Re Voluntary Health Insurance Association of Australia Limited v Esso Australia Ltd [1992] FCA 399; (1992) 28 ALD 219 (Extract) (19 August 1992)

FEDERAL COURT OF AUSTRALIA

Re: VOLUNTARY HEALTH INSURANCE ASSOCIATION OF AUSTRALIA LIMITED
And: ESSO AUSTRALIA LTD.
No. V G114 of 1991
FED No. 593
Social Security
[1992] FCA 399; (1992) 28 ALD 219 (extract)

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Jenkinson J.(1)

CATCHWORDS

Social Security - National health legislation - Prohibition of "health insurance business" by a person other than a "registered organization" - Whether undertaking by employer of liability for health care expenses incurred by employees and their dependants and former employees within defined meaning of "health insurance business".

National Health Act 1953 - ss. 67, 67A

HEARING

MELBOURNE
19:8:1992

Counsel for the Applicant: Mr G.R. Ritter QC and Mr R.D. Shepherd

Solicitors for the Applicant: Rigby Cooke

Counsel for the Respondent: Mr J.W.K. Burnside QC and

Mr C.M. Scerri

Solicitors for the Respondent: Middletons Moore and Bevins

ORDER

THE COURT ORDERS THAT:
1. The proceeding be dismissed.
2. The respondent's costs of the proceeding including reserved
costs be paid by the applicant.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

Trial of a proceeding for an injunction of the kind for which s.67A of the National Health Act 1953 makes provision.

2. Section 67A is in Part VI of the National Health Act 1953 ("the Act"). That Part ordains a scheme for the registration, by the Minister of State charged with the administration of the Act, and the control, of organizations carrying on "the business of undertaking liability, by way of insurance:

(a) with respect to loss arising out of a liability to pay fees or
charges in relation to the provision in Australia of hospital
treatment or an ancillary health benefit; or
(b) with respect to, or with respect to the happening of an
occurrence connected with, the provision in Australia of hospital
treatment or an ancillary health benefit;
but does not include:
(c) accident and sickness insurance business;
(d) liability insurance business; or
(e) business of a kind prescribed for the purposes of this
paragraph."

The words quoted constitute the definition provided by sub-section 67(4) for the expression "health insurance business" in s.67, sub-section (1) of which provides:

"A person (other than a registered organization) shall not carry on
health insurance business."

The word "organization" is defined by s.4(1) of the Act to mean, in the Act, "a society, body or group of persons, whether corporate or unincorporate, which conducts a health benefits fund, a medical benefits fund or a hospital benefits fund". The expression "registered organization" is defined by the same sub-section to mean, in the Act, "an organization registered under Part VI".

3. Section 67A(1) provides:

"Where, on the application of the Minister, the Council or any other
person, the Federal Court of Australia is satisfied that a person has
engaged, or is proposing to engage, in conduct that constitutes or would
constitute a contravention of subsection 67(1), the Court may grant an
injunction in such terms as the Court determines to be appropriate."

The applicant alleges, and the respondent denies, that conduct in which it is common ground that the respondent has been engaging, and proposes to engage, is conduct constituting a contravention of sub-section 67(1). The respondent is not a registered organization.

4. Sub-section 67(4) includes definitions of several of the phrases employed in the definition of "health insurance business". The expression "hospital treatment" is defined to mean:

"accommodation and nursing care, whether provided for the purpose of
permitting the provision of professional attention or, in the case of a
nursing-home type patient, as an end in itself, and includes:
(a) the provision at, or on behalf of, a hospital of relevant health
services to an in-patient of the hospital; and
(b) the provision at a hospital of a facility for an in-patient of
the hospital."

5. The phrase "professional attention" is defined by the Health Insurance Act 1973 to mean, in that Act, medical or surgical treatment under the supervision of a medical practitioner, obstetric treatment by or under the supervision of a medical practitioner or a registered nurse with obstetric qualifications or dental treatment by or under the supervision of a dental practitioner, and s.4(1A) of the National Health Act 1953 provides that, unless the contrary intention appears, a word or a phrase defined for the purposes of the Health Insurance Act 1973 has the meaning that it would have if used in that Act. The phrase "relevant health services" is defined in s.67(4) to mean:

"medical, surgical, diagnostic, nursing, dental, chiropody,
chiropractic, eye therapy, occupational therapy, physiotherapy, speech
therapy or similar services or treatment."

