Till v The National Mutual Life Association of Australasia Limited [2004] ACTSC 40 (4 June 2004)

Last Updated: 23 June 2004

MICHAEL ROBERT TILL v THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED [2004] ACTSC 40 (4 JUNE 2004)

INSURANCE - income protection policy - entitlement to benefits of policy by total or partial disablement - payments made under the policy - cessation of payments - entitlement to payments under the policy cease - "total disability" defined in policy as referable to duties of occupation - self-employed - obligations under contract of employment - contract terminated - duties no longer referable to contract of employment.

INSURANCE - income protection policy - "sickness" - bodily disorder which did not permit work in a particular environment - whether within terms of policy.

Taylor v J Thomas & Son (1983) 2 ANZ Insurance Cases ¶60-524

Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337

Australian Casualty Co Ltd v Federico (1986)160 CLR 513

The Macquarie Dictionary, 3^rd Ed

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623

DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423

Sutton, Insurance Law in Australia, 3^rd Ed

No. SC 106 of 2002

Judge: Gray J

Supreme Court of the ACT

Date: 4 June 2004

IN THE SUPREME COURT OF THE )

) No. SC 106 of 2002

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: MICHAEL ROBERT TILL

Plaintiff

AND: THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED

Defendant

ORDER

Judge: Gray J

Date: 4 June 2004

Place: Canberra

THE COURT ORDERS THAT:

1. There be judgment for the defendant with costs.

The insurance policy

1. On 15 October 1996, the plaintiff, Michael Robert Till, took out an insurance policy named as "Vital Income Protection Policy" with the National Mutual Life Association of Australasia Limited (now part of the AXA Australia Group), the defendant to these proceedings. It was put during the course of the hearing that the defendant should, in fact, be named as AXA Australia Limited but no formal application to amend was made. If necessary, I give leave to do so upon such application being made.

The claim

2. At the time the plaintiff took out the policy he was a self-employed electrician performing electrical work in connection with air conditioning under contract for Southern Air Conditioning. In 1998 the plaintiff claimed that he had become totally disabled by injury or sickness and sought from the defendant the payment of benefits under the policy. From 12 August 1998 until 14 May 2001, the defendant paid a weekly benefit under the policy for periods of total and partial disability. From 7 November 2000 the defendant reduced the benefit payable by 12 per cent as a result of a view it took of the effect of the policy, but then on 1 May 2001, paid an amount equal to the amount it had reduced and advised it no longer considered the plaintiff to be totally disabled and made no further payments from 14 May 2001.

3. The plaintiff claims that the defendant was neither entitled to reduce the payments made under the policy nor to refuse to make any further payments under the policy. He claims the defendant's actions can be construed as a repudiation of the contract which, in paragraph 8 of his statement of claim, he says by letter dated 27 February 2002, he "elected to accept the repudiation and to terminate the contract of insurance". The letter in evidence before me states -

Mr Till regards your decision to cease payments as a repudiation of the contract of insurance and accordingly he now regards the contract to be terminated by your actions.

The plaintiff claims the amount of the benefit, which he says should have been paid under the policy up to the date of the hearing of this action, an amount representing the value of his right to continuing payments under the policy in the future and general damages for distress and inconvenience. I have taken those matters to be a claim for damages for breach of contract which the plaintiff had elected to terminate consequent upon the defendant's repudiation of it.

4. However, the statement of claim also contains an alternative claim that if the defendant's conduct did not amount to a repudiation, then damages are claimed for breach of contract. I take that to be a plea suing on the contract for the monies due by its terms, as the "damages" claimed are limited to the amount of the benefit which should have been paid under the policy up to the date of the hearing of the action. Although there is a claim for general damages for "distress and inconvenience", there was no claim for future loss. That would seem to indicate that the alternative claim was being made on the basis that the contract remain on foot and that specific performance was being sought in respect of that aspect. Indeed, that was the position that the plaintiff came to on the last day of the hearing when the plaintiff sought, and was given, leave to amend the pleadings to include an order for specific performance of the policy. Although the amendment in its terms was expressed to apply the remedy of specific performance to the consequence of repudiation and termination, it is of course not appropriate in that circumstance, but rather only applies to the circumstance that the parties treat the contract as on-going. I take that to be the true effect of the amendment.

