An insurer must act fairly and reasonably in its process of consideration and its decision.
The NSW Court of Appeal has upheld a decision by the NSW Supreme Court that an insurer’s rejection of a member’s claim for a total and permanent disablement (TPD) benefit was not valid and effective (see MetLife v Hellessey  NSWCA 307).
Considering the primary judge’s reasoning in detail, the Court agreed that the insurer’s process of consideration and treatment of the lay witness material was itself sufficient to sustain the conclusion that its rejection of the member’s claim was invalid and that the insurer had breached its obligation to act reasonably and fairly.
In particular, the Court held that the primary judge had been right to find that an insurer’s obligation to act reasonably and fairly applies to the process of consideration of a claim, as well as the decision that is ultimately made.
The respondent, Bernadette Hellessey, was an officer in the NSW Police Force and a member of the First State Superannuation Scheme (Fund).
Under the group life insurance policy held within the Fund, Ms Hellessey was entitled to a TPD benefit if, having been absent from her occupation as a police officer through injury or illness for six consecutive months, she provided proof to her insurer’s satisfaction that she had become incapacitated to such an extent as to render her unlikely ever to engage in any gainful profession, trade or occupation for which she was reasonably qualified by reason of education, training or experience.
Having been subject to a number of traumatic and distressful events in her duties as a police officer, Ms Hellessey applied for a TPD benefit on 10 February 2012, supported by a statement from her psychiatrist that she suffered from post-traumatic stress disorder (PTSD).
Throughout the years that followed, a number of procedural fairness letters were exchanged between the parties and Ms Hellessey was advised on three occasions that her insurer – MetLife Insurance Ltd (MetLife) – had not formed the opinion that Ms Hellessey satisfied the TPD definition and that her claim was rejected.
At the time of its third rejection of Ms Hellessey’s claim, the material before MetLife consisted of medical opinions (including opinions that she suffered from PTSD and major depressive disorder and was unlikely to be able to engage in any gainful employment), a vocational assessment, and evidence from various sources as to Ms Hellessey’s recreational activities, in particular, her attendance at and participation in horse and pony-related shows (with her horse ‘Fairymead’) in the period from early 2011.
MetLife’s third rejection letter stated that it acknowledged that Ms Hellessey’s doctors had “reached a different view” but that it had “identified its concerns about the weight to be given to those opinions … because MetLife considers the practitioners have not been provided with full or accurate accounts of the extent of the member’s activities”. By the member’s activities, MetLife meant that the practitioners had not been provided with full or accurate accounts of Ms Hellessey’s horse-related shows and events, horse clubs, Facebook posts and shopping activities.
In addition, although it was in possession of lay-witness evidence as to the limited involvement of Ms Hellessey in horse shows and events, MetLife stated that it did not intend on “providing an exhaustive analysis of every affidavit” and “we note that the member’s affidavit falls short of adequately addressing or does not address at all, issues raised in MetLife’s letters … For example the member has not addressed in any way her involvement with ‘Fairymead’”.
The challenge to MetLife’s rejection made its way to the NSW Supreme Court in 2017 where the primary judge (Robb J) held that:
- it was not a reasonable or proper approach for MetLife to reject all of Ms Hellessey’s lay evidence in the manner described in its third rejection letter;
- MetLife had proceeded without giving a body of material, which included credible and independent witness statements, more than “perfunctory consideration”,
and, on that basis, MetLife’s third rejection of Ms Hellessey’s claim was invalid - Ms Hellessey had been so incapacitated as to satisfy the TPD definition.
Grounds for appeal
MetLife appealed. Whilst it did not seek to appeal the findings that it did not properly consider the material before it, it argued the following grounds for appeal:
- Ground 1: The primary judge:
- applied the incorrect legal test to determine whether MetLife’s decision was valid; and
- relied on irrelevant considerations and evidence in reaching his decision.
- Ground 2: The primary judge:
- failed to properly consider and apply the onus on the member to provide evidence in support of her claim;
- failed to consider and determine the question of whether, on the evidence available to MetLife, it was ‘unreasonable’ for MetLife not to have been satisfied of the matters required by the TPD definition; and
- imposed too high a standard of analysis on the decision made by MetLife and this resulted in unfairness to it.
