Makari v TAL Life Ltd

By notice of motion filed on 16 September 2019, the defendant, TAL Life Ltd (TAL) seeks leave to amend its defence in accordance with a document annexed to the affidavit of its solicitor in support of the notice of motion.

The plaintiff, Mr Bakous Makari, consented to the proposed amendments to pars 10(h), 10(j) and 12 of the draft amended defence. Leave will be given to TAL to make those amendments. Mr Makari opposed leave being given to TAL to make the balance of the proposed amendments.

A hearing took place on the notice of motion on 24 April 2020.

Mr Makari commenced these proceedings by statement of claim filed on 6 February 2018. TAL filed its defence on 16 July 2018.

In his statement of claim, Mr Makari pleaded that, by policy of insurance dated 30 July 2010, he and TAL entered into an insurance contract in which TAL agreed to provide critical illness cover, income protection cover and business expense cover to Mr Makari. Mr Makari pleaded that it was a term of the policy that, in the event that he sustained a specified Critical Illness Event, which included cancer, TAL would pay him certain sums of money. Mr Makari specified the amount claimed as critical illness cover of $1,500,000, business expenses cover of $180,000 and income protection cover of $3,726,000.

Mr Makari alleged that, sometime in April 2011, he was diagnosed with chondrosarcoma, a type of cancer, in his lower left limb.

Mr Makari pleaded that, on or about 23 May 2011, he notified TAL of his condition and lodged a claim pursuant to the terms of the policy. He alleged that TAL denied liability for the claim on 3 April 2012.

In its defence, TAL alleged that Mr Makari had breached his duty of disclosure by failing to disclose certain matters concerning bilateral deep vein thrombosis and elevated PSA.

It is not necessary for the Court to address any issues that arise out of the terms of TAL's existing defence.

However, it is to be noted that, as well as alleging a positive defence based upon nondisclosure and other matters, TAL responded to par 7 of the statement of claim, which alleged that TAL's refusal to pay the benefit under the policy was a breach of contract, by pleading the following:

In conformity with the Equity Division's usual procedure, the parties have not filed the affidavits that have been served. For the purpose of determining TAL's notice of motion, the Court therefore is not in a position to take into account the existing evidence served by the parties. The Court was informed that Mr Makari has served an affidavit by himself, and a number of affidavits, which include medical evidence, have been served by TAL. But for any additional evidence that will become necessary, if TAL is given the leave to amend its defence, the evidence would now be complete. TAL suggested that it is likely that the Court would require that the matter be referred for mediation. If a settlement is not reached, the matter would have been ready to be set down for hearing.

The disputed amendments may be divided into two categories. The first involves the proposed addition of pars 4(b) and pars 16 to 18. The proposed new par 15 is not of itself contentious, as it merely pleads: "Further and in the alternative, the defendant pleads as follows".

The present chapeau to par 4 of the defence reads: "In response to paragraph 5 of the Statement of Claim, the defendant:"

Paragraph 5 of the statement of claim is the allegation that Mr Makari notified TAL of his condition and lodged a claim pursuant to the terms of the policy on or about 23 May 2011. (The reference to 23 May 2011 is an error, and the date on the form is 3 May 2011).

The contested additional subparagraph of par 4 of the defence is in the following terms:

This non-admission is expanded in the proposed pars 16 to 18 as follows:

The evident thrust of the proposed new defence is that TAL is not liable to pay the benefit claimed by Mr Makari because the illness or diagnosis that he notified in his Critical Illness Claim Form was a bone cyst, which is not a Critical Illness Event under the policy, and Mr Makari has never made a claim for a recognised Critical Illness Event.

