MX v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme & Anor

1. [1]

   The first defendant, FSS Trustee Corporation (“FSS”), is trustee of the First State Superannuation Scheme (“the Scheme”), the superannuation scheme for NSW Police. The plaintiff is a member of the Scheme. The second defendant, MetLife Insurance Limited (“MetLife”), is the insurer providing Total and Permanent Disablement (“TPD”) cover for members of the first defendant under a policy of insurance (“the Policy”).

2. [2]

   The plaintiff once served as an undercover policeman. These reasons still conceal his identity. During his Police service he claims that he was exposed to many violent and traumatic events and incidents. For example in 1997 he says that he accepted an assignment that starkly realised the risks of undercover operations.

3. [3]

   He says that disguised as a drug dealer, he was sent inside a house to buy cannabis. He carried money and a wire to relay to other police his attempt to entrap the dealers, men with established reputations for unlawful killing.

4. [4]

   But the plan misfired. The dealers began to rob him. They threw the plaintiff to the ground and kicked him. The dealers hit the plaintiff with a revolver, then placed it close to his head and threatened to shoot him. The plaintiff was also concerned for the safety of another policeman with him, who was also being ill-treated. The plaintiff was ultimately rescued.

5. [5]

   The plaintiff claims that as a result of this and a number of other highly stressful incidents, he commenced to suffer, and still suffers, chronic post-traumatic stress disorder.

6. [6]

   He continued to work for the Police in undercover and the other roles for another 14 years as is described here. He last worked as a policeman in September 2010 and ultimately left the force in 2011.

7. [7]

   The defendants do not contest that the plaintiff experienced a number of violent and traumatic events in the course of his Police service. Nor or do they contest his diagnosis of PTSD. But they do contest the effects that his PTSD has on the plaintiff’s capacity for remunerative employment.

8. [8]

   In 2012, the plaintiff lodged a claim with FSS and MetLife that he was TPD within MetLife’s insurance policy and was therefore entitled to a benefit of $634,371 under that Policy. In December 2014 and again in June 2017, MetLife rejected the plaintiff’s claim, concluding he was not totally and permanently disabled within the Policy.

9. [9]

   The plaintiff challenges both MetLife’s decisions. He contends that MetLife failed to consider and decide the plaintiff’s claim in accordance with its applicable duties. If the plaintiff fails, the proceedings are at an end, subject to appeal. If the plaintiff succeeds, one course is for the Court to proceed to consider whether or not the plaintiff qualifies as TPD within the meaning of MetLife’s Policy at the relevant time for assessment.

10. [10]

    These proceedings were heard on 15 June and 4 August 2017. On 15 June 2017, Mr Brian Rayment QC and Adam Johnson, instructed by Slater & Gordon, appeared for the plaintiff. On 4 August 2017, Mr Richard Cavanagh SC of counsel appeared in place of Mr Rayment QC. On 15 June 2017, Mr Scott Robertson of counsel, instructed by Thomson Geer, appeared for the first defendant. He was excused and did not appear on 4 August. Mr Julian Sexton SC and Stephen Walsh of counsel, instructed by HWL Ebsworth, appeared for the second defendant on both days. The matter was carefully presented by the legal representatives on all sides and the Court was much assisted by their submissions.

11. [11]

    In March 2017, Stevenson J decided in these proceedings that there should be a separate determination of the following questions:

12. [12]

    Just before the present hearing, MetLife made its second decision, to decline the plaintiff’s claim. Argument on the separate questions was conducted as a challenged to both decisions.

13. [13]

    The plaintiff’s case did not challenge any decision FSS had made. FSS submitted that the separate questions did not directly concern it. FSS did not wish to be heard and was excused.

14. [14]

    Although the questions address MetLife’s statutory and general law duties, the questions seem to have been crafted to deal with a possible breach of FSS’s statutory duties under the Superannuation Industry (Supervision) Act 1993 (Cth) s 52(2)(d). But the questions were in fact argued only in relation to possible breaches of MetLife’s general law duties.

15. [15]

    When the proceedings opened, the plaintiff sought a suppression order under the Court Suppression and Non-Publication Orders Act 2010, so his name would not be published either in this judgment or in connection with the proceedings. The basis for the order was firstly a letter dated 6 June 2017 (Exhibit A) from Detective Chief Inspector B. Janssen of the Special Services Group of New South Wales Police. Detective Janssen confirmed that between 1995 and his final date of service in 2011, the plaintiff had been involved in the investigation of both serious and organised crime. Detective Janssen said that, as a result of those duties, the plaintiff’s personal details have been suppressed on a number of public records. Detective Janssen advised that the suppression of those details continues whilst the plaintiff is on medical retirement. Exhibit A was supplemented by an affidavit filed later in the proceedings to substantially similar effect.

16. [16]

    Pending the Court making its final decision in this matter, the Court made a temporary suppression order on 15 June 2017 and ordered that the plaintiff only be referred to by the letters “MX”:

17. [17]

    The plaintiff also filed an affidavit in support of his claim for a suppression order, sworn on 28 June 2017. The affidavit well justifies the application. The plaintiff served in the NSW Police Force for 22 years. Most of this time he worked in undercover and covert duties. On a daily basis he dealt with dangerous criminals, who are capable of carrying out acts of violence. He has variously served in a regional drug squad, an investigator in drug trafficking and organised crime, with State Crime Command in the Drug Squad and Gang Squad and in the Special Services Group – Undercover Branch.

18. [18]

    In the course of his duties he received direct and credible threats of retribution. He has investigated the activities of motorcycle gangs who have, in response, actively sought out the private home addresses of investigating police officers.

19. [19]

    The plaintiff’s identity, his wife’s identification details, and their home address are suppressed on State and Commonwealth Government registers.

20. [20]

    On the basis of Exhibit A and the affidavit evidence, the Court is satisfied that this suppression order should now be continued. This judgment has accordingly been prepared without referring to the plaintiff by name or referring to any other matters which would be likely to reveal the plaintiff’s identity. The Court has attempted to anonymise these reasons completely in a way which will not reveal his identity.

21. [21]

    But by indirect reference, the plaintiff’s identity may possibly be revealed. For that reason, the Court will, in the first instance, publish these reasons for decision only to the parties and direct that they not be disclosed further. The Court will then direct the parties to consult with one another about whether or not the reasons can be published more widely in that form or whether further modification is required before publication.

22. [22]

    The Policy. The plaintiff was a member of the FSS Fund. MetLife issued to FSS, the trustee of the Scheme, an insurance policy which was fully entitled “Group Life Insurance – Police Blue Ribbon Policy” (“the Policy”). It is not in contest that the Policy, which applies to the plaintiff’s claim, commenced on 1 July 2005 and terminated on 30 September 2011.

23. [23]

    There is no dispute that the Policy applied to the plaintiff as an “Insured Member”, as he was a police officer who was a member of the Scheme. Insured Members are covered under the Policy for death and TPD benefits (clause 2.1). If an Insured Member suffers from TPD while the Policy is in force, then, subject to the Policy, MetLife pays the Policy Owner, defined in Schedule 1 of the Policy as FSS, the sum insured in respect of that member, subject to the limitation of the Benefit payable to the Automatic Acceptance Level (see clause 2).

24. [24]

    A Benefit of $634,371 is payable pursuant to clause 2 if the plaintiff were to be successful. The amount of the Benefit payable is calculated in accordance with Schedule 2D of the Policy, by reference to the plaintiff’s age, a multiple of his salary, and the proportion of full time hours he worked and his salary at the time of the insured event, namely, when the plaintiff’s symptoms became manifest: see MetLife Insurance Limited v FSS Trustee Corporation and Maund [2014] NSWCA 281 at [6], [15], [109] and [112].

25. [25]

    The Policy defines TPD in Schedule 1, Item 6(a) in the following terms:

26. [26]

    Because of the use of the words “reasonably qualified by education, training or experience”, clauses such as clause 6(b) are sometimes referred to as “ETE” clauses. They have been extensively interpreted by the Court.

27. [27]

    The Policy provides a claims mechanism delete in clause 7. It is a condition of payment of any Benefit under the Policy that the “Insured Member” provides MetLife with “such evidence to substantiate the claim as we may reasonably require. The Insured Member must submit at our expense to a medical examination conducted by a legally qualified medical practitioner appointed by us as we deem necessary”.

28. [28]

    All benefits payable in respect of an Insured Member are paid to the Policy Owner (FSS) (clause 8). Where MetLife does not agree with the Policy Owner about paying the benefit, or an Insured Member disputes a decision in relation to payment of the benefit, that dispute “must be referred to the Claims Review Committee” (clause 9.1). MetLife agrees to abide by the decision of the Claims Review Committee (clause 9.3).

29. [29]

    The Trust Deed and Rules of the Scheme were also in evidence. But any decision of FSS under the Trust Deed and Rules in relation to the plaintiff is not the subject of the present challenge. It is not necessary to consider the those rules.

30. [30]

    The Treaty. MetLife was also a party to a reinsurance treaty with The Automatic Group Life Reinsurance Treaty – Australia (“the Treaty”) and RGA Reinsurance Company of Australia Limited (“RGA Australia”), which reinsured MetLife’s liabilities under the Policy. The plaintiff sought production from MetLife of documents relating to its reasons for refusing the plaintiff’s TPD claim. The documents produced in response revealed for the first time to the plaintiff the Treaty and MetLife’s dealings with RGA Australia about his claim.

31. [31]

    The plaintiff amended his Statement of Claim to add allegations that the Treaty gave RGA Australia veto power over MetLife’s decisions with respect to the plaintiff’s claim. The operation of the Treaty in relation to MetLife’s decisions became a primary issue in the present contest.

32. [32]

    These reasons deal with the plaintiff’s challenges to both MetLife’s 1 December 2014 and 9 June 2017 decisions. They deal with the various grounds of challenge to the first then the second decisions.

33. [33]

    The challenges to the first decision are analysed in the following order: (1) issues relating to the Treaty, including issues relating to the competing legal advices given to MetLife before the first decision; and (2) issues relating to MetLife’s formation of the opinion comprising the first decision and its reasons for that decision.

34. [34]

    The challenges to the second decision are analysed in the following order: (1) issues relating to the Treaty; and (2) issues relating to MetLife’s formation of the opinion comprising the second decision and its reasons for decision. There was no issue of conflicting legal opinions relating to MetLife’s second decision. A detailed narrative of relevant facts precedes each issue to be decided.

The Plaintiff, the NSW Police and the Claim – An Overview

1. [35]

   The following is an overview of relevant history, representing limited findings on what appear to be uncontentious matters. The separate questions for determination mostly only require the Court to identify the material before MetLife as a decision maker, without the Court making findings on contentious issues of fact.

2. [36]

   The plaintiff was fully employed in unskilled, semi-skilled and clerical occupations between leaving school in 1986 and joining the NSW Police in 1988. He worked as a trolley collector for a supermarket, a factory hand at a soft drink manufacturer and as a clerk in the NSW public service. After commencing with the Police in July 1988 and completing his training the plaintiff was allocated to General Duties policing between 1988 and 1994.

3. [37]

   Thereafter he worked in the Drug Squad, as a Drug Trafficking and Organized Crime Investigator, at State Crime Command and in the Special Service Group principally as an undercover officer. By the time of his retirement he had achieved the rank of Detective Sergeant.

4. [38]

   The incident referred to earlier in these reasons occurred in 1997. The plaintiff says he was involved in a number of other dangerous, stressful or demanding situations in the course of his Police duties both before 1997 and from 1997 until his medical discharge. Apart from the plaintiff’s dangerous undercover work some of those alleged stresses related to the plaintiff’s claimed exposure to evidence relating to the investigations of paedophile rings, the prosecution of child pornography crimes and the attendance at the scenes of recent violent suicides.

5. [39]

   On 2 September 2010, the plaintiff consulted with his general practitioner (who will be referred to in these reasons as “the General Practitioner”), who certified him as unfit to return to work. A period of six months absence from work followed up to 2 March 2011. On 13 October 2011, he was finally medically discharged from the Police. In March 2012, he commenced the claim process that resulted in these proceedings.

6. [40]

   ETE clauses are commonly spoken of as having a “first limb” and a “second limb”. The first limb relates to whether the claimant qualifies as being absent from his occupation with the Police through illness or injury for six consecutive months. It is not in contest that the period between 2 September 2010 and 2 March 2011 qualifies under the first limb of the Policy. The second limb is whether the plaintiff qualifies as TPD within the terms of the ETE clause. The issues in this case relate to whether or not the plaintiff qualified under the second limb as at the date of assessment, which is 2 March 2011.

7. [41]

   After the plaintiff applied for medical discharge, he was referred by the Police to Dr Prior, a psychiatrist. Upon medical discharge, the applicable industrial award entitled the plaintiff to a partial Permanent Disablement Benefit of $556,788, separately from the benefit the subject of these proceedings. This award based benefit was paid to him. The plaintiff was referred to Dr Wilkins, a psychiatrist, soon after his medical discharge. Dr Wilkins diagnosed the delayed onset PTSD and certified the plaintiff as unfit to return to work with the Police.

8. [42]

   The plaintiff was seen by a number of doctors in connection with a workers’ compensation claim he made. He was seen by: Dr George, a psychiatrist, at the request of the workers’ compensation insurer; Dr Anderson, a psychiatrist, who reported to the plaintiff’s solicitors in the workers’ compensation proceedings; Dr Adams, a psychiatrist, who he saw at the request of the plaintiff’s solicitors; and Dr Rose, a psychiatrist, who was appointed as the workers compensation Medical Assessor.

9. [43]

   Aspects of these reports are referred to later in these reasons. But the reports of Dr George, Dr Anderson, Dr Adams and Dr Rose generally agreed upon the diagnosis of PTSD and that the plaintiff could not return to work with the Police. But these reports differed as to whether or not the plaintiff could, in the future, engage in work outside the Police.

10. [44]

    These reports were obtained for the purposes of the plaintiff’s workers’ compensation proceedings to assess whether or not the plaintiff had reached the “maximum medical improvement”, a term which is defined under the WorkCover Guidelines. Achieving maximum medical improvement means that the symptoms had been present for three months or more and were unlikely to improve by more than 3 per cent of a defined measure of Whole Person Impairment, over the ensuing 12 months. MetLife points out that this is a much shorter time frame than the period contemplated by the TPD definition. These reports did not address the question of “unlikely ever” in the ETE definition of TPD in the Policy.

11. [45]

    The plaintiff has been paid workers compensation payments since he left the Police. He and his wife now support their dependent children on these workers compensation payments and such income as she can earn in addition herself.

12. [46]

    The plaintiff submitted the TPD claim under the Policy to the FSS in March 2012. It took almost three years for MetLife to make the first decision. FSS commenced its assessment by collating the initial claim documentation and forwarding it to MetLife in June 2012.

13. [47]

    Within a short period, MetLife had informed its reinsurer, RGA Australia, of the plaintiff’s claim. As will be seen, RGA Australia was kept closely informed by MetLife throughout the handling of the plaintiff’s claim.

14. [48]

    In July 2012, video surveillance of the plaintiff had been undertaken. This showed that, from time to time, he conducted volunteer duties at a Surf Live Saving Club (“the SLSC”).

15. [49]

    MetLife received medical reports and information from the plaintiff via the Trustee. MetLife also obtained the workers’ compensation file relating to the plaintiff. This file included: the reports of Dr George, Dr Anderson and Dr Rose; factual interviews with the plaintiff and his various Police supervisors; surveillance reports and interviews undertaken at the workers’ compensation insurer’s request (these indicated the plaintiff regularly performed voluntary work serving drinks behind the bar and was a contact person for events at the SLSC); and vocational assessment reports on the plaintiff.

16. [50]

    The vocational assessment suggested that work in a clerical or administrative role or as an insurance consultant or law clerk would be suitable options given the plaintiff’s skills obtained in the course of his Police career and previous experience as a clerk working for NSW Water Board.

17. [51]

    MetLife requested Associate Professor Kaplan, a psychiatrist, to review the material, to examine the plaintiff, to report on the plaintiff’s condition and assess whether the plaintiff would be able to return to some form of paid work in the future. Dr Kaplan considered that there had been some improvement, and that the plaintiff was not as socially withdrawn and isolated as reported by Dr Wilkins, the plaintiff’s treating psychiatrist, and the other workers’ compensation psychiatrists. Dr Kaplan could see no reason why the plaintiff could not return to some form of work providing it did not involve a return to Police duties.

18. [52]

    In the course of MetLife’s investigation, it provided Dr Wilkins with the vocational assessment reports and Dr Kaplan’s reports. In response, Dr Wilkins reiterated his view that the plaintiff’s psychological symptoms were severe. Dr Wilkins stated that the plaintiff was not capable of performing the vocational roles identified on a regular basis and that the plaintiff would never be able to return to full time employment.

19. [53]

    By March 2014, MetLife had decided it had investigated sufficiently and that it possessed enough material to form an opinion about the plaintiff’s claim. So on 7 March 2014, MetLife sent the plaintiff, what MetLife calls in its claims administration, a “procedural fairness” letter. This letter gave the plaintiff notice of the material MetLife intended to take into account in reaching its decision. It invited the plaintiff to provide MetLife with any further material or submissions he wished MetLife to take into account. The procedural fairness letter also provides useful assistance in identifying the material before the decision maker.

20. [54]

    The plaintiff’s solicitors responded to the procedural fairness letter on 4 June 2014. They took issue with Dr Kaplan’s report. In reply, they enclosed the reports of Dr Anderson and Dr Adams.

21. [55]

    Between June and December 2014, MetLife obtained conflicting legal opinions about the course it should take and engaged closely with its reinsurer RGA Australia. Both of these courses of action led to the challenges dealt with later in these reasons.

22. [56]

    MetLife first refused the plaintiff’s TPD claim on 1 December 2014 (“the first decision”). Its reasons for the first decision were communicated to the plaintiff in a letter of that date. In broad terms, MetLife was not satisfied, from the material provided to it, that the plaintiff was TPD as defined within the Policy.

