Mehmet v IOOF Investment Management Ltd

The plaintiff, Mr Erol Mehmet, is a member of the LifeTrack Personal Superannuation Fund (“the Fund”). He became a member of the Fund on 9 December 2002.

The trustee of the Fund is the first defendant, IOOF Investment Management Pty Ltd (“the Trustee”).

The trust deed of the Fund provided that:

On the date that Mr Mehmet became a member of the Fund, the group insurer for the Fund was Hannover Life Re of Australasia Ltd. Hannover was replaced as group insurer by Lumley Life Ltd on 1 July 2003, and Lumley replaced by the second defendant, TAL Life Ltd (formerly Tower Australia Ltd), on 1 November 2007.

As a member of the Fund, Mr Mehmet is entitled to claim total and permanent disablement (“TPD”) benefits under TAL’s policy (“the TAL Policy”). The amount of the TPD benefit potentially available to Mr Mehmet is $110,345.82.

On 30 September 2011, Mr Mehmet lodged a claim with TAL for a TPD benefit arising from an injury he sustained on 12 March 2001.

On 1 March 2013, 2 April 2013, 29 October 2014 and 5 November 2014 TAL denied that claim.

TPD is defined in the TAL Policy as follows:

There are two issues for determination before me.

The first is whether Mr Mehmet has no TPD cover arising from his 12 March 2001 injury because he was not “at work” (as defined in the manner I set out below) on 30 June 2003. I explain the relevance of that date below.

The second issue is whether, assuming that Mr Mehmet is entitled to TPD benefits arising out of his 12 March 2001 injury, the Trustee and TAL have acted in breach of their duties to act in the utmost good faith in their consideration of Mr Mehmet’s claim (the first stage of the two stage enquiry referred to in such cases as Edwards v The Hunter Valley Co-op Diary Co Ltd (1992) 7 ANZ Ins Cas 61-113 and Hannover Life Re of Australasia Ltd v Sayseng [2005] NSWCA 214; 13 ANZ Ins Cas 90-213; discussed in my decision in Shuetrim v FSS Trustee Corporation [2015] NSWSC 464 at [28] to [35]).

As to this second issue, it is common ground that:

Thus, the parties agreed that I should not proceed to the second stage of the enquiry referred to in the above authorities; that is, I should not decide for myself whether Mr Mehmet is TPD.

Both the Lumley and TAL policies provide for a continuation of the cover offered to Fund members either by way of “Automatic Acceptance” or pursuant to “Takeover Terms”.

The Trustee and TAL contend that such cover as Mr Mehmet has under the TAL policy for TPD benefits is pursuant to the Takeover Terms, rather than the Automatic Acceptance terms in that policy.

In view of the conclusions to which I have come, it is convenient to assume the correctness of that proposition.

The Takeover Terms are set out in cll 3.23 and 3.24 of the TAL Policy as follows:

I am prepared to assume, in the Trustee’s and TAL’s favour, that each of the conditions precedent referred to in cl 3.23 have been satisfied. In those circumstances, the matter for consideration is the effect of cl 3.24.

Clause 3.24 has the effect of incorporating the Investment and Financial Services Association (“IFSA”) Guidance Note No 11 into the TAL Policy; but subject to the qualification that “in any event” TAL would ensure that no Fund member lost the cover applicable at the time of the transfer of cover. It is common ground that the relevant “date of transfer” is 1 July 2003 (that is, the date on which cover was transferred from Hannover to Lumley)

The Trustee and TAL submitted that the terms of the transfer of Mr Mehmet’s TPD cover from Hannover to Lumley, and thus to TAL, were to be determined by reference to IFSA Guidance Note 11 and that, accordingly, Mr Mehmet had no entitlement to TPD cover arising out of his 12 March 2001 injury.