This new defence would be of particular significance because more than six years have expired since both the time of Mr Makari's diagnosis and the time that he lodged his claim on 3 May 2011. While there may be some room for argument, there is a real likelihood that Mr Makari's claim for a benefit would be statute-barred, if he sought to lodge a new Critical Illness Claim Form now, or to file a new statement of claim, if his further claim was denied by TAL. It is to be noted in this regard that par 24 of the existing defence already pleads that the claim made by Mr Makari in his statement of claim is barred by s 14 of the Limitation Act 1969 (NSW), because his cause of action first accrued to him in April 2011 or 5 February 2012, with respect to the different types of cover provided by the policy.

Mr Makari's Critical Illness Claim Form dated 3 May 2011 was in evidence. It described Mr Makari's "illness/diagnosis" as "bone cyst". However, the form provided for the attachment of any relevant medical reports that led to the diagnosis. The box in relation to medical reports on the form is crossed to indicate that a report was annexed.

There was unanswered evidence tendered by Mr Makari that a Surgical Pathology Report dated 20 December 2010 was attached to the Critical Illness Claim Form.

The Surgical Pathology Report expressed the following conclusion in respect of Mr Makari's diagnosis: "Tissue left femur – Chondrosarcoma".

This diagnosis ultimately led to Mr Makari's left leg being amputated at the hip on 29 September 2011.

In support of its application for leave to amend, TAL relied upon s 64 of the Civil Procedure Act 2005 (NSW) (CPA), which relevantly provides:

TAL relied primarily on subsection (2) by reference to the following statement of principle by the then Chief Justice in Aon Risk Services Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [14] (footnotes omitted):

TAL also referred the Court to the following observations of the plurality at [71]:

TAL submitted that s 64(2) had the effect that it was mandatory for the Court to permit the amendment sought by TAL, because the amendment sought to more clearly specify an existing controversy at the time of the application. The substance of this submission was that, in its existing defence, TAL, in par 6, had already denied that it was in breach of the contract of insurance and that it was liable to indemnify Mr Makari under the policy. It follows, TAL submitted, that the proposed amendments did no more than to clarify and amplify that existing controversy.

I do not accept TAL's argument. If it were true, then the Court would be obliged to allow all amendments that sought to introduce a ground for a defendant to deny liability, wherever the existing defence contained a generally worded denial of liability.

As I read the existing defence, par 6 is no more than a general denial of liability, and in no real way have the issues sought to be raised by pars 4(b) and 16 to 18 been matters of controversy between the parties before TAL requested Mr Makari to give his consent to the amendments being made.

Further, the present is not a case of the type mentioned by French CJ in the extract set out above, where the parties in fact fight out a particular controversy at trial, and the Court has a mandatory obligation to ensure that the pleadings are amended so that they match the real dispute between the parties.

In my view, the Court has the discretion as to whether or not it should give leave to make the amendment sought by TAL under s 64(1) of the CPA. I consider that the amendments raise new issues.

The position taken by Mr Makari in opposition to leave being granted, was essentially that, particularly as they are raised at this stage of the proceedings when the matter is ready to go to trial, TAL has failed to identify the reason for its delay in raising the new defence, and it has refused to identify the consequences that flow if the amendments were to be allowed. He submitted that he has been left in a position where he is unable to fully assess the extent of the prejudice that may arise if the proposed amendments are allowed.

In particular, Mr Makari is concerned that, if he is required to make a new claim, that claim would be statute-barred.

In response to a question from the Court concerning the possibility that the granting of leave to TAL to make the amendment may require Mr Makari to take some new step that is statute-barred, the solicitor appearing for TAL responded (T 6.15-33):

It is not necessary for the Court to consider the validity of this response. It is at least not clear that, if Mr Makari is required to lodge a new claim form and commence new proceedings, he would not be statute-barred. That position appears to be inconsistent with the stance taken by TAL in par 15 of its existing defence.

It is also questionable whether Mr Makari would succeed in an argument that his new claim arose out of the same facts as the existing claim, for the purposes of s 64(3) and s 65 of the CPA, as it would at least be the case that different claims were involved.

