ADL definitions in TPD insurance: Is the default at fault? (part one)
22nd Oct 2020
The any occupation definition as standard form
Total and permanent disablement (TPD) insurance is becoming a matter of increasing discussion, and various sources would seem to suggest that TPD means:
‘unable to work ever again in “any occupation” for which they are suited by “education, training or experience”’.
This is the so called any occupation definition.
However TPD cannot be confined to just one specific definition. It can be discerned intuitively that TPD insurance is a policy of life insurance, and an insurance policy can contain any terms unless restricted by statute or regulations.
A quick canvas of legislative instruments, such as the Life Insurance Act 1995 (Cth) or Insurance Contracts Act 1984 (Cth), reveals no required specifications for TPD insurance, meaning that it can take any form whatsoever. For example, there are the additional definitions of own occupation and activities of daily living (ADL).
The any occupation definition is often referred to as the ‘standard form’ definition due to its ubiquity. Any occupation is ubiquitous because of superannuation funds. Trustees of superannuation funds are required to ensure that where practicable there is insurance established for members in cases of permanent incapacity. TPD insurance policies of this kind are often referred to as ‘default group life’ policies. As of December 2018, of the approximately 13.5 million TPD policies in Australia, around 12 million are held in superannuation.
At least as harsh as permanent incapacity
Permanent incapacity is defined as:
‘that the member’s ill-health (whether physical or mental) makes it unlikely that the member will engage in gainful employment for which the member is reasonably qualified by education, training or experience.’
Regulation 4.07D of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations) requires any insurance in superannuation to be consistent with the conditions of release. Regulation 4.07D originally came into force as part of the Stronger Super Reforms: The Superannuation Legislation Amendment Regulation 2013 (No. 1) (Cth). This ‘consistency’ was intended to permit only insurance with definitions as severe (if not more so) than the permanent incapacity definition:
‘Currently, some members are being charged premiums for own occupation cover in TPD insurance policies and other types of insurance that may not be released to them when an insurance payment is made for them, because the circumstances do not meet a condition of release. The Government will end this practice.’
The result is that a TPD insurance policy held in superannuation has to have a definition which is at least as harsh as permanent incapacity, for example:
‘illness or injury which causes the life insured to be incapacitated to such an extent as to render the member unlikely ever to engage in or work for reward in any occupation or work for which he or she is reasonably qualified by education, training or experience.’
This definition has been interpreted to mean ‘not a real chance that [one] would ever return to relevant work’.
Differences in TPD insurance policies
However, consistency is not congruence and the terms of a TPD policy in superannuation can vary greatly, for example:
- Policies may differ in their wording of the regulation-consistent definition, such as the difference between ‘unlikely to work’ as opposed to ‘unable to work’;
- Secondary terms regarding things such as policy commencement and exclusions can vary wildly, and these can greatly impact on the operation of the ‘standard form’; and
- As the purpose of the consistency is to ensure that a policy is at least as severe as ‘standard form’, the implication is that any alternative definition which is equally severe (if not more so) is permissible. An example of this is the ADL definition, which ASIC described as:
‘if [the insured is] unable to meet, usually, three ‘activities of daily living’ such as feeding, bathing and toileting themselves.’
As practitioners, it is thus important to advise clients not to assume that TPD insurance must have certain terms, and avoid forming a generalised view on TPD without first getting a copy of the appropriate policy and reviewing it.
See next week’s Opinion for part two of this article and find out why higher rates of decline under the ADL definition may not necessarily be unfair.
Matthew Lo is a lawyer at LHD Lawyers and practises exclusively in life insurances. He is a primary author of LexisNexis’ Practical Guidance for TPD Claims. Matthew also has experience with superannuation law, particularly self-managed superannuation funds, and with defined benefits schemes.
The views and opinions expressed in these articles are the authors' and do not necessarily represent the views and opinions of the Australian Lawyers Alliance (ALA).
 ASIC, Holes in the Safety Net: A Review of TPD Insurance Claims (Report 633, October 2019), .
 The industry may have certain standard definitions, but these are conventional and not mandatory.
 ASIC, above note 1.
 ASIC, above note 1, .
 TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim  (Shuetrim) NSWCA 68, per Leeming JA, .
 cf. ibid, .
 ASIC, above note 1.