Findings of the Court of Appeal
The Court of Appeal (consisting of McColl JA, Meagher JA and White JA) unanimously rejected MetLife’s appeal on all grounds and held that the primary judge’s finding that MetLife breached its obligation to act reasonably and fairly in its treatment of the lay witness material was itself sufficient to sustain the conclusion that MetLife’s third rejection of Ms Hellessey’s claim was invalid.
In dismissing the appeal, the Court made some helpful comments (when considering Grounds 1(a) and 2(b)) in relation to the legal test that will be applied when assessing whether or not an insurer’s decision can be set aside.
Ground 1(a): What is the correct legal test?
MetLife submitted that, in considering whether an insurer’s decision is valid, the correct legal test is whether or not a decision is open to an insurer acting reasonably and fairly in the consideration of a claim.
However, the primary judge – MetLife argued – had incorrectly formulated and applied two tests, each of which departed from the test stated in the leading authority, Hannover Life Re of Australasia Ltd v Sayseng  NSWCA 214.
The Court of Appeal disagreed with MetLife and held that the primary judge was correct to hold that:
- the obligation to act reasonably and fairly applies to the process of consideration of a claim, as well as the decision made;
- the process or decision is only to be impugned if it exceeds the “area of decisional freedom” within which “reasonable minds may reach different conclusions”;1 and
- a determination should be sufficiently reasonable in relation to the logic and judgments applied to the consideration (which acknowledges an insurer’s decisional freedom, except by reference to a minimum standard of reasonableness).
Liability under the policy turned on MetLife being satisfied as to the extent of Ms Hellessey’s incapacity. Ultimately, it was held that both in considering that question and in determining whether it was so satisfied, MetLife was required to act reasonably and fairly and a breach of one or more of these overlapping implied obligations would deprive the decision of contractual effect.
Ground 2(b): Must an insurer act reasonably and fairly in reaching its opinion?
The basis of MetLife’s argument was that, given the findings in Hannover, a decision could only be held to be invalid if the conclusion was not reasonably or fairly open to an insurer and that the primary judge “focussed on the process” rather than the body of evidence before MetLife.
MetLife argued that the primary judge should have considered whether it was ‘unreasonable’ for MetLife not to have been satisfied of the matters required by the TPD definition, as opposed to considering whether MetLife acted reasonably in declining to form an opinion that the matters required by the TPD definition were satisfied.
Again, the Court of Appeal disagreed, stating that:
- for the reasons set out in its conclusion on Ground 1(a), MetLife’s submission was wrong in law - an insurer’s decision may be set aside in both circumstances, ie if the process of consideration is not undertaken reasonably and fairly or the decision is not taken reasonably and fairly;
- an opinion that would not be open to an insurer acting reasonably and fairly will not be binding on the claimant, but that does not mean that an insurer’s opinion will be binding on the claimant if the opinion is one that would be open to an insurer acting reasonably and fairly, if the insurer in question did not act reasonably and fairly in reaching its opinion; and
- only if the insurer has acted fairly and reasonably in assessing and determining the claim will the insurer’s decision - that it is not satisfied that the claimant has met the requirements of the TPD definition - be binding.
A court will not take issue with an insurer’s decision simply because there were other conclusions that were available to the insurer on the evidence (ie the court has acknowledged an insurer’s decisional freedom).
However, the judgment is a helpful reminder that an insurer should act reasonably and fairly throughout the whole claim process, otherwise it will run the risk of its decision being set aside. Even if the ultimate decision was one that a reasonable insurer could have reached, if the process that sat behind that decision was unreasonable or unfair, the insurer will bear the same risk.
An insurer should:
- consider all of the material before it and give the appropriate weight to the available evidence;
- regard all evidence, or where evidence has been disregarded, have a clear justification for doing so; and
- ask more questions if there are gaps in the evidence that need to be filled.
- Minister for Immigration and Citizenship v Li (2013) 249 CLR 332;  HCA 18 at ; cf at  (Gageler J).