6. In the same sub-section the phrase "ancillary health benefit" is defined to mean:

"(a) relevant health services;
(b) services involving the supply, alteration, maintenance or repair
of hearing aids, spectacles, contact lenses, artificial teeth,
eyes or limbs (including parts of teeth or limbs) or other
medical, surgical, prosthetic or dental aids, equipment or
appliances;
(c) drugs or medicinal preparations;
(d) ambulance services;
(e) services by an attendant of a person who is sick or disabled; or
(f) any other benefit, or benefit included in a class of benefits,
prescribed for the purposes of this paragraph;
but does not include:
(g) the rendering in Australia of a professional service for which
medicare benefit is, or but for subsection 18(4) of the Health
Insurance Act 1973 would be, payable;
(h) hospital treatment; or
(j) any other benefit, or benefit included in a class of benefits,
prescribed for the purposes of this paragraph."

7. Those provisions, and other provisions in Parts VI, VIA and VIB which regulate, or which authorise regulation of, registered organizations disclose a legislative determination to enforce compliance with a comprehensive (but not exhaustive : see New South Wales v. The Commonwealth [1983] HCA 8; (1983) 151 CLR 302) system of control of the activities of "registered organizations" in relation to the scheme of national health care which the Health Insurance Act 1973 and the National Health Act 1953 ordain.

8. The respondent employs a large number of persons in the conduct of its business in the petroleum industry. There was no evidence, or submission, that the respondent has engaged in undertaking liability by way of insurance except in respect of its employees' health care. Since 1982 the respondent has invited its employees to participate in a health care plan. At first no financial contribution was required of the employee. For a time the payments to employees, in respect of their medical and like expenses, under the plan were made by an insurance company in performance of a contract between the company and the respondent. But since the substantial amendment in 1985 of the national health care legislation the respondent has undertaken a direct liability to its employees to make the payments, and has made it a condition of membership of the plan that each member pay the respondent periodically a sum of money which the respondent applies to defray part of the expense of providing the benefits to which members are entitled under the plan.

9. When on 20 May 1991 this proceeding commenced the terms of the plan were set out in a "member booklet" dated July 1989 and in an attachment to it which specified some amendments having effect from 1 July 1990. Further amendments were made which had effect from 1 July 1991. None of the amendments could have influenced the outcome of this proceeding if they had been in effect when the proceeding commenced. A revised "member booklet" stating the terms of the plan on 1 July 1991 (Exhibit RS15) is a convenient source of the terms relevant to the determination of the proceeding. That booklet states under the heading "Membership" the following:

