Stocks v Royal & Sun Alliance Financial Services Ltd [2002] ACTSC 62 (24 June 2002)

Last Updated: 27 February 2003

Brian Stocks v Royal & Sun Alliance Financial Services Limited

[2002] ACTSC 62 (24 June 2002)

CATCHWORDS

INSURANCE - injured worker sues insurer of employer on a "group income replacement" policy - Insurance Contract Act 1984, s 48 - insurer entitled to credit for "workers compensation or equivalent payments in respect of loss of income" - worker redeems all rights against employer under Workers' Compensation Act 1951 and releases employer from common law liability for $90,000 - whether a receipt of "workers compensation or equivalent payments in respect of loss of income".

Insurance Contracts Act 1984 (Cth), s 48

Workers' Compensation Act 1951, s 7, s 11

Health and Other Services (Compensation) Act 1995

Trident General Insurance Co Limited v McNiece Bros Proprietary Limited [1988] HCA 44; (1988) 165 CLR 107

Pennant Hills Restaurants Pty Ltd v Barrel Insurances Pty Ltd [1981] HCA 3; (1981) 145 CLR 625

No. SC 401 of 2001

Judge: Miles CJ

Supreme Court of the ACT

Date: 24 June 2002

IN THE SUPREME COURT OF THE )

) No. SC 401 of 2001

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: BRIAN STOCKS

Plaintiff

AND: ROYAL & SUN ALLIANCE FINANCIAL SERVICES LIMITED ACN 001 698 228

Defendant

ORDER

Judge: Miles CJ

Date: 24 June 2002

Place: Canberra

THE COURT FINDS THAT:

1. The plaintiff is entitled to payment by the defendant in accordance with these reasons.

THE COURT ORDERS THAT:

1. The parties have leave to bring in short minutes of orders to give effect to this decision within 14 days.

1. This is a claim for a declaration that the plaintiff is entitled to certain payments under an insurance policy dated 1 July 1994, for quantification of those payments and for judgment against the insurer defendant for the total amount quantified.

2. The policy in question is described as a group income replacement insurance policy. It is claimed that the policy "covered" the plaintiff during the time he worked for his employer, a company known as Haskins Contractors Pty Limited. The employer is not a party to these proceedings.

3. The plaintiff claims to derive his right to sue on the policy from s 48 of the Insurance Contracts Act 1984 (Cth) (the Insurance Contract Act), which provides that where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a right to recover the amount of his or her loss from the insurer in accordance with the contract notwithstanding that he or she is not a party to the contract.

4. In Trident General Insurance Co Limited v McNiece Bros Proprietary Limited [1988] HCA 44; (1988) 165 CLR 107 a majority of the Justices of the High Court accepted that s 48 of the Insurance Contracts Act creates an exception to the doctrine of privity of contract and to the requirement that consideration should move from the promisee and that where a contract of insurance exhibits an intention to benefit a third party, then that third party has the right to recover the appropriate loss from the insurer.

5. The defendant does not challenge the plaintiff's implied assertion that he was a "person to whom the insurance cover provided by the contract extends" from the time of the policy being entered into and at all relevant times. What the defendant disputes is that the plaintiff has suffered any loss which he is entitled to recover "in accordance with the contract".

6. Under the terms of the policy the defendant was obliged to pay the plaintiff a "total disability benefit" should he be continuously totally disabled for more than 90 days. The total disability benefit was 75% of the plaintiff's pre-disability earnings.

7. Among the conditions of the policy were the following:

"4.2 MAXIMUM BENEFITS PAYABLE

This condition only applies to total and partial disability benefits.

If the total disability or partial disability benefit is payable in respect of an insured person, then

* the benefit amount in respect of total disability, and

* the appropriate proportion of the benefit amount in respect of partial disability,

will be paid unless a reduction to the benefit amount is made in line with this condition.

A reduction will only be made if an insured person receives other payments being:

* sick leave entitlements under legislation or an award, or

* workers' compensation or equivalent payments in respect of loss of income (whether under legislation or otherwise), if, in calculating the payment the relevant tribunal or authority did not or could not take into account disability benefits under your policy, or

* other income replacement policy benefits.

A reduction, if made in respect of total disability benefits for an insured person will only be to the extent necessary to ensure that the amount payable under your policy, when added to other payments does not exceed 75% of the insured person's pre-disability earnings.

A reduction, if made in respect of partial disability benefits for an insured person will only be to the extent necessary to ensure that the amount payable under your policy, when added to the insured person's monthly earnings and other payments, does not exceed 100% of the insured persons pre-disability earnings.

If the benefit amount for an insured person is reduced in line with this condition, a proportionate refund of premiums paid for the insured person will be made."