23. [57]

    MetLife noted in its first decision: (a) the cautiously optimistic prognosis of the medical evidence that there had been some improvement in the plaintiff's condition since ceasing work with the Police; (b) the absence of any opinion in the evidence as to the likely period of any incapacity and of any reliable opinion as to prognosis; (c) Dr Adam’s view that the plaintiff was able to concentrate without difficulty; (d) the plaintiff’s regular activities at the SLSC and social interactions, which MetLife reasoned was inconsistent with the earlier reports of severe emotional distress and social withdrawal reported by Dr Wilkins and others; (e) Dr Kaplan’s view that there was inconsistency between the plaintiff's self-report and demonstrated capacity in the surveillance; (f) the various vocational assessments that indicated there were roles to which the plaintiff was suited by his education, training and experience outside the Police; (g) Dr Kaplan’s opinion that the plaintiff would be capable of performing work in such roles; and (h) the plaintiff’s relatively young age.

24. [58]

    The conclusion to MetLife’s 1 December 2014 letter was brief. MetLife said in the final paragraph:

25. [59]

    These reasons first deal with the reinsurance issues relating to the first decision. This account of events leading up to, and the reasons for, the first decision are sufficient to address the reinsurance issues. A narrative of relevant events occurring between the first and second decisions appears later in these reasons.

26. [60]

    The contractual duties of insurers to consider and form opinions about TPD claims under ETE clauses underlies much of the Court’s analysis in these reasons. So those duties are stated next.

Applicable Legal Principles – Duties of Insurers as Decision Makers

1. [61]

   The law defining the scope of the duties of decision makers dealing with claims by members of superannuation funds for whom the trustee has obtained insurance cover is well-developed. That law may be shortly stated. This statement of the law only deals with the legal duties applicable to an insurer in the position of MetLife, as the separate determination relates only to its obligations and not those of FSS.

2. [62]

   The Court reserved judgment in this matter on 4 August 2017. After that date, the Court of Appeal decided Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233 (“Jones”). The parties drew that decision to the Court’s attention.

3. [63]

   The Member’s Standing to Sue. A member of a superannuation fund for whom the trustee has obtained insurance cover has standing to seek an order that the insurer pay the trustee the amount due to the trustee under the insurance contract: Erzurumlu v Kellogg Superannuation Pty Ltd [2013] NSWSC 1115 (“Erzurumlu”) at [54]. The member has standing to bring a claim both against FSS and under the Policy against the insurer: Wyllie v National Mutual Life Association of Australasia Ltd (1997) 217 ALR 324 (“Wyllie”), at 337-338.

4. [64]

   The Insurer’s Duty of Utmost Good Faith. An insurer dealing with a claim against it owes an insured a duty of utmost good faith, sometimes also described as a duty of good faith and fair dealing: Hannover Life Re of Australia Ltd v Sayseng (2005) ANZ Ins Cas 90-123; [2005] NSWCA 214 (“Sayseng”) at [36]. The duty of utmost good faith does not impose obligations in the abstract; it depends on the contractual rights and obligations of the parties in relation to the claim; and it imposes an obligation on the insurer to exercise its rights and discharge its obligations as conferred by the contract of insurance with the utmost good faith: Ziogos v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme [2015] NSWSC 1385 (“Ziogos”) at [66].

5. [65]

   The insurer’s obligation of utmost good faith is contractual, not fiduciary. Conduct which would not be permissible in a fiduciary relationship will not necessarily infringe the duties of good faith and fair dealing, as the fiduciary relationship is one in which the parties are not free to pursue their separate interests: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, 2014, LexisNexis Butterworths) (“Meagher, Gummow & Lehane”).

6. [66]

   Some common practical examples of the discharge of the obligation of good faith and fair dealing assist in understanding its scope. The obligation may, in appropriate circumstances, require an obvious enquiry to be made: Halloran v Hardwood Nominees Pty Ltd (2007) ANZ Ins Cas 90-142; [2007] NSWSC 913 (“Halloran”) at [38]. It is important to correlate the activities that an insured is capable of undertaking as, for example, activities that are demonstrated in video surveillance material, to the activities the insured is required to undertake in employment: Ziogos at [103].

7. [67]

   The Duty to Form an Opinion. Under a contract for insurance, if an element of insurance liability is expressed in terms of the satisfaction or opinion of the insurer, the insurer is obliged to act reasonably in considering and determining that matter: Edwards v The Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113 (“Edwards”) and Sayseng at [47]. In Edwards (at 77,536), McLelland J stated with respect to clauses such as that in issue in this case, that there was an implied obligation on the insurer to consider and determine whether it should form the relevant opinion, which involved a consideration and determination of the correct question; and in the exercise of powers affecting the interest of both itself and the claimant, the insurer was under a duty of good faith and fair dealing requiring it to have due regard to the interest of the claimant. McLelland J’s statement of the law was once more adopted with approval by the Court of Appeal last year in Jones.

8. [68]

   Jones also approved (at [82] – [85]) Brereton J’s statement in Jones v United Super Pty Limited at [55] that the insurer’s decision will also be liable to be reviewed and avoided by the Court if, in forming an opinion (about a claimant’s disability), the insurer: (1) misdirects itself in law, that is to say asks itself the wrong question; or (2) takes into account an irrelevant consideration or fails to take into account a relevant consideration.

9. [69]

   And Jones explains how concepts of reasonableness are to be applied in forming an opinion about a claimant’s disability. Jones was decided after the Court reserved judgment in this matter. Analogies exist between the judicial review cases, in which unreasonableness is assessed in the sense described in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 (“Wednesbury”) at 234, and the implied term of reasonableness in contracts of insurance, where the formation of the insurer’s opinion is a condition of the insurer’s liability. But the analogy is not so close as to require the adoption of the stringent test of unreasonableness in the Wednesbury sense in the insurance contract cases: Jones at [121]. Rather, the criterion of reasonableness of an insurer’s decision is “whether the opinion formed by the insurer was not open to an insurer’s acting reasonably and fairly in consideration of the claim”: Jones at [121]. And the insurer’s assessment of reasonableness is not made by reference to entirely objective criteria but must be unreasonable on the material then before the insurer: Jones at [94]. Nor does the assessment of reasonableness require the Court to undertake a review of the merits of the insurer’s decision: Jones at [93] and [99].

10. [70]

    In Jones (at [65]) the Court of Appeal adopted McLelland J’s remarks in Edwards as to the Court’s task in deciding whether the insurer was entitled to form the opinion which it did:

11. [71]

    If the view taken by the insurer is shown to have been unreasonable on the material before it, then the decision can be successfully attacked: Sayseng (at [36]) and Jones (at [67] and [94]). The Court must not substitute its own view for that of the insurer by reference to additional material not before the insurer: Sayseng (at [54]) and Jones (at [68]).

12. [72]

    The insurer’s duty of utmost good faith in dealing with a claim and the duty to act reasonably in forming an opinion may be compared and contrasted. The duty of utmost good faith: (a) is broader than the implied term obliging the insurer to act reasonably and applies to all aspects of the claims handling process: Ziogos at [68] and Jones at [71]; (b) does not imply a higher or stricter standard than the implied term requiring the insurer to act reasonably in considering and determining the matter: Ziogos at [69]; (c) is not to be equated with the implied obligation to act reasonably in forming an opinion concerning or being satisfied about a particular matter, nor are the two standards the same: Ziogos at [73], commenting on CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1; [2007] HCA 36; and (d) requires the insurer to form the opinion itself and to act with the utmost good faith in doing so and it is not sufficient that some other insurer acting reasonably could have reached the conclusion that it did: Ziogos at [74].

13. [73]

    Some authorities have used other words to describe the obligation to act reasonably in forming an opinion. Nicholas J’s description of the obligation is particularly useful: as one which requires the decision maker to give an objective, even-handed and realistic consideration to the whole of the evidence, uninfluenced by personal beliefs, prejudice, suspicion, or speculation: Savelberg v United Super Pty Ltd t/a Cbus Superannuation Fund [2011] NSWSC 1482 at [13]. In accordance with authority, “objective”, in Nicholas J’s formulation, should be taken to mean “unbiased from the perspective of the decision maker” and not to invite an assessment of a hypothetical claimant or a decision divorced from the actual material before the decision maker.

14. [74]

    The Duty to Give Reasons. It follows from the requirement that the insurer itself form an opinion acting in accordance with its duty of utmost good faith, that the insurer should give reasons for its decision. As Ball J explained in Ziogos at [75]:

15. [75]

    But an insurer is not required to undertake the detailed consideration of a claim required at a court hearing: Chammas v Harwood Nominees (1993) 7 ANZ Ins Cas 61-175 (“Chammas”); and Weber v Tiss Pty Ltd [2005] NSWSC 67 at [8], (“Weber”). An insurer’s statement of reasons for declining a claim should be understood as a practical document intended to inform the claimant of the basis of the decision rather than providing detailed reasons with reference to the evidence being relied upon, comparable to a judgment of a court or tribunal: Weber at [8].

16. [76]

    The Use of Expert Evidence. Expert evidence was deployed on both sides in this case and some of it was before FSS and MetLife at the time of their respective decisions. This circumstance adds additional content to the applicable duties in the consideration and determination of this claim. The following additional statements of principle have relevance where experts are involved. If the insurer seeks an opinion from an expert; it must provide the expert with all the information relevant to the expert’s opinion; the expert must be asked the right questions; but asking the right questions of the expert does not require the insurer to ask the expert to address specific provisions in the policy as the insurer is making the ultimate decision and not delegating it: Lazarevic v United Super Pty Ltd [2014] NSWSC 96 (“Lazarevic”) at [101]. Experts and the insurers who rely upon them should attend to evidence relating to the individual insured and the insured’s characteristics rather than to general statements of hope or expectation about the circumstances or conduct of anyone suffering from the condition in question: Ziogos at [102]. Where an expert’s opinion about an insured’s circumstances or capacity for employment depends upon an assumption, it may be impermissible for the insurer to rely upon the expert’s opinion as to that matter unless the assumption is verified: see for example Ziogos at [103].

17. [77]

    The Consequences of Non-Compliance. If the insurer does not comply with its duty of utmost good faith, the Court may itself determine the question whether the insurer suffered from TPD: Sayseng at [36](e); Birdsall v Motor Trades Association of Australia Superannuation Fund Pty Ltd (2015) 89 NSWLR 412; [2015] NSWCA 104 at [25]; and Jones at [67].

18. [78]

    In light of Stevenson J’s orders, the Court does not have now to decide the second stage question, whether the plaintiff is TPD within the meaning of the Policy. A decision in relation to whether the plaintiff is now TPD within the Policy will depend upon additional findings of fact at the stage 2 enquiry that will take place. These findings may cover matters that: (a) occurred after the period that FSS and MetLife declined the plaintiff’s claim; or (b) were not before FSS or MetLife at the time they made their respective decisions but are now before the Court, on the second stage inquiry.

19. [79]

    But the reasonableness of MetLife’s decision depends upon the operation of the ETE clause in the Policy. The authorities on that subject must first be considered.

20. [80]

    ETE clause policy wordings similar to those in the Policy have received extensive judicial consideration both at first instance and on appeal.

21. [81]

    From those cases, statements of applicable principle can be refined. In the Court of Appeal’s decision in Jones (at [147] – [150]), Gleeson JA considered Brereton J’s elucidation of the meaning of an ETE clause identical to the one under consideration in that case. The effect of the Court of Appeal’s decision in Jones was to approve Brereton J’s comprehensive statement at first instance in that case (Jones v United Super Pty Limited [2016] NSWSC 1551, [71] – [72]) of the proper interpretation of the ETE clause, which is set out here in full:

22. [82]

    On appeal, Gleeson JA said that in the ETE clause, the word ‘by’ in the phrase ‘reasonably fitted by education, training or experience’ clearly expresses the notion of a link or connection between the suggested future work and the insured’s past, education, training and experience: Jones at [146].

23. [83]

    “Unlikely Ever” to be Able. The words “unlikely” and “ever” in this group of words have both been closely considered. The word “unlikely” in the formulation has been said to mean improbable in the sense of a less than 50 per cent chance: Halloran at [76] and Beverly v Tyndall Life Insurance Co Ltd (1999) 21 WAR 327; [1999] WASCA 98 at 32.

24. [84]

    Expressing the word “unlikely” as requiring a less than 50 per cent chance does not invite a statistical test, as the formula is not concerned with what is likely in the population as a whole, but rather whether, having regard to what is known about the insured, he or she was unlikely ever to be able to engage in any gainful profession, trade or occupation for which he or she was reasonably qualified by reason of education, training or experience: Ziogos at [83].

25. [85]

    In Shuetrim v FSS Trustee Corporation [2015] NSWSC 464 (“Shuetrim”) Leeming JA (at [88] – [89]) also cautioned against the illusion of mathematical precision in the application of the term, as follows:

26. [86]

    The issue is whether it is unlikely that the insured would actually obtain paid employment for which the insured was qualified by education, training or experience, not whether, in theory, the insured may obtain employment of that type: Halloran at [76]; Banovic v United Super Pty Ltd [2014] NSWSC 1470 and Lazarevic at [108]-[109].

27. [87]

    “Regular Remuneration Work”. Capacity to perform “regular remunerative work” is different from the capacity to perform a particular work task. And it does not follow that because a person is physically capable of performing one or more work tasks, that that the person has an ability to engage in remunerative work: Hannover Life Re of Australasia Ltd v Colella (2014) 47 VR 1; [2014] VSCA 205 (“Colella”) and Jones v United Super Pty Limited [2016] NSWSC 1551 at [77].

28. [88]

    A person can be reasonably fitted for “Regular Remuneration Work” by reason of education, or training or experience, or a combination of those factors: Hannover Life Re of Australasia Ltd v Dargan (2013) 83 NSWLR 246; [2013] NSWCA 57 (“Dargan”). A claimant may require further training to pursue another occupation after the termination of his employment, leading to the assessment of whether the claimant was TPD. The fact that some further training may be required does not preclude a conclusion that the claimant was reasonably fitted to carry out the further occupation: Dargan at [44]. In Dargan, for example, a heavy vehicle driver had already obtained a certificate to become a taxi driver and only needed to pass a subsequent week long course to ensure that he was able to retain that certificate: Dargan at [40]. He was found not to be TPD. But in Halloran, the claimant had ceased to be employed in a role of greasing machinery and in the three years after leaving that employment he completed a TAFE course qualifying him for white collar work. Brereton J held in Halloran that, at the time of suffering his injury, the claimant was not qualified for that work “by reason of his education, training and experience”: Halloran at [35] and Dargan at [40] – [41].

29. [89]

    Dargan also decides (at [46]) upon an identical wording that even part-time work may qualify as Regular Remuneration Work but that casual work or other work of an intermittent nature would not qualify as Regular Remuneration Work. Bathurst CJ said in Dargan at [46]:

30. [90]

    Geographical Limitation on Employment. In Jones (at [173] - [176]) the Court of Appeal considered, but did not decide, whether the policy definition of TPD would be satisfied if the claimant was incapable of finding available employment in or near the location where he or she lived. A ground of appeal in Jones was directed to challenging particular remarks of the learned trial judge, Brereton J, which remarks were not essential to his Honour’s reasoning and therefore the issue did not need to be determined on appeal in Jones. Brereton J’s remarks at first instance in Jones v United Super Pty Limited (at [67]) were relevantly as follows:

31. [91]

    On appeal in Jones (at [174]), the Court discussed the existing conflict of authority and academic opinion on this question:

32. [92]

    An issue for trial judges in this State will be whether to apply the earlier decisions in this State, to which Brereton J referred at first instance in Jones and to agree with his Honour’s remarks on this issue, or to apply the interstate appellate authority and the academic opinion.

33. [93]

    If these interstate and Federal Court appellate decisions are directly on point, then this issue must be approached bearing in mind the relationship between a single judge of a state Supreme Court and a full court of another state, a relationship which was re-stated by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22, at [135]:

34. [94]

    This issue does not ultimately arise in this case but is briefly discussed here. Existing New South Wales first instance authority such as Ziogos at [102], requires the Court to assess a claimant in the manner that Brereton J did: not hypothetically, but in the claimant’s very circumstances.

35. [95]

    Brereton J included a claimant’s place of residence as one of those circumstances: this allows the Court to accurately consider a claimant’s particular, rather than hypothetical, circumstances.

36. [96]

    It must be said that if a claimant’s location is wholly ignored, so must be the many incidental costs to a claimant in selling assets, altering existing local financial engagements and relocating to another part of the State or country in assessing a claimant’s TPD status.

37. [97]

    Where it can be accepted that there is no availability of local work (based on a claimant’s existing education, training or experience) in the claimant’s local area, it seems difficult to justify assessing a claimant as not being TPD if the cost of relocating to find available work of that kind elsewhere would make accepting that distant work an economically unviable decision. The overall costs of relocation are a logical integer in any finding that a claimant is not TPD due to the availability of work outside the local area.

38. [98]

    The appellate authority outside New South Wales can be briefly surveyed. Repatriation Commission v Hill (2005) 142 FCR 88; [2005] FCAFC 7 (“Hill”) at [57] – [58] in construing repatriation legislation was concerned to ensure that an unwarranted gloss was not placed upon the language used by the legislature in the expression to “do work”. The full Court of the Federal Court found at [58] that the expression “does not focus upon employability but rather on the capacity to perform remunerative work of a kind for which the person is otherwise suited”.

39. [99]

    In Colella, after considering Hill at [30], the Victorian Court of Appeal was examining the words “unable to work” in an insurance policy and said the following on this issue at [34]:

40. [100]

    It can be accepted that policies such as the Policy do not “ensure the actual availability of work for the insured in the occupation or remunerative employment in the town or region in which the insured resides”. It may be necessary to measure the insured-claimant’s employability by reference to kinds of employment that can only be obtained elsewhere. But it is not realistic to assess the availability of such employment without also taking into account the costs of the claimant relocating or travelling to acquire such employment.

41. [101]

    Other cases, which are said to import and apply what has been referred to as a “labour market test”, have been criticised as exemplifying an impermissible elision between two quite separate concepts – realistic physical capacity and labour market availability: Enright and Merkin, Sutton on Insurance Law (4th ed, 2014, Thomson Reuters, Volume 2) at [21.360] (“Enright and Merkin”).

42. [102]

    The Time to Determine TPD Status. The time at which a claimant suffers TPD is capable of a general answer, which was discussed by Ball J in Ziogos at [86] as follows:

43. [103]

    Enright and Merkin (at [21.430]) also argue that the “as at” date, or date for assessment to determine TPD status, is the expiration of the applicable qualifying period as the relevant date. That is the usual case and nothing in the Policy suggests here that the usual situation should not prevail.

