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Supreme Court 1 June 2007

Bottrell v National Mutual Life

[2007] NSWSC 458

Other
LIFE INSURANCE INCOME PROTECTION POLICY WHETHER MISREPRESENTATIONS AND NON DISCLOSURE WHETHER MADE FRAUDULENTLY BASIS FOR CALCULATING SUCH DAMAGES

Citation: Bottrell v National Mutual Life [2007] NSWSC 458
Court: Supreme Court of New South Wales (Equity Division, Commercial List)
Date: 1 June 2007
Judge(s): Hammerschlag J

Background

The plaintiff was a chiropractor who took out an income protection insurance policy in January 1996. In late 1998, he ceased practising due to injuries to his right hand and wrist sustained in falls earlier that year. The insurer commenced paying monthly benefits under the policy in December 1998.

Some six years into paying those benefits, the insurer denied liability in September 2004. It claimed the policy should be avoided on the grounds that the plaintiff had made fraudulent misrepresentations and non-disclosures when applying for the policy, particularly regarding his income and his medical history (including a 1995 arm injury sustained in a motor vehicle accident).

The plaintiff rejected this characterisation and, in June 2006, elected to treat the insurer's denial of indemnity as a repudiation of the policy. He accepted that repudiation and sued for damages, seeking the present value of all future benefits he would have received up to age 65.

  • Whether the plaintiff made misrepresentations or non-disclosures in his application for the policy, particularly as to income and medical history
  • Whether any such misrepresentations or non-disclosures were made fraudulently
  • Whether the insurer was entitled to avoid the policy on those grounds
  • Whether the plaintiff was entitled to benefits under the policy and, if so, for what period
  • The appropriate basis for calculating damages for the insurer's repudiation, including the present value of future entitlements

Decision

Hammerschlag J found in favour of the plaintiff on all principal issues. The court rejected the insurer's case that the plaintiff had made fraudulent misrepresentations or non-disclosures about his income or medical history. The dispute over what occurred at the critical November 1995 meeting between the plaintiff and the insurance agent was resolved in the plaintiff's favour.

The court found the plaintiff was entitled to the income protection benefits and that, given his wrist injury, he would have continued to receive those benefits through to age 65. The court considered there was very little prospect the plaintiff would have returned to work while receiving escalating benefits under the policy, and even less so with a substantial lump sum payment in hand.

On the damages calculation, the court applied the principle that the plaintiff was entitled to the present value of his future entitlements under the policy as at the date of termination. This was not treated as a "loss of opportunity" case requiring discounting for vicissitudes. The past damages to May 2007 (including interest) were agreed at $212,708.40, and the court calculated future entitlements to age 65 (3 January 2028, a further 21 years) based on the weekly equivalent of the monthly benefit, arriving at an unadjusted total of $1,430,777.20 subject to minor adjustments.

The insurer's cross-summons was dismissed and it was ordered to pay the plaintiff's costs.

Orders Made

  • Verdict for the plaintiff
  • Cross-summons dismissed
  • Defendant to pay the plaintiff's costs of the proceedings
  • Matter stood over to a date to be fixed for the parties to bring in short minutes reflecting the final amount, with provision for any minor adjustments (including for film extra earnings)

Key Takeaways

  • Hammerschlag J found that an insurer's attempt to avoid an income protection policy for alleged fraudulent misrepresentation, raised only after six years of paying benefits, failed where the evidence did not establish fraud or material non-disclosure.

  • Where an insurer wrongfully repudiates an income protection policy, damages are assessed as the present value of the insured's future entitlements under the policy to the benefit period's end date, not merely benefits accrued to the date of denial.

  • The calculation of damages for repudiation of an income protection contract is distinct from a "loss of opportunity" case: where the insured's rights were already in place, no discount for vicissitudes of life of the kind applicable in tort-based economic loss claims was applied.

  • The relevant benefit period ran to age 65 under the policy terms, and the court's damages calculation reflected the full remaining period on that basis.

  • An insurer's long delay in raising avoidance grounds (here, six years of paying benefits before denial) does not itself preclude a later attempt to avoid, but the evidentiary burden of establishing fraud remains high, consistent with the standard articulated in Briginshaw v Briginshaw (1938) 60 CLR 336.

Legislation and Cases Referenced

Legislation:
- Insurance Contracts Act 1984 (Cth)
- Insurance (Agents and Brokers) Act 1984 (Cth)
- Life Insurance Act 1995 (Cth)
- Health Insurance Act 1973 (Cth)
- Medical Practice Act 1992 (NSW)

Cases:
- Briginshaw v Briginshaw (1938) 60 CLR 336
- Robinson v Harman (1848) 1 Ex Ch 850
- Wenham v Ella (1972) 127 CLR 454
- The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
- Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
- TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130
- Permanent Trustee Australia Co Ltd v FAI General Insurance Co Ltd (2001) 50 NSWLR 679
- Tyndall Life Insurance Co Ltd v Chisholm (2000) 11 ANZ Ins Cas 90-104
- Pennant Hills Restaurant Pty Ltd v Barrell Insurances Pty Ltd [1977] 2 NSWLR 827
- Lamb v Johnston (1914) 15 SR (NSW) 65
- Luckin v Hamlin (1869) 21 LT 366