01 Oct 2016

TPD insurance: finding the facts

By Matthew Daley, Jane Paskin and Vanessa Pallone

Recent total and permanent disablement cases show the importance of paying attention to the details.

This case concerned the insurer refusing to underwrite a member's request for increased total and permanent disablement (TPD) cover and the trustee's decision to accept the insurer's refusal to provide such cover.

The policy owned by the trustee very clearly provided that the insurer had the right to refuse to provide cover in respect of a member in circumstances where "automatic acceptance" limits did not apply. Here the member applied for death and TPD cover of 10 times his then salary. He already had default death and TPD cover of four times his salary.

The increased death cover was accepted but the increased TPD cover was refused on the grounds of a medical condition the member incurred as a consequence of being deployed overseas. The insurer's chief underwriter wrote:

"[The complainant's] medical history shows several chronic and ongoing conditions severe enough to qualify for compensation from [name of Federal Government agency] (the Agency). That these conditions are chronic and ongoing takes [the complainant's] risk profile beyond [the insurer's] risk appetite when it comes to offering TPD cover, even with loadings and exclusions!"

Conversely, the member argued that he was being discriminated against. He wrote that:

"The decision was based on the fact I had a successful [Agency] claim from an operational deployment overseas. I have tinnitus and a lower back injury. I am not disabled and can function perfectly well at work. I can't see how having these injuries will increase my chances of using the insurance?"

In coming to a determination the Superannuation Complaints Tribunal carefully examined the insurer's underwriting guidelines and concluded that those guidelines applied to the members medical conditions and that the application of the guidelines was fair and reasonable. It followed that it was open for the insurer to decline the application to increase TPD cover to 10 times the member's salary and that it was also appropriate for the trustee to agree with the insurer's decision to do so.

‒ D15-16M48

This case explores TPD concepts of "at work" and "activities of daily living".

The member ceased working for his employer in August 2012 and commenced working for his own company, albeit this company never made a profit. His own company was trying to launch a software product.

On 29 November 2013, the member was provided with TPD cover as a consequence of being transitioned to his fund's MySuper product.

In the month before being provided with TPD cover, the member saw his general practitioner with symptoms of unsteadiness and bradykinesia (a slowness of movement which is a manifestation of Parkinson's disease). His wife had noticed a steady decline over the previous 12 months, including difficulty getting in and out of chairs and dressing himself without loss of balance, together with slowed walking.

The member was unaware of these difficulties. His doctor also identified slurred speech, involuntary movements of his face and head, grimacing and poor hand co-ordination.

The member saw many different medical practitioners over the remaining months of 2013 and in December he was formally diagnosed with Multi System Atrophy (MSA) which is a form of Parkinson's disease ‒ a neuro-degenerative disorder that would shorten his life.

By January 2014, the member was receiving disability Centrelink payments which were backdated to late October 2013. While he was able to continue to drive a car, play golf and travel, he needed care from his wife for cooking, cleaning and supervision of his balance problems.

Initially the insurer denied the TPD claim on the grounds the member was not 'at work' having left his employer the previous month. The member provided evidence of working for his own company for more than the required 15 hours a week. This evidence was somewhat contradicted by his wife's evidence of his medical condition at the time, although the Tribunal accepted the member was "unaware or unaccepting of his neurological deterioration impacting on his capacity for wor to a serious degree" before December 2013.

On reassessing the claim, the insurer realised it had made its decision using the incorrect policy definition and that the "at work" test was not relevant. It then moved to make its decision based on the "activities of daily living" test.

The policy required the member to have "suffered a total and irreversible inability to perform at least two of the 'activities of daily living'..." That was, in turn, defined to mean bathing and showering, dressing, moving from place to place (including into and out of bed and out of a chair), eating and drinking and using the toilet. The available medical evidence did not indicate that the member was unable to perform two of these activities and, on this basis; the Tribunal agreed with the insurer that the member was not entitled to a TPD benefit.

Interestingly, the Tribunal went on to comment that it was disappointed that the trustee had not identified the insurer had first applied the incorrect policy terms and, more tellingly, that the trustee had failed to reassess the member's TPD claim after the insurer had identified its error. This apparent failure on the trustee's part did not alter the Tribunal's determination to affirm the decisions of the insurer and trustee.

‒ D15-16U43

Attention to the facts is crucial when determining TPD claims.

In this case, the Tribunal criticised both the insurer and the trustee for their lack of attention to the facts.

The member developed lower back pain in 2005 and underwent lumber disc surgery in 2006 and 2008. He worked part-time from September 2008 until ceasing work altogether in November 2011. His employer had provided him with aids to assist him to perform his duties and was very supportive of his flexible part-time hours.

Since being off work, the member continued to suffer back pain but no further surgical intervention was required. He took a large amount of pain relief medication.

When the member first commenced permanent part-time employment in 2008, his employer was using another default fund and he decided to stay with his old fund. The employer then changed its default fund on 1 April 2010 and invited all staff to join the fund. Under the fund's TPD policy, members were entitled to default cover if they joined the fund within 180 days of first becoming eligible.

If the member is considered first eligible from 2010 when the employer changed its default fund, then he would have joined within the required 180 day timeframe. Alternatively, if the member is considered first eligible from 2008 when he commenced employment with the employer, he would not have joined within the 180 day timeframe.

The insurer and trustee were of the view that the member had not joined the fund within the required 180 days and was not, therefore, entitled to default cover. On this point the Tribunal disagreed. It carefully considered the definition of "first eligible" in the policy and noted that it was the later of the employer becoming a participating employer of the fund and the employer first incurring Super Guarantee Charge obligations in respect of the member. The Tribunal held that the definition of "first eligible" must relate to the individual in question at that time. On this basis, the Tribunal was satisfied that the member was first eligible for insurance under the policy on 1 April 2010 when the fund became the employer's default fund.

Under the policy, the member had to be in "active employment" as at 1 April 2010 in order to have full cover.

The definition of "active employment" required the member to be "attending work and performing his... normal duties and hours without restriction due to illness or injury". Here the facts showed that the member was not performing his normal duties without restriction. His employer had provided him with a standing desk and remote home access to do his work while managing his back pain. Having concluded the member was not in "active employment" on the relevant date, he was only entitled to limited cover which excluded any pre-existing condition. It was not in dispute that the lower back pain was a pre-existing condition. The member was therefore denied the TPD insurance benefit but for different reasons to those of the insurer and trustee.

‒ D15-16U46

This article was first published in Super Funds, 1 October 2016.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.