Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Preston v AIA Australia Ltd [2014] NSWCA 165
• Hearing dates: 22 April 2014
• Decision date: 30 May 2014
• Before: Meagher JA at [1]; Gleeson JA at [2]; Sackville AJA at [7]

Decision

1. Appeal dismissed.

2. Appellant pay the Respondent's costs of the appeal.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: INSURANCE - accident insurance - appellant unable to work due to injured ankle - whether appellant's disability resulted from an accidental injury "solely, directly and independently of a pre-existing condition" - effect of a previous injury to both ankles; INSURANCE - accident insurance - whether insurer admitted it had accepted the appellant's claim under the policy
• Cases Cited: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570; American Home Assurance v Saunders (1987) 11 NSWLR 363; Australian Casualty Co Ltd v Federico [1986] HCA 32; 160 CLR 513; Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 306 ALR 25; Fidelity and Casualty Company of New York v Mitchell [1917] AC 592; Giles v National Mutual Life Association of Australasia Ltd (1986) 4 ANZ Ins Cas 60-751; Jason v Batten (1930) Ltd [1969] 1 Lloyd's Rep 281; Lipertis v Australian Casualty Company Pty Ltd [1983] 2 VR 280; Penn v Standard Life Insurance Company (1912) 76 SE 262; Preston v AIA Australia Ltd [2013] NSWSC 282; Silverstein v Metropolitan Life Ins Co (1930) 171 NE 914 (Court of Appeals, NY); Wayne Tank and Pump Company Ltd v Employers' Liability Assurance Corporation Ltd [1974] 1 QB 57; Wells v Australian Aviation Underwriting Pool Pty Ltd [2003] QSC 226
• Texts Cited: Oxford English Dictionary Online (May 2014, Oxford University Press)
• Category: Principal judgment
• Parties: Stephen Preston (Appellant); AIA Australia Limited (Respondent)
• Representation: Counsel: In person (Appellant); R A Cavanagh SC / S J Walsh (Respondent); Solicitors: Turkslegal (Respondent)
• File Number(s): 2013/142431
• Publication restriction: None

Decision under appeal

• Jurisdiction: 9111
• Citation: Preston v AIA Australia Ltd [2013] NSWSC 282
• Date of Decision: 2013-04-03 00:00:00
• Before: Lindsay J
• File Number(s): 2011/27942

HEADNOTE

[This headnote is not to be read as part of the judgment]

An insurance policy provided that the appellant would be entitled to a Total Disablement Benefit if he was rendered unable to perform the duties of his usual occupation by an injury that resulted solely, directly and independently of a pre-existing condition.

The appellant suffered a serious injury to both ankles in 1996. He recovered sufficiently from that injury to return to full time work. Thirteen years later, in 2009, the appellant injured his left ankle and was rendered unable to work at his usual occupation.

The appellant claimed the Total Disablement Benefit under the policy. He also contended that the insurer had admitted liability by making a payment under the policy into the appellant's bank account.

The primary Judge found that the appellant's disability was caused both by the 1996 and 2009 injuries, in that the later injury aggravated the physical consequences of the earlier injury. Accordingly, the 2009 injury did not result solely, directly and independently of the 1996 injury. The primary Judge also found that the insurer had not admitted liability.

The Court held:

1 In determining whether an injury results in total disability solely, directly and independently of any pre-existing condition, a distinction should be drawn between an insured who has a propensity due to a pre-existing condition to suffer disabling consequences from what would otherwise be a minor injury and an insured whose pre-existing medical or physical condition is aggravated by a later injury so as to result in disability: [68]- [77], [80]

Fidelity and Casualty Company of New York v Mitchell [1917] AC 592; Silverstein v Metropolitan Life Ins Co (1930) 171 NE 914 (Court of Appeals, NY); Lipertis v Australian Casualty Company Pty Ltd [1983] 2 VR 280; Jason v Batten (1930) Ltd [1969] 1 Lloyd's Rep 281; Wells v Australian Aviation Underwriting Pool Pty Ltd [2003] QSC 226; considered.