8. There followed a formula by which the amount of the refund may be calculated.

9. The plaintiff became totally disabled as a result of an employment-related injury on 12  February 1999. From 15 February 1999 until 16 August 1999 he received workers compensation (but apparently no other relevant payments) which did not take into account the disability benefits under the policy and which were sufficient to relieve the defendant from liability to pay him any benefits. From 17 August 1999 to  14 May 2001 the plaintiff received workers compensation payments which were less than 75% of his pre-disability earnings. In accordance with the policy the defendant made payments which brought the relevant total monthly payments to the plaintiff up to 75% of his pre-disability earnings.

10. On 19 September 2000, the plaintiff's employer lodged an application under the Workers' Compensation Act 1951 (the Act) in the ACT Magistrates Court requesting an arbitration under the Act with respect to the review and termination of the weekly payments payable to the plaintiff. The grounds on which the termination was claimed were that the plaintiff had ceased to be totally incapacitated for work from the date of the application, alternatively that if the plaintiff had remained totally incapacitated for work after that date, then such incapacity did not arise out of the injury on 12 February 1999. On 16 October 2000, the plaintiff's solicitors filed an answer on the plaintiff's behalf, claiming that he continued to be totally incapacitated for work, or alternatively partially incapacitated for work in consequence of the injury in question.

11. On an unknown date, probably in May 2001, the plaintiff executed a deed of release whereby in consideration of the payment of $90,000 by or on behalf of the plaintiff's employer, the plaintiff released and discharged his employer from "all actions, suits, claims, costs and demands arising out of the accident [on 12 February 1999] and arising out of or having any connection with any injury sustained out of or in the course of his employment" with his employer. On 14 May 2001 counsel for the plaintiff and counsel for his employer signed terms of settlement of the arbitration in the Magistrates Court noting that "the worker redeems his/her rights under the Workers' Compensation Act 1951 for a payment of $90,000 clear of any compensation paid ... Forms 27 and 28 to be signed and registered ... Common law release to be executed". Nothing further seems to have happened in the arbitration.

12. On a date before 29 May 2001 the employer's solicitors caused to be sent for registration by the Registrar of the Magistrates Court a memorandum as prescribed by form 27 of the rules under the Act. The memorandum was in the following terms:

"BE IT REMEMBERED that on 12 February 1999 personal injury was alleged to have been caused at 3 Cheney Place Mitchell, ACT to the abovenamed Brian Noel Stocks a worker under no legal disability by accident alleged to have arisen out of and in the course of his employment and that on 14 May 2001 the following agreement was come to by and between the said Haskins Contractors Pty Limited and Brian Noel Stocks that is to say:

1. That the applicant will pay the respondent and the respondent agrees to accept the sum of $90,000 compensation plus costs to be agreed or assessed and clear of compensation paid in full satisfaction of all of the abovenamed respondent's claims against the abovenamed applicant inclusive of all expenses which may arise or may have arisen under section 11 of the Act (excluding such expenses which as at 14 May 2001 have been paid by the applicant) and all liabilities alleged to arise pursuant to schedules 1 and 2 of the Act.

2. That the respondent will do all things reasonably required by the applicant to have this agreement registered under the provisions of the Workers' Compensation Act 1951 and the said sum of $90,000 compensation plus costs to be agreed or assessed and clear of compensation paid shall not be payable until this agreement is so registered and the applicant or its insurer has received a notice under section 24 of the Health and Other Services (Compensation) Act 1995 or is able to pay the said sum in accordance with the said Act, whichever first occurs."

13. It is not clear whether, because of the operation of the Health and Other Services (Compensation) Act 1995, the plaintiff has actually received into his hands the $90,000 or what might be regarded as the net proceeds of his entitlement in accordance with the terms of the deed of the release, but nothing turns on that.

14. A copy of the memorandum was sent by the Deputy Registrar of the Magistrates Court to the solicitors for the plaintiff on 29 May 2001. The solicitors for the plaintiff admitted the genuineness of the agreement in writing. The memorandum may be taken to have been recorded accordingly under par 9 of Sch 4 to the Act.

15. In its defence, the defendant denies that it has been obliged since 14 May 2001 to make any policy benefit payments to the plaintiff. Since that date, the defendant has paid to the plaintiff monthly payments which, aggregated with the payments of workers compensation that he was receiving immediately before that date, amount to 75% of his pre-disability earnings. Leaving aside the matter of the $90,000, the plaintiff has received no further workers compensation or similar payments. The defendant asserts that the payment of $90,000 falls within "other payments, including workers compensation or equivalent payments in respect of loss of income" as provided for in cl 4.2 of the policy. It claims that accordingly there are two alternative basis upon which the defendant is entitled to deny liability. They are that either the payment of $90,000 is at least an "equivalent payment to continuing payment of workers compensation until age 65" or equivalent to a pre-payment of the plaintiff's workers compensation entitlements to age 65.