TAL submitted that this was so because:

Assuming the correctness of this analysis as to the effect of the Guidance Note and the 11 February 2010 award, in my opinion the answer to the question of whether Mr Mehmet is entitled to a TBD benefit lies in the wording of cl 3.24 of the TAL policy, and in particular the proviso to that clause which, to repeat it, reads:

I read the words “but in any event” as meaning “no matter what appears in the IFSA Guidance Note”. In my opinion, by the proviso, TAL agreed that nothing in the Guidance Note would have the effect of rendering a member disentitled to cover to which, but for the change of insurers, that member would have otherwise been entitled.

The obvious purpose of the provision was to ensure that a Fund member, such as Mr Mehmet, who had TPD cover when he became a member of the Fund, would not lose that cover merely because of a change in the identity of the insurer engaged by the Trustee pursuant to its powers under the Trust Deed.

As I have said, when Mr Mehmet joined the Fund, Hannover was the insurer. Under that policy, Mr Mehmet had TPD cover which was not subject to any “at work” requirements. In my opinion, the effect of cl 3.24 of the TAL Policy is to “ensure” that Mr Mehmet retained that level of cover notwithstanding the fact that Lumley, and then TAL, became the insurer.

If Mr Mehmet’s cover under the TAL Policy is by reason of the Automatic Acceptance provisions of the policy, this issue does not arise. That is because although such cover is subject to an “at work” qualification (in the TAL Policy itself), the definition of “at work” for that purpose is a person:

On the relevant dates, Mr Mehmet was “at work” within the meaning of that definition.

In Hannover Life v Sayseng, Santow JA, with whom Spigelman CJ and Tobias JA agreed, cited with approval the summary of principles adopted by the trial judge (Bryson J) (at [36] and [50]) relevant to consideration of TPD cover such as in this case. Bryson J, in turn, derived these principles from the observations of McLelland J in Edwards v The Hunter Valley Co-op Dairy Co Ltd at 77,536-7 as follows:

As I have mentioned, the parties agreed that I should not embark on the second stage of the enquiry.

As to the first stage of the enquiry, Young AJ put the matter this way in Chapman v United Super Pty Ltd [2013] NSWSC 592 at [53]:

Ball J summarised the matter in Erzurumlu v Kellogg Superannuation Pty Ltd [2013] NSWSC 1115 at [54] as follows:

So far as concerns the insurer's decision, the relevant principles are summarised by Nicholas J in Weber v Tiss Pty Ltd [2005] NSWSC 67 at [8] as follows:

However, as the authorities I have set out above emphasise, the insurer must, when making its decision, act reasonably and consistently with its duty of good faith and fair dealing to the insured. The insurer must ask itself the correct question, take into account all of the relevant material and not misstate the effect of the material before it.

Although TAL refused Mr Mehmet’s claim for TPD benefits on the four occasions I have mentioned, counsels’ submissions focussed particularly on TAL’s letter of 29 October 2014.

Mr Bingham, who appeared for Mr Mehmet, also relied upon TAL’s failure to respond to an “Evidentiary Statement” made by Mr Mehmet on 19 February 2015, which was served on TAL on 20 February 2015.

TAL’s decision, as explained in its letter of 29 October 2014, was based on three matters.

The first was the “at work” point that I have dealt with.

The other two matters were:

In its 29 October 2014 letter, TAL said:

Evidently, the basis upon which TAL concluded that Mr Mehmet had been dismissed from his employment on 2 March 2009 “due to a refusal to complete a drug and alcohol test” was a statement to that effect made by Mr Mehmet’s then employer, RCR Laser Pty Ltd, in an “Employer’s Statement”. This document was included by Mr Mehmet in the documents accompanying his claim for a TPD benefit.

However, in a “Member’s Statement” signed by Mr Mehmet, which also accompanied Mr Mehmet’s TPD claim, he stated that the reason he ceased employment was:

TAL made no reference to Mr Mehmet’s explanation for leaving employment with RCR Laser. It simply accepted and asserted the correctness of the employer’s statement.