2 In the present case, appellant experienced continuing and serious physical consequences from the 1996 injury, which materially contributed to the disability he experienced following the 2009 injury. He was not entitled to receive the Total Disablement Benefit because there were two concurrent causes of his disability: [95]-[96]

3 The payment made by the respondent to the appellant did not amount to an acceptance of the appellant's claim. In all its correspondence with the appellant, the respondent reserved its position in relation to final determination of the claim pending receipt of further information, which ultimately formed the basis for the respondent's rejection of the appellant's claim: [103]-[104]

Judgment

1 MEAGHER JA: I agree for the reasons given by Sackville AJA that Mr Preston's appeal must be dismissed with costs.

2 GLEESON JA: The appellant was a carpenter who took the sensible precaution of obtaining disability income protection cover (the Policy). Some 13 years earlier he had fractured both ankles in the one accident. Prior to taking out the Policy he disclosed to the respondent insurer his earlier injury and its consequences. He paid the Policy premiums. The appellant suffered a physical injury (he sprained his left ankle) as a result of an accident whilst the Policy was in force and was disabled from continuing his work as a carpenter. His claim for benefits under the Policy was initially paid by the insurer for two months. Later the insurer denied his claim because his disability was not an "Accidental Injury" within the meaning of the Policy.

3 The definition of "Accidental Injury" in the Policy required, inter alia, a physical injury which results solely and directly and independently of a pre-existing condition or any other cause in total disablement. The primary judge found that the appellant's disability had been caused in part by the aggravation of the pre-existing injury from which the appellant thought he had fully recovered and which he had disclosed to his insurer.

4 As Sackville AJA observes, the wording of the Policy, like many similar policies, is very restrictive. No doubt this came as a surprise to the appellant when the insurer denied cover. However, the objective theory of construction of contracts does not permit consideration of the appellant's subjective beliefs and understanding: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 306 ALR 25 at [35] (per French CJ, Hayne, Crennan and Kiefel JJ).

5 Whether the appellant was misled when taking out the Policy was not an issue in these proceedings; nor was it argued that the insurer's conduct in apparently failing to draw to the insured's attention, in clear and plain language, the restrictive terms of the cover provided under the Policy might have constituted unconscionable conduct. Hence these possible avenues for ameliorating what may seem a harsh result were not open before the Court below or on appeal.

6 Whilst the appellant's sense of grievance is readily understandable, I agree with Sackville AJA that the appeal must be dismissed with costs for the reasons given by his Honour.

7 SACKVILLE AJA: This is an appeal against a judgment given by a Judge of the Equity Division of the Supreme Court (Lindsay J) dismissing a claim by the appellant (Insured) against the respondent (Insurer): Preston v AIA Australia Ltd [2013] NSWSC 282 (Primary Judgment). The Insured claimed that he was entitled to a "Total Disablement Benefit" under the terms of a "Priority Protection Policy" issued by the Insurer on or about 23 April 2008 (Policy). This entitlement was said to arise as a consequence of an injury sustained by the Insured to his left ankle on 6 May 2009 (2009 Injury).

8 The Insurer did not dispute that the Insured was totally disabled within the meaning of the Policy. However, the Insurer denied liability in the proceedings on the ground that the Insured's injury was not within the Policy definition of "Accidental Injury". Specifically, the Insurer, while accepting that the Insured's physical injury was a cause of his total disablement, denied that the injury had resulted "solely and directly and independently of a pre-existing condition or any other cause in total disablement". The primary Judge upheld the Insurer's defence.

9 Three preliminary points should be made.

10 First, the Insured was unrepresented both before the primary Judge and on the appeal. The primary Judge noted (at [2]) that the Insured had made some "extravagant claims for relief", but that in essence his claim was that the Insurer was contractually bound to pay him a Total Disablement Benefit under the Policy. That was the principal question debated on the appeal, although the Insured raised an additional argument founded on what were said to be admissions by the Insurer.

11 Secondly, the Insured presented his arguments in this Court carefully and in a manner that responded to questions from the Bench. His written and oral submissions, both of which were reasonably concise, were of assistance to the Court.