5. In Taylor v J Thomas & Son (1983) 2 ANZ Insurance Cases ¶60-524 at 77,991, in the Full Court of the Supreme Court of Queensland, McPherson J (Kelly and G N Williams JJ agreeing) said -

Under modern conditions no obstacle exists to pleading in the alternative what are really two inconsistent claims, one being for damages for breach involved in a repudiation of the policy of insurance, and the other under the policy for the moneys due by its terms. But where a party relies only on his pleadings to demonstrate his election to accept the repudiation, it is his duty to make it clear by appropriate pleading in accordance with the rules of court that such an election has been made, and that the claim under the policy is to be pursued only as an alternative to the allegation of repudiation in the event that the latter is unsuccessful.

I take it, as in that case, that the plaintiff here is pursuing his claim under the policy as an alternative to the allegation of repudiation only if the allegation that the defendant repudiated the contract is unsuccessful.

The circumstances giving rise to the claim

6. The circumstances in respect of which the plaintiff made his claim under the policy arose in the following way. In September 1997, the plaintiff went to see Dr Bradfield complaining of tiredness, shortage of breath and asthma. In November of that year he underwent lung function tests which indicated that his lung function was greatly reduced due to an allergic reaction. He was subsequently referred to Dr Hurwitz, whom he saw in March 1998. Dr Hurwitz conducted a number of tests and then referred the plaintiff to Dr Mullins in the event that "we may have been missing some allergen that he was exposed to at work". Dr Mullins, on 1 July 1998, considered that "exposure to large amounts of dust mite at work was most likely to [be] responsible for the severe deterioration in symptoms over the past two years".

7. On 15 July 1998, the plaintiff ceased work for six weeks as a result of the advice from Dr Hurwitz and Dr Mullins to determine whether his asthmatic condition was the result of exposure to allergens at work. During that next six weeks his asthmatic condition improved greatly. Payments were commenced by the defendant under the policy from 12 August 1998, presumably as a result of a claim made by the plaintiff supported by advice from his medical practitioner. I have no documentation which supports the claim, but I do have a list of benefit payments which, from the amounts paid, indicate that the defendant obviously considered that over the period of those payments, the plaintiff was either totally and partially disabled for work.

8. From September 1998 the plaintiff worked part-time at Southern Air Conditioning performing clerical work with that company and its successor, A E Smith, until 15 August 2000. Since that time he has worked variously with the ACT public service, Addecco and Abasol. The payments to him by these bodies have never reached the level of his pre-disability income. At the time of this hearing the plaintiff was working at Abasol. These periods of work were presumably the cause of the defendant paying the plaintiff on the basis of partial disability.

The Income Protection Policy

9. The way the policy is expressed seems to give effect to the intention that it be in "plain English" so as to enable the parties to have a better understanding of it. This case is an example where that intention is clearly not met.

10. The policy seeks to equate both the situation of a person who is employed and may therefore be considered to be a person carrying out an occupation and engaged in defined duties, with a person who is self-employed or running his own business. The concepts, with respect to each of these situations, are quite different, yet the policy does not differentiate between them.

11. The policy provides for a weekly benefit if the person insured is totally disabled (through injury or sickness). A person is totally disabled if -

He or she:

. Cannot do at least one of the income producing duties of his or her occupation;

. Is not working; and

. Is following the advice and under the regular care of a medical practitioner.

The policy further provides that if the person insured is partially disabled after he or she was totally disabled but does some work. It is expressed in this way -

. If the person insured has been totally disabled for 14 days and then he or she does some work - but is partially disabled - we will pay you a reduced weekly benefit.

A formula is then provided for the payment of that benefit. "Partially disabled" is described as -

The person insured is partially disabled if, immediately after being totally disabled for at least 14 days, he or she returns to work and - because of the disability - earns less than the amount of his or her pre-disability income.

12. These provisions, while paying lip-service to "plain English", in my view do not really establish a proper working framework upon which either the insured or the insurer can, with confidence, determine their position.

13. It is plain that as an "income protection policy", the important governing factor is that which the policy seeks to insure. "Income" is accordingly described in this way -

If the person insured owns part, or all of a business or practice, income is money generated by the business due to the person insured's own activity, after all expenses in earning that income have been deducted. If the person insured is employed, his or her income is the total package, including commissions, regular bonuses and fringe benefits. Income does not include investment or interest income.

