Superannuation disability insurance: tips and traps
17th Aug 2017
Lawyers often come across superannuation statements with possible entitlements buried in the fine print. This article offers ten tips for successful total and permanent disablement (TPD) claims under insurance held through superannuation.
Tip 1: Learn the language
TPD claims have two distinct elements: the fund's trust deed and the insurance contract. Each superannuation fund is governed by a trust deed and has a trustee. The trust deed sets out the terms of the fund and some of the obligations of the trustee to the members of the fund.
The trustee of the superannuation fund takes out a contract of insurance with the insurer. Members of the fund are strangers to the contract but can enforce the terms of the contract under the principles in Trident v McNiece (1988) 165 CLR 107, that is, that beneficiaries of a policy of insurance can enforce its terms despite not being a party to the contract. The trust deed and the contract of insurance will each include criteria for when benefits are payable and will define what the benefit is.
Tip 2: Always consider a superannuation insurance claim
If a client has time off work due to an illness or injury, a superannuation insurance claim must be considered. The starting point is to find out which superannuation fund the client is a member of and to write to the fund asking for a copy of:
- the trust deed as at the date of injury/date last worked, including any amendments; and
- any contract of insurance relevant to the member as at the date of injury/date last worked.
Tip 3: Superannuation claims are not compensation claims
A superannuation claim must be considered independently from any other claim that the client may have (for example, workers' compensation, motor vehicle accident and medical negligence claims). Such claims are not compensation claims: the law, evidence and outcomes differ. The benefit is payable if the conditions in the insurance contract are met. It is not necessary to prove that the illness or injury is work-related or was caused by negligence.
Tip 4: Keep in mind the obligations of the trustee and the insurer
The trustee's obligations are prescribed by s52 of the Superannuation Industry (Supervision) Act 1993 (Cth) and require the trustee to:
- exercise, in relation to all matters affecting the fund, the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide;
- ensure that its duties and powers are performed and exercised in the best interests of the beneficiaries; and
- exercise its discretion in good faith.
The insurers' obligations are prescribed by are prescribed by s13 of the Insurance Contracts Act 1984 (Cth). In pursuit of its paramount duty to act with the utmost good faith, the insurer must:
- consider, and determine, the correct question;
- correctly interpret the contract of insurance;
- make the decision required to be made;
- act in good faith and to observe fair dealing in respect of both the trustee and the plaintiff;
- have due regard for the interests of the plaintiff; and
- act reasonably in considering whether a state of affairs governing entitlement exists and in coming to its conclusion on that question.
Tip 5: The decision-making process
The focus of a TPD claim is on the decision-making process. It is not enough to be able to prove that your client has a TPD; you must prove that the decision of the trustee or the insurer (or both) was unreasonable. Consider:
- if the trustee and the insurer made an independent decision;
- whether the correct legal test was applied;
- whether all information before the trustee and the insurer was considered; and
- if the decision was otherwise unreasonable at law.
Tip 6: Carefully consider all elements of the TPD definition
Not all TPD definitions are the same. It is important to consider the precise terms of the definition and to break it down into its core elements. Consider:
- is the definition an ‘unlikely’ or an ‘unable’ definition?
- is the definition an ‘own occupation’ or an ‘any occupation’ definition?
- what falls within the ambit of ‘education, training and experience’?
The recent case of TAL Life Limited v Shuetrim; MetLife Insurance Limited v Shuetrim  NSWCA 68 (Shuetrim) has significantly altered the landscape regarding the meaning of the word ‘unlikely’. The NSW Court of Appeal held that a real chance that a person will return to work to which they are suited, even if it is less than a 50% chance, will mean that they do not have a TPD.
Tip 7: Medical evidence and submissions must focus on the questions to be answered
A negative decision can only be challenged if it was unreasonable in taking into account the medical and other evidence before the decision-maker: see McArthur v Mercantile Mutual Life Insurance Co Ltd  QCA 317; Hannover Life Re Limited of Australasia v Sayseng  NSWCA 214. It is essential that all material on which your client wants to rely is before the decision-maker. It is not enough to rely on reports obtained for workers' compensation or other compensation claims: see Maciejewski v Telstra Super Pty Ltd (1998) 44 NSWLR 601.
If the claim gets to court, the question of whether the rejection of the claim was unreasonable will be decided by reference to the evidence that was before the decision-maker. Later evidence will not be relevant to that question and will be inadmissible.
Tip 8: Understand the tax implications of a payment
Where a benefit under an insurance contract is paid, the client has a number of options about what to do with the money. It is essential that the client get independent financial advice about how an insurance benefit should be paid.
There are significant taxation consequences. For example, if the monies are withdrawn from the superannuation fund before the client's preservation date, it is subject to taxation. Monies left in superannuation are non-taxable.
Tip 9: What to do if the claim is refused
If a claim is refused, consider applying for an internal review of the decision. That review allows you to consider the reasons for refusal and to put new evidence before the trustee and the insurer that attempts to address the reasons for rejection.
If a review does not succeed, you will file a proceeding in court. TPD claims have two elements:
- The court looks to whether the trustee and insurer's decisions were unreasonable. Unreasonableness can be made out on any of the grounds described above. The assessment of unreasonableness is made based on the information that was before the decision-maker at the time the decision was made. Fresh evidence is generally not admissible.
- If the court finds unreasonableness in the decision it can:
- remit the decision to the trustee or insurer for decision according to law; or
- make the decision afresh.
Shuetrim has endorsed the two-stage approach as good law and an established principle in this area. This approach has also been approved in Queensland (McArthur v Mercantile Mutual Life Insurance Co Ltd  2 Qd R 197), Victoria (Hannover Life Re of Australasia v Collela  VSCA 204) and Western Australia (HCF Life Insurance Company Pty Ltd v Kelly  WASCA 264).
The Superannuation Complaints Tribunal provides an alternative, low cost forum for the determination of complaints from members of superannuation funds. The Tribunal can remit the matter to the trustee for re-consideration or affirm, vary or set aside the decision (and substitute a different decision for the decision set aside). Appeals from decisions of the Tribunal are made to the Federal Court on questions of law.
Tip 10: Think creatively about statute limitation expiry dates
A court proceeding must be commenced within six years of the date of the breach. That date is usually the date on which the claim was rejected.
The dates may be different for the insurer's decision and the trustee's decision.
If the claim is made more than six years after the decision, it will be statute-barred. However, it is possible that seeking a review of the original decision can refresh the statutory limitation. If the review is declined, the statute of limitations may run from the date of the second refusal.
It is arguable that a longer period of time is applicable to challenging the trustee's decision given the decision is based on a trust deed. The legislation in some jurisdictions provides a 12 year time limit for actions found on a deed. In other states, such as South Australia and Victoria, a 15 year limitation period is applicable as the action in respect of the superannuation trust is considered to be a specialty: see Tuftevski v Total Risk Management Pty Ltd  NSWSC 315.
This is a condensed version of an article called ‘Tips and Traps’ that first appeared in the Law Institute of Victoria’s (LIV) Law Institute Journal on 1 June 2017. You can read the LIV article here.
Annemarie Gambera is a principal lawyer at Slater & Gordon whose expertise is in insurance and dispute resolution.
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).