Australia: Life Insurance - Does Traumatic Injury Constitute a "Disorder" - A recent decision by the New South Wales Court of Appeal

Last Updated: 23 August 2006

On 29 March 2006 and 3 April 2006 the Supreme Court of New South Wales Court of Appeal (Handley, Giles and Santow JJA) delivered its decision in the case of Ingham v ACN 000 333 844 Ltd (in liq) (formerly known as Australian Casualty & Life Ltd).

The case involved an income protection policy issued by Australian Casualty & Life Ltd ("the insurer") and in particular a special condition in the policy that attempted to reduce benefits if the disability was caused or contributed to by a disease or disorder.

The Facts

Mr Jeffrey Ingham ("the insured") took out a policy of Income protection insurance with Australian Casualty & Life Ltd in August 1998. The insured was a builder by occupation and in 1980 had been struck in the left eye by a piece of wood discharged from a wood router leaving him with impaired vision in that eye.

In his application for income protection insurance with Australian Casualty & Life Ltd in August 1998, the insured disclosed his impaired vision in his left eye caused by the injury in 1980 which led to the insurer issuing the policy with the following special condition:

"Special Condition
It is hereby understood and agreed between the Company and the Insured that no benefit shall be payable for disability or loss caused or contributed to by any disease or disorder of the left eye, including blindness.
It is hereby understood and agreed between the Company and the Insured that no benefit shall be payable for a benefit period in excess of 180 days for disability or loss caused or contributed to by any disease or disorder of the right eye."

On 9 January 2001 Mr Ingham was struck again by another piece of wood, this time in his right eye, causing permanent loss of vision in his right eye.

The insurer accepted that the insured was "totally disabled" within the meaning of the policy but contended that the special condition of the policy applied so that the policy benefit was payable only for a period of 180 days.

The Issue

At the trial in the District Court of NSW Bell DCJ accepted the contention by the insurer that the special condition of the policy applied so that the policy benefit was payable only for a period of 180 days.

The decision for the Court of Appeal in the application by the insured for leave to appeal the decision of the District Court was whether the disability was caused or contributed to by any disease or disorder of the right eye?

Counsel for the insured submitted that the disability was not caused or contributed to by any disease or disorder of the right eye as what had happened to the right eye was a traumatic injury from which his disability immediately arose and his disability was not therefore caused or contributed to by a "disease or disorder" of the eye.

Counsel for the insurer submitted that when construed in its place in the policy as a whole "disorder" extended to a condition caused by traumatic injury.

The Decision

The application for insurance referred to "disorders" in various contexts.

The Court of Appeal found that the insurance policy was "made up of the Application [the insured] completed, the Schedule, these general conditions, plus any Australian Casualty & Life policies attached to these general conditions".

The Court of Appeal found that when construing the contract of insurance as a whole the application formed part of the contract. The Court of Appeal found that the questions to be answered in the application made reference to many "disorders" most naturally understood as resulting from disease process, but also recognised that a "disorder" such as whiplash to the neck could be a result of traumatic injury.

The Court placed special reliance on the use the insurer made throughout the terms of the policy of the word "disorder", the various questions the insurer included on the application form with reference to "disorder" and the purpose of the special condition.

The Court of Appeal found that the word "disorder" extended to a condition resulting from injury including traumatic injury in the special condition of the policy.

In making the finding, the Court of Appeal held that being struck in the eye is in itself neutral. What causes disability is the condition resulting from being struck in the eye. The Court of Appeal held that the insured's disability was caused or contributed to by a disorder being the condition resulting from being struck in the eye by the piece of wood.

Leave to appeal was therefore refused and the insured was ordered to pay the insurer's costs.
by Nicholas Linke, Adelaide


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