14. The first part of this description of income bears no relationship to the provision of the policy providing the conditions upon which the weekly benefit is to be paid. That provision, by its reference to "duties" and "occupation", seems to be solely directed to an employed, rather than a self-employed, person. In the plaintiff's case, whilst he may have been carrying on an occupation, he was also self-employed and carrying on a business which used his services for the purposes of the business. If those services were not available in carrying out an activity of the business, it is clear that the income to the business would be diminished. The description of income in the policy in its attempt to encompass both self-employed persons and employees, cannot be easily read back into the circumstance which gives rise to the weekly benefit concerned, as it is, with duties of an occupation. To give the policy its intended efficacy, the scope of a self-employed person's activities needs to be equated with the duties of an occupation for the provision to have application to the income generated by the business due to the insured's activity.

15. The pro forma proposal accepted by the defendant under the heading "Risk Protection Package Application", described the plaintiff's "current occupation" from May 1995 to the present time as "Electrician" and his employer as "self-employed". The plaintiff answered the request on the pro forma to "Describe the specific duties of your current occupations [sic] and the percentage of time spent on each duty" as "Electrical 80% Administrative 20%". However, the response to the question concerning taxable income indicated that the income was "split with spouse".

16. From these matters it seems to me tolerably clear that the proposal accepted by the defendant was that of a self-employed person who carried on business in partnership with his spouse by engaging in contracts involving his occupation as an electrician.

The effect of the injury or sickness on the plaintiff

17. The evidence was that at the relevant times, the plaintiff had a contract with Southern Air Conditioning as an air conditioning technician. The contract was not in evidence before me, but I take it that it either expressly or by necessary implication, involved the performance of work in roof spaces and other dusty environments. The effect was to expose the plaintiff to a range of allergens and fine dusts in roof spaces and other areas. In consequence, he exacerbated his pre-existing asthma (which he had disclosed in the insurance proposal) with the consequences which give rise to this claim.

18. From the time that the plaintiff ceased work on 15 July 1998 for the initial six weeks, he has not resumed work as an air conditioning electrician. He has not done so because of the medical advice that exposure to dust in the environment of working as an air conditioning technician primarily with installations in dusty places, would aggravate his asthmatic condition. I do not have the claim which the defendant accepted but presumably it was this basis that the defendant accepted as satisfying the condition of the policy for total disablement as an insured who "cannot do at least one of the income producing duties of his or her occupation".

Whether the defendant was liable under the policy

19. Notwithstanding this action on the part of the defendant, at the hearing, Mr Lunney, counsel for the defendant, put the proposition that the plaintiff could only be considered disabled when suffering an asthma attack. Once recovered and in a "quiescent state", it was put that the plaintiff was not totally disabled (or disabled at all) because he could carry out his duties as an electrician until the onset of another attack.

20. Mr Crowe, counsel for the plaintiff, submitted that such an interpretation of the policy was "a very technical, very narrow and very unfair one". That seems to me to be a concession that the interpretation was open under the policy. If it was, he asked that the contra proferentem rule be applied in construing it (see Sutton, Insurance Law in Australia, 3^rd ed, 755). It is, of course, a rule of last resort generally referable to clauses in an insurance policy inserted by the insurer for its own protection. I am not certain how Mr Crowe wished to apply it in this instance as he did not suggest an ambiguity but rather he put it that the meaning of the policy was clear and applied to his client's situation. However, the question of what the policy actually means was the point in issue and is not resolved by an assertion that a narrow interpretation of the policy should be given a broad meaning.

21. In my view, the meaning of the policy is not clear and I would prefer to apply the observations of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352 -

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.

22. When looking at the objective framework of facts surrounding this policy, it is plain that it was not intended to be restricted only to employees. That is so because the definition of income encompasses businesses and practices. That is strong indication that provision concerning the payment of benefit should not be construed as only applying to the circumstance of the physical functions involved in the "occupation" which, I think, is the true effect of Mr Lunney's submission. Rather, I think that the provision encompasses also the circumstances in which the function is exercised. In the present case, that involves the environment in which the work is to be carried out.

23. What needs to be first determined is whether the plaintiff was disabled through "injury or sickness". That expression was considered in Australian Casualty Co Ltd v Federico [1986] HCA 32; (1986) 160 CLR 513 by Wilson, Deane and Dawson JJ at 527 -

... one would prima facie expect that "injury" would include any physical damage to the human body sustained as the identifiable result of a traumatic occurrence such as the external application of force or the internal application of pressure generated by personal exertion and that "sickness" would include bodily disorder sustained otherwise than as the identifiable result of a traumatic occurrence, such as sickness or disease contracted as the result of contagion or "the operation of natural causes such as old age, congenital or insidious disease or the natural progression of some constitutional physical or mental defect": Halsbury's Laws of England, 4^th Ed, vol 25, p 311.