44. [104]

    The Use of Subsequent Medical and Other Evidence. It is not uncommon in the consideration of TPD claims for a party to contend that medical and other expert opinions expressed subsequent to the date upon which the insurer is required to assess whether or not a claimant is TPD should be taken into account when examining the claim at the earlier date for the required assessment. Depending upon the terms in which such expert opinions are expressed, they may be relevant, and may be taken into account by the Court when it is considering the probability of a claimant being able to engage in suggested occupations at the date in which an insurer is required to assess TPD: Shuetrim at [150]. As McPherson JA explained in McArthur v Mercantile Mutual Life Insurance [2002] 2 Qd R 197; [2001] QCA 317 at [23], this conclusion accords with the principle that the Court does not speculate when it may know: approved in Jones at [194]; see also Finch v Telstra Super Pty Ltd (2010) 242 CLR 254; [2010] HCA 36 at [18].

The Amended Statement of Claim and the Reinsurance Treaty Issue

1. [105]

   Shortly before the hearing, the plaintiff gave notice of his intention to amend the Statement of Claim to add additional particulars of alleged breach of duty against MetLife: that MetLife, as reinsured, acted in breach of "its statutory and/or general law duties" in entering into a reinsurance treaty with RGA Australia, as reinsurer (“the Treaty”), in acting under RGA Australia's control and direction in rejecting the plaintiff's claim, and in not notifying the plaintiff of RGA Australia's views about the plaintiff’s claim in MetLife’s procedural fairness letter. MetLife had indeed entered into the Treaty with RGA Australia.

2. [106]

   The principal issue argued orally was the question of RGA exercising an alleged right of veto over MetLife’s decisions about the plaintiff. But the scope of the amendment and the parties’ written submissions about the Treaty were wider in content. The amendment relevantly provided as follows:

3. [107]

   MetLife did not oppose the amendment, which was first incorporated into the First Amended Statement of Claim at paragraph [48] filed on 15 June 2017 (the first hearing day). The form of amendment continued in the Second Further Amended Statement of Claim filed on 4 August 2017 (the second hearing day).

4. [108]

   In reply to the plaintiff’s case on this issue, MetLife submits that complying with a reinsurance treaty is not conduct which can vitiate an insurer’s decision, unless the decision is one which, in any event, no reasonable insurer acting reasonably could have made on the material available to it. MetLife further contends: that entering into a commercial arrangement to reinsure under the Treaty a proportion of its liability is not inconsistent with notions of good faith and fair dealing towards the trustee and the members of the scheme; that reinsurance is not an unusual circumstance requiring disclosure to the plaintiff; that the reinsurance Treaty does not require MetLife to substitute RGA Australia's decision for its own; and that the evidence does not support the contention that MetLife actually acted under RGA Australia’s control. The parties’ detailed submissions about these matters are set out and analysed later in these reasons.

5. [109]

   When MetLife made the first of the decisions under challenge in these proceedings, it was in dispute with RGA Australia about whether the Treaty applied to a class of claims for which MetLife alleged that RGA Australia was on risk under the Treaty, a class that included the plaintiff’s claim. RGA Australia denied that it was potentially on risk for the plaintiff’s claim because it, and a class of other claims like it, related to initial medical events and illnesses that had occurred before MetLife and RGA Australia entered the Treaty. But despite RGA Australia’s denial of liability, it nevertheless played a close role in the claims handling process in relation to the plaintiff’s claim on a without prejudice basis. This was a course that authority establishes was open to it, whilst still requiring the reinsured’s continued adherence to a claims co-operation clause: Lexington Insurance Co v Multinacional De Seguros Sa [2009] Lloyd’s Rep IR 1. At all times, RGA Australia maintained that it was doing so without prejudice to its capacity to deny liability because MetLife had not satisfied the initial event provisions of the Treaty.

6. [110]

   Ultimately, MetLife sued RGA Australia under the Treaty in Commercial List proceedings in this Court. Those proceedings were determined in RGA Australia’s favour, first before McDougall J and then before the Court of Appeal: MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2016] NSWSC 980; MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2017] NSWCA 56. These two judicial decisions were made in between MetLife’s first and second decisions about the plaintiff’s TPD status under the Policy.

7. [111]

   The point at issue before McDougall J was whether a provision (which was called in that litigation the “Initial Event Sentence”) in an addendum (“Addendum Four”) to the Treaty had the effect of limiting MetLife’s entitlement to indemnity under Addendum Four. The Initial Event Sentence was in the following terms:

8. [112]

   McDougall J agreed with RGA Australia’s construction of the Initial Event Sentence in the Treaty and found that, on its proper construction, it had “the effect that RGA has no obligation to consider any such claim unless the initial event leading to or contributing to it occurs after the date of the treaty” (at [72]). MetLife appealed against McDougall J’s decision. The Court of Appeal upheld McDougall J’s construction of the Initial Event Sentence. That meant that RGA Australia was not required to reinsure MetLife under the Treaty for claims such as the plaintiff’s.

9. [113]

   The Treaty. The Treaty was originally made between Citicorp Life Insurance Limited (“Citicorp”) and RGA Australia and was described as an “Automatic Group Life Insurance Treaty-Australia”. MetLife assumed party status to the Treaty in place of Citicorp through an addendum to the Treaty signed in December 2005. Using the common language of reinsurance, under the Treaty, Citicorp, the reinsured, is defined as the “Cedant”. And RGA Australia, a company registered under the Life Insurance Act 1995 (Cth) to carry on life reinsurance business, which accepts the insurance “ceded” to it under the Treaty, is defined in the Treaty merely as “RGA Australia”. The Treaty sets out arrangements by which RGA Australia will reinsure the Cedant’s liability under certain “Policies” as defined: see Recital D. As MetLife became the relevant party in place of Citicorp, MetLife is the party referred to as the “Cedant” in all extracts from the Treaty set out in these reasons. The Treaty defines relevant terms in its interpretation clause, Article 34, parts of which are set out later in these reasons.

10. [114]

    The the overall nature of the reinsurance that the Treaty offered to MetLife should be briefly described. The Treaty in Part A – Agreement, provides for the Treaty’s duration (Article 2); warranties by the Cedant that it has supplied RGA Australia with complete and accurate documents for the policies covered by the Treaty (Article 3); and confirmation that the Cedant has no other applicable reinsurance (Article 4).

11. [115]

    The Treaty in Part B – Automatic Terms, provides that MetLife must offer to RGA Australia certain policies defined in Schedule B for reinsurance and RGA Australia must automatically reinsure the Cedant’s liability under the policies (Article 5). It also provides that MetLife must supply information to RGA Australia about the policies as agreed (Article 6). This part of the Treaty represents a classic form of Treaty reinsurance in which all risks of the class of business specified by the Treaty that are accepted by the reinsured, MetLife, will be ceded to the reinsurer, RGA Australia, and accepted by it. MetLife’s TPD policies, including the Policy, are included in the class of policies (as defined) the subject of this automatic reinsurance. The reinsurance in this case could be aptly be described as non-proportional excess of loss reinsurance.

12. [116]

    The Treaty, in addition, provides facultative reinsurance for which MetLife and RGA Australia agree to a process by which they may respectively cede and accept additional risk. The Treaty in Part C – Facultative Terms, provides for the Cedant to apply for, and RGA Australia to make, offers and for the Cedant to accept offers in relation to the reinsurance of the Cedant’s liability under policies other than those reinsured under Part B (Article 7). The application for reinsurance must be accompanied by relevant disclosure (Article 8).

13. [117]

    The Treaty in Part D – Reinsurance, applies to automatic reinsurance in accordance with Part B and Facultative Reinsurance entered into in accordance with Part C. Part D provides that each Reinsurance of a policy is on the basis of the terms of the Reinsured Policy, and the Treaty in each such Reinsurance is subject to the Relevant Law (Article 12).

14. [118]

    Part D then importantly provides for the amount of RGA Australia’s indemnity to the Cedant (Article 13). Article 13 provides as follows:

15. [119]

    Part D then provides for the calculation of Premium Payments (Articles 14 and 15), for the requirement to pay expense allowances to the Cedant (Article 16), and for GST (Article 17).

16. [120]

    A detailed claims procedure is then provided for under the Treaty in Article 18. Articles 18.1 – 18.3 provide for the general supply of information between the Cedant, MetLife, and reinsurer, RGA Australia, and for MetLife to deploy its standard claims handling procedures. Then Treaty, Article 18 provides for MetLife’s options when RGA Australia directs MetLife to defend a claim. MetLife can defend the claim, or it can appoint RGA Australia to defend it (Article 18.6). But, in what became an article of central contention in these proceedings, MetLife agreed not to settle certain claims without RGA Australia’s approval (Article 18.8). Article 18 relevantly provides as follows:

17. [121]

    The Treaty then provides for the making of payments on claims in Articles 18.11 to 18.13, including in the converse situation to that contemplated by Article 18.6, namely, where RGA Australia directs that the claim not be defended. These provisions are in the following terms:

18. [122]

    A series of Treaty articles in Part E – General, provide machinery provisions for the operation of the Treaty.

19. [123]

    One of these, Article 27, deals with termination of the Treaty. Articles 27.1 and 27.2 afford to each party a limited right to terminate the Treaty on three months’ notice. Articles 27.4 and 27.5 deal with MetLife’s right of termination in the event that RGA Australia ceases to be registered under the Life Insurance Act 1995 (Cth) or goes into liquidation.

20. [124]

    But Article 27.3 deals with the consequences of a party breaching or failing to comply with the terms of the Treaty or of any Reinsurance. For MetLife to settle a claim such as the plaintiff’s without RGA Australia’s prior approval would be a breach of the Treaty. Article 27.3 provides as follows:

21. [125]

    Upon the occurrence of a breach of either the Treaty or a Reinsurance, Article 27.3 gives the innocent party a right to give 30 days’ notice to remedy the breach, following which (subject to agreement of a different time period) either the Treaty itself or a particular Reinsurance under the Treaty terminates automatically.

22. [126]

    Treaty, Article 34 deals with the interpretation of the Treaty’s terms. It defines a number of commonly used expressions in the Treaty. “Reinsurance” is defined as meaning “a reinsurance by RGA Australia of liabilities of the Cedant under each Reinsured Policy, under the terms of this Treaty”. A “Reinsured Policy” is defined as meaning “a policy which is reinsured with RGA Australia subject to the terms of this Treaty”. The term “Sum Insured” is defined as meaning the amount to which the Policyholder is entitled under the policy on the occurrence of an Insured Condition. The expression “Sum Reinsured” is defined as meaning various amounts agreed by RGA Australia with respect to facultative reinsurance or the Automatic Reinsurance set out in Schedule C. The expression “Policyholder” is defined as the “the counterparty to the Cedant under a Policy”. The expression “Policies” means “the contracts of Group Life insurance described in Schedule A to the Treaty”. It is not in issue that MetLife’s Police Blue Ribbon Policy for the NSW Police, described earlier in these reasons, is one of these Policies within Schedule A.

23. [127]

    Two other articles in Part E of the Treaty should also be mentioned. Treaty, Article 26 provides for a system for the resolution of disputes “arising out of or in relation to this Treaty”, including resolution by mediation (for disputes of a general nature) and by expert determination (for technical disputes). Treaty, Article 31 specifies that the Treaty does not create any relationship of “partnership, agency, or trustee and beneficiary”.

24. [128]

    The Schedules A to E to the Treaty mostly deal with matters not of present relevance. But Schedule F provides for the relevant “Claim Handling Limits” referred to in Article 18.8. Schedule F, Item 1 is applicable here. It provides that the Claim Handling Limit for TPD benefits is a limit of $250,000. RGA Australia could change these Claim Handling Limits on 90 days’ notice: Schedule F, Item 2. And Item 3 of Schedule F provides as follows:

25. [129]

    It was not in contest that the plaintiff’s claim exceeded the applicable Claims Handling Limit under Schedule F and that the obligations of Article 18.8 therefore applied to MetLife.

26. [130]

    Now that the relevant terms of the Treaty have been examined, these reasons focus on the actual communications between MetLife and RGA Australia pursuant to the Treaty during the handling of the plaintiff’s claim against MetLife.

27. [131]

    The plaintiff lodged his claim with MetLife in March 2012. MetLife quickly kept RGA Australia informed of its claims handling decisions. RGA Australia was closely involved in MetLife’s management of the plaintiff’s claim from then until MetLife’s December 2014 decision. A small number of personnel were involved in the communications about the plaintiff’s claim passing between RGA Australia and MetLife. The same personnel generally had carriage of the matter on each side. A chronological account of the principal communications referred to in the parties’ submissions now follows. It covers the period from the time the plaintiff first lodged his claim in March 2012 until MetLife’s first decision in December 2014.

28. [132]

    On the plaintiff’s side, it is contended that this course of communications shows RGA Australia exercising its veto over MetLife’s decisions. On MetLife’s side, it is contended that the contrary inference should be drawn. The history of correspondence more supports MetLife’s contention, that a veto was not exercised. But the history does lead to the conclusion that MetLife did not assert to RGA Australia that it would make its own wholly objective independent decision, whether or not that would put it in breach of the Treaty. Later communications between MetLife’s first and second decisions are dealt with separately below.

29. [133]

    As with the wider course of correspondence tendered by the parties, the RGA Australia – MetLife correspondence was tendered in a form that was not chronological, was confusing, and took the Court much time to decipher and has contributed to the length of time required to deliver this judgment.

30. [134]

    RGA Australia/MetLife Communications – 2012 to 2013. By 28 June 2012, MetLife had recommended to RGA Australia that a variety of information be requested either from, or in respect of, the plaintiff in the course of the claims handling process. On 28 June 2012, RGA Australia stated to MetLife, “We have finalised our own review of this matter and support your recommendation to request the following…”. The communication then listed a range of further information which MetLife had indicated it was seeking, including background profile checks, “financials from the member for 2010 and 2011”, and surveillance. RGA Australia said to MetLife in its communication of that date, “We would appreciate if you could provide us with a copy of the above documents when available”, and then concluded, “If/when the members’ eligibility has been established we can look to develop an updated strategy for this matter”.

31. [135]

    The plaintiff submitted that this was an example of MetLife “not deciding strategy” for itself but merely recommending a strategy to RGA Australia which “considers those recommendations” and “gives directions” to MetLife. But that is not how this kind of communication should be read. It must be seen in light of the claims co-operation article in the Treaty. When RGA Australia says, “we can look to develop an updated strategy for this matter”, it is merely suggesting a co-operative approach to claims handling that, in my view, is consistent with Treaty, Articles 18.1 – 18.5.

32. [136]

    On 17 July 2012, after MetLife had sent through to RGA Australia information about the plaintiff’s claim, RGA Australia requested surveillance of the plaintiff. RGA Australia said on 17 July of the background report it had by then received from Metlife, “We note from the report that it appears that the member may be quite involved in [the SLSC] and appears also to have an interest in sailing. This would appear to indicate the arranging of surveillance, we suggest to include some weekend observation in the brief”. After RGA Australia suggested particular periods when the surveillance should take place, it concluded, “We look forward to receiving copies of these documents as they come to hand and we will then be in a position to consider the matter further”.

33. [137]

    All RGA Australia’s communications to MetLife in the period from March 2012 to December 2014 contain a status box, indicating whether, from RGA Australia’s perspective, liability for the claim under consideration has been “declined”, “accepted”, or that a decision is “pending”. In all MetLife – RGA Australia communications prior to 25 July 2012, that box was always marked as “pending” and with the notation of a risk retention of 50 per cent to MetLife and 50 per cent to RGA Australia, together with a sum insured. But after 25 July 2012, the box is entered up as “liability declined” on the basis of the Initial Event provisions in the Treaty.

34. [138]

    On 25 July 2012, RGA Australia denied liability to cover the plaintiff’s claim under the Treaty. It did so on the basis that the chronology of the plaintiff’s claim, which had been forwarded to it, showed that the events initiating the plaintiff’s claim had occurred before 1 July 2005, the date when RGA Australia assumed reinsurance risk under the Treaty. RGA Australia principally relied upon the fact that the dominant traumatic event that the plaintiff relied upon as the cause of his PTSD occurred in 1997. For its denial of liability, RGA Australia relied upon other pre-2005 events: the plaintiff’s attendance at the aftermath of shooting spree in 1990, his attendance at the aftermath of a suicide in 1994, and a further incident involving working undercover in 1998 to purchase drugs from criminal elements. RGA Australia said it could not approve the claim and denied it on the basis of the Treaty, Addendum, page 4, in that the “Initial Event” had occurred before 1 July 2005.

35. [139]

    On 27 July 2012, MetLife sent the AHC Surveillance Report of July 2012 to RGA Australia. This was the first full report done by AHC in relation to the plaintiff. It was made fully available to RGA Australia.

36. [140]

    On 16 October 2012, correspondence from RGA Australia to MetLife discussed a medical report that had been received from Dr Kaplan. Mr Grant Tritton, the Senior Claims Consultant for RGA Australia, thanked the sender at MetLife, “Thank you for sending through this matter and your recommendations for RGA to consider”. In my view, expressions of thanks for recommendations, such as this, express the genuine position as understood by both sides. RGA Australia summarised that medical report back to MetLife in the words “[Dr Kaplan] suggests that while the member would not be able to return to Police or security type roles, he should be able to perform alternate duties”. RGA Australia also agreed in this communication to MetLife’s suggestion that further surveillance material of the plaintiff be obtained and sent to Dr Kaplan. RGA Australia says in response, “We confirm that we agree with this approach”. This indicates, and the Court infers, that RGA Australia was expressing agreement with decisions being made by MetLife about particular claims handling matters.

37. [141]

    RGA Australia/MetLife Communications – 2013 to September 2014. On 4 March 2013, RGA Australia again wrote to MetLife. Reasserting its denial of liability for the claim, it proceeded to offer RGA Australia’s views as follows:

38. [142]

    Mr Sexton SC submitted that when RGA Australia said in this communication “We also do not grant our approval to any claim payment by MetLife for this matter”, that its disapproval of the denial of liability was because of the Initial Event issue and not because of a determination on RGA Australia’s part as to whether or not the plaintiff’s claim should be accepted. This inference was said to arise both from the language of the email and because the matter was at a very preliminary stage. On the other hand, Mr Rayment QC contended that this communication represented a decision by RGA Australia to deny the plaintiff’s claim that he came within the TPD definition of the Policy, and that RGA Australia was instructing MetLife to follow that decision.