Following further discussion between the Court and the solicitor for TAL, I said (T 7.20-25):

In the course of his response, the solicitor for TAL said (T 7.43-46):

I take that response to have the effect that TAL has consented to the position, that, if it is granted leave to make the amendments now under consideration, that will be on the condition that TAL takes no limitation point in respect of Mr Makari's response to the amendments.

That still leaves the necessity for the Court to consider whether, in the exercise of its discretion, it should grant TAL the leave to make the amendments that it seeks.

Mr Makari was not able to identify any prejudice that the amendments would cause him, other than the possibility that the ambiguity with which the amendments have been formulated would make it difficult for him to respond to the effect of the amendments with confidence. I accept the proposition that uncertainty in the way an amendment is formulated may give rise to prejudice that justifies the rejection of the application for leave to amend. That is particularly so where, as in the present case, the amendment is sought to be made after an injured plaintiff in the position of Mr Makari has invested fully in the preparation of his case.

As I see it, there are three difficulties with the formulation of the amendments under consideration.

The first is that the amendments imply that, for the purpose of the definition of Critical Illness Event in the policy, a bone cyst has a different meaning to cancer, so that a claim for a benefit based upon a diagnosis of bone cyst falls outside the policy.

To my mind, it is not at all clear that the meaning of bone cyst and cancer are mutually exclusive. I would have thought that the word “cyst" is simply a more general expression that could include "cancer".

The word "cyst" is defined in the Macquarie Dictionary relevantly as follows:

No doubt, the use by Mr Makari of the word “cyst” was medically unspecific, but when used by a layman it might reasonably be taken as a general description of the diagnosis that was capable of including the meaning cancer.

I will not grant TAL the leave sought at this stage. I am concerned, with respect, that this new defence may be little more than a verbal parlour game. I would reconsider TAL's application for leave to amend, but only if the proposed amendments were reformulated in a way which made clear why, on the proper construction of the policy, the definition of Critical Illness Event did not include a bone cyst, and further, why the description of Mr Makari's diagnosis as a bone cyst fell outside the definition of cancer as a matter of medical science.

The second problem with the proposed amendment is that it implies, but does not plead, that on the proper construction of the policy, a benefit is not payable unless the Critical Illness Claim Form specifies a Critical Illness Event in accurate medical terms, within the meaning of the policy. That position must be contrasted with the possibility that it is sufficient for the Critical Illness Claim Form to contain an appropriate notification, remembering that the form may be completed by a lay insured person, which is sufficient to enable TAL to respond by investigating its liability under the policy.

The third difficulty is that the proposed amendments do not deal with the allegation that, although the Critical Illness Claim Form completed by Mr Makari referred to his diagnosis as bone cyst, in fact Mr Makari attached the Surgical Pathology Report that formally identified his diagnosis as chondrosarcoma.

Mr Makari submitted, on the basis of some evidence, that from the inception TAL had in fact understood that the effect of the Critical Illness Claim Form was that Mr Makari had made a claim based upon the diagnosis of cancer. Whether or not that be so, I would not give leave for this amendment to go forward at this stage of the proceedings without the amendments being reformulated to make it clear whether or not TAL received the Surgical Pathology Report with Mr Makari's Critical Illness Claim Form, and if it did, why on the proper construction of the policy TAL was entitled to treat the claim as being solely for a bone cyst.

The second set of amendments that TAL seeks leave to make to its defence are contained in pars 19 to 23, which provide:

By letter to Mr Makari's solicitor dated 5 August 2019, TAL's solicitors provided the following further particulars of the proposed amendment:

It is appropriate to make a number of preliminary comments concerning the particulars provided by TAL.