I consider the condition from which the plaintiff suffers to be a bodily disorder sustained otherwise than as the result of a traumatic occurrence. I would regard the "sickness" for the purposes of the policy as the atopic asthma with sensitivity to dust mite allergens.

24. The consequence of the sickness is that the plaintiff is unable, by reason of this, to work in a dusty environment for to do so would bring on his pre-existing asthma. I also accept that it is not practicable for him to work in such environments with respiratory protection. In terms of the policy, an "income producing duty" is referable to the plaintiff's activity as an air conditioning technician required by his contract to work in dusty environments. The "duty" to which the policy refers I regard as, "that which one is bound to do by moral or legal obligation" or perhaps the "action required by one's position or occupation; office; function" (The Macquarie Dictionary, 3^rd Ed). In the plaintiff's case, that duty encompasses the places necessary for him to be in carrying out the contract engaged in for the purpose of his business. In this regard, I consider that the "occupation" described in the policy as encompassing "one's habitual employment; business, trade or calling" (The Macquarie Dictionary, 3^rd Ed). In the plaintiff's case, that includes the business constituted by his engagement as an air conditioning technician to carry out the duties as directed under the contract.

Total disability

25. It follows that I regard the plaintiff as totally disabled in terms of the policy by reason of not being able to do one of the income producing duties of his occupation and the cause of this is his sickness being the underlying asthma condition coupled with his increased sensitivity to allergens.

Partial disability

26. In this case, I have regarded the duty as encompassing the requirements of the contract under which the plaintiff worked. That requirement could last, however, only as long as the contract lasted. As I have said, the contract with Southern Air Conditioning was not put in evidence but it is clear from the plaintiff's evidence that he continued under some form of contract with that company after he commenced receiving payments under the policy. I assume that the contract continued to require him to carry out the duties of an air conditioning technician if required and that in turn would involve work in a dust environment. His evidence was that after commencing to receive weekly benefits under the policy, he commenced to look after the company's service department, that there was some full time work in this aspect of employment, but that the time spent in it was reduced pending a take-over by another company, A E Smith. He then gave this evidence -

You mentioned A E Smith. Did A E Smith eventually in fact take over the service department at which you worked? - - - Yes, they did. Yes, they did.

Was that in approximately December of 1999? - - - Yes, I - I think it was.

Did you continue working in the same position after A E Smith took over? - - - Yes, and they started again slowly winding back my - my time, my hours there. And at this point in time A E Smith no longer exist in Canberra.

Right. Well, in fact did your employment with that company come to an end approximately August of 2000? - - - Yes, it did.

How did that come about? Was that your decision, or theirs, or what happened? - - - No - yes, we had no work, the work was running out. The nature of what had happened is that A E Smith had come in, and A E Smith is not just air conditioning, it's a facilities management group. ...

27. It seems to me that, while the contract with Southern Air Conditioning and then A E Smith was on foot, the plaintiff's disability referable to him not being able to work in a particular environment as an air conditioning technician could be said to continue. I am prepared to assume in the plaintiff's favour that was the situation notwithstanding that there was no specific evidence to that effect. However, once that contract terminated, so did any obligation to carry out that aspect of the contract. The meaning of "partially disabled" in the policy requires the insured, immediately after being totally disabled for at least 14 days, to have returned to work and "because of the disability" to earn less than the amount of the pre-disability income. In the event of the particular work which constituted "one of the income producing duties of his or her occupation" being no longer available, then the plaintiff cannot be said to be partially disabled.

28. This result follows from allowing, as one of the duties of the plaintiff's occupation, the obligation to carry out the particular contract of service that he had with Southern Air Conditioning and its successor at the time. It was the particular obligation under that contract which gave rise to his total disability in terms of the policy. If that obligation was no longer in existence, then no question of total or partial disability arises. If the plaintiff then derived income from other contracts which did not require work in an environment which would cause him to be disabled by his asthmatic condition, then he could not be said to be unable to do "at least one of the income producing duties of his or her occupation". His occupation and the duties in performing it, in that circumstance, would not oblige him to work in the sort of environment which would cause respiratory difficulties.