39. [143]

    In my view, neither of these contentions is an apt characterisation of this correspondence. I do not accept Mr Sexton SC’s submission that this is merely a denial of liability based on the Treaty’s Initial Event provisions. One could aptly characterise the words “we therefore offer our views to respond to your request without prejudice to our position that we do not have any liability for this claim” as referring to the Initial Event provisions of the Treaty. But the next sentence, “We also do not grant our approval to any claim payment by MetLife for this matter” is speaking additionally to the Initial Event provisions and is using the express language of Article 18.8. That, together with the general reservation of rights under the Treaty, is a strong indicator, in my view, that RGA Australia was taking a negative view about the substance of the plaintiff’s claim, although on a without prejudice basis. In my view, that is how it should also have appeared to MetLife at the time.

40. [144]

    But I do not accept Mr Rayment QC’s submissions that this was a decision by RGA Australia to deny the plaintiff’s claim. All MetLife was doing up to that point of time was withholding its Article 18.8 approval for the time being. Mr Sexton SC is right that it was a preliminary stage. RGA Australia left open that the position could change.

41. [145]

    But this communication certainly signalled that, unless RGA Australia changed its position, MetLife did not have RGA Australia’s Treaty, Article 18.8 “prior approval” to pay any sum above the applicable Claim Handling Limit under MetLife’s Reinsured Policy in respect of the plaintiff.

42. [146]

    RGA Australia’s 4 March 2013 communication went on to consider Dr Wilkins’ report of 21 February 2013. RGA Australia criticised Dr Wilkins’ report as being “less of a medical opinion, rather quasi legal advice” that failed to take into account legal authority and the correct test for TPD under the Policy. RGA Australia concluded by saying, “one must certainly query how much weight is to be afforded to this report, even though it is from the treating psychiatrist”. This statement seems to be more in the nature of a conversational comment than a direction from RGA Australia to MetLife about how it should regard Dr Wilkins’ medical report.

43. [147]

    RGA Australia wrote again to MetLife on 16 April 2013. RGA Australia communicated on this occasion in response to a request from MetLife for its views about the plaintiff’s claim. As with all correspondence after 25 July 2013, RGA Australia opened by reaffirming its denial of the claim on the basis of the Initial Event provisions of the Treaty. RGA Australia noted the AHC Surveillance Report of 10 March 2013, which had concluded “that the claimant is in charge of running private functions at [the SLSC]”. RGA Australia concluded that, despite the fact that it was not “on risk for this matter”, that “MetLife is strongly advised to conduct further surveillance in or around [the SLSC] and conduct a factual [interview] with this man. The member’s involvement in this venture certainly contradicts his other complaints”. As with other comments by RGA Australia, this appears to be more conversational than directory.

44. [148]

    RGA Australia communicated again on 5 June 2013. It thanked MetLife for providing the plaintiff’s Notices of Assessment of income tax but then recorded that because MetLife had indicated that the member was “believed to be currently working at [the SLSC], the information provided is not sufficient and that the full Income Tax returns are required”. RGA Australia recommended that “the entire returns be requested from 2010 to 2012, as well as 2013 which will be due shortly”. RGA Australia then confirmed its agreement with the approach suggested by MetLife of requesting further surveillance and obtaining factual interviews in the following terms:

45. [149]

    Here, RGA Australia confirmed that it agreed with MetLife’s approach, without giving a direction to MetLife, but by following MetLife’s initiative in claims handling, consistent with the obligations of both parties in Treaty, Articles 18.2, 18.4 and 18.5.

46. [150]

    But, whilst engaging on a without prejudice basis with the plaintiff’s claim, this correspondence is separately declined liability on the basis of the Initial Event provisions. RGA Australia continued to speak to MetLife at these two levels.

47. [151]

    RGA Australia wrote again on 8 July 2013. This communication was in response to MetLife’s request for RGA Australia’s views about the claim. Like almost all other communications, RGA Australia’s 8 July 2013 communication reiterated that it did not grant approval to any claim payment by MetLife. RGA Australia reserved its rights generally under the Treaty, indicating that its continued engagement with MetLife in relation to the plaintiff’s claim was on a without prejudice basis. This communication then commented on further surveillance material from AHC Surveillance, noting that the plaintiff “was observed serving drinks behind the bar of the SLSC, collecting empty glasses at the SLSC, operating the till at the SLSC, and closing the window at the club”. RGA Australia noted that these activities were consistent with the surveillance operative’s earlier conclusion that “[the plaintiff] is in charge of private functions at the [SLSC]”.

48. [152]

    RGA Australia proceeded in this 8 July 2013 communication to comment, with emphasis, upon this surveillance: “The member’s activities when outside the scrutiny of the clinical environment are at complete odds with his reports of things such as finding it difficult to be in public and becoming extremely anxious. One only has to read the member’s reports to Dr Wilkins (treator) and Prof Kaplan (IME) [an RGA Australia appreciation for Independent Medical Expert] to notice the degree of discrepancy”. RGA Australia then offered the view that it agreed with MetLife’s strategy of awaiting factual interviews and forwarding all the evidence to the IME and the treators (the treating doctors). RGA Australia stated that it regarded the strategy as “a prudent one”. This is merely RGA Australia expressing its judgment upon the conduct of MetLife as the principal actor in the claims handling process. It is not dictating an outcome.

49. [153]

    On the other hand, such correspondence builds a picture of a reinsurer that was very well acquainted with every detail of the plaintiff’s claim. This means that when it later expressed its non-approval (and did not clarify its non-approval was only related to the Initial Event provisions), that MetLife was quite entitled to assume that RGA Australia’s non-approval was based upon its own views about the merits of the plaintiff’s claim, rather than the Initial Event provisions of the Treaty.

50. [154]

    RGA Australia communicated with MetLife again on 1 August 2013. The context of this communication was that MetLife had undertaken, and then provided to RGA Australia, a factual interview transcript with a police superintendent who gave further background to the 1997 incident involving the plaintiff, in which it was acknowledged that the plaintiff was working as “the money man” in an undercover operation. The superintendent reported that he had become concerned about the incident and he arranged for the plaintiff have a psychological assessment. As a result of this, the plaintiff was “deemed unsuitable to continue, and was removed from active undercover work”, something about which the plaintiff is recorded as not being pleased.

51. [155]

    The 1 August 2013 email from RGA Australia then concluded as follows:

52. [156]

    This concluding paragraph neatly illustrates the two levels of RGA Australia’s communications. The first sentence talks about RGA Australia’s view of the plaintiff’s claim and its management. The second sentence speaks of the general denial of liability on the grounds of the Initial Event provisions. This duality of purpose appears constantly throughout RGA Australia’s correspondence with MetLife.

53. [157]

    On 30 August 2013, MetLife sent factual material about the plaintiff to RGA Australia and made recommendations about the material to be sent to the IME for comment. This is merely in the nature of information giving.

54. [158]

    And the reply of the same day from RGA Australia noted what has been provided. RGA Australia made suggestions about how the vocational assessment of the plaintiff should be approached and what the doctors should be asked about the surveillance of the plaintiff which was forwarded to them. None of this involves a directive from RGA Australia to MetLife. But it does show close engagement by RGA Australia with the detail of the plaintiff’s claim against MetLife. It is qualified though at all times by RGA Australia’s statement, “This advice is provided on an ‘Opinion Only’ basis”.

55. [159]

    RGA Australia sent further correspondence to the same effect on 3 September 2013 stating under the heading “Strategy/Recommendations”, “We agree with your recommendations to forward the new information to the IME for comment”.

56. [160]

    RGA Australia again communicated with MetLife on 15 October 2013. In this communication, RGA Australia acknowledged receipt of a factual interview with the facilities manager at the SLSC. This factual interview made clear that the plaintiff “[did] not formally work at the [SLSC] but [undertook] a significant amount of activity on a voluntary basis”. The facilities manager made clear in this factual interview, as reported, that the plaintiff could perhaps be called “the functions manager” but that “the work was voluntary”. Although the facilities manager conceded that he “[threw] him some cash occasionally”.

57. [161]

    RGA Australia then recorded its agreement in its 15 October 2013 communication with MetLife’s recommendations that “further LAC factuals be abandoned”. This was because “we have confirmation of the work he is performing in the background around his police employment from the earlier interviews”. RGA Australia agreed with MetLife’s proposed strategy of sending all the information that had been gathered to Dr Kaplan and then to Dr Wilkins, and that the remaining factual interviews should be cancelled.

58. [162]

    MetLife submits that this communication is not “telling MetLife what to do”. The Court accepts that the provision of advice on an “Opinion Only” basis is primarily to give effect to RGA Australia continuing to act without prejudice on the plaintiff’s claim, notwithstanding the declining of liability on the class of claims to which the plaintiff’s claim belong.

59. [163]

    RGA wrote again to MetLife on 31 December 2013 but without material change in the nature and content of the previous communications.

60. [164]

    RGA Australia communicated again with MetLife on 10 February 2014. This communication acknowledged receipt of a supplementary report from Dr Wilkins. It purported to summarise parts of Dr Wilkins opinion that the plaintiff “is a volunteer only”, that he has “no boss as such” and has “no responsibility, and as a volunteer can come and go as he pleases”. The summary also reported on Dr Wilkins opinion that the plaintiff “does not possess the cognitive capacity to undertake retraining to allow him entry to another role”.

61. [165]

    RGA Australia’s 10 February 2014 communication then went on to comment on Dr Wilkins in the following terms:

62. [166]

    This letter is a useful illustration of the degree to which RGA Australia was, even on an “Opinion Only” basis, engaging with the detail of the plaintiff’s claim and making a range of suggestions about how MetLife would be entitled to interpret the medical evidence. The reasonable reader of such correspondence was entitled to assume that any opinion RGA Australia expressed about the approval or disapproval of the plaintiff’s claim would come from a position of knowledge of the detail of that claim.

63. [167]

    An internal record of MetLife of 3 September 2014, produced on subpoena, entitled “Current Assessor Recommendations”, which has a narrative crafted just before Moray & Agnew were being instructed, suggests that through a Senior Claims Assessor, Ms Regina Hinton, MetLife was aware that its preliminary opinion that the plaintiff was “not TPD” was an opinion that was “in agreeance with RGA [Australia]”. This internal record is one of a limited number of MetLife documents that show that its officers were conscious – and indeed as a result more comfortable – that the opinions they were reaching were aligned with the position taken by RGA Australia to deny the plaintiff’s claim. After a lengthy identification of the available medical reports, the record of 3 September 2014 is as follows:

64. [168]

    There is a curiosity in MetLife’s internal records of 3 September 2014. Some of the material produced on subpoena, which seems to be part of an ongoing record dated 9 September 2014, covering these same assessor recommendations, is in identical terms to the extract above except that the important words “and in agreeance with RGA” are missing. But in the materials produced on subpoena, the words are present. The discrepancy was not explored in submissions but it appears that at some stage close to these events, those words were either inserted or deleted. But their presence is sufficient for the Court to infer that they express the views of someone with relevant authority to make entries recording MetLife’s actions at the time.

65. [169]

    Ms Hinton from MetLife then forwarded MetLife’s review of all the post procedural fairness evidence and its summary recommendations to RGA Australia on 9 September 2014. This appears to include the material dated 3 September 2014 referred to above.

66. [170]

    FSS/RGA Australia/MetLife Communications – October to December 2014. RGA Australia communicated again with MetLife on 1 October 2014. This important communication issued under the authority of Ms Rebecca James, a “Senior Claim’s Consultant”, recorded the receipt of a medical report from a psychologist, Dr Anderson, and another report from a forensic psychiatrist, Dr Adams, who saw the plaintiff in relation to a drug offence in which he had been involved early in 2014. RGA Australia then concluded [emphasis added]:

67. [171]

    It is not entirely clear what RGA Australia meant in this communication by “changes the decision” other than it had already made some preliminary decision at that point in time.

68. [172]

    The Court accepts Mr Sexton SC’s submission that this does not contain a direction to MetLife to decline the plaintiff’s claim. But Mr Sexton SC’s submission that “they declined because of the Initial Event clause,” in my view, is not justified. Once again, RGA Australia’s dual purpose appears in these communications. There is a communication about declining liability on the basis of Initial Event provisions in the Treaty. There is also a separate decision to agree with MetLife’s decision to decline the plaintiff’s claim on the merits (this is recorded above in the previous paragraph in these reasons in italics). The inference is fairly open from an objective reading of this correspondence that RGA Australia, familiar as it was with the plaintiff’s claim, was agreeing (on an “Opinion Only” basis) to decline the claim and therefore maintaining its non-approval under Article 18.8. And in my view, that is how MetLife understood RGA Australia’s communications.

69. [173]

    Correspondence then took place between 2 and 28 October 2014 leading to MetLife being presented with conflicting legal opinions about the plaintiff’s claim from HWL Ebsworth and Moray & Agnew. In mid to late October 2014, MetLife referred the contradiction to RGA Australia. These reasons now deal with correspondence among FSS, MetLife and RGA Australia from October 2014 on the contradiction between these two opinions and the making of the first decision.

70. [174]

    After the email of 1 October 2014 from RGA Australia, MetLife’s internal records show that the matter was referred internally to MetLife management. Ms Hinton said to a Senior Claims Manager at MetLife, Mr Andrew Macfarlane, and another staff member, Mr Chris Taylor:

71. [175]

    The legal consultants referred to appeared to be either or both of HWL Ebsworth or Moray & Agnew.

72. [176]

    Ms Hinton’s lengthy file note of 2 October 2014 reviewed medical evidence in relation to the plaintiff’s claim and then under the heading “Actions” said the following:

73. [177]

    As MetLife’s assessor, Ms Hinton was clearly recommending that the claim be denied. In reaching that recommendation, she expressly recorded the taking into account of RGA Australia’s communication of 1 October 2014. She did so in the following words:

74. [178]

    Ms Hinton appears to be responsible for all the text created in the 2 October file note. She was generally surveying material before her in order to come to her recommendation, as she said, “hence assessor recommends claim be denied”. The material she surveyed clearly included RGA Australia’s opinion. The ordinary inference from the structure of this document is that the assessor took RGA Australia’s opinion into account in formulating her recommendation to more senior management for consideration. Thus it is probable, in my view, that acceptance of Ms Hinton’s recommendation would embed that consideration into the final decision, unless it was expressly set aside.

75. [179]

    The concluding words of Ms Hinton’s 2 October 2014 file note proposed as an action item that the claim be forwarded to legal consultants. This action item appears to be the origins of the instructions given to Moray & Agnew and HWL Ebsworth. Just why two legal firms were engaged on the one task has never been made entirely clear.

76. [180]

    The language of Ms Hinton’s recommendation about forwarding the claim to the legal consultants “to review for decline” at one level might suggest that she was expecting that the legal consultants, upon their review, would support her recommendation that the claim be denied. Although the actual letters of instructions to the legal advisers do not appear to be available in the evidence, there is nothing in what either Moray & Agnew or HWL Ebsworth said in their letters that would indicate that they had been asked to produce the particular result of declining the claim. Indeed, the request would be improper, would be likely to have been rejected, and in any event, the conclusion of HWL Ebsworth’s advice is inconsistent with such an inference. The more apt inference from this material is that Ms Hinton expected the legal advice to support her recommendation.

77. [181]

    Material seems then to have been forwarded both to Moray & Agnew and HWL Ebsworth. It took about three weeks for each of them to come back with their advice.

78. [182]

    On 20 and then on 24 October 2014, MetLife received two separate but inconsistent letters of advice from lawyers about whether it should accept the plaintiff’s claim. MetLife waived privilege on these advices. They were both before the Court in full. The first letter of advice dated 20 October 2014 was from Moray & Agnew. It relevantly said as follows:

79. [183]

    The second letter of advice dated 24 October 2014 was from HWL Ebsworth. It relevantly provided:

80. [184]

    MetLife ultimately decided to accept the Moray & Agnew advice.

81. [185]

    The HWL Ebsworth advice was sent by email to MetLife at 9.20am on Friday, 24 October 2014. The same day, MetLife reported to FSS that “The claim file was referred for a legal review. MetLife has just received the legal review…”. This communication did not go into the fact that by that time, the legal reviews MetLife had obtained actually contradicted each other. It seems to have been expected that the contradiction would somehow resolve itself. It did indeed resolve itself by the end of the same day.

82. [186]

    The HWL Ebsworth email invited MetLife’s queries. By close of business that day, HWL Ebsworth had put their advice on hold. How did this happen? The picture is unclear. HWL Ebsworth could have spontaneously reconsidered the advice given earlier in the day. But it is more probable that MetLife contacted HWL Ebsworth in the course of the day. HWL Ebsworth communicated the firm’s change of position by email to Mr Taylor at MetLife the same day at 5.03pm in the following terms:

83. [187]

    By Tuesday, 28 October 2014, MetLife decided to report on these contradictory advices to RGA Australia. This course seemed to emerge from Ms Hinton reflecting on the quandary that two different legal advices presented for MetLife. She reflected upon this issue in her file notes in the following terms:

84. [188]

    Ms Hinton continued in her recommendation that MetLife should “proceed to denial”. But the conflicting legal opinions, perhaps not unsurprisingly, also prompted her to consult RGA Australia “for comments”. RGA Australia’s opinion was seen as important in determining what to do about this conflict.

85. [189]

    On 28 October 2014, Ms Hinton wrote to Ms James at RGA Australia, reporting on the contradictory opinions in the following way:

86. [190]

    By 30 October 2014, MetLife was able to advise FSS that “[t]he Legal review assessment is now complete. MetLife will shortly provide with a further update”. It seems unlikely that MetLife would have communicated with FSS in this way unless it could see that the differences between HWL Ebsworth and Moray & Agnew had, or were about to be, resolved. In fact, HWL Ebsworth revised its opinion and suggested that another report be obtained from Dr Wilkins.