"Membership of the Plan is open to all permanent full-time employees
(including permanent employees who are employed on a part-time basis),
and annuitants of Esso and their eligible dependants, i.e.:
. your spouse (legal or de facto)
. your dependent children under the age of 17
. your dependent children between the ages of 17 and 25 if they are
full time students and not married.
Note:
(i) Persons employed by the Company on a temporary, casual or
contract basis are not eligible to participate in the Plan.
(ii) In the event of marital separation, eligibility to participate in
the Plan is extended to the spouse of the member until there is a
legal separation or divorce. Financially dependent children of
the member are eligible to be covered under the Plan whether they
live with the member or not. However, where the former spouse
remarries or forms a de facto relationship, dependent children
not living with the member are no longer eligible for Plan
membership.
(iii) Where a member remarries or forms a de facto relationship, any
dependent children of the new spouse are not eligible to be
covered by the Plan unless they are residing with the employee or
annuitant.
(iv) Cover may be continued beyond the limiting age for a dependent
child who is physically handicapped or mentally retarded,
provided that he or she is receiving a Social Security Invalid
Pension. Cover is available only to the extent that full cover
is not provided by the Government.
(v) In the event of the death of an employee or annuitant,
eligibility of dependants will continue until such time as the
surviving spouse remarries or forms a de facto relationship."
The word "annuitant" is not defined, but usage of the word in the
booklet indicates, and it was common ground, that it means a former
employee whose employment terminated by retirement. Those whose
employment is otherwise terminated when they are members, and their
"eligible dependants", must withdraw from membership two months, or in
certain circumstances a longer period not exceeding twelve months, after
employment ceases. Membership is for a year, in respect of which there
is payable by the member to the respondent what is called "an annual
premium", and is renewable. The benefits of membership are payments by
the respondent to the member, or "in the case of large expenses .... to
the institution or person providing the service", in respect of the
member's liability to pay fees or charges, in relation to the provision
of hospital, medical, dental and other health care, which have been
incurred during the year. The benefits are similar to those provided by
registered organizations, but there are differences, just as there are
differences, one may be permitted judicially to know, between the
benefits provided by the several registered organizations. There is the
following provision:
"Annual Deductible.
In each Plan Year before becoming entitled to receive a benefit, members
are required to meet a minimum level of expense which is called the
Annual Deductible. Currently the annual deductible is $234 for family
membership and $117 for single membership. Where the total expenses of
a member in a Plan Year are less than the Annual Deductible, those
expenses incurred during the last 3 months of the Plan Year, i.e. April,
May and June, may be carried forward in order to help offset the Annual
Deductible for the following year."
It so happens that in respect of the "Plan Year" ended 30 June 1992 the
amounts of the annual premiums for family membership and single
membership were the same amounts respectively as the annual deductibles.
Formerly the latter were less than the premiums.

10. The premiums are applied towards defraying the cost to the respondent of providing the benefits. Mercantile Mutual Employee Benefits Pty. Ltd. is employed by the respondent to administer the Plan. Applications for membership, claims for benefits and premium payments by "annuitants" are sent by members to Mercantile Mutual Employee Benefits Pty. Ltd., which is described in the booklet as "the Plan Administrator". Employees' premiums are deducted from their salaries. Premiums from both classes of members are paid into a bank account of the respondent, from which money is paid to Mercantile Mutual Employee Benefits Pty. Ltd. to meet, in part, accepted claims for benefits. In respect of the four years ended 30 June 1991 the amounts of accepted claims, of the cost of administration by Mercantile Mutual Employee Benefits Pty. Ltd., of premiums received, and of the cost to the respondent (without regard to any taxation effect) were as follows:

"Plan Year" Claims Administration Premiums Cost
1987-1988 $1,693,000 + $160,000 - $310.000 = $1,543,000
1988-1989 $1,939,000 + $200,000 - $393,000 = $1,746,000
1989-1990 $2,450,000 + $110,000 - $437,000 = $2,123,000
1990-1991 $2,500,000 + $127,000 - $475,000 = $2,152,000

When the proceeding commenced there were nearly 2500 members of whom about 700 were "annuitants". The value of the respondent's assets exceeded three and a half billion dollars and it was earning profits of more than four hundred million dollars per annum.

11. The respondent informs itself, by the investigations and analyses of its own employees and a committee of its directors as well as by engaging the administrator to analyse and report to it upon claims, of the likely future incidence and magnitude of claims. And it has been the respondent's informed decision that members' contributions should aggregate each year an amount about one fifth of the amount of claims. Part VI of the National Health Act 1953 contemplates the carrying on of health insurance business in the statutorily defined sense either for profit to the "individual members or share holders" of a registered organization or without profit : see and compare paragraphs 68(2)(b) and (c) and 68(2A)(b). At 30 June 1991 two registered organizations were carrying on health insurance business for profit and the other 52 registered organizations did not seek profit. Part VI does not provide a context by reference to which the meaning of the word "business" is limited to activity with a view to profit.

12. Mr Burnside QC, who appeared with Mr Scerri for the respondent, submitted that the relationship which the respondent had with each of those to whom it offered membership - a relationship derived from the contract of employment - tended to deprive the activity of the savour of business. He relied for support of the submission on an observation by Davies J., in whose reasons for judgment Burchett J. agreed, in State Authorities Superannuation Board v. Federal Commissioner of Taxation (1988) 21 FCR 535. His Honour was considering whether the appellant Board's activities - administering the superannuation funds of governmental employees and paying pensions out of those funds - were to be characterised as "in the nature of business (whether or not for profit)". In stating his conclusion against such a characterisation Davies J. said (21 FCR at 550) : "In the Board's dealing with employers and employees, there does not appear to me to be that element of commercial dealing with other parties such as customers or clients which is essential to the existence of a business".