12 Thirdly, the Insured demonstrated in his submissions a clear sense of grievance that the Insurer had rejected his claim. The Insured's sense of grievance is understandable. He suffered a physical injury during the currency of the Policy and, as a result, was disabled from continuing his work as a carpenter. His claim against the Insurer failed before the primary Judge because the disability resulting from the 2009 Injury was found to have been caused in part by a pre-existing injury, sustained some 13 years earlier from which the Insured thought he had fully recovered. The Insured had disclosed to the Insurer the earlier injury and its consequences. Nonetheless, the aggravation of the pre-existing injury was found to have contributed to his disability and the primary Judge held that, on the wording of the Policy, this finding precluded him from claiming a Total Disablement Benefit.

13 While the Insured's sense of grievance is readily understandable, the appeal must be determined in accordance with legal principles and the evidence presented at the trial by the parties. If, as a matter of construction, the Policy does not respond to the Insured's injury and his resultant disability, his claim as pleaded and presented cannot succeed.

The Policy

14 The commencement date of the Policy was recorded as 23 April 2008. The benefits under the Policy included term life insurance (for which a separate premium was payable) and a Total Disablement Benefit.

15 The Policy provided (cl 6.1.1) that if the Insured was "totally disabled" for a period longer than 30 days, he would receive a monthly benefit throughout the "Benefit Period" for as long as he continued to be totally disabled. The Benefit Period was five years and the monthly benefit payable was $3,000.00, subject to indexation. The first year's premium for the Total Disablement Benefit appears to have been $2,042.58.

16 The Insured was taken to be totally disabled if he satisfied the definition of "Total Disablement". That expression was defined to mean that:

"due to Accidental Injury, the [Insured] is:

● unable to perform one or more duties of [the Insured's] occupation, that is important or essential in producing income; and

● following the advice of a Medical Practitioner; and

● not working (whether paid or unpaid)." (Emphasis in original.)

The Insured's occupation at the time of his injury was that of carpenter.

17 "Accidental Injury" and "Injury" were defined as follows:

"'ACCIDENTAL INJURY' means a physical injury which is caused solely and directly by violent, accidental, external and visible means, which occurs while the benefit is in force and which results solely and directly and independently of a pre-existing condition or any other cause in total disablement. Sickness directly resulting from medical or surgical treatment rendered necessary by the physical injury will not constitute an 'Accidental Injury'.

'INJURY' means a physical injury which occurs whilst the Policy is in force and which results solely and directly and independently of a pre-existing condition or any other cause, in Total or Partial Disablement within one year of the date of its occurrence. Sickness directly resulting from medical or surgical treatment rendered necessary by the physical injury will not constitute an 'Injury'." (Emphasis added.)

18 Clause 6.1.3 provided for a "Waiver of Premiums Benefit" as follows:

"If the [Insured] becomes totally disabled for longer than the Waiting Period, We will waive premiums as and when they fall due from the end of the Waiting Period until the end of the Benefit Period or until the date when total disablement ceases, whichever occurs first. Premium payments will recommence from the date on which the waiving of premium ceases."

19 That clause qualifies terms elsewhere in the Policy relating to the payment of premiums. These terms include the following:

"3.5.1 Payment of Premiums

Premiums must be paid [in this case] monthly ...

3.5.2 If You Stop Paying Premiums

30 days of grace are allowed for the payment of premiums during which the Policy will remain in force. If you do not pay premiums in full within 30 days from the premium due date the policy will lapse and its benefits will cease."

Background Facts

20 On about 8 February 2008, the Insured completed, or had completed for him, a "Priority Protection Application" which was submitted to the Insurer (then known as "AIG"). The Application stated that the Insured was 52 years of age and that since February 2008 he had worked as a self-employed builder. The Insured indicated that he derived his income from labour sub-contracts.

21 The application form disclosed that in 1997 the Insured had fractured both his legs when he fell off a ladder. The Insured stated that the treatment had included "surgery, pins and plates inserted."

22 The primary Judge found (at [16]) that those injuries had in fact been sustained in 1996 and that, in relation to his left ankle, the Insured:

"had suffered a chronic tear of the deltoid ligament and an osteochondral lesion of the superior lateral dome as a consequence".

23 On 8 February 2008, the Insurer issued to the Insured an "Interim Accidental Disability Income Cover" valid for 90 days, or until the Policy was issued or the application was declined or withdrawn.