16. Although in the defence filed the defendant did not admit expressly that the plaintiff has been totally disabled within the terms of the policy from 14 May 2001, that issue was not pursued at the hearing. In view of the payments that the defendant has continued to make to the plaintiff since that date and to the date of the hearing, the defendant should be taken to have had admitted that the plaintiff continued to be totally disabled within the terms of the policy until the date of the hearing. However, there is no finding in that regard beyond the date of the hearing.

17. The policy provides in cl 1.7 that it is to be interpreted "in line with" the laws of New South Wales. It is not disputed that for the purposes of the present case "workers compensation" under cl 4.2 of the policy is workers compensation payable in accordance with the Act, being an Act of this Territory. It is not disputed (and it is consistent with the other provisions of the policy) that the words "in respect of loss of income" qualify both constituents of the preceding phrase "workers' compensation or equivalent payments". This interpretation of cl 4.2 suggests that workers compensation under the Act is not restricted to payments "in respect of loss of income". It is not necessary to decide whether weekly payments to a worker totally or partially incapacitated for work by injury made pursuant to Sch 1 of the Act are payments "in respect of loss of income".

18. The only question for determination is whether the receipt by the plaintiff of $90,000 in accordance with the provisions of the deed and the memorandum was a receipt of another payment being "an equivalent payment in respect of loss of income" within the terms of the policy. It is not disputed that if the relevant tribunal or authority were to calculate the payment it would not take into account disability benefits under the policy.

19. If one thing is clear it is that the payment to the plaintiff of $90,000 was not only in respect of loss of income, if it was in respect of loss of income at all. Nothing in the documentary material which gave rise to the payment, or to the liability of the insurer to pay the $90,000, or to the right of the plaintiff to receive the payment of $90,000 makes any reference expressly to loss of income. Nor, in my view, is any such reference to be implied. In so far as the agreement reached and formulated in the deed and in the memorandum represents a release by the plaintiff of his rights to workers compensation, those rights include rights (if any) to weekly payments of compensation under s 7 for total or partial incapacity for work in accordance with Sch 1, compensation for medical treatment under s 11 and compensation for other conditions under other sections of the Act. The weekly payments that had been paid to the plaintiff by or on behalf of his employer appear to have been for total incapacity for work. It is by no means clear that at the date of the agreement or by 14 May 2001 the plaintiff remained totally incapacitated for work by the injury, so that it is also unclear what his continuing or future rights to weekly payments of compensation would have been if the agreement had not been reached, or the memorandum registered. It may well be that it was likely that without the agreement weekly payments of compensation would have continued and that the bulk of them would have been for total or partial incapacity. Total incapacity however is a physical incapacity which does not involve any consideration of loss of income. Weekly payments for partial incapacity are assessed by reference to a variety of factors set out in Sch 1 to the Act. None of those factors is identified as loss of income or necessarily involves a consideration of loss of income.

20. The liability from which the employer was released by the deed and by the recording of the memorandum was not restricted to its liability to pay compensation to the plaintiff for anything that resulted from the injury on 12 February 1999. The release extended to liability for "all injuries whenever they might have occurred arising out of or having any connection with any injury sustained out of or in the course of the plaintiff's employment with his employer." Furthermore, the release extended to common law liability for damages, if any, incurred by the employer by the same occurrence as that which constituted the compensable injury on 12 February 1999. Such damages would include damages for pain and suffering, damages for loss of earning capacity and damages under other heads of damage. There would have been no component in the damages for or "in respect of" loss of income. It is trite law that damages for loss of earning capacity are conceptually quite different from loss of income: Pennant Hills Restaurants Pty Ltd v Barrel Insurances Pty Ltd [1981] HCA 3; (1981) 145 CLR 625.

21. Whether the defence raised in this case is by way of confession and avoidance and whether the onus lies on the plaintiff or the defendant, I am satisfied that from 14 May 2001 the plaintiff did not receive workers compensation or (save, possibly, for payments made by the defendant pursuant to the policy) equivalent payments in respect of loss of income. He therefore continued to be entitled to be paid a disability benefit under cl 4.2 of the policy without reduction for the receipt of the sum of $90,000 or any part of that sum paid in accordance with the deed and the memorandum. It is not possible to go further on the material before me for the purpose of attempting to calculate the sum to which the plaintiff was entitled at the date of hearing. The parties have leave to bring in short minutes of orders to give effect to my decision within 14 days. Unless they wish to be heard to the contrary, I propose to order that the defendant pay the plaintiff's costs.

I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Miles.

Associate:

Date: 24 June 2002

Counsel for the plaintiff: Mr R L Crowe

Solicitor for the plaintiff: Gary Robb & Associates

Counsel for the defendant: Mr D C D Harper

Solicitor for the defendant: Abbott Tout

Date of hearing: 20 May 2002

Date of judgment: 24 June 2002