13. Part VI contemplates the carrying on of health insurance business in the defined sense by an organization which restricts membership to specified classes, including a class defined by reference to the employment of its members. Such an organization is called in the National Health Act 1953 a "restricted membership organization", which expression is defined to mean:-

"an organization the rules of which restrict eligibility for membership
by reference to:
(a) employment or former employment in a profession, trade, industry
or calling;
(b) employment or former employment by a particular employer or by an
employer included in a particular class of employers;
(c) membership or former membership of a particular profession,
professional association or union;
(d) membership or former membership of the Defence Force or of a part
of the Defence Force; or
(e) any other prescribed matter;
not being an organization that has notified the Secretary in writing
that it does not wish to be subject to the provisions of this Act
relating to restricted membership organizations."

(There was no evidence that the respondent had given such a notice.) Further, Davies J. based the conclusion from which I have quoted in part on the circumstances, which he summarised, that the Board's "relationship with contributors was that of a body which exercised statutory powers, not that of a body which had entered into a consensual relationship with its contributors" : 21 FCR at 549. The relationship between the respondent and the members of the plan is consensual. the context which Part VI supplies "business" is plainly to be understood as comprehending organised activity intended to gain no profit by the activity. Nor can inadequacy of consideration, known at the formation of a contract by the parties to be inadequate, for the risk undertaken be regarded as necessarily inconsistent with the legal conception of insurance, in my opinion. But where an employer undertakes to bear losses arising out of contingencies such as those in question here as one of the benefits of employment, the inadequacy of the consideration moving from the employees to cover the risk of those losses may be such as to require the conclusion that there is no carrying on of the business of undertaking liability, by way of insurance, with respect to those losses. Here the magnitude of the disparity between accepted claims and premium income, a disparity of an order foreseen and intended by the respondent, takes these contracts outside vernacular usage of the word "insurance", even if not outside the widest legal meaning. The Oxford English Dictionary (2nd ed.) has in respect of that word : "4. Comm. (a) The act or system of insuring property, life, etc.; a contract by which the one party (usually a company or corporation) undertakes, in consideration of a payment (called a premium) proportioned to the nature of the risk contemplated, to secure the other against pecuniary loss, by payment of a sum of money in the event of destruction of or damage to property (as by disaster at sea, fire, or other accident), or of the death or disablement of a person; the department of business which deals with such contracts." Judicial definition of the word admits of a consideration other than payment of money and of a consideration which may be inadequately proportioned to the nature of the risk : Prudential Insurance Company v. IRC (1904) 2 KB 658 at 663; Re Bendix Automotive of Canada Ltd. and United Automobile, Aerospace and Agricultural Implement Workers of America (1971) 20 DLR (3rd) 151; McGillivray and Parkington on Insurance Law (8th ed.) para. 890 note 22; cf. Halsbury (4th ed.) para 458. But the magnitude of the inadequacy in this case has in my opinion a strong influence against the conclusion that the respondent carries on "a business ...... by way of insurance". And, although the respondent solicits membership of the plan in ways that are similar to business advertising, and conducts the plan in a systematic, businessslike way in undertaking liability with respect to the losses comprehended by the plan, those activities can hardly be described as a "business" of the respondent. The nature of the relationship between the respondent and those whose membership it solicits, and the magnitude of the foreseen cost of the plan to the respondent suggest, in my opinion, the conclusion that what is being done is outside the meaning of the expression "the business of undertaking liability .... with respect to" the losses comprehended by the plan. One may in some circumstances contemplate as a business an activity productive of losses, even an activity intended to be productive of substantial losses. But when such an activity is seen to have no purpose except the advancement of another business carried on by the respondent, by benefiting employees now or formerly engaged in that other business, and the activity consists in nothing but offering and providing those benefits and determining what charge should be made for them, it may be a misuse of language to call that activity a business of the employer. In this case what the respondent does is, in my opinion, outside the meaning of the phrase, considered as a whole, "the business of undertaking liability, by way of insurance ... with respect to loss" of the kind specified in the definition of "health insurance business". It is a phrase expressed in language which invites construction by reference to vernacular usage rather than to the furthest limits of the legal conceptions which the words "business" and "insurance" may suggest. So construed, the phrase does not in my opinion comprehend what the respondent does.