Take particular (a) first. The claim that Mr Makari "experienced increasing pain in the femur” may imply, by use of the word “increasing”, that he experienced that pain before the date the policy was issued. The "signs or symptoms" that TAL wishes to allege "became apparent" were only an increase in signs or symptoms that existed at the date of the policy. The allegation in particular (b) is that Mr Makari "experienced difficulty standing", and particular (c) is that he "experienced difficulty sleeping". Unless the pleading makes clear that those signs and symptoms first arose after the date of the policy, then, if the fact was that Mr Makari had experienced those signs and symptoms before the date of the policy, TAL's allegation would be no more than that those continuing signs and symptoms did not become apparent after the issue of the policy.

The particular in par (d), that Mr Makari told his doctor on or about 19 October 2010 that he felt he was not “getting anywhere" and needed a solution, cannot reasonably be categorised as a sign or symptom of any medical condition.

Nor can the allegation in particular (e), that Mr Makari was told on or about 19 October 2010 that he should have an excision of the bone system, reasonably be categorised as a sign or symptom.

The evidence on the application established the background to this application for leave to amend TAL's defence as follows.

For some time before TAL issued the policy to Mr Makari it was known that he was suffering from the bone cyst that was ultimately diagnosed, after the policy was issued, as being cancerous, leading to the amputation of Mr Makari's left leg to the hip. Mr Makari disclosed the existence of the cyst in his application for the policy, with evidence that medical opinion was that the cyst was benign. TAL investigated the matter and satisfied itself that it should issue the policy notwithstanding the disclosure. It was only after the policy was issued that the true cancerous nature of the cyst was diagnosed.

The evidence contained a letter, addressed “to whom it may concern”, by Mr Makari's treating orthopaedic surgeon, Dr Paul Stalley, dated 17 November 2011. The letter stated the following:

Section 47 of the Insurance Contracts Act 1984 (Cth) provides:

Mr Makari submitted that the effect of this provision was that, as he was not aware of the sickness or disability constituted by his cancerous bone cyst at the date the policy was issued to him by TAL, TAL is prohibited from relying upon the exclusion pleaded in proposed par 20 of the amended defence, because that condition would have the effect of excluding TAL's liability under the policy within the meaning of s 47 of the Insurance Contracts Act.

Mr Makari submitted that the consequence of the application of s 47 is that the amendments proposed by TAL are futile and should not be allowed.

As I understand it, Mr Makari also submitted that, even though he was not, at this stage, able to identify any specific prejudice that would flow to him if leave were granted to make the amendments, he was likely to, in fact, suffer prejudice as a result of his needing to respond to the amendments at this late stage in the proceedings.

It appears from TAL's submissions that it proposes to argue that s 47 of the Insurance Contracts Act does not affect the validity of the condition in the policy on which TAL seeks to rely. That, as I understand it, is on the basis that, if liability is excluded because of a diagnosis made after the date of the policy, by reason of signs or symptoms occurring in the three months after the date of the policy, that exclusion of liability will not involve the exclusion of liability for a sickness or disability existing at the date of the policy, of which Mr Makari was not aware, or would not reasonably have been expected to be aware.

TAL submitted that it would not be appropriate for the Court to decide the legal question of whether s 47 of the Insurance Contracts Act had the effect of prohibiting TAL from relying upon the exclusionary condition on the present application to amend, and that it is a question that should be decided at the hearing on the basis of the facts that may be proved.

As TAL did not suggest that, as a matter of fact, the bone cyst was in reality benign up to the date that the policy was issued, and only became cancerous after that date, with the diagnosis of cancer being made by reason of signs or symptoms first experienced by Mr Makari after the date of the policy, it is extremely doubtful that the proposed new defence is sound. It seems to be clear in fact that the bone cyst that was ultimately diagnosed as being cancerous was also cancerous at the date the policy was issued. It seems to be highly likely that, at most, there was a continuation or progression of the signs and symptoms that had led Mr Makari to seek medical assistance at the outset, which ultimately led to the investigation that generated the cancer diagnosis.