87. [191]

    The Court has not been referred to any formal reply from RGA Australia, recorded in MetLife’s internal system, showing RGA Australia’s reaction to the 28 October 2014 communication about the contradiction between the HWL Ebsworth and Moray & Agnew opinions. As other parts of these reasons show, MetLife was communicating internally to Moray & Agnew and to HWL Ebsworth, and to FSS throughout the period from late October 2014 until the decline letter of 1 December 2014 was sent.

88. [192]

    It was put on behalf of the plaintiff that there must have been other MetLife-RGA Australia communications in this late October 2014 period. That is likely. But there is certainly no written reply by RGA Australia to MetLife after Ms Hinton’s 28 October 2014 communication, instructing MetLife as to what course to take about declining or accepting the plaintiff’s claim. This is strange. One of Ms Hinton’s objectives in communicating with RGA Australia on 28 October had been to get Ms James’ “thoughts/recommendation [sic]” about the contradictory legal advices. Ms Hinton did not obviously abandon this objective.

89. [193]

    But some inferences can be drawn at least about RGA Australia’s likely continuing opinion about whether the plaintiff’s claim should be declined, notwithstanding the lack of any direct communication from it. Unless MetLife’s approach had changed, and there is no reason to believe it had, as the 3 September 2014 record shows, MetLife was taking into consideration in formulating its assessor recommendations that “proceed[ing] to denial” was a course that agreed with RGA Australia’s position. And RGA Australia had again reaffirmed on 1 October 2014 where it stood: its preference was to decline the claim. Nothing in the MetLife file thereafter suggests that anyone at MetLife thought that RGA Australia’s opinion on the issue had changed.

90. [194]

    The available inferences seem to be that after MetLife’s communication of 28 October, a representative of RGA Australia, perhaps Ms James, may have verbally communicated by about 30 October a view about what course MetLife should take. Or perhaps nothing was said and MetLife just assumed RGA Australia’s position was unchanged from the position it held from September to early October 2014. But this is less likely given the text of Ms Hinton’s 28 October communication to Ms James, which called for a response. RGA Australia was certainly being kept well informed. The evidence does not support the inference that RGA Australia gave a clear instruction to MetLife to decline the claim. The evidence does support the inference that just after 28 October, RGA Australia reaffirmed its opinion to MetLife that the claim should be declined and probably for the various reasons RGA Australia had already given.

91. [195]

    Whatever happened with RGA Australia, Ms Hinton decided to recommend to Mr Macfarlane, despite the earlier difference in legal opinions that MetLife “proceed to a decline”. On 10 November 2014, Ms Hinton again communicated with him. In so doing, she incidentally revealed that MetLife’s giving of instructions to both HWL Ebsworth and Moray & Agnew may just have been an accident and that HWL Ebsworth had by then supplied a revised opinion. She said:

92. [196]

    Mr Macfarlane responded the same day. His response looks the closest the MetLife file records to a decision within MetLife in response to Ms Hinton’s recommendation:

93. [197]

    And further on the same day, 10 November, Ms Hinton gave instructions to Moray & Agnew for them to proceed to prepare a denial letter. On 19 November 2014, Moray & Agnew responded, indicating that they would prepare a denial letter.

94. [198]

    The draft denial was received and is recorded as having been checked by Ms Hinton on 1 December 2014. It was then forwarded on to FSS the same date. The file records show that RGA Australia was told the same day the claim had been denied.

95. [199]

    Who was the decision maker within MetLife? This is not directly obvious anywhere in the internal materials. It was probably not Ms Hinton because she merely conveyed a recommended decision to others. She sent the recommendations to Mr Macfarlane and Mr Taylor. The decision maker is therefore likely to be one of them, probably Mr Macfarlane, who played the more active role and appears to be recorded as the person who “declined case under review” in a series of entries in the first quarter of 2015.

96. [200]

    But it is very difficult to infer from the materials before the Court that, in fact, the reasons for decision recorded in MetLife’s 1 December 2014 letter were those of Mr Macfarlane, or anyone else who qualified as MetLife’s decision maker. It is unclear who signed the letter. Nothing in the file suggests that a particular decision maker adopted the very reasons that Moray & Agnew had prepared. Although Mr Macfarlane seems to have made the decision to proceed to denial, when the draft reasons came from Moray & Agnew, they were merely sent out with what is an unidentified signature. If it was Mr Macfarlane who made the decisions, then perhaps he adopted the draft reasons by so signing. This was not argued in submissions, so it can be left to one side.

97. [201]

    But MetLife’s conclusion to proceed to denial was informed by the recommendations of Ms Hinton, with all the inputs that influenced her. There is no evidence that Mr Macfarlane himself undertook independent enquiries. On the material provided, Ms Hinton was the major coordinator of quite a complex internal process within MetLife and referred the product of her work to Mr Macfarlane and Mr Taylor. Their decision making seems to have gone through the filter of her evidence gathering, advice seeking and consultation with RGA Australia.

98. [202]

    The Plaintiff’s Contentions. Based on these communications, the plaintiff argues that RGA Australia stipulated to MetLife that RGA Australia denied liability under the Treaty and that it did not consent to MetLife making any payment to the plaintiff prior to MetLife making its December 2014 decision. The plaintiff submits that meant, in substance, that in order “to comply with its obligations under the Treaty, MetLife was bound to refuse the plaintiff’s claim, whatever it really thought about that claim”. The plaintiff submits that so long as MetLife was contending that the Treaty was in force, and RGA Australia was denying consent to MetLife’s payment of the plaintiff’s claim, MetLife failed to take into account the interests of the plaintiff, or failed to act fairly and in good faith and failed to act reasonably, or took into account an irrelevant consideration. The plaintiff’s contention is that the fact of the Treaty together with the refusal of RGA Australia’s consent so tainted MetLife’s purported decision making that the December 2014 decision should be vitiated and the Court should proceed to determine the matter for itself.

99. [203]

    The plaintiff argues that RGA Australia was, in substance, exercising a veto over MetLife’s decision making capabilities under the Policy. In oral submissions on behalf of the plaintiff, Mr Rayment QC often described RGA Australia as having a “veto” and that RGA Australia, a stranger to the Policy, was the true decision maker about whether the plaintiff was TPD within the Policy.

100. [204]

     The plaintiff submits that an actual relationship of control by RGA Australia over MetLife’s decision making is to be inferred, not just from the terms of the Treaty (especially Article 18) and the dispute between RGA Australia and MetLife, but also from the disclosed communications between RGA Australia and MetLife during the claims handling process.

101. [205]

     MetLife’s Contentions. MetLife first contends that entering into a commercial arrangement to reinsure a proportion of its liability is not of itself inconsistent with notions of good faith and fair dealing towards FSS and the members of the Scheme. Nor is reinsurance such an unusual or unwarranted commercial circumstance that a person such as the plaintiff, claiming to be entitled to a benefit under a policy, would reasonably expect to be informed of the fact of reinsurance. Nor, in any event, would performance of obligations under a reinsurance treaty be contemplated as incompatible with the primary insurer’s obligations under the reinsured insurance policy.

102. [206]

     Next, MetLife contends that the Treaty does not control MetLife’s decision, nor does it require MetLife to substitute RGA Australia's decision for its own. Finally, MetLife argues that the evidence does not support the contention that it actually acted under RGA Australia’s control.

103. [207]

     The Reinsurance Issues. Before commencing analysis of these contentions, the issues for determination should be classified by reference to the case actually pleaded in the Second Further Amended Statement of Claim.

104. [208]

     The pleading raises whether MetLife acted in breach of its statutory and general law duties, and its duty to act with good faith and fair dealing towards the plaintiff in the following identified respects:

105. [209]

     After some general analysis, these reasons deal with each of these six allegations that MetLife breached the Policy.

106. [210]

     Before examining the six allegations of breach, it is useful to analyse the interaction of the Treaty with MetLife’s decision making role under the Policy under the five headings: (a) the primary operation of Article 18.8; (b) Article 18 – claims control or claims co-operation clause; (c) would a decision in favour of the plaintiff have breached Article 18.8 of the Treaty; (d) the consequences of breaching Article 18.8; and (e) avoiding a breach of Article 18.8.

107. [211]

     (a) The Primary Operation of Article 18.8. The Sum Insured under the Policy was above the Claim Handling Limit defined in the Treaty, Schedule F. It is not in contest that the Treaty, Article 18.8 would apply to one outcome of MetLife’s decision about the plaintiff’s TPD status under the Policy.

108. [212]

     The plaintiff asked MetLife to make a decision under the ETE clause in the Policy. If MetLife, after attaining the necessary level of satisfaction, made that decision in the plaintiff’s favour, MetLife would be “accepting liability for a claim under that Reinsured Policy” within Treaty, Article 18.8. A finding that the plaintiff was TPD would lead directly to payment to the plaintiff under the Policy. Therefore, to make the decision requested in the plaintiff’s favour, MetLife was required by Article 18.8 to “obtain RGA Australia’s prior approval”. The evidence establishes that MetLife did not have RGA Australia’s “prior approval” in any form, either in writing, orally or by implication to make any decision that would involve an acceptance of liability to the plaintiff. MetLife does not contend that it did have RGA Australia’s prior approval to accept liability. In contrast, under Article 18.8 MetLife would not need RGA Australia’s prior approval to make a decision that did not accept liability to the plaintiff.

109. [213]

     In these circumstances, had MetLife decided that it was satisfied in conformity with its duty of utmost good faith that the plaintiff was TPD and thereby accepted liability to the plaintiff under the Policy, it would have been in breach of Article 18.8 as having accepted liability to the plaintiff without RGA’s prior approval. No “carve out” in Treaty, Article 18.8 from the requirement for prior approval existed to accommodate MetLife’s position, were MetLife to find it had contractual utmost good faith obligations that were inconsistent with Article 18.8.

110. [214]

     MetLife’s decision whether the plaintiff was TPD under the Policy was binary. MetLife could either be satisfied the plaintiff was TPD at the relevant date, or not so satisfied. The result of the relevant decision was either acceptance or non-acceptance of the plaintiff’s claim. There was no prospect, in the circumstances that occurred here, of any other outcome. This was never a negotiation towards a settlement, but a request by the plaintiff for a decision from MetLife. So once RGA Australia communicated that MetLife could not accept liability without its prior approval, that meant that if MetLife made this binary decision in the plaintiff’s favour, it must breach the Treaty, Article 18.8, and if it made the decision against the plaintiff, it would at least in that respect comply with Treaty, Article 18.8.

111. [215]

     Article 18.8 is “subject to other terms of this Treaty”. No other terms of the Treaty speak directly to the issue of the Cedant’s acceptance of liability for claims on the Policy. This provision seems merely designed to ensure that Article 18.8 should not be construed as limiting RGA Australia’s exercise of its other rights under the Treaty, once RGA Australia has given its “prior approval”.

112. [216]

     (b) Article 18 – Claims Control or Claims Cooperation Clause? Mr Sexton SC submitted that Article 18.8 was a “claims cooperation” clause and not a “claims control” clause. Mr Sexton SC’s analysis is correct. Article18 does not give RGA Australia a right to control the negotiation, adjustment and settlement of any claim under the Policy, a common feature of claims control clauses: Eagle Star Insurance Co Limited v Cresswell [2004] LRLR 537, 543 – 545; see Colin Edelman QC and Andrew Burns, The Law of Reinsurance (2nd ed, 2013, Oxford University Press) (“Edelman and Burns”) at [5.17]. RGA Australia has the option to require claims to be defended (Article 18.6) or conceded (Article 18.11) on certain conditions, but it does not have general control over settlements.

113. [217]

     Claims cooperation clauses not untypically have claims management provisions in them, such as Articles 18.1, 18.2 and 18.3. They also typically have provisions such as Article 18.8 requiring that no settlement will be made, or liability admitted, “without the prior approval of reinsurers”: Gan Insurance Ltd v Tai Ping Insurance Ltd (No. 2) [2001] Lloyds Rep IR 667, 687; and see Edelman and Burns at [5.20]. Importantly, unlike a claims control clause, a claims cooperation clause does not substitute the decision of the reinsurer for that of the reinsured.

114. [218]

     As MetLife submits, the claims conditions in the Treaty, Article 18 were in the nature of "claims cooperation" rather than “claims control" clauses. They required MetLife: to notify the reinsurer of an insured event or claim under the Policy; to apply MetLife's own (not RGA Australia’s) standard claims procedures; to provide information and documents about a claim reasonably requested by RGA Australia; to disclose matters known to MetLife relevant to the claim; and to obtain RGA Australia's written consent prior to admitting liability or offering to settle a claim.

115. [219]

     (c) Would a Decision by MetLife in Favour of the Plaintiff Necessarily Have Breached Article 18.8 of the Treaty? As the analysis in section (a) The Primary Operation of Article 18.8 concludes, the straightforward answer to this question is in the affirmative.

116. [220]

     But it is at least arguable that a decision in the plaintiff’s favour by MetLife under the ETE clause of the Policy would not have breached Article 18.8 of the Treaty. The Court will not normally imply a term into a contract of reinsurance that the reinsurer must have reasonable grounds for withholding approval of any settlement under a claims cooperation clause, which requires such an approval: Gan Insurance v Tai Ping Insurance Ltd (Nos 2 & 3) [2001] Lloyds Rep IR 667, at 695 - 697.

117. [221]

     But such withholding of approval should nevertheless take place in good faith and after consideration of the facts giving rise to the particular claim, and not with reference to considerations wholly extraneous to the subject matter of the particular reinsurance. Learned commentators suggest that the reinsurer should make the decision “whether to approve a proposed settlement, so far as possible, objectively and without regard to its narrow sectional exposure as reinsurer”: Edelman and Burns at [5.43].

118. [222]

     Although the Treaty was not crafted sensitively to accommodate the kind of decision that MetLife had to make under the Policy, nevertheless MetLife could probably have fielded a defence against RGA Australia’s allegation of breach by contending that if MetLife had reached an honest, objective decision under the ETE clause, that the plaintiff’s claim should be paid. Then RGA Australia, acting objectively as it was bound to do, could not have maintained its non-approval of MetLife’s decision. Of course, such strategies were never tested in this case and the outcome of MetLife using such a defence can only be said to be uncertain. But that such defences exist shows that MetLife may not automatically have been in breach of Article 18.8 had it decided in the plaintiff’s favour. But there is no evidence on the available materials that MetLife considered such matters in this case.

119. [223]

     (d) The Consequences of Breaching Article 18.8. The parties’ submissions did not analyse in any detail what might happen if MetLife went ahead to accept liability for the plaintiff’s claim without RGA Australia’s approval. But analysis of the parties’ submissions requires at least an elementary understanding of the contractual risks for MetLife under the Treaty if MetLife had accepted the plaintiff was TPD within the Policy. This is possible because the parties tendered the Treaty and invited the Court to examine its terms.

120. [224]

     Reinsurance treaties vary as to whether they make the reinsured’s compliance with a claims cooperation clause a condition precedent to the reinsurer’s liability. That such compliance is a condition precedent will often be expressly stated: see for example Insurance Co of Africa v Scor (UK) Reinsurance Ltd (1985) Lloyd’s Rep 312; Eagle Star Insurance Co Limited v JN Cresswell [2004] Lloyd’s Rep IR 537.

121. [225]

     The Treaty, Article 13.1 sets up a structure which would appear to make compliance with the Treaty a condition precedent to recovery against RGA Australia. Under Article 13.1, “RGA Australia must indemnify the Cedant” in “the Reinsured Amount” (which includes the Claim Amount and Claim Costs).

122. [226]

     The obligation in Article 13.1(a) is “subject to the terms of this Treaty”. And importantly, RGA Australia’s Article 13.1(a) obligation to pay the Reinsured Amount is qualified by the words, “if and only if”, which imply that what follows in the Article are conditions precedent. These conditions are: Article 13.1(b), the Cedant’s contractual liability to pay under a Reinsured Policy is ascertained either “by the verdict or judgment of a court” or “by an agreement to settle a claim by a Policyholder under Reinsured Policy”; and Article 13.1(c), “there is no unremedied breach by the Cedant of the Reinsurance”. Clauses such as Article 13.1 in the Treaty are sometimes referred to as “follow the settlements” clauses because they make the reinsurer’s liability to pay the reinsured automatic upon a judgment or settlement (that is reached in circumstances that comply with the Treaty).

123. [227]

     MetLife making a determination in the plaintiff’s favour under the ETE clause in the Policy but without RGA Australia’s prior approval in breach of Article 18.8 is likely to generate an unremediable breach of the Reinsurance within Article 13.1(c). This would mean that MetLife could not take advantage of the Article 13.1 follow the settlements clause.

124. [228]

     But this is not as clear as it at first looks. A determination in the plaintiff’s favour by MetLife under the ETE clause in the Policy may not be “an agreement to settle a claim by a Policyholder”. It may not qualify as “an agreement” at all because it is an objective determination required by the Policy that does not require MetLife to “agree” anything with the plaintiff: MetLife is simply required to do its duty under the Policy to make a determination. It may be, therefore, that because of the way the conditions precedent to the “follow the settlements” clause have been framed, it simply does not apply in these circumstances, and indeed to any ETE determination under a group policy. The Court does not have to determine these issues. But that they exist is covered to show some the wider contractual context to MetLife’s decision.

125. [229]

     The possibility must therefore also be contemplated that when MetLife made its decision whether the plaintiff was TPD under the Policy, MetLife could not take advantage of Article 13 either because it had not complied with a condition precedent, such as Article 18.8, or because the Article 13 follow the settlements provisions in the Treaty were not in any way available for this kind of decision by MetLife under the Policy. It can be said that making a decision that would breach Article 18.8 potentially involved MetLife in an increased burden in proving RGA Australia’s liability to it under the Treaty.

126. [230]

     But there may nevertheless be significant consequences for MetLife breaching Article 18.8, even if it were not a condition precedent to RGA Australia’s liability to MetLife under the Treaty. Clauses importing obligations such as those in Article 18 have been held to be intermediate terms such that the consequences of a breach in any case may depend upon the nature and gravity of the breach: Transpacific Insurance Co (Australia) Ltd v Grand Union Insurance Co Limited (1989) 18 NSWLR 675, Giles J. A more serious breach may be repudiated thereby entitling the insurer to reject the claim.

127. [231]

     Even lesser breaches will have consequences. A reinsured in breach of a condition precedent, and who therefore cannot rely upon a follow the settlements clause, will be required to prove its liability for the settled claim and must allow the reinsurer to recover or set-off such damages as has been caused by the breach: Edelman and Burns at [5.4]. There is of course no way of knowing the extent of such damages considerations in this case, but once again, these possibilities provide contractual context to MetLife’s duties of utmost good faith under the Policy.