The defendant's entitlement

29. In my view, the defendant was entitled under the terms of the policy to cease the plaintiff's weekly benefit at least when the plaintiff's contract with A E Smith ceased in August 2000 if not at some earlier stage when A E Smith was not pursuing its air conditioning business or if the plaintiff was no longer required by that company to work as an air conditioning technician. If the contract to work as an air conditioning technician is no longer on foot, but there is a return to work, it cannot be said that it is because of the disability that the plaintiff earns less than the amount of the pre-disability income. The plaintiff no longer qualifies as partially disabled under the policy.

The reduction in the weekly benefit

30. In fact the defendant continued to make payments of the weekly benefits when, by letter dated 15 November 2000, the defendant reduced the plaintiff's weekly benefit for the reason that -

AXA Australia, after considering all the relevant factors, including the medical evidence supplied to us, and the latest reports from Dr Bradfield and Dr Leon Le Leu, considers that the effect your disablement should have on your work is 88% and we will therefore pay the difference between your pre disability income and the income that should be defined for a 88% level of disability.

This reason was clearly wrong as the policy provided for a total benefit where the plaintiff could not do at least one of the income producing duties of his occupation and did not work for a partial benefit in the case where the plaintiff did work earning an amount less than his pre disability earnings (see the policy provisions in [11] above). The policy did not provide any basis for a percentage calculation in terms of the "effect of the disablement" as the defendant maintained in that letter and the reasons given by the defendant for adopting that course cannot be supported. Nevertheless, the defendant ultimately provided an "ex gratia payment" in the sum of $2,114.64 notified in its letter to the plaintiff dated 1 May 2001. That payment was said to address the plaintiff's concerns that such a reduction had no basis under the terms of the policy. In other words, the defendant was admitting that it had been wrong to make the reduction and was giving effect to the terms of the contract on that aspect.

Cessation of the weekly benefit

31. However, it was said that the letter of 15 November 2000 was some evidence of an intention to repudiate the contract which, it was said, became manifest in the letter of 1 May 2001 which, whilst providing for the ex gratia payment, advised that the defendant proposed to cease payments altogether for the reasons that -

We have completed a detailed review of your file having regard to policy conditions, as well as requested a supplementary report from Dr Stevenson and Dr Le Leu. It is their combined opinion that the condition you have claimed for is currently under excellent control and that you are able to return to work provided you have respiratory protection where dust is excessive ...

We consider it not unreasonable for you to wear respiratory protection in your circumstances.

As you are now no longer totally disabled in accordance with the terms and conditions of your policy, we regret to advise that no further benefits are payable.

Repudiation

32. In his submissions, Mr Crowe successfully demonstrated that the defendant's reasons given in that letter found no support in the doctors' reports relied upon for the defendant to be of the opinion that the plaintiff was no longer totally disabled. I do not, however, accept his argument that the two letters received by the plaintiff (of 15 November 2000 and 1 May 2001) amounted to a repudiation by the defendant of the contract. In view of my finding that the defendant was entitled to cease the plaintiff's weekly benefit at a much earlier time, there is no real point in further pursuing this aspect of the matter. However, I would not wish to be taken as regarding the letters as establishing that the defendant had repudiated the contract. For that to be so, I would have to view the letters as inevitably leading to the conclusion that the defendant only intended to fulfil the contract in a manner substantially inconsistent with its obligations and not in any other way (see Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623). The letters demonstrate an erroneous view of the effect of the medical opinion and of the obligations under the policy but that does not necessarily establish an intent to repudiate.

33. Further, there is no other act or indication by the defendant from this time, to the plaintiff's letter of 27 February 2002, terminating the policy that indicates that even if there were a wrong view as to the plaintiff's disability or an incorrect or misguided interpretation of the contract on the defendant's part, the defendant still was not willing to perform the contract according to its tenor (see DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 432). In any event, in this case as I have said, whilst the defendant's reasons may not support the conclusion that the defendant reached, I am of the view that the conclusion was correct, namely that the plaintiff was no longer totally disabled in accordance with the terms and conditions of the policy. Nor at the time that the defendant ceased payments to the plaintiff was the plaintiff entitled to claim a benefit under the policy on the ground that he was partially disabled.

34. There should be judgment for the defendant with costs.

I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Gray.

Associate:

Date: 4 June 2004

Counsel for the plaintiff: Mr R Crowe SC

Solicitor for the plaintiff: Pamela Coward & Associates

Counsel for the defendant: Mr G Lunney

Solicitor for the defendant: Meyer Clapham

Date of hearing: 26, 27 March 2003

Date of judgment: 4 June 2004