Duty to Make Enquiries: County Court Upholds Insurer’s Decision and Finds Insurer Not Required to Chase Every Rabbit - Not Only into Its Hole, but Through Every Twist and Turn of the Rabbit Warren

Khan v Host-Plus & MetLife (VCC 2024)

The recent decision by the County Court in MetLife v Khan is noteworthy, not only because of the Court upholding MetLife’s decision at Stage 1, but for providing welcome recognition of the boundaries of enquiries a life insurer has a duty to make when assessing a TPD claim.

Background

The plaintiff was a former food and beverage attendant who ceased such work at age 35.  

He claimed TPD under a group life policy due to back pain and secondary psychological conditions. Whilst tertiary qualified with two Masters level degrees in Business Administration and Professional Accounting, the plaintiff had only engaged in physical work in the hospitality industry.

The definition of TPD

The TPD definition required the insurer to form a view as to whether an insured was ‘unlikely ever’ to be employed or engaged in any gainful occupation, business, profession or employment for which he was reasonably suited by education, training or experience (ETE). A vocational expert determined that the plaintiff was suited to work in sedentary roles such as entry-level employment in office administration, as an accounts clerk or as a bank clerk, a matter disputed by the plaintiff.

The evidence

The medical evidence was to the effect that the plaintiff suffered a chronic pain disorder that rendered him unfit for physical work but capable of sedentary duties on a part-time basis.

The plaintiff’s solicitor, in response to procedural fairness, stated that the plaintiff had been referred to a psychologist and physiotherapist. The insurer subsequently sought a further report from the long-term treating doctor who clarified that the plaintiff had seen a mental health care nurse (as opposed to a psychologist) and completed a functional capacity assessment, concluding that the plaintiff was physically and psychologically able to perform each of the required duties of the roles identified.

In response to procedural fairness, the plaintiff’s solicitor stated that the plaintiff’s mental health had deteriorated and he was now consulting a psychologist who could provide an opinion. The letter concluded that the plaintiff had nothing further to add and requested a determination within one month.  

The insurer declined the claim at first instance on the grounds the plaintiff was fit to work in sedentary roles within his ETE such as the identified roles and that there was a real chance he would engage in such work.  

In seeking a reconsideration of the claim, the plaintiff submitted a report from his treating psychologist who diagnosed a mental health disorder secondary to the plaintiff’s pain condition with a ‘mixed prognosis’. In relation to an incapacity for work, the psychologist was of the opinion that the chronic pain condition would interfere with the plaintiff’s ability to present well to a future employer.  

An IME psychiatrist, who assessed the plaintiff at the insurer’s request, stated that the plaintiff had developed a chronic pain disorder but that within six months of further treatment, the plaintiff would be capable of engaging in part-time work in the identified roles. In response to procedural fairness, the plaintiff’s solicitor furnished a report from the treating psychiatrist, who agreed with the opinion of the IME psychiatrist. The plaintiff’s solicitor concluded that the potential improvement of the plaintiff’s condition was a ‘mere hope’ and requested a determination within one month.

The insurer maintained its denial of the claim, concluding that the plaintiff had the physical capacity for sedentary roles including the identified roles and with treatment, would likely have the psychological capacity to engage in such work.  

On each occasion, the trustee determined that the plaintiff did not meet the requirements of the TPD definition. It otherwise admitted the plaintiff’s application for the early release of his superannuation account balance on the grounds of two medical certificates completed by his treating doctors (permanent incapacity claim). What is noteworthy, however, is this information was not available to the insurer during its assessment of the TPD claim.

The proceeding

The plaintiff issued proceedings against the insurer and the trustee in the County Court of Victoria. He alleged the insurer had breached its duties in forming its opinion and sought declaration that he satisfied the definition of TPD.  

At trial, the Court focused on the insurer’s obligation to conduct further enquiries in its assessment of the TPD claim. The plaintiff argued that the insurer failed to give proper consideration to the opinions of the plaintiff’s former pain physician and physiotherapist as it failed to obtain such reports.

 Moreover, that it failed to consider the impact of the plaintiff’s declining mental health as it did not delay its first decision until it obtained a report from the treating psychologist.

The insurer argued that it was not required to go on endlessly, seeking out information from every treating health professional, in pursuit of factual perfection. Rather, the insurer was permitted and entitled to make qualitative judgments about the weight it would give certain pieces of evidence.

Stage 1

The insurer’s decision was fair and reasonable 

The Court upheld the insurer’s decline decisions at Stage 1. The Court concluded that ‘the process adopted by MetLife was scrupulously fair’ and MetLife’s opinion was reasonably open to it. 

With respect to the insurer’s duty to conduct enquiries, and having regards to the terms of the policy which required that an insured person provide the insurer with ‘such evidence to substantiate the claim as [it] may reasonably require’, the Court reaffirmed that an insurer is not under a duty to seek out evidence of its own initiative. Rather, the insurer was bound to make reasonable enquiries needed to resolve conflicts or apparent gaps in the available material [94].  

Significantly, the Court highlighted that the duty of inquiry is not unlimited, noting at paragraph [95]:

The standard imposed …was one of reasonableness, not perfection. To expect perfection (aside from being unattainable) could have collateral impacts on the cost of processing claims; and the delays in reaching determinations. MetLife was entitled to take into account the opportunity it had provided to Mr Khan to provide relevant material in support of his application in considering whether further enquiries were necessary. It was not required to chase every rabbit, not only into its hole, but through every twist and turn of the rabbit warren.