128. [232]

     (e) Avoiding a Breach of Article 18.8. Mr Sexton SC submitted for MetLife that if the plaintiff’s argument were to succeed in this case, that underwriters of Group Life policies offering TPD cover with ETE clauses would effectively be unable to obtain reinsurance. That argument is not persuasive. This case does not represent a revolution that will end reinsurance for TPD Policies such as the Police Blue Ribbon Policy. On proper analysis, all this case shows is that the potentially available options for the plaintiff, for MetLife, and for RGA Australia to avoid the situation that arose here were not taken up.

129. [233]

     There were a number of possible options for MetLife to decide that the plaintiff was TPD under the Policy without necessarily breaching the Policy. Some of these were short term options and others were longer term. MetLife had several options to avoid conflict between its contractual obligations: (a) to make decisions under the Policy governed by duties of the utmost good faith to the plaintiff; and (b) not to contravene RGA Australia’s prohibition under the Treaty against it accepting liability to the plaintiff. Four can be mentioned.

130. [234]

     First, once the plaintiff had made his claim, Metlife could have availed itself of the Treaty’s dispute resolution provisions, Article 26 to find a way that it could comply with both its conflicting contractual obligations. This would probably have been a non-technical issue, so the matter would potentially have gone to mediation under Article 26.4(a). It is unnecessary to predict from there the myriad of ways this conflict could have been resolved at mediation. It is sufficient for present purposes that such options existed.

131. [235]

     Second, Article 27 of the Treaty suggests another option. Before RGA Australia could have terminated the Treaty against MetLife for its failure to comply with MetLife’s actual or anticipated breach of Article 18.8, RGA Australia had to give MetLife notice under Article 27.3(a) for MetLife to remedy the breach. If that had happened, it would have been open to MetLife to approach the Court to seek declarations to resolve the liability issue that ultimately went to McDougall J and the Court of Appeal. Had that happened, RGA Australia’s non-approval under the Treaty against MetLife accepting liability to the plaintiff would have been removed, because as a result of judicial decision, RGA Australia would not have remained on risk for MetLife’s liability to the plaintiff.

132. [236]

     Third, MetLife the decision maker could point out to the reinsurer that if the reinsurer persisted with its no approval position, the decision maker may be in breach of its obligations under the Policy and ask the reinsurer to resolve the conflict by withdrawing the non-approval notice. If RGA Australia refused to do so, then it may have then been open to MetLife to treat that refusal as a direction by RGA Australia under Article 18.6 to defend the claim. That, in turn, may have given Metlife the option to appoint RGA Australia as MetLife’s agent to defend the plaintiff’s claim.

133. [237]

     Fourth, a reinsured in the position of MetLife could tell the reinsurer under the Treaty and the insured under the Policy that MetLife will ignore the contractual obligation to the reinsurer. As can been seen from the earlier analysis, that would probably have required MetLife to face a number of additional risks: a risk of an increase in the costs and difficulty of recovery against MetLife, a risk of damages at the suit of RGA Australia, and a risk of failing against RGA Australia.

134. [238]

     Fifth, Mr Rayment QC suggested in oral submissions yet another possible solution. MetLife could have disclosed the full situation to the plaintiff and said, “We refrain from forming an opinion in this case because we have a contractual obligation [to RGA Australia] to reach it in a certain way. We therefore invite your client to, if he wishes, to see us to obtain a declaration about the matter”. Had this course been taken it may have been possible for MetLife to comply with the Policy and the Treaty.

135. [239]

     And finally, a longer term solution may be mentioned. Although without rewriting the Treaty, this solution was not available to the parties in this case. Some negotiating foresight at the time of making the Treaty could have carved out TPD decision making from the strictures of Article 18.8. The contractual requirement on MetLife for making objective decisions under the Policy was always potentially in conflict with Article 18.7. The Treaty did not expressly respect MetLife’s special obligations to decide whether to accept liability objectively. Some allowance could be made in the future for decision makers in the position of the reinsured, such as MetLife, to be accommodated by more flexible reinsurance clauses that accept independent decision making under ETE clauses and required the reinsurer not to act so as to place the reinsured in breach of the Policy. But that is not an issue for this case.

136. [240]

     The situation that arose here was not just the result of the terms of the Treaty and it was not inevitable. The outcome was also the product of the unusual combination of RGA Australia raising the Initial Events issue, exercising its claims co-operation rights under Article 18.1 to 18.3 on a without prejudice basis, and after fully engaging with the facts of the plaintiff’s claim, then issuing an Article 18.8 non-approval against MetLife accepting liability and all without any apparent sensitivity to the objective decision making duties that lay upon MetLife under the Policy.

137. [241]

     The plaintiff gives particulars that MetLife was in breach of its statutory and general law duties in six ways. These reasons now analyse each of those six alleged breaches.

138. [242]

     (a) Veto Power by Signing the Treaty? The plaintiff first submits it was a breach of duty for MetLife even to negotiate and sign the Treaty. This contention is not persuasive. MetLife’s submissions in reply answer it.

139. [243]

     Entry into the Treaty was not in and of itself a breach of MetLife’s obligations of utmost good faith under the Policy. MetLife’s entry into the Treaty did not inevitably mean that MetLife would be dictated by RGA Australia when MetLife came to giving objective consideration to the plaintiff’s claim. MetLife had a number of options for resolving any conflicting contractual duties that it had to the plaintiff and to RGA Australia, so that MetLife did not have to follow the dictates of RGA Australia when making the decision. These options have been discussed in the general analysis above.

140. [244]

     The Treaty is consistent with MetLife having full freedom of decision in relation to the plaintiff’s claim. MetLife was certainly not free from commercial pressure from its Treaty with RGA Australia in relation to its decision about the plaintiff’s claim. But the Treaty was only one of a number of commercial pressures MetLife had to field in making its decisions about claims under its Policy. Its contractual duties, elaborated earlier in these reasons, required it to put its commercial interests aside when making its decision about the plaintiff’s claim. But the Treaty provisions themselves did not control MetLife’s freedom of decision on the claim. As MetLife has correctly submitted, RGA Australia did not have the benefit through the Treaty of a claims control clause that would allow RGA Australia to dictate a rejection of the plaintiff’s claim. And the Treaty actually reduces the cost to MetLife and therefore the conflicting financial pressure inclining MetLife to deciding against the plaintiff.

141. [245]

     The Treaty, Article 18.7 provided a mechanism to deal with the situation that might arise if MetLife did not agree with RGA Australia's request that a claim be defended. In those circumstances, MetLife could, by giving notice to RGA Australia, transfer and assign the claim to it to conduct the defence as MetLife's agent. In those circumstances, RGA Australia would be liable to pay the sum insured, costs and interest if the Policyholder succeeded in the claim, subject to payment by MetLife of its retention under the Treaty.

142. [246]

     The Court accepts Metlife’s submission that, on its proper construction, the Treaty did not require MetLife to abdicate, its decision-making functions under the policy. MetLife’s submissions on this contention should be accepted.

143. [247]

     (b) Breach by RGA Australia Actually Vetoing Payment to the Plaintiff. If MetLife in fact acted under RGA Australia’s dictation when making its first decision concerning the plaintiff, it would have been in breach of the Policy which requires MetLife itself to ”be satisfied”, and therefore to be the decision maker on that question. If acting under dictation, it would not have been the decision maker under the Policy.

144. [248]

     Abdication of decision making responsibility can be a breach of many different kinds of legal duty. In administrative law, a senior public servant may not act under direction and is required to exercise an independent discretion that is conferred by statute or regulation and not to blindly apply government policy: R v Anderson; Ex Parte IPEC-Air Pty Ltd (1965) 113 CLR 177; [1965] HCA 27 (“IPEC-Air”); Bread Manufacturers of New South Wales & Ors v Evans & Ors (1981) 180 CLR 404; [1981] HCA 69. And in the law of trusts, trustees are not permitted to delegate their decision making powers to third parties: J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis) at [17-23].

145. [249]

     The same principle applies here. Authority is clear that the insurer is required to form the requisite opinion itself: Ziogos at [74]. Acting under dictation according to a veto would be inconsistent with that duty.

146. [250]

     The plaintiff submits that RGA Australia’s correspondence utilised Treaty, Article 18.8 to prohibit any payment by MetLife to the plaintiff. But Metlife submits that a sensible reading of the correspondence passing between MetLife and RGA Australia shows MetLife reported its opinions and recommendations to RGA Australia and sought its views, just as it was required to do under the Treaty, but that MetLife independently assessed the plaintiff’s claim and independently reached its own decision. MetLife contends that the evidence does not support the inference of dictation that the plaintiff asks the Court to draw.

147. [251]

     The communications between RGA Australia and MetLife support both contentions to a degree. They show that RGA Australia expressly conveyed that it did not approve a payment to the plaintiff, indicating by implication that a decision in the plaintiff’s favour would be a breach of Article 18.8. But they also show that RGA Australia did not issue an express written directive or instruction requiring MetLife to make a particular adverse decision rejecting the plaintiff’s claim. Nor do the circumstances allow the Court to infer that RGA Australia issued any unwritten directive or instruction to that effect. The evidence also does not support the inference that any such directive, either oral or implied, dictating a particular decision was issued. This ground of attack on MetLife’s decision also fails on the evidence.

148. [252]

     The communications from RGA Australia did not dictate a particular outcome to MetLife. They did not tell MetLife what decision it must make. MetLife was leading and managing consideration of the plaintiff’s claim and making recommendations to assist in achieving consensus with its reinsurer. This is exactly what one would expect of a reinsured anxious to keep its reinsurer informed. But there is no evidence in the course of pre-decision and post-decision MetLife communications, or in MetLife’s internal documents, or in its reasons for decision, that suggests MetLife thought it had no alternative but to find against the plaintiff, by reason of RGA Australia’s communications to it.

149. [253]

     (c) Breach by RGA Australia’s Control by Other Means. Apart from RGA Australia’s communicated non-approval of any payment to the plaintiff by MetLife, the plaintiff also relies on RGA Australia’s wider conduct in making recommendations and consulting RGA Australia about its decisions and the like, to show that, in substance, RGA Australia was controlling MetLife’s decision making, placing MetLife in breach of its obligations under the Policy.

150. [254]

     But this contention is also not persuasive. Read dispassionately, the wider narrative of the RGA Australia – MetLife communications set out above is best characterised as an account of a reinsured, MetLife, co-operating earnestly and efficiently with its reinsurer, RGA Australia. It is not to be characterised as an exercise of RGA Australia’s control. But as will be seen below, in the communications MetLife does not sufficiently separate its decision making from the influence of RGA Australia’s clause 18.8 non-approval.

151. [255]

     As an aside at this point, it is tempting but erroneous to look at this question by asking whether MetLife has, both by the terms of the Treaty and by not resisting the non-approval directive, arguably fettered any discretion it had to decide in the plaintiff’s favour. The rule against fettering discretions applies to trustees (Re Stevenson’s Settled Estate (1906) 6 SR (NSW) 420; and see J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis) at [16-14]), to company directors (Thorby v Goldberg (1964) 112 CLR 597; [1964] HCA 41 (“Thorby”) at 605-606; Talbot v NRMA Limited (2000) 34 ACSR 650 at 658), and to the executive (Minister for Immigration, Local Government and Ethnic Affairs v Kurtovic (1990) 21 FCR 193; [1990] FCA 19 (“Kurtovic”) at 210-11; Attorney General (NSW) v Quinn (1990) 170 CLR 1; [1990] HCA 21 (“Quinn”) at 17).

152. [256]

     Fettering a discretion is not really the appropriate tool of analysis here, even, for example, if the Court were considering the position of FSS: Finch v Telstra Super Pty Ltd (2010) 242 CLR 254; at [64]-[66]. But here, the insurer, MetLife, is not in the position of a trustee exercising a discretion. It has a contractual duty to decide whether it is satisfied under the Policy of certain matters concerning the plaintiff and to do in accordance with its duty to act reasonably in forming an opinion and in accordance with its duty of utmost good faith.

153. [257]

     (d) Did MetLife Prefer Its Own Interests to Those of the Plaintiff? The plaintiff’s primary contention of breach here is that MetLife is in a position of conflict of interest and made a decision that preferred its own interest not to be in breach of the Treaty over the plaintiff’s interests. The plaintiff also advances a secondary related contention that MetLife failed to take into account relevant considerations, namely the plaintiff’s interests.

154. [258]

     RGA’s correspondence based on Treaty, Article 18.8 certainly placed MetLife in a position of conflict between its duty to decide objectively and in accordance with its duty of utmost good faith under the Policy, and its interest in avoiding the consequences of a breach of the Treaty, consequences that the analysis above shows.

155. [259]

     But MetLife did not obviously prefer its own interests over those of the plaintiff. In my view, there is no indication in the materials before the decision maker that it did so. Nothing appears in MetLife’s reasons for its first decision that, notwithstanding that it objectively thought the plaintiff had satisfied the TPD definition in the Policy, it nevertheless decided that not breaching the Treaty was a preferable course for it to take.

156. [260]

     The plaintiff’s secondary contention on this allegation of breach is defeated by the fact that the MetLife – Plaintiff communications and the RGA Australia – MetLife communications, set out in the narrative above, show that MetLife undertook many procedural steps to apprise itself of the medical and other information that might support the plaintiff’s case. And MetLife’s reasons show that it actually took that case into account. The plaintiff adverting to the RGA Australia – MetLife communications does not negative the reasonable and compelling inference that arises from these materials: that MetLife did take the plaintiff’s case (and therefore his interests) into account.

157. [261]

     (e) Did MetLife Take Into Account Irrelevant Considerations? RGA Australia communicated a strong, repeated and unqualified denial of approval to MetLife finding in the plaintiff’s favour on his claim he was TPD within the Policy. This raises two questions: (1) did MetLife take these communications into account in making that decision; and (2) were they irrelevant considerations to MetLife’s decision?

158. [262]

     As to the first question, in my view, the Court can infer that when making its first decision, MetLife did take into account both its binding contractual obligations under the Treaty, Article 18.8 and the communications from RGA Australia. Both MetLife’s own reasons for decision and the materials before it at the time of making its decision are a source of inference on this first question.

159. [263]

     MetLife’s first decision does not mention either RGA Australia or any of MetLife’s applicable reinsurance arrangements. But the material produced on subpoena and analysed earlier in these reasons shows: that RGA Australia had turned its mind to whether or not it would give prior Article 18.8 approval to MetLife accepting liability under this policy; that RGA Australia had decided not to give its approval; and that RGA Australia had clearly communicated that its position to MetLife on many occasions prior to MetLife making its first decision.

160. [264]

     The materials before the first decision maker analysed above clearly establish that MetLife was not only well aware that this was RGA Australia’s position, but that MetLife was conscious in performing its assessments of the plaintiff whether or not the position it was taking was aligned with that of RGA Australia. MetLife’s “current assessor recommendations” of 3 September 2014 are an example of MetLife’s assessor, Ms Hinton, expressly declaring that her opinion that the plaintiff was not TPD “was in agreeance with RGA”. MetLife received RGA Australia’s email of 1 October 2014, which conveyed that RGA Australia’s view was to decline. Ms Hinton then conveyed that internally to Mr Macfarlane and Mr Taylor with her recommendation for denial. Finally, when the contradictory legal opinions were received, Ms Hinton consulted RGA Australia from which the Court infers she received an answer reaffirming RGA Australia’s previously expressed views.

161. [265]

     Mr Sexton SC sought to deflect the inference to this conclusion in part by contending that RGA Australia’s non-approval was not under Article 18.8 but on the basis of the Initial Event provisions of the Treaty. But for the reasons given earlier, this contention is not borne out by a full reading of the communications. In my view, RGA Australia was advancing its non-approval for both reasons.

162. [266]

     MetLife did not declare in its reasons that it was not taking into account RGA Australia’s refusal to grant prior approval to an outcome favourable to the plaintiff. Nor did MetLife confront its conflict in contractual duties (respectively to RGA Australia and to the plaintiff) directly by corresponding back to RGA Australia, stating that it was obliged under the terms of the ETE clause and its general law duties to disregard RGA Australia’s refusal to grant prior approval to an outcome favourable to the plaintiff. But at the very simplest level, MetLife’s internal documents leading to the 1 December 2014 decision do not evidence any internal protocol or other in-house mechanism that reflected a conscious attempt on its part to ensure that reasonably obvious concerns about MetLife possibly breaching Article 18.8 were not taken into account when the decision was made.

163. [267]

     As these reason show, MetLife had many options for dealing with this conflict in order to resolve it before making its decision: see the section above (e) Avoiding a Breach of Article 18.8. The materials tendered do not show that MetLife pursued any of those options. Any one of those options could have kept at bay RGA Australia’s influence on MetLife’s decision making, influence which was real, as evidenced through MetLife’s officers expressing that their opinions aligned with those of RGA Australia.

164. [268]

     Moreover, MetLife had not disclosed to the plaintiff its reinsurance obligations and RGA Australia’s statement of Article 18.8 non-approval, nor declared to the plaintiff that it would disregard RGA Australia’s refusal to grant prior approval to an outcome favourable to the plaintiff. This is a matter relevant to the plaintiff’s next allegation of breach.

165. [269]

     Nor are there any working papers among the materials produced by MetLife which show that MetLife’s internal decision making process was kept insulated from RGA Australia’s refusal to grant prior approval to an outcome favourable to the plaintiff. Indeed, as the plaintiff points out, the MetLife decision maker has not been called to give evidence in these proceedings. In the absence of any internal evidence that any positive steps were taken to ring fence the decision from such clearly asserted influence, the inference that the decision maker took this consideration into account is strong, because of the potential commercial consequences for MetLife of proceeding to decide in the plaintiff’s favour without RGA Australia’s approval in breach of Article 18.8 (see above, (d) The Consequences of Breaching Article 18.8). I infer from all of these matters that MetLife took into account RGA Australia’s refusal to grant prior approval to an outcome favourable to the plaintiff.

166. [270]

     And this was an irrelevant consideration. Just as the financial consequences for MetLife in making a decision in the plaintiff’s favour were irrelevant to MetLife making an objective decision, the financial consequences of it so deciding in a way that may put it in breach of the Treaty were also irrelevant considerations.

