Federal Court considers issue of when a TPD benefit is payable – Also considers interest

  • Newsletter Article
  • Published 09.04.2020

Chapman v QSuper Board [2020]

The Federal Court (FC) has dismissed an SCT appeal by a superannuation fund member claiming interest and damages on a paid TPD benefit.

Background

The member’s claim for a TPD benefit was accepted by the trustee in October 2013, three years after lodgment of the claim.  

The trustee had ultimately overturned its earlier decisions to decline the claim after receiving a supplementary medical report in September 2013 that enabled it to resolve the conflict in the medical opinion and pay the claim. The trustee also decided to pay interest from September 2013, being the date it received the supplementary report.

The member lodged an SCT complaint contending that the claim had been unreasonably and unfairly declined at first instance as the trustee had preferred an adverse medical opinion that had incorrectly expressed a ‘mere expression of hope’ that the member would return to relevant work; this not being the correct test as per TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim [2016].

The member claimed an entitlement to interest from the date he ceased work in December 2010 to September 2013.

It was also alleged by the member that he had suffered loss and damage resulting from the loss of his home, as a result of the trustee’s delay, particularly as he had notified the trustee at an early stage that he was experiencing financial hardship.

The SCT affirmed the trustee’s decision, relevantly acknowledging that the supplementary report ‘significantly contributed to the clarification of the nature of the member’s illness and its temporal relation to his TPD status’. 

Having found no delay, it also dismissed the damages claimed by the member for the loss of his home. 

The member appealed to the FC and was unsuccessful.  

The Appeal

The primary argument by the member was that the TPD occurred when he became ill or when he permanently ceased work in December 2010 based on the construction of the terms in the Trust Deed as to when a benefit was payable. 

Because so much turned on the precise wording of the terms in the Trust Deed and the “Insurance Terms” for TPD insurance, it is worthwhile noting the relevant provisions in full. The important words are highlighted:

Total and permanent disablement means disablement of a degree which, in the opinion of the board after obtaining the advice of not fewer than 2 medical practitioners, is such as to render the member unlikely ever to be able to work again in a job for which the member is reasonably qualified by education, training or experience.

4. Amount of Insurance Cover

4.4 An insured member’s … total and permanent disablement benefit shall become payableupon total and permanent disablement. The date on which an insured member shall be considered by the board to have suffered total and permanent disablement, for the purposes of calculating a benefit, will be the later of the dates on which:

(a) the sickness or injury causing the total and permanent disablement commenced or occurred; or
(b) the member ceased to be at work due to the sickness or injury causing the total and permanent disablement.

The member argued that the SCT incorrectly construed the Trust Deed by failing to have regard to the proper construction of the words ‘shall become payable’ in cl 4.4. He alleged that the TPD benefit became ‘payable’ on 1 April 2010, when his psychiatric illness commenced, or 3 December 2010, when he ceased work due to this illness and interest was payable from then.    

The Judgment   

In a single judgement, Justice Rangiah held that there was no misconstruction of cl 4.4 by the trustee or by the SCT when affirming the trustee’s position.  

Adopting the approach of the FC in Aslami v Board of Trustees of the State Public Sector Superannuation Scheme as Trustee for the QSuper Fund [2019] which concerned a later but materially similar version of cl 4.4, Justice Rangiah said: 

  • the first sentence of cl 4.4 fixes the date a member becomes entitled to a TPD benefit. That is, ‘upon’ TPD. The definition of TPD requires the trustee to form its opinion. That cannot occur until, according to the Trust Deed, the trustee, having obtained the opinions of at least two medical practitioners, forms the opinion that the member is unlikely ever to be able to return to work within their ETE;
  • the second sentence of cl 4.4 concerns the date for which the TPD benefit is to be calculated, once the trustee had determined the member has suffered TPD;
  • in this case, the member’s entitlement to be paid a TPD benefit did not arise until 24 October 2013, when the trustee was reasonably satisfied the member suffered TPD. The trustee’s decision to pay interest from 16 September 2013, when it received the supplementary report, ‘was presumably made so the applicant would not be disadvantaged by the delay between the receipt of the report and the making of the decision’.

Consequently, Justice Rangiah held that the SCT made no error in affirming the trustee’s decision. The remaining grounds of appeal were otherwise dismissed on the basis that the FCC found no errors of law by the SCT in its review of the trustee’s decision.

Implications

When does TPD Occur?

Determining the date the insured event in an opinion based TPD policy occurs is often a critical question for life insurers and trustees, particularly in circumstances of cover cessation.  

In this decision, the FC found (in the context of this deed) that the insured event occurred upon relevant opinion formation rather than, say, the commencement of the permanent cessation of work due to injury.  

Clearly, it was open to it to make such a finding given the deed, however, the absence of consideration of the issues swirling around this issue, in relation to other possible dates, as analysed in Finch v Telstra Super Pty Ltd [2010], Harrison v Retail Employees Superannuation Pty Limited and Anor [2015], MLC Nominees Pty Ltd v Daffy [2017], would appear to lessen the weight this decision might be afforded in this particular corner of TPD law. Nonetheless, the decision should be noted when the issue of when TPD arises, becomes pertinent.

Interest

Significantly, the FC found no error of law by the SCT in its review of the trustee’s determination that it was not unreasonable for the trustee to decline the claim prior to its receipt of further medical evidence required to resolve the issues in dispute. It followed that no interest was payable prior to the date the supplementary report was received.  

This is a departure from a long list of authority on TPD interest which essentially said that an insurer was liable for interest on paid TPD benefits from a short time after the first date that there was some reasonably credible evidence pointing to TPD. This is so, regardless of any reasonably necessary confirmatory investigations that the insurer needed to carry out. See for example, Diosdado Sayseng v Kellogg Superannuation Pty Ltd [2007], Triffitt v AustralianSuper Pty Ltd [2007] and Nino v MLC Ltd [2009].

Once again, perhaps the fact that this judgment does not engage with such well known authorities on TPD interest is a cause for putting less weight on it than others. This maybe so, but certainly it is a case that insurers should be aware of when responding to TPD interest claims, because it essentially stands for the proposition that interest runs from the date that the decision maker receives final clarity (on all the evidence) that TPD has truly arisen.