To that end, the ‘rabbits’ were the opinions of the former treating pain physician, physiotherapist and psychologist (with respect to the first determination). The Court found no obligation on the insurer to conduct further investigations:

• The insurer was not required to pursue a supplementary report which it had requested from the pain physician who had rendered limited treatment to the plaintiff as the insurer reasonably relied on the opinion of the treating doctors who ‘clearly had extensive knowledge’ of the plaintiff’s condition. Similarly, in circumstances where the insurer had accepted the occurrence of the back injury, the insurer was not required to obtain a report from the treating physiotherapist, particularly in the absence of the plaintiff’s solicitor seeking to explain the relevance of such information.
• Despite her Honour reasoning that a reasonable insurer might have responded to an assertion that the plaintiff’s mental health had deteriorated and he was now consulting a psychologist, by requesting a report from the psychologist, her Honour was not convinced that a reasonable insurer must have undertaken this course having regard to the treating doctor’s very recent report which supported a psychological and physical capacity. In its reasoning, the Court appears to provide latitude to the insurer, noting the cost and delay of seeking this information to a claim that had been on foot for 18 months, in circumstances where the plaintiff’s solicitor, in response to procedural fairness, did not proffer further information and pressed for a determination to be made within one month.  

The Court accepted the insurer’s arguments that there was no error in its chain of reasoning, finding that:

• The insurer reasonably relied on the opinion of the long term treating doctor who accepted the plaintiff’s pain, but nevertheless certified a capacity for sedentary work.  
• The insurer reasonably relied on the opinion of the IME psychiatrist, with whom the treating psychiatrist agreed, that there was a real chance the plaintiff’s condition would improve with treatment to enable a return to relevant work. In the absence of substantive evidence that the plaintiff’s mental health condition was long term, the Court disagreed with the plaintiff’s argument that an improvement in his mental health condition was a ‘mere hope or speculation’.  
• It was reasonable for the insurer to prefer the opinion of the vocational expert on matters relating to employment factors to the opinions of the treating doctor or psychologist who, outside of their expertise, focused on matters that would make it difficult for the plaintiff to find sedentary work.

ETE

At paragraph [118] of the judgment, the Court found that it was open to the insurer: 

acting reasonably, to conclude that administration officer, accounts clerk and bank worker were roles for which [the plaintiff] was reasonably suited by ETE and there was a real chance that [the plaintiff] would be gainfully employed in one of those roles…before he reached retirement age.

Whilst the Court did not explore in detail the string of case law on ETE, its comments on this issue are worthy of repeating:

…the role which might be performed must be one for which the covered person is reasonably suited by education, training or experience. The use of the word “by” suggests some connection with the member’s education, training or experience. The use of the word “reasonably” highlights the value judgment inherent in the assessment. The use of the word “or” emphasises that it need not be a role that the covered member has actually performed before, so long as it is suitable having regard to their education, training or experience. The covered person can be reasonably suited for relevant work “by reason of education or training or experience or a combination of those factors.

The trustee did not breach duties in treating the permanent incapacity claim as a separate claim to the TPD claim

The Court did not consider the trustee to be in breach of its duties for failing to furnish the insurer with medical certificates relevant to the permanent incapacity claim. Critical to its finding was that the insurer was relevantly in possession of more detailed reports from the authors of those certificates.

Stage 2

Having affirmed the insurer’s decisions, the Court was not required to determine the question of TPD for itself. Nonetheless, her Honour stated that had she been required to consider the question of TPD, she would have found the plaintiff did not satisfy the definition.

Her Honour accepted that the plaintiff genuinely experienced pain, however, found the plaintiff’s assertions as to the extent of his pain ‘tended to be melodramatic, exaggerated and self-serving’ having regard to factors such as:  

• The plaintiff had undertaken extensive overseas travel which involved long haul flights, manoeuvring large suitcases and pushing his mother in a wheelchair.
• Evidence that the plaintiff was involved in a freight forwarding and customs clearing business, which the Court found was ‘not an insignificant endeavour,’ it was ‘real work’ and the plaintiff had been less than frank in his disclosures to the insurer and the Court.
• The Court was swayed by the plaintiff’s presentation at the trial where he represented himself capably. The Court observed it would be a ‘great shame if he did not return to the workforce as it is apparent he has much to offer’.

Key takeaways

Whilst a County Court decision, the Court’s upholding of the insurer’s decision and the limits of the duty to make enquiries in the context of a TPD claim serve as important guidance for claims assessments and is worthwhile referencing in the context of AFCA disputes on this point.

To this extent, the Court’s finding that the insurer was not required to investigate every tunnel and chamber of the metaphorical rabbit warren signifies that insurers are not under a general obligation to make countless enquiries in their assessment of a TPD claim.

In particular, the following factors formed part of the Court’s reasoning:

• The insurer does not need to enquire to a point of factual perfection. Much will depend on how significant the further inquiry is to resolve the conflict or gaps in the information. The Court recognised here that the insurer had sufficient material before it so as to ascertain the relevant facts for the purpose of making a properly informed decision.
• The plaintiff’s response to procedural fairness as to the relevance of further enquiries and the timeframe for making a decision. For example, her Honour was prepared to take into account that the plaintiff, who was legally represented, did not proffer any further evidence to support submissions made, but rather pressed for a determination to me made with one month. The significance of a plaintiff’s response to procedural fairness therefore continues to grow (having been considered in earlier TPD decisions including Hart v MetLife Insurance Limited¹).
• Her Honour was prepared to provide more latitude to the insurer during the claims assessment process, recognising the tension between an insurer obtaining relevant material to reasonably arrive at a decision that is fair and reasonable and the inordinate delay investigations can have on a claims determination combined with the cost of processing claims.

Pleasingly, this case is consistent with a line of authority that otherwise sound insurer TPD decisions supported by evidence will not be scrutinised with pedantry by the Court.

¹  [2022] NSWSC 1157