this issue, creating uncertainty for trustees and insurers in determining TPD claims.

The NSW Court of Appeal has provided weighty support for the proposition that a member is not TPD if able to carry out part-time work.

In light of this decision, it is submitted that:

  • If the TPD definition requires a member to be unable to engage in any 'gainful occupation' for which the member is suited; and
  • If the medical evidence indicates that the member is able to perform part-time work,

then a reasonable view is that the member is not TPD by virtue of being able to engage in a 'gainful occupation', albeit on a part-time basis.

However, it should be noted that:

  • The part-time work must still be work for which the member is suited by education, training or Experience
  • If the TPD definition contains the phrase 'unlikely ever to work', the decision maker will need to consider the availability and accessibility of part time work in the 'real world'.

1. Chammas v Harwood Nominees Pty Limited, Riley v The National Mutual Life Association of Australasia Limited, Wyllie v National Mutual Life Association of Australasia Limited, Beverley v Tyndall Life Insurance co Limited, Szuster v HEST Aust Limited, Alcoa of Australia Retirement Plan Pty Limited v Thompson, Sayseng v Kellogg Superannuation Pty Limited, Hay v Total Risk Management Pty Limited, Nile v Club Plus Superannuation Pty Limited, Camilleri v Australian Casualty & Life Limited, Baker v Local Government Superannuation Scheme Pty Limited, Halloran v Harwood Nominees Pty Limited.

2. Giles JA noted that the common TPD definition is 'incapacitated to such an extent as to render the member unlikely ever to engage in or work for reward in any occupation or work for which he is reasonably qualified by education, training or experience'.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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