Further, in his Evidentiary Statement served on 20 February 2015, Mr Mehmet gave this account of what happened:

Thus, although Mr Mehmet acknowledged that the reason given by RCR Laser for his termination was his failure to undertake a drug and alcohol test, he gave an explanation for that circumstance and for what he said was his inability to cope with “work demands”. At the very least, this raised an issue as to whether his absence from employment was “due” only to his alleged failure to submit to a drug and alcohol test.

TAL gave no consideration to this explanation. Indeed, it made no response at all to the Evidentiary Statement, despite Mr Mehmet’s solicitor’s request that the Statement be taken into consideration and that a “review decision” be given.

It appears that the reason for this was that TAL had proposed, and Mr Mehmet’s legal advisors had agreed to, an order in these proceedings that any material in support of Mr Mehmet’s request for a review of TAL’s earlier refusals to grant TPD benefits be served by 12 September 2014.

Thus, on 5 November 2014, after Mr Mehmet’s solicitors had served material endeavouring to respond to TAL’s letter of 29 October 2014, TAL’s solicitors wrote:

As I have said, prior to its critical letter of 29 October 2014, TAL had on two earlier occasions (1 March 2013 and 2 April 2013) declined Mr Mehmet’s claim for TPD.

In circumstances where an insured person continually, and over a long period of time, serves material on a trustee or an insurer and requests reconsideration after reconsideration of an earlier decision to decline indemnity, a point may well be reached where a trustee or an insurer can justify refusal to consider further information without thereby acting in breach of its obligation to act with utmost good faith.

But here, the Trustee and TAL were served with a statement by Mr Mehmet which contained new information directly relevant to one basis upon which liability had been denied. It was unreasonable, and in my opinion a breach by the Trustee and TAL of their good faith obligations, simply to ignore it.

Mr Bingham also drew attention to the fact that TAL stated, in its 29 October 2014 letter, that Mr Mehmet had ceased working as a laser operator on 2 March 2009. In fact, the evidence is that, after leaving RCR Laser, Mr Mehmet worked for a short time (from April to June 2009) as a machine operator for T&M Overexposure (Australia) Pty Ltd.

However, I do not find that it was unreasonable for TAL to make that statement. In his Member’s Statement accompanying his claim, Mr Mehmet had described his employer as being RCR Laser and specified the date of cessation of his employment as being “Feb 2009”.

In its letter of 29 October 2014, TAL analysed this question by reference to the reports of four experts. They were Mr Mehmet’s general practitioner, Dr Sanjiv Shah, a medical legal practitioner retained by TAL for the purposes of this claim, Dr Anthony Lowy, a psychologist/rehabilitation consultant. Ms Angela Ong (from Advanced Personnel Management (“APM”)), and a physiotherapist/rehabilitation consultant, Ms Charissa Valenton (also from APM).

TAL also referred to a report from Dr Mohammed Assem (a rehabilitation specialist retained by Mr Mehmet’s solicitors) and a joint report from Ms Carole Young (a physiotherapist) and Mr Ross Girdler (a rehabilitation councillor) (both from Prudence Consulting Pty Ltd, engaged by Mr Mehmet’s solicitors). TAL said in the letter that it had “considered” the reports from Dr Assem and Prudence Consulting as part of its “further review”. However, those reports were not mentioned in TAL’s analysis of the critical question.

Further, TAL made no reference at all to a report of an occupational physician, Dr Greg McGroder. Dr McGroder had been retained by Mr Mehmet’s workers compensation insurers. The Trustee served Dr McGroder’s report on Mr Mehmet’s solicitors in September 2012.

TAL referred to Dr Shah’s reports of 15 September 2011, 18 January 2012 and 14 July 2012.

So far as concerns Dr Shah’s report of 15 September 2011, TAL stated that it indicated that Mr Mehmet “is capable of light restricted duties, which does not impact on his back”.