14. Against that conclusion it may be said that the respondent's activity places it in competition for members with registered organisations. The similarity of the benefits payable under the respondent's plan and the benefits payable by registered organisations and the relative cheapness of the respondent's annual premium (considered as the aggregate of the premium and the "annual deductible") ensure the popularity of membership of the respondent's plan. From the point of view of registered organisations the respondent's activity no doubt appears to be a business in competition with their businesses. But I do not think that consideration displaces the conclusion I have reached. Nor does the provision of benefits similar to the benefits provided by registered organisations at a substantial loss to the provider run counter to any policy which I have been able to discern in the legislation.

15. Mr Ritter QC, who appeared with Mr Shepherd for the applicant, submitted that, because the membership of the respondent's plan has always included a substantial proportion of persons who are not employees, but annuitants or persons standing in a personal or familial relationship to employees, the conclusion that the respondent was carrying on a business was strengthened. That is a consideration having some slight weight in favour of the conclusion for which Mr Ritter contended. But the inclusion of those persons has for a consequence what may be perceived by employees as a benefit. The employee has the benefit of continuing his membership of the plan after his retirement. And he is spared the necessity of arranging a separate membership of a registered organization for persons whose financial interest is commonly his own interest also. Mr Ritter sought also to distinguish several United States cases on which Mr Burnside relied by reference to the extension of membership beyond employees : Mutual Life Insurance Co. of New York v. New York State Tax Commission (1973) 345 NYS 2d 475; State ex rel. Farmer v. Monsanto Company (1974) 517 SW 2d 129; California-Western States Life Insurance Co. v. State Board of Equalization (1957) 312 P 2d 19. The several legislative contexts in which schemes in some respects similar to the respondent's plan come under consideration in those cases were different from that under present consideration and I have not been influenced to my conclusion by any of those authorities.

16. The legislation with which this proceeding is concerned was brought to the form in which it now falls for consideration principally by the Health Legislation Amendment Act 1985. During debate in the House of Representatives on the motion that the Bill which after enactment was the Health Legislation Amendment Act 1985 be read a second time the Minister of State who had moved was asked a question by another member:

"My second query relates to companies which are currently insuring for
their employees with commercial insurers and which may not wish to
continue those arrangements under the new regulated system. Presumably,
they would be able to cover their employees' health costs as an accepted
cost without coming under the Act, and would be able to opt out in that
sense by carrying the insurance themselves. I assume that that would
not be prevented under the terms of this legislation, but I would
welcome clarification of that point." (Hansard 22 May 1985, p 2926)

The Minister responded:

"The honourable member for Mackellar raised two specific questions. One
related to employers providing their own insurance for their workers.
The legislation will not affect or disturb employer self-financing or
self-insuring health benefits for employees. I give the honourable
member that assurance." (Hansard 22 May 1985, p 2933)

17. Mr Burnside submitted that the Minister's response was relevant material of a kind specified in paragraph 15AB(2)(h) of the Acts Interpretation Act 1901 and that sub-section 15AB(1) of that Act authorised the court to give consideration to that response in interpreting the definition of "health insurance business". The respondent was at the time when the Health Amendment Legislation Act 1985 commenced, on 1 September 1985, insuring for its employees with a commercial insurer. The respondent did not thereafter wholly "carry" the insurance itself because it required the employee to pay a premium from 1st October 1986. It may be that the Minister intended, by his use of the expressions "self-financing" and "self-insuring", to refer only to an employer who required no payment by the employee. It would be unsafe to give the response any weight in favour of the construction I have adopted.

In the result the proceeding will be dismissed with costs.