In this Insurance Update we consider two recent cases about Income Protection Policies that provide salutary lessons for insurers.
Abercrombie v Medical Insurance Society
In this recent High Court of New Zealand case, the Court considered how the insured's occupation stated in the policy affected the test of whether the insured was totally incapacitated.
The insured had been a physiotherapist for 30 years. He had an income protection policy. The policy stated his occupation as 'Physiotherapist - Private Prac[tice]'.
The policy contained the usual definition of 'total incapacity', requiring the insured to be:
In June 2009 the insured made a claim stating that he could no longer perform manual physiotherapy. This was due to osteoarthritis in his thumbs and hands. Surgery was considered, but dismissed as unlikely to restore his capacity to perform manual physiotherapy.
Although he could not perform manual physiotherapy, the insured continued to overview the activities of his practice by providing support to other employed physiotherapists, and creating a business website. He received a reduced income from this.
The insurer commissioned an occupational assessment. The assessment concluded that the insured could no longer safely or effectively perform manual therapy requiring the use of his thumbs. However, it found that he still had the ability to perform a wide range of other physiotherapy related functions, including patient history taking, supervising or mentoring students or junior colleagues and operational planning/practice management.
The insurer declined the claim on the basis that the insured was not totally incapacitated.
Insured occupation
The insurer placed reliance on the fact that the insured occupation was stated not just as 'Physiotherapist' but with the additional words 'Private Prac[tice]'. In the insurer's submission, this extended the occupation into areas beyond manual therapy - which he clearly could not manage - into administration, advice and non-physical work.
The Court disagreed. The Court said the word 'Physiotherapist' in the schedule was the indicator of the occupation that the policy intended to cover. The fact that the schedule noted that the insured was in a private practice could not enlarge the meaning of the occupation insured to include management and administration of the practice.
Totally incapacitated
To answer the question whether the insured was totally incapacitated, the Court said it had to consider whether manual therapy was such a substantial part of being a 'Physiotherapist in Private Prac[tice]' (ie the insured occupation) that the inability to perform manual therapy equated to total incapacity.
While the Court accepted that the insured could perform various managerial roles in his own practice, the Court said that the interpretation of the policy should not be guided by the functions the insured was still able to perform, but by the intention of the parties when they entered into the policy. As the Court put it,
The Court said that the mutual intention of the parties when the policy was taken out was that the meaning of 'Physiotherapist' was coloured by what the insured was doing at the time. He was then actively working as a manual physiotherapist. Not being able to use his hands for such therapy anymore meant that he was totally incapacitated.
Not being to follow any other occupation
The final argument was that the policy required that the insured not be 'following any other occupation'. The insurer relied on the fact that the insured remained involved in his physiotherapy practice in a managerial capacity as evidence that he was following another occupation.
Without deciding on this issue, the Court made some interesting comments. It said that the only reasonable interpretation of 'occupation' is that of gainful engagement in a particular job or profession. The insured's work as the owner of his physiotherapy practice would only be relevant if the work resulted in income and if it was sufficiently regular to warrant the label 'occupation'. That was enhanced by the word 'following' which implied some degree of permanence or continuity. The fact he worked for only two to three hours a week counted against the insurer on this argument.
What does this mean for insurers?
Although the summary judgment application failed, the case provides useful guidance to insurers on how the New Zealand Courts will interpret total incapacity in the context of a named occupation.
The test to be applied is whether the insured can still carry out the core elements of the occupation. If the insured cannot, the insured is likely to be totally incapacitated even although the insured can still carry out some office work that is ancillary to that occupation.
Goodin v Colonial Mutual Superannuation
Another recent decision on total and permanent disablement is Goodin v Colonial Mutual Superannuation. In that case, the Australian case of the insured suffered an injury to his lower back which prevented him from working. He was dismissed from his employment as a truck driver.
The insured was a member of the Colonial Super Retirement Fund. He claimed that he was totally and permanently disabled and thus entitled to a benefit.
The expression 'total and permanent disablement' was defined in the policy in various ways, but the relevant part read:
(a)(i) has been absent from employment for six consecutive months because of sickness or injury; and
(ii) is so disabled that the insured member is prevented from ever engaging in his or her own occupation or any occupation for which he or she is reasonably suited by education, training or experience.
The insured had no qualifications. He had done mostly low paid, physical jobs. The medical evidence was that he was not suitable any longer for this type of work.
The insurer argued that the insured was not totally and permanently disabled in terms of the policy definition because he could retrain, or re-sit for his licence as a security officer. One of the doctors advising the insurer referred to the insured's lack of motivation to get himself back in the workforce as something that precluded the insured from getting employment.
However, the Court concluded that it was not enough to simply consider whether there were jobs that the insured could physically have done, if, before he could legally do those jobs, it was necessary for him to obtain a licence, which required him to complete a training course which he could not complete.
As to the lack of motivation, the Court concluded that
However, on the facts, this was found not to be the case.
What does this mean for insurers?
Firstly, an insured is not totally disabled if he or she is simply not motivated to work again in a relevant occupation. This is unsurprising.
Secondly, in deciding whether the insured is disabled, an insurer cannot simply consider whether there are jobs that the insured can physically do, if before the insured can legally do those jobs it is necessary for the insured to obtain a licence that the insured cannot practically obtain. Again, this is common sense.
Both these cases are a reminder to disability insurers that they must not set the bar too high when deciding whether the insured's medical condition comes within the policy's definition of disablement.
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