167. [271]

     In my view, MetLife, by taking into account the irrelevant consideration of RGA Australia’s expression of non-approval for MetLife deciding in favour of the plaintiff, breached its obligations of utmost good faith and of acting reasonably in forming an opinion: see Jones at [55]. MetLife’s first decision should be set aside on this ground.

168. [272]

     (f) Breach by Failing to Disclose the RGA Australia Conflict to the Plaintiff. Three matters were not disclosed to the plaintiff before the first decision: (1) the Treaty; (2) RGA Australia’s many additional communications to MetLife of its non-approval of MetLife deciding that the plaintiff was TPD within the Policy; and (3) that MetLife was taking those communications, which were irrelevant considerations, into account. Taken together, these three matters placed MetLife in a position of conflict between its own self-interest and its contractual duty to the plaintiff. Those three matters, left undisclosed to the plaintiff, constituted a denial of procedural fairness to him.

169. [273]

     The plaintiff was well aware of one aspect of MetLife’s conflict between its duty to decide reasonably in forming its opinion and to deal with the plaintiff in accordance with its duty of utmost good faith. Absent any reference to reinsurance, MetLife had an obvious financial self-interest in not making a decision in the plaintiff’s favour, as such a decision would directly deplete MetLife’s financial reserves. But the plaintiff was entirely unaware of the special combination of the three matters referred to in the previous paragraph of these reasons.

170. [274]

     Had MetLife disclosed those three matters to the plaintiff, then the plaintiff would have been in a position to put submissions to MetLife as to whether, when and how MetLife should pursue its options to reduce or eliminate that conflict. The conflict had uncertain potential financial consequences for MetLife: see the section above (d) The Consequences of Breaching Article 18.8. And many such options were available for exploration: see the section above (e) Avoiding a Breach of Article 18.8.

171. [275]

     This failure to disclose these three matters to the plaintiff placed the plaintiff at a procedural disadvantage. This omission was not something to be dismissed as of little consequence. Disclosure of these matters to the plaintiff could readily have generated ideas that could have led to elimination of the conflict. And indeed, disclosure may have allowed MetLife to comply with its contractual duties under both the Policy and the Treaty.

172. [276]

     MetLife’s failure to afford procedural fairness to the plaintiff by failing to disclose the conflict to the plaintiff and asking the plaintiff to make submissions about it, in my view, also vitiates MetLife’s first decision.

173. [277]

     Mr Sexton SC sought to answer the conclusion which the Court has reached that MetLife breached its general law duties. He put an over-arching submission to the effect that MetLife’s compliance with the Treaty could not be conduct that could vitiate MetLife’s opinion, unless that opinion is one which, in any event, no reasonable insurer acting reasonably could have reached on the material available to it.

174. [278]

     That submission is not persuasive. It oversimplifies the duties that apply to MetLife. MetLife’s decision can certainly be challenged on the basis that the opinion it formed “was not open to an insurer acting reasonably and fairly in consideration of the claim”: Jones at [121]. But merely because an insurer’s decision is not challenged on the ground that it was unreasonable does not mean that it cannot also be challenged on other grounds, such as that the insurer misdirected itself in law, or took into account irrelevant considerations, or failed to take into account relevant considerations: Jones at [82] – [85].

175. [279]

     An insurer’s opinion as to whether a plaintiff is TPD under a policy must bear scrutiny against the Jones test of reasonableness. But it must also independently bear scrutiny in the way that it was reached. Even an apparently reasonable conclusion which was reached through a denial of procedural fairness may nevertheless be vitiated. The conclusions which the Court has reached in this section of these reasons are therefore independent of the conclusions reached elsewhere on the challenges to the reasonableness of MetLife’s opinion. MetLife’s first decision cannot stand for this reason as well.

176. [280]

     Finally, there is another aspect to the nondisclosure issue that the plaintiff raised. Disclosure to the plaintiff of issues arising in communications with RGA Australia would have led to the plaintiff seeing the HWL Ebsworth report of 24 October 2014 and the revised report recommending a further medical report from Dr Wilkins before the making of the first decision. Such disclosure would have quickly led two obvious courses for the plaintiff. First the plaintiff could have called for the further examination by Dr Wilkins before the first decision was made. Secondly, the plaintiff would have adopted and put many of the arguments to MetLife that HWL Ebsworth used to conclude that the plaintiff could qualify is TPD within the policy. Nondisclosure meant that none of this could occur.

177. [281]

     It should be observed that it may have been difficult for MetLife to argue that it could maintain privilege on its communications with HWL Ebsworth. MetLife had already probably waived privilege by showing them to an arm’s length party, RGA Australia, who was threatening to deny liability under the Treaty. In my view, this argument is persuasive and is another reason why the first decision should be set aside.

Consideration of the Medical and Other Evidence – The First Decision

1. [282]

   The plaintiff also mounted a series of challenges to the way that MetLife had approached the evaluation of medical and vocational evidence and other materials in reaching its first decision and its reasons for that decision. It is not necessary for all these challenges to be considered, as the Court has already determined that the first decision must be vitiated on other grounds. With effective advocacy, Mr Sexton SC persuaded the Court that a number of these challenges could not succeed. But for reasons of economy in what is already a lengthy judgment, the Court merely records here a number of the challenges that succeeded.

2. [283]

   The plaintiff challenges MetLife’s reasons for decision. As Ball J said in Ziogos at [75], because the insured person’s rights depend not on the objective facts but on the insurer’s opinion, the requirement of utmost good faith “requires the insurer to explain how it reached the decision it did, so that the insured person can be satisfied that the decision itself was reached in the utmost good faith”.

3. [284]

   These reasons have already commented on the brevity of MetLife’s conclusion in its 1 December 2014 letter and has set it out above. The plaintiff’s point, in my view, was well made. The material under the heading “conclusion”, rather than disclosing reasoning discloses nothing more than an ultimate conclusion that “MetLife considers that the member has not suffered a TPD” within the Policy.

4. [285]

   A reader faced with that conclusion might expect, upon analysis of the earlier parts of the reasons, to find a rational weighing of the medical, vocational and other evidence that allowed that conclusion to be drawn. But analysis shows that, as the plaintiff submits, rather than explain its decision, what MetLife has really done, is really just to recite material and then give a conclusion. But the conclusion does not show how the material has been evaluated, accepted, rejected, reconciled or otherwise dealt with to the extent that it is inconsistent with the conclusion reached. In my view, MetLife’s reasons do not meet the standard set in Ziogos. This can be seen from a closer examination of the 1 December 2014 letter.

5. [286]

   The 1 December 2014 letter’s survey of the medical and other evidence falls into two categories: evidence which supports the plaintiff’s case and evidence which does not. How the letter deals with the evidence which does not support the plaintiff’s case is the critical integer in the reasoning leading to the conclusion to reject the plaintiff’s claim. In my view, that is where the letter fails to provide the real basis for the decision.

6. [287]

   The letter first surveys the medical evidence that generally supports the plaintiff’s case. A report of Dr Greg Wilkins, the plaintiff’s psychiatrist of 20 January 2011, is referred to, as is Dr Wilkins’ conclusion that “it was highly probable he would not return to work in any capacity for which he had been trained in the foreseeable future”. The 1 December 2011 letter refers to the 9 March 2012 report of the consultant psychiatrist, Dr Peter Anderson, which concluded that the plaintiff was not only unfit to work as a police officer but “is probably unfit for all work at the time of the report”, although there was some recorded uncertainty on Dr Anderson’s part as to whether he could say the plaintiff was permanently unfit for all forms of work. But his report, as recorded by MetLife generally supported the plaintiff’s case he was TPD within the Policy.

7. [288]

   The 1 December 2014 letter then surveyed the AHC Investigations Report of 5 July 2012, commenting that the plaintiff can be seen “to be reasonably involved in [the SLSC]”, followed by the comment that the plaintiff was the point of contact for enquiries about functions at the SLSC. This is followed by a comment that on its face appears to be speculative: “one would think that the [the plaintiff] would have to be reasonably reliable to perform this role”.

8. [289]

   The report then considered Associate Professor Robert Kaplan’s report (a medical practitioner engaged by MetLife) of 9 July 2012, and records Associate Professor Kaplan’s conclusion that the plaintiff “had post-traumatic stress disorder of a chronic nature based on the information provided by the [the plaintiff]”.

9. [290]

   The 1 December 2014 letter then record a consideration of a vocational assessment report of Ms Nicola Monger of 2 August 2012. Ms Monger’s report can really be seen as identifying some employment options for the plaintiff, but without really assessing his individual capacity to take up those options. The 1 December 2014 letter said the following about Ms Monger’s assessment:

10. [291]

    The 1 December 2014 letter then immediately went to Dr Wilkins’ further report of 21 February 2013 and recorded Dr Wilkins’ dismissal of Ms Monger’s vocational assessment on the basis, which is objectively correct when one looks at Ms Monger’s report, that she did not consider the plaintiff’s underlying neurobiological condition but is rather looked at the kinds of roles to which a person with plaintiff’s kinds of experience would be suited. The 1 December 2014 letter then recorded Dr Wilkins’ conclusion in his 21 February 2013 report that the plaintiff “could not reliably perform in a regular job for employment nor will he be suitable for self-employment”.

11. [292]

    The 1 December 2014 letter then dealt with the surveillance findings of AHC Investigations of 10 March 2013, 5 July 2013 and the Brookside Investigations of 23 August 2013. The last of these involved an interview rather than surveillance. Generally, the surveillance material recorded shows the plaintiff physically at the SLSC and in some public places. The Brookside Investigations report recorded that “[the plaintiff] said he had been offered paid work at [the SLSC] but continues to work as a volunteer”. The other Brookside Investigation analysis confirmed that the plaintiff was working only as a volunteer. As recorded, these investigations do not support the conclusion the plaintiff was undertaking any form of gainful employment for which reliability was required on his part.

12. [293]

    The 1 December 2014 letter then considered Dr Wilkins’ report of 13 November 2013 in response to the surveillance material. The letter recorded Dr Wilkins’ continued opinion that “it would be unlikely that [the plaintiff] would be capable of re-training as he could not reliably perform in a re-training program”. And the 1 December 2014 letter records Dr Wilkins saying that the plaintiff “would not ever return to a pre-injury level of function that would enable him to return to any form of employment or work related activity”. MetLife only made one other comment about Dr Wilkins’ opinion after recounting the conclusions of his report. That comment or reasoning is as follows: “[the plaintiff’s] day-to-day functioning and the reliance placed upon it by [the SLSC] with respect to organising functions and events in MetLife’s opinion suggests otherwise”. This comment is dealt with separately. At present, the Court is merely dealing with the adequacy of MetLife’s reasons.

13. [294]

    The 1 December 2014 letter then turned to Associate Professor Kaplan’s report of 9 July 2012. The text of that section of the reasons is reproduced in full:

14. [295]

    The 1 December 2014 letter then dealt with the two reports of Dr Jonathan Adams, a forensic psychiatrist, respectively dated 5 March and 2 June 2014. Dr Adams was retained on behalf of the plaintiff. MetLife recorded that Dr Adams’ first report agreed with Dr Wilkins (and Associate Professor Kaplan for that matter) and diagnosed a chronic post-traumatic stress disorder. MetLife recorded that Dr Adams said in his first report that this had “a significant impact on [the plaintiff’s] overall level of functioning, particularly in terms of his inability to work since 2010”.

15. [296]

    The MetLife 1 December 2014 letter then recorded the findings in Dr Adams report of 2 June 2014 in which Dr Adams had undertaken a documentation review based partly upon Ms Monger’s conclusions. The MetLife 1 December 2014 letter then said as follows:

16. [297]

    The only part of this which is in the nature of comment or reasoning is the last sentence, “Dr Adams gave no consideration to any capacity on the part of [the [plaintiff] to work within his ET & E”. This comment does not really deal with Dr Adams’ opinion that rejected Associate Professor Kaplan’s opinion about the surveillance material.

17. [298]

    In my view, MetLife’s survey of surveillance, investigation and medical evidence, followed by the conclusion that MetLife reached does not constitute an explanation by MetLife as to how it reached its decision so that the plaintiff can be satisfied that the decision was reached in the utmost good faith. Even if one accepts the three comments of MetLife that go beyond the recording of the materials available to MetLife as reasoning, they do not in themselves explain why MetLife reached the conclusion that it did.

18. [299]

    This can be demonstrated by posing a number of simple questions which represent issues that are absent from the reasoning. Did MetLife reject the whole of Dr Wilkins’ opinions? How did MetLife see itself as able to choose, on a proper medical basis, the opinions of Dr Wilkins, Dr Adams and Dr Anderson on the one side and Associate Professor Kaplan on the other? How did MetLife evaluate the importance of the surveillance material in its reasoning process given that Dr Wilkins and Dr Adams had dismissed it as not inconsistent with a diagnosis of chronic PTSD but Associate Professor Kaplan did apparently regard it as decisive?

19. [300]

    Regrettably, MetLife’s 1 December 2014 letter leaves all of these pertinent questions unanswered. Mr Sexton SC correctly emphasised to the Court that a judicial standard of reasoning is not required from an insurer on the authorities. This can be accepted. But in my view, the gaps in this reasoning are such that they do not satisfy the test stated by Ball J in Ziogos at [75], and one cannot discern why MetLife reached the conclusion that it did.

20. [301]

    Moving beyond the reasons for decision, the plaintiff challenged MetLife effectively on the grounds of bias because it had gathered surveillance material. Its contention was that surveillance “is in reality an exercise in seeking evidence which might provide a basis for rejecting the claim” and is therefore inconsistent with the insurer’s duty of good faith and fair dealing.

21. [302]

    This argument is not persuasive. The plaintiff overlooks the obvious possibility that the surveillance, rather than being indecisive and not contrary to the plaintiff’s case as the plaintiff contends, could have unequivocally confirmed the plaintiff’s case. MetLife was not to know what the surveillance would show before it undertook it. It is impossible, in my view, to infer, as the plaintiff seems to assume, that MetLife must have approached the retainer of the investigators for the purpose of rejecting his claim.

22. [303]

    The plaintiff’s arguments then focus on the three comments or pieces of reasoning in MetLife’s 1 December 2014 letter that go beyond merely reciting the evidence before MetLife. The plaintiff’s contentions about these comments, in my view, are made good.

23. [304]

    The plaintiff submits that MetLife made a non-medical judgment about a medical issue. Both the medical reports of Dr Wilkins of 13 November 2013 and Dr Adams commented on the surveillance material as being consistent with their diagnosis of the plaintiff’s chronic PTSD condition. Associate Professor Kaplan looks at the surveillance material and reaches the opposite conclusion, but without further examining the plaintiff. The MetLife 1 December 2014 letter dealt with this inconsistency of medical views not by getting to grips with the medical opinions but by saying that the plaintiff’s “day-to-day functioning” and “the reliance placed upon it by [the SLSC] with respect to organising functions and events” in “MetLife’s opinion suggest otherwise”.

24. [305]

    In my view, it was unreasonable of MetLife and not consistent with its duty, merely to rely directly upon the video surveillance to reject Dr Wilkins’ view, without understanding why Dr Wilkins thought that the contents of the video surveillance material was not inconsistent with his view that the plaintiff was incapable of undertaking gainful employment. The position is similar, in my view, to the dangers of relying upon video surveillance which were highlighted by Ball J in Ziogos at [104].

25. [306]

    And the comments about the plaintiff’s day-to-day functioning and the reliance placed upon him by the SLSC both fail to get to grips with whether the plaintiff was relied upon by the SLSC to organise functions and events in a way consistent with paid employment. The evidence before MetLife only indicated that the plaintiff was involved in volunteering.

26. [307]

    MetLife’s reliance upon Ms Monger is challenged. As the 1 December 2014 letter shows, Ms Monger did not have regard to any particular medical conditions suffered by the plaintiff, it was somewhat beside the point to record in the letter “Ms Monger said [the plaintiff] has few restrictions physically”. All Ms Monger’s evidence does is to talk about what kinds of jobs the plaintiff’s pre-police experience would suit him for. Leaving aside the need for re-training, this opinion was not based on the plaintiff’s actual attributes and was no basis to infer consistent with MetLife’s duty that the plaintiff himself could actually do any of these jobs: see Ziogos at [102].

MetLife’s Second Decision of 9 June 2017

1. [308]

   The plaintiff requested that MetLife reconsider its decision. But a response to this request for reconsideration had not been received by MetLife until shortly before the first day of the trial, 15 June 2017. MetLife’s second decision declined the plaintiff’s claim on 9 June 2017. This section briefly sets out the course of correspondence leading to that decision with special reference to the additional medical and other material before MetLife when the second decision was made. That is followed by consideration of the plaintiff’s various challenges to that decision and MetLife’s responses.

2. [309]

   By letter dated 26 May 2017, the plaintiff’s solicitors requested that MetLife reconsider its decision to decline the claim of 1 December 2014 in light of the reports served in the proceedings, including the report of Dr Wilkins dated 12 December 2016. MetLife submitted, with some justification, that this request was very late and it put MetLife in the difficult position at short notice before trial that unless it acted to make another decision, it potentially would be in breach of its duty to the plaintiff for not considering his request for another decision. But Mr Rayment QC and those who instruct him had only recently come into the case on behalf of the plaintiff and, in my view, they acted quickly in the circumstances to get this letter out.

3. [310]

   The 26 May 2017 letter of request relevantly provided as follows:

4. [311]

   MetLife agreed to the reconsideration. But it did so subject to it being released from the implied undertaking not to use documents produced in proceedings for a collateral purpose (discussed by the High Court in Hearne v Street (2008) 235 CLR 135; [2008] HCA 36), so as to permit it to use the reports and other documents obtained in the proceedings for the purpose of responding to the request for reconsideration. On 2 June 2017, the Court made orders by consent, permitting MetLife to use the reports in this way. MetLife did not seek to have the plaintiff medically re-examined before making its second decision.

5. [312]

   MetLife reviewed the further material obtained. It was ultimately not satisfied on the further material provided that the plaintiff was TPD. It notified the plaintiff of its decision, setting out its reasons by letter dated 9 June 2017. Relevant parts of MetLife’s 9 June 2017 letter are set out below. These extracts show what additional medical and other material was before MetLife for the second decision.