In fact, what Dr Shah said, under the heading “patient’s capacity for work”, was:

Dr Shah also said that Mr Mehmet could do “no lifting over 5kgs or any repetitive work” and was suffering from “chronic back pain”.

As to Dr Shah’s 18 January 2012 report, TAL stated:

In fact, Dr Shah said:

One implication available from Dr Shah’s report is that the “non manual” work he had in mind for Mr Mehmet was “clerical” or “desk” work, and only if Mr Mehmet could be retrained.

As to Dr Shah’s 14 July 2012 report, TAL said:

However, Dr Shah also said in that report:

Those observations, not captured in the TAL letter, point to the conclusion that Dr Shah’s opinion was that the “graded return to work” to which he referred, and which TAL did repeat in its letter, would depend upon retraining.

TAL was thus selective in its references to Dr Shah’s reports.

So far as concerns Dr Lowy, the TAL letter said:

Dr Lowy’s report was certainly written in robust terms. Mr Bingham did not suggest that TAL’s summary of that report was selective or otherwise misleading.

So far as concerns the APM report, TAL’s letter said:

TAL’s summary of the APM report misstated one matter. TAL said that APM had identified that one vocational option suitable for Mr Mehmet was as a “Sales Assistant (Retail...)”. In fact, Ms Ong said:

TAL also stated that Dr Shah provided support for the proposition that Mr Mehmet had a reasonable set of transferrable skills for roles other than a bricklayer. I see nothing in Dr Shah’s reports to this effect.

I have mentioned that TAL referred to Dr Assem’s report but did not consider it in its analysis of Mr Mehmet’s condition.

Dr Assem’s report included the following statements:

Dr Assem’s opinions thus differ greatly from those of Dr Lowy, in particular his conclusion that Mr Mehmet is “unfit to work as a bricklayer or laser operator or any other work”.

Finally, as I have said, TAL made no reference at all to Dr McGroder’s report.

Dr McGroder said that Mr Mehmet had “chronic lower back pain” and that:

Again, that conclusion is quite different to the conclusion reached by Ms Ong in the APM report that Mr Mehmet had a number of “transferable skills”.

Dr McGroder concluded:

Although TAL said that it had taken into account the Prudence Consulting report, it made no reference in its analysis to Ms Young’s conclusions in that report as follows:

In my opinion, TAL’s analysis of the medical evidence available was flawed. I see considerable force in Mr Bingham’s submission that TAL made reference only to evidence that supported its earlier announced decision to decline indemnity, and made reference to little, if any, evidence that was inconsistent with that denial.

Although TAL stated in its 29 October 2014 letter that it had considered all the material made available to it, I infer, from the form of the letter, that the only material to which TAL gave any weight was that discussed in the analysis to which I have referred.

In that analysis, TAL put a gloss on what Dr Shah said in his two earlier reports, and omitted any reference to his statement in his final report as to the need for Mr Mehmet to engage in retraining before having a “graded return to work”.

TAL relied heavily upon Dr Lowy’s report and the APM report, both of which certainly lend support to TAL’s decision to decline indemnity.

However, TAL made no reference in its analysis to the conclusions of Dr Assem and Prudence Consulting, and did not refer to Dr McGroder’s report at all. Each of Dr Assem, Dr McGroder and Prudence Consulting expressed opinions and made observations which were inconsistent with TAL’s earlier decision to decline TPD benefits. The inference that I draw from the form of TAL’s letter is that it simply ignored those opinions.

I find TAL’s (and thus the Trustee’s) analysis to be unreasonable and to bespeak a failure on its part to approach the task of considering Mr Mehmet’s application in accordance with its good faith obligation.

I propose to set aside TAL’s (and thus the Trustee’s) determination that Mr Mehmet is not entitled to TPD benefits and remit the matter to TAL and the Trustee for reconsideration.

I invite the parties to bring in short minutes to give effect to these reasons.

I will hear the parties as to costs.