Hannover Life Re v Jones - Interpretation of ETE clauses

The decision in Hannover Life Re of Australasia Ltd v Jones¹ adds a further challenge for life insurers in making decisions on Total and Permanent Disablement (TPD) claims by limiting the scope of occupations for which an insured may be considered fitted by reason of their education, training or experience (ETE).

The plaintiff insured, Mr Jones, was born in 1982 and completed his School Certificate in 1998. He left school at the end of year 10. He served an apprenticeship with a roofing contractor which he completed in March 2003, qualifying as a tradesman roof plumber. He subsequently gained a number of additional tickets including Professional Association of Climbing Instructors, asbestos removal, safe work at heights ticket, OHS induction, explosive power tools, and a 20-tonne crane licence.

On 10 December 2002 he suffered a repetitive strain injury of the lower back. He was subsequently diagnosed with a disc prolapse. He underwent a hemi-laminectomy in June 2003 which provided immediate relief.

He returned to work in October 2003 as a roofing supervisor with a reduced but continuing requirement to engage in heavy lifting. He remained in various supervisory roles until he eventually ceased work in late 2011.

Although the operation in June 2003 was successful it did not entirely resolve his complaints. He continued to have pain in his lumbar spine which radiated down the back of his left leg. His symptoms became more troublesome in 2011. Importantly, he also developed a fear-avoidance syndrome.

He ceased working on 10 October 2011 when his employer closed down. Its jobs and employees were transferred to other contractors. However, the plaintiff did not resume work.

The insurer declined the claim because whilst it agreed the plaintiff could not return to his pre-injury tradesman duties, it was not convinced that, based on his restrictions along with his education, training and experience, he would never return to some form of meaningful employment. In this respect the insurer referred to 4 vocational options which did not require retraining and which it considered the plaintiff had the functional capacity to perform, being:

• Retail sales (hardware);
• Courier/delivery driver;
• Console operator; and
• Customer service advisor/telemarketer.

Relevant Inquiry

The Court of Appeal reaffirmed the principle in Edwards v The Hunter Valley Co-Op Dairy Co Ltd and Hannover Life Re Australia v Sayseng in respect to the first-stage inquiry. That is:

1. The criterion of the reasonableness of an insurer's decision is whether the opinion formed by the insurer was not open to an insurer acting reasonably and fairly in considering the claim. If the opinion fails these requirements, the court must substitute its own opinion.
2. In coming to a substituted opinion a court must not refer to additional material not before the insurer.
3. A decision of an insurer will not necessarily be set aside if an irrelevant consideration that it takes into account, or a consideration that it fails to take into account, is not a "material" consideration.

The court held that:

1. The task of the court is not to assess what it thinks is reasonable and thereby conclude that any other view displays error. There can be a range of opinions available to an insurer acting reasonably and fairly on the material before it.
2. The insurer in the Hannover case had not acted reasonably as it had failed to take into account a "significant component" of the plaintiff's incapacity, namely his psychological makeup - described as, his fear avoidance syndrome - and the effect that this would have on the plaintiff gaining and maintaining employment. The functional capacity and vocational assessments obtained by the insurer had regard to the plaintiff's ability to perform physical tasks, but not his fear-avoidance syndrome and gave no consideration to whether the plaintiff's fear-avoidance syndrome might impact upon his ability to gain employment. Therefore, in accepting the functional and vocational reports, the insurer was found to have considered the plaintiff's capacity for work solely on the basis of his physical condition and without regard to his psychological makeup. Thus the insurer had not acted reasonably in considering the claim as it had failed to take into account a significant component of the plaintiff's incapacity.

ETE Clause

The trial judge had found that the concept of an occupation or work 'for which the insured person is reasonably fitted by education, training or experience' directs attention to the insured’s vocational history to date, and to occupations for which that vocational history fits the insured. Therefore the ETE clause referred not to any work for which the insured might have physical and mental capacity without further training, but to work for which the insured has been prepared and shaped by their prior education, training and/or experience, that is, not any occupation which may be conceived which can be performed without further education, training or experience.

Regarding these findings the insurer argued on appeal that:

1. The effect of the trial judge's construction of the ETE clause was to read the ETE clause as though it was limited to unfitness for a person's "usual occupation", when it was properly to be understood as referring to an occupation other than the person's "usual occupation".
2. The ETE clause did not preclude the insurer from identifying jobs requiring less than a full complement of the Insured's ETE or jobs with lower income or lower status than the "usual occupation".

The Court of Appeal held that:

1. The question of whether a person is reasonably fitted for a particular type of work will always depend on the facts of a particular case.
2. The ETE clause required the insurer to examine the occupations for which the claimant was "fitted" in the sense of the occupations for which the claimant's ETE had prepared him or her.
3. The word "by" in the phrase "reasonably fitted by education, training or experience" clearly expressed the notion of a link or connection between the suggested future work and the insured's past ETE.

The Court of Appeal found that the trial judge did not err in finding that the plaintiff's aptitude was only for manual labour. In response to the insurer's argument that the plaintiff had worked in a supervisory position as a roof plumber and that the vocational assessment had taken into account the plaintiff's functional and work capacity and had identified his transferrable skills (and the positions identified were entry level only) the Court of Appeal found that it was unrealistic to isolate some aspects of work for which the insured may have had some individual skills in the face of significant injury that deprived the insured of the capacity to perform work in other respects. Therefore, since the insured communication skills developed as a roofing supervisor, were quite different from those required of a person dealing with customers, it was clear that a customer service position was not an occupation by which the plaintiff was suited to by his ETE.

The Court of Appeal declined to comment on whether there was a geographic test, holding that it was not necessary to deal with this issue since the trial judge's remarks in this regard were obiter dicta (not essential in forming his opinion) because there was no issue as to the availability of employment in the plaintiff's geographical location.

This decision considered an ETE clause that requires an insured to be "fitted for" an occupation. The words "suited to" would probably be interpreted similarly. However if a TPD definition instead refers to an insured being "reasonably capable of performing" employment by reason of their ETE then the outcome may be different, as was held in Birdsall v Motor Trades Association of Australia Superannuation Fund Pty Ltd.²