6. [313]

   MetLife’s preamble to its second decision takes issue with its obligation under the Policy to make another decision, but nevertheless proceeds to do so, “without waiving any of its rights”.

7. [314]

   The second decision is framed as a “Reconsideration”. Just what that means became an important issue. Under the heading “The Reconsideration”, MetLife described the process of re-addressing the plaintiff’s case in the following terms:

8. [315]

   The parties contest whether or not, if MetLife’s first decision is vitiated by the Court, the second decision falls as well. The language of MetLife’s description of its task in the 9 June 2017 letter under this heading “The Reconsideration” and subsequent reasoning in the conclusion of the letter are relevant to that assessment.

9. [316]

   MetLife’s second decision letter then addresses the questions in relation to the plaintiff as at 2 March 2011, a date that both sides accept is the correct date for that purpose. The letter then proceeds to deal with the additional affidavit evidence and the additional medical evidence filed in these proceedings, which was not available at the time of the first decision.

10. [317]

    As to the affidavit evidence, the 9 June 2017 MetLife letter described an additional affidavit by a member of the SLSC and quoted the affidavit as observing the plaintiff’s attendance at the SLSC, both during the week and on the weekend, as being “more as a hobby than an active member. I [the SLSC observer] have seen him mainly there when he goes for paddles on his ski where [the plaintiff] stores it at the [SLSC]” and the SLSC observer has seen the plaintiff “sweep out the board shed, put away nipper equipment, pick up rubbish, load and unload board and ski trailers after carnivals. All of these activities he has completed as a volunteer”.

11. [318]

    MetLife’s 9 June 2017 letter then quoted the SLSC observer in the following way, “[the SLSC observer] further stated that he was not aware that the [SLSC] relied upon the member performing any action and he concluded that in his opinion, a member attended the [SLSC] not only for his enjoyment but as a means where he is able to leave his home and go to a place that he is able to feel safe and secure”.

12. [319]

    The second decision then considered the SLSC observer’s observations of the plaintiff in the following way:

13. [320]

    The 9 June 2017 MetLife letter then dealt with the medical evidence and, in particular, the additional medical evidence received after 1 December 2014.

14. [321]

    MetLife acknowledged that Dr Wilkins (treating psychiatrist), Dr George (defendant’s workers’ compensation consultant psychiatrist), Dr Anderson (consultant psychiatrist appointed by the former solicitors for the plaintiff), Dr Adams (plaintiff’s workers’ compensation consultant psychiatrist) and the General Practitioner, all had agreed on the diagnosis of PTSD and had agreed that it was unlikely that the member would return to employment outside the Police. Indeed, the report stated that these doctors “agree on the diagnosis of PTSD and agree that it was unlikely that the member would return to employment outside the NSW Police Force”.

15. [322]

    But the 9 June 2017 MetLife letter observed that these various medical opinions were directed towards the “timeframe contemplated under the applicable Workcover guidelines” and not to the longer “timeframe contemplated by the TPD definition under the [Policy]”.

16. [323]

    MetLife contrasted those medical reports with the medical reports of Dr Michael Prior (consultant psychiatrist appointed by the Police) of 21 July 2011 and Dr Norman Rose (consultant psychiatrist appointed as the workers’ compensation medical assessor), that the plaintiff would have “a capacity to work external to the police force” (Dr Prior) and “I would not regard [the plaintiff] as totally unemployable… I consider that in any future work it will have to be in a position that is free from the sorts of stressor that he had during his police work” (Dr Rose).

17. [324]

    The 9 June 2017 MetLife letter then considered both the medical evidence that the plaintiff had advanced since 1 December 2014, together with a number of medical assessments that MetLife itself had commissioned. In the first category was medical evidence from Dr Selwyn Smith (a consultant psychiatrist instructed by the plaintiff’s present solicitors), Dr John McMahon (a clinical psychologist appointed by the plaintiff’s former solicitors), and Dr Inglis Howe Synnott (consultant psychiatrist appointed by the plaintiff’s former solicitors).

18. [325]

    The parties addressed the part of the 9 June 2017 letter dealing with Dr Selwyn Smith in their submissions, so that part of the letter is wholly reproduced below:

19. [326]

    The 9 June 2017 MetLife letter then dealt with the report of Dr John McMahon, a clinical psychologist. The letter noted that Dr McMahon had concluded that the plaintiff would be “intermittently fit for work in a cloistered environment, performing routine duties without any contact with the general public on a part-time basis” but Dr McMahon’s report also commented that the plaintiff’s volunteer work “demonstrates capacity to engage in purposeful activity which could be transitioned to gainful employment”.

20. [327]

    MetLife’s 9 June 2017 letter then attended to Dr Wilkins’ reports, starting with Dr Wilkins’ report of 12 December 2016. The letter addressed a number of Dr Wilkins’ reports in the following terms [emphasis original]:

21. [328]

    The 9 June 2017 MetLife letter then quoted Dr Wilkins’ description as to the plaintiff’s capacities and then commented on Dr Wilkins’ view about the plaintiff’s capacity to return to work in the following terms, and then drew a comparative conclusion between Dr Wilkins’ reports and those of the other practitioners [emphasis original]:

22. [329]

    The nature of MetLife’s comparisons between Dr Wilkins reports and those of other practitioners is of some importance in the issues joined between these parties.

23. [330]

    The plaintiff had supplied additional reports to MetLife from Dr Inglis Howe Synnott of 24 May 2016 and from Dr Selwyn Smith. In its 9 June 2017 letter, MetLife was somewhat dismissive of those reports. It dealt with them in the following terms:

24. [331]

    The 9 June 2017 letter then referred to the material that had been produced on subpoena in these proceedings from the Police. This subpoenaed material included an assessment by a psychologist, who examined the plaintiff in 1997 and on a number of subsequent occasions and reported that he “did not and does not suffer from a diagnosable psychiatric illness”. MetLife noted that the psychologist as late as 2009 said that she “had no major concerns regarding his fitness for current duties”.

25. [332]

    The 9 June 2017 letter then identified the material obtained from the SLSC and the Department of Immigration and Border Protection under subpoena. As to the documentary information obtained from the SLSC, the 9 June 2017 letter described the plaintiff from these materials as being observed at the SLSC “assisting behind the bar, taking telephone calls and other activities” and assisting “the club in various tasks including organising, along with his wife, a social event”. The report noted Dr Roldan’s observation that the extent of the plaintiff’s SLSC activities had not been disclosed to him and Dr Roldan’s opinion that the plaintiff’s “activities with the club were inconsistent with the level of disability [the plaintiff] reported or implied”.

26. [333]

    The materials produced by the the Department of Immigration and Border Protection under subpoena show that the plaintiff had travelled to Indonesia between July 2010 and May 2016 on eleven occasions (averaging about twice a year) and to Fiji on one occasion.

27. [334]

    The 9 June 2017 letter then considered the “independent medical assessments”, as it described them, of Dr Roldan, Ms Tyler and Dr Kneebone, who reported to MetLife about the plaintiff after 1 December 2014.

28. [335]

    MetLife’s 9 June 2017 letter recorded Dr Roldan’s observations that the plaintiff’s daily routine activities “suggest greater level of social interaction and public exposure than implied by him” and that the plaintiff’s overseas travel suggest greater exposure to “new and potentially stressful environments and social interactions than is implied by [the plaintiff’s] disability report”. MetLife recorded Dr Roldan’s view in his report of 18 July 2016 that “he could not say that [the plaintiff] was unlikely ever…due to psychological incapacity to engage in some form of employment of at least 15 hours per week in an occupation for which he is reasonably qualified by reason of his education, training and experience”.

29. [336]

    MetLife also dealt with Dr Mark Kneebone’s report of 11 October 2016. Dr Kneebone reported that the objective psychometric testing and investigative web based data collection “indicated the very real possibility that [the plaintiff] is exaggerating his levels of impairment”.

30. [337]

    MetLife further noted that Dr Wilkins in his reply report of 12 December 2016 reported that he “rejected the view that the member may have exaggerated his level of impairment”. MetLife sought to reconcile Dr Kneebone’s opinions, with those of other doctors. Whether that reconciliation was either complete or successful was a matter for debate. MetLife sought to explain the differences between Dr Kneebone’s opinions and those of other doctors in the following passage from the 9 June 2017 letter:

31. [338]

    But finally, under the heading “Summary” MetLife summarised its ultimate reasoning and conclusions. This part of the 9 June 2017 letter is set out here in full:

32. [339]

    MetLife then concluded the 9 June 2017 letter by recording its second decision in the following short concluded paragraph:

33. [340]

    Partly on the basis of this passage, the plaintiff submits that MetLife has approached the making of the second decision in manner that is wholly derivative from the first decision, by saying that it had “not changed its opinion”.

34. [341]

    The Second Decision - the Treaty and Conflicting Legal Advices. The plaintiff did not develop an argument based on the Treaty to challenge the second decision. It would have been difficult to do so. By the time of the second decision, the Court of Appeal had found that RGA Australia was not on risk for the plaintiff’s claim and other claims like it, which fell within the Initial Event Sentence.

35. [342]

    RGA Australia’s non-approval notice to MetLife nevertheless remained extant and does not seem to have been specifically withdrawn. But it was not repeated. The material tendered in the supplementary court book does not found any conclusion that RGA Australia continued to insist on non-approval of the plaintiff’s claim. For that reason, the Treaty can be ignored for the purposes of analysing the second decision.

36. [343]

    Similarly, when the second decision was made, there was no repetition of the conflict between the legal advices of HWL Ebsworth and Moray & Agnew. None of that conflict carried over into the making of the second decision and can also be ignored in the present analysis.

37. [344]

    The Second Decision – Reconsidering the First Decision. The plaintiff contends that the second decision did not approach the decision making task correctly. The plaintiff contends that, rather than approaching the matter afresh, MetLife approached the task as to whether or not it should change its mind from the position it reached in the first decision. MetLife contends that it looked at the matter sufficiently freshly for the second decision to stand.

38. [345]

    On this issue, the plaintiff’s contentions are persuasive. There are several reasons for this. First, the plaintiff’s argument that this was not a genuine reconsideration is borne out by the terms in which MetLife expressed its second decision. MetLife says in its important concluding paragraph that it “has not changed its opinion”. That form of words points to the conclusion that MetLife approached the making of the second decision on the basis of whether it should confirm or change its first decision, rather than to look at the matter afresh as though it had made the second decision without reference to the first decision.

39. [346]

    Second, other features of the 9 June 2017 letter pointed to the same conclusion. The letter principally considers the additional medical and other evidence since the last decision, and the letter does not expressly put the first decision to one side, as it could have done. MetLife did make this second decision and issued this letter under some considerable time pressure in order to accommodate the plaintiff. The omission of these matters is all the more understandable in those circumstances. Notwithstanding that the omission is explicable this way, the total picture the letter presents is of answering the question whether or not, recent evidence and other material changes the position MetLife had reached in the first decision.

40. [347]

    Third, another way of approaching this analysis is to ask whether, in making the second decision, MetLife took into account an irrelevant consideration, namely the fact that it had made the first decision. Though MetLife had made the first decision two and a half years before the second decision, that fact was irrelevant to the making of the second decision. It was irrelevant because upon a genuinely open minded and objective reconsideration by MetLife, the plaintiff did not have to move MetLife from the position it had taken in the first decision. All the plaintiff had to do was satisfy MetLife that he was TPD within the Policy at the assessment date. The language of the first and last paragraphs of the 9 June 2017 letter, “The Reconsideration” and “Our Decision”, taken together and in the context of the rest of the letter show that MetLife approached the task at least in part by asking itself the question whether or not it should shift position. This was an irrelevant consideration. And indeed it was the wrong question for MetLife to ask itself.

41. [348]

    Fourth, there was no separate procedural fairness letter preceding the second decision. But as Mr Sexton SC rightly points out, this letter did set out what MetLife was having regard to and the lack of a separate letter was largely a function of the speed with which MetLife was asked to make the second decision. Thus it is difficult, in my view, to criticise MetLife for a situation created by the plaintiff and I would not set aside the decision on this ground alone. That being said, had a procedural fairness letter been sent, it might have exposed to greater scrutiny this issue about the first decision and saved the second decision.

42. [349]

    The second decision should be set aside for these reasons.

43. [350]

    The Second Decision – the Other Challenges. The plaintiff also challenged the way that MetLife had approached the evaluation of medical and vocational evidence and other materials in reaching its second decision and its reasons for that decision. As with the first decision, it is not necessary for every one of these challenges to be considered. These reasons have determined that the second decision should be vitiated on other grounds. For completeness some of the challenges that succeeded are dealt with here.

44. [351]

    But MetLife’s general case should be briefly set out first. MetLife argued that the plaintiff’s challenges were holding it to too high a standard. MetLife argued that the plaintiff’s analysis was not asking the correct question, which authority required: whether the decision was intelligible and justifiable on the materials before it; not was the decision right. And when addressing each of the plaintiff’s challenges, MetLife stressed the importance of appreciating the overall judgments that it had to make on conflicting evidence.

45. [352]

    MetLife submitted that in reaching its second decision, overall it can be seen that it considered that the weight of the evidence demonstrated that the plaintiff was able to function at a higher level than reported to Dr Wilkins and other medical practitioners, both at the time of the date for assessment and subsequently. MetLife noted that Dr Wilkins’ view “does not align with other practitioners who have assessed the member in the past 12 months or so”. These other medical practitioners included Dr Kaplan, Dr Kneebone and Dr Prior.

46. [353]

    MetLife identified the task before it as requiring an evaluation of the competing views of the medical evidence and objective facts. In making that evaluation, MetLife says that it considered that the views of Dr Kaplan, Dr Roldan, Dr Kneebone and Dr Prior were to be preferred to doctors such as Dr Wilkins.

47. [354]

    MetLife says making those judgments based on the material before it was its role. MetLife argues that its decision was a conclusion that was open to MetLife on the material before it, and was not a decision which, on the material available to MetLife as at 9 June 2017, could be characterised as arbitrary, capricious or as defying logic. But the plaintiff challenged the second decision on specific grounds as follows.

48. [355]

    But an important defect in MetLife’s reasoning in the second decision is that it does not take into account the affidavit evidence of the plaintiff and another SLSC manager (Mr W). But their evidence, in my view, was important in highlighting that the SLSC did not rely upon the plaintiff to perform any role but he was always a volunteer. MetLife’s continued reliance upon the surveillance material does not expressly take this evidence into account.

49. [356]

    Another difficulty with the second decision is that MetLife simply says that Dr Wilkins’ view “does not align with the other practitioners” who have assessed the plaintiff. But that is not in my view an adequate analysis of why Dr Wilkins’ view should be rejected, especially when Dr Roldan did not make a finding of fabrication of symptoms by the plaintiff.

50. [357]

    Finally, MetLife’s second decision refers to the report of Dr Kneebone and Dr Kneebone’s recommendation of treatment which may improve the plaintiff’s condition. But this ignores Dr Wilkins’ comments in relation to Dr Kneebone’s opinion that Dr Kneebone’s treatment should be avoided. To continue to rely upon Dr Kneebone in these circumstances, without inquiring whether the plaintiff might actually obtain the treatment, contrary to Dr Wilkins’ opinion, is unreasonable. The problem is reminiscent of that faced by Ball J in Ziogos at [104].

51. [358]

    The second decision should be vitiated on these grounds as well.

Conclusion and Orders

1. [359]

   For these reasons, the Court will declare that both MetLife’s first and second decisions are void and of no effect. Two courses are open at this point. The matter can go back to MetLife and FSS again for further decision, or the Court can proceed to a second stage of inquiry. The authorities suggest that a second stage inquiry is a commonly preferred course after an insurer’s decision is vitiated at the first stage.

2. [360]

   Upon the assumption that is the course which will be followed, the Court has made directions below for the parties to prepare for a second stage inquiry. As I have not made any credit findings in relation to witnesses in the proceedings, and as I am now familiar with the medical and other evidence relating to the plaintiff, it would be efficient for me to deal with the second stage inquiry. For the present, at least, I will take control of the directions in the proceedings.

3. [361]

   But if some other procedural course is to be proposed by any party, then that party may file any motion returnable for the next date for directions, which will be 2 August 2018.

4. [362]

   The plaintiff has been successful at the separate determination of this first stage inquiry. I see no reason in the circumstances why costs should not follow the event. As the issues for separate determination only related to the second defendant, the Court will order that the second defendant pay the plaintiff’s costs of the separate determination. But this is subject to any party applying for a special costs order by motion.

5. [363]

   For these reasons the Court makes the following declarations, orders and directions:

   1. (1)

      The Court answers the separate questions ordered by Stevenson J for determination pursuant to Uniform Civil Procedure Rules 2005 (“UCPR”), r 28.2 as follows: in refusing to accept the plaintiff’s claim on each occasion on 1 December 2014 and 9 June 2017 the second defendant acted in breach of (a) its general law duties; and (b) its duty to act reasonably in considering the claim made by the plaintiff.

   2. (2)

      Declare that the decision of the second defendant, MetLife Insurance Limited made on 1 December 2014, that it was not satisfied that the plaintiff was totally and permanently disabled within the meaning of the Policy (described in paragraph [22] of these reasons (“the Policy”)), is void and of no effect.

   3. (3)

      Declare that the decision of the second defendant, MetLife Insurance Limited made on 9 June 2017, that it was not satisfied that the plaintiff was totally and permanently disabled within the meaning of the Policy, is void and of no effect.

   4. (4)

      Direct that the parties by 1 August 2018 serve on one another and provide to the Court draft Short Minutes of Order with a view to their preparing for and managing the second stage hearing in these proceedings.

   5. (5)

      Order that the second defendant pay the plaintiff’s costs of the separate hearing.

   6. (6)

      Grant leave to the parties to apply by motion returnable on 2 August 2018 for any special costs orders or directions arising out of these orders.

   7. (7)

      Adjourn the proceedings to Thursday, 2 August 2018 at 9.30am or such other date convenient to the parties as arranged with my Associate.

   8. (8)

      Direct the parties to consult before 2 August 2018 as to whether this judgment can be published in its present form.

   9. (9)

      Order that until 2 August 2018 these reasons may only be published to the parties to these proceedings and their legal advisers.

   10. (10)

       Grant liberty to apply.