I do not think that it would be appropriate for the Court, on this amendment application, to refuse leave to amend on the basis that the proposed defence, as particularised, could not succeed because of the application of s 47 of the Insurance Contracts Act. The reason is that the argument as to whether or not the section applies is likely to depend upon precise findings of fact concerning the nature and timing of the signs and symptoms experienced by Mr Makari after the date of the policy, in relation to those that he experienced before that date.

I am very concerned, however, that if the Court were simply to give TAL the leave to amend that it seeks, that will subject Mr Makari to increased costs, delay and anxiety that will ultimately prove futile, as Mr Makari has submitted.

I do not consider that it would be unduly prejudicial to Mr Makari if TAL was given leave to amend on a basis that left TAL able to argue that the condition pleaded in the proposed par 20 excused it from liability, on the basis of relatively narrowly defined and clearly provable facts. I am concerned that, if the Court simply gave TAL the leave that it seeks, it might open the door to a presently unidentified factual dispute that could cause considerable delay and increase in costs.

It would appear that, if the condition first occurred within the three months after the Plan start date, so that the insured did not suffer from the condition at the date the policy was issued, the exclusion would not offend s 47 of the Insurance Contracts Act. On the other hand, if the insured suffered from the condition at the date of the issue of the policy, but was not actually aware of it, and ought not reasonably to have been aware of it, the attempt to exclude liability if the condition was “diagnosed” within the first three months almost certainly would offend against s 47.

The problem in the present case is that TAL wishes to rely upon that part of the condition that speaks of "the signs or symptoms leading to diagnosis became apparent to the Life Insured within the three months”. It is that reliance that introduces uncertainty into the forensic consequences of TAL being given the leave to amend that it seeks.

In strict drafting terms, the amendment proposed by TAL does not make clear whether TAL accepts that the condition that was later diagnosed as cancer was in fact in medical terms the same condition from which Mr Makari suffered at the date the policy was issued.

I do not think that TAL should be given leave to amend its defence at this late stage of the proceedings unless the relevant amendments make clear TAL's position on that issue. I would not permit TAL to make an amendment that in fact contained an ambiguity which could lead to a dispute on the medical evidence as to whether the condition that was diagnosed in fact was the same condition that existed at the date the policy was issued.

If TAL's proposed amendment made it clear that TAL accepted that Mr Makari's condition existed at the date the policy was issued, then there would be a basis for TAL to argue that the exclusion survived the operation of s 47 of the Insurance Contracts Act, without there being an unexpected need for medical evidence on that issue.

The second potential source of forensic difficulty in permitting TAL to make the amendment that it seeks arises out of the words in the exclusion whereby the signs or symptoms must become “apparent” within the three months. The natural meaning to give to those words is as if the word "first" was inserted before "became apparent". If the signs or symptoms had been apparent before the policy was issued, that is a matter that should ordinarily be dealt with under the insured's duty of disclosure.

If TAL is to be given leave to amend its defence, in a manner that permits it to argue that its liability is excluded by the exclusion, and that that result survives the operation of s 47 of the Insurance Contracts Act, then TAL's pleading should be precise as to the physical nature of the signs and symptoms, whether they first became apparent after the date of issue of the policy, whether they materially differed from the signs and symptoms that existed before that date, and whether it is alleged that the signs and symptoms led to the diagnosis of cancer, when the signs and symptoms that were apparent before the issue of the policy would not have done so.

TAL has not been given an opportunity to make submissions to the Court concerning the issue of whether the Court should defer ruling on its application to amend until TAL has revised the terms of its proposed amended defence to deal with the problems that I have now raised.

When I publish these reasons for judgment, I will give TAL an opportunity to respond to the problems that I have raised concerning the formulation of the amendments directed at the use of the expression “bone cyst” on Mr Makari’s application form and TAL’s reliance on the exclusionary condition.

I will accordingly not rule on TAL’s amendment application now. I will permit TAL to deliver further written submissions to Mr Makari and my associate within 14 days, and if it wishes, to provide a revised draft amended defence within that time.