24 On or about 23 April 2008, the Insured received the Policy from the Insurer. The Policy incorporated a Schedule which set out the details of such matters as the amount of monthly benefits, benefit periods and premiums payable. The Notes to the Schedule stated that "Special Terms and Conditions Apply." However, this appears to have been an error. The Policy contained no special terms and the Insurer's "Proposal Assessment Sheet" recorded that no SATs (Special Acceptance Terms) were required and that the Policy was to be issued on standard terms.

25 On 6 May 2009, the Insured was injured while working as a carpenter for Randwick City Council. It appears that he commenced working for the Council as a contractor but had been engaged on a permanent full time basis prior to incurring the injury. The injury occurred when the Insured twisted his left ankle while installing signs on or near an embankment at Malabar Beach.

26 The primary Judge referred to (at [18]) and apparently adopted as accurate a diagnosis by Dr Lunz, a foot and ankle surgeon who prepared a report for the workers compensation insurer. Dr Lunz described the injury as:

"a sprained left ankle with a large ankle joint effusion and bony bruising of the medial talus, deltoid ligament and a sprain of the lateral ligament complex."

27 Following his work-related injury, the Insured received workers compensation payments. However, the workers compensation insurer ceased making periodic payments on and from 7 October 2009. Shortly prior to the cessation of workers compensation payments, the Insured notified the Insurer that he intended to claim under the Policy.

28 On 16 November 2009, the Insured completed a Disability Income Claim Form and duly submitted the claim to the Insurer. He said in the form that the injury occurred when he was "walking down the edge of an embankment when left ankle rolled." In answer to the question "Have you ever had the same or similar injury ... before?", the Insured said "No". In the space provided for details he recorded that:

"AN INJURY OCCURRED APPROX 1996 I HAD BOTH LEGS DAMAGED IN A WORK RELATED INJURY. NOT SAME/SIMILAR AS THIS INJURY."

The Insured also reported that he could no longer perform all duties he previously could as a trades carpenter because "my leg can no longer take my weight without pain."

29 The Insurer acknowledged receipt of the claim by a letter dated 17 November 2009. The letter advised that the claim had been allocated to a Claims Officer for assessment.

30 On 25 November 2009, the Claims Assessor wrote to the Insured concerning his claim. The letter included the following passages:

"We have completed our initial assessment and we require further confirmation before accepting your claim.

We confirm that your Policy commenced with our company on 23 April 2008 and has a 30 day Waiting Period. Subject to further requirements being provided, your claim is assessed from 6 May 2009 with payments to commence from 5 June 2009 (following the expiration of the 30 day Waiting Period). As claims are paid monthly in arrears, your first payment will be [sic] on 4 July 2009.

...

Waiver of Premium

Please note that this benefit is payable from the end of the Waiting Period until the end of the Benefit Period or until the date your total disablement ceases, whichever occurs first.

Indemnity Policy

As your policy is an Indemnity type contract, the Monthly Benefit payable for this claim will be the lesser of the Insured Monthly Benefit, being $3,150.00, and 75% of your Pre-disablement Income.

...

Requirements

To enable us to further consider your claim, please provide us with the following:

● Your Personal Income Tax Returns (including the Notice of Assessment) for the financial year ending 30 June 2009.

We will be contacting Allianz Australia Workers Compensation NSW Ltd to obtain information regarding your Worker's Compensation claim with them.

...

Please also be advised that it is our standard procedure to verify medical history on all claims lodged. To this effect, we have written to Medicare Australia for your Medicare and PBS claims history and requested a report from Dr Elizabeth Heks. It usually takes between 6 to 8 weeks to receive a response from the Medicare however we will not delay your claim as a result. We would let you know if anything received is of concern to AIA." (Emphasis added other than headings.)

31 On 23 December 2009, the Insured's general practitioner, Dr Heks, completed a Medical Attendant's Statement. The Statement described the 2004 Injury as follows:

"Left ankle injury: bony bruising to Talus, sprain of deltoid and lateral ligament Complex and large ankle joint effusion ... He has severe walking difficulty uneven weight bearing is causing right ankle strain and low back strain."

32 Dr Heks' statement also recorded that in 1996 the Insured had injured his right foot and ankle in 1996 when he sustained a "fractured calcaneus". Dr Heks noted that:

"putting excessive weight on it to spare the newly injured left ankle, his right ankle has become swollen and painful hampering his progress/walking ability. He also injured his left ankle in 1996 but it has fully recovered until he recently injured it again on 6/5/09."

In the section of the Statement recording the diagnosis, Dr Heks described the 2009 Injury and added the following:

"(Aggravation of old Right ankle injury and Lumbosacral spine strain) [Left] ankle is swollen and tender ... movement very restricted".

33 The Insurer received Dr Heks' Medical Attendant's Statement on 6 January 2010. On 8 January 2010, the Insurer deposited the sum of $3,224.46 into the Insured's account.

34 The basis for this payment appears from the Insurer's internal records relating to the Insured's claim. A notation apparently updated on 8 January 2010 stated the following under the heading "Strategy":

"● Client has been certified TD [Totally Disabled] until 11/01/2010 and pending on further assessment.

● As per senior's comment, client can only support $1327.40 per mth based on the 2009/ITR [income tax return].

● As stated on the file, client's DOL [presumably date of loss] is 6/05/2009 and commencement of benefits is on 5/06/2009.

● Since client was on W/C [workers compensation] payments leading up to the approx. 14/10/2009, suggest the following:

- Admit TD payment for the period 5/11/2009 to 4/01/2010 (2 mths) - 1327.40 x 2 = $2,654.80.

- Admit WoP [Waiver of Premium] Payments for the period 5/06/2009 to 4/01/2010 (7 mths) - $81.38 x 7 mths = $569.66.

- Total amount payable - $2654.80 + $569.66 = $3224.46

...

● Also note that pending [sic] on the information to be rec'ed from W/C, there may also be an adjustment of payment owing from the period from 5/06/2009 to 4/11/2009.

● Further to that, will need to advise client that we have the right to get back amount paid if there are any discrepancies." (Emphasis added.)

The notation records that the assessor had tried to contact the Insured, but was unable to reach him.

35 In a letter dated 22 January 2010, but apparently not received by the Insured until some time later, the Insurer said this:

"We confirm that you have received Workers Compensation from 9/5/2009 to 14/10/2009. We are still waiting on correspondence from Allianz to confirm the date they ceased paying you, the monthly benefit payable and reasons why payment has ceased.

As per the 2009 Income Tax Return, we confirm that you can only support a monthly benefit of $1,327.40.

...

In the meantime, we are aware that you have not been receiving any benefits from Workers Compensation since 14/10/2009. We are pleased to advise that the total amount of $3,224.46 was deposited into your nominated bank account on 8/01/2010.

This amount represents the following:

● Total Disablement Benefit for the period from 5/11/2009 to 4/1/2010 of $2,654.80

● Refund of Premiums for the period from 5/6/2009 to 4/1/2010 of $569.66.

...

To assist with the further assessment of your entitlements, the following information is required:

(a) Please complete the attached Supplementary Report Form (SRF) for the period from 5/01/2010 to 4/03/2010.

(b) Please have your treating doctor complete the attached Medical Attendant's Statement for ... prior to 4/03/2010.

[c] Your Personal Income Tax Returns ... and Business Income Tax Returns ... for the financial year ending 30 June 2008.

Please be advised that we have requested a copy of your Worker's Compensation file from Allianz. We would let you know if anything received is of concern to AIA.

Upon receipt of all the above information, further consideration will be given to the payment of your benefits." (Emphasis added.)

36 On 12 February 2010, the Insurer wrote to Allianz requesting a copy of the Insured's workers compensation claim file and copies of any hospital and medical report notes. The letter enclosed an authority signed by the Insured. The letter also asked why workers compensation payments had ceased.

37 The Insurer sent a further letter to the Insured on 22 February 2010 enclosing a copy the letter of 22 January 2010. In the later letter the Insurer said this:

"It appears that you have not received our letter dated 22 January 2010, in which we explained our payment of $3,224.46 and the evidence required to enable us to continue with the assessment of your claim.

...

Upon receipt of all the required information and of your Workers' Compensation file, further consideration will be given to your claim." (Emphasis added.)

38 Some correspondence ensued in which the Insured expressed his belief that premiums would be waived for the complete benefit period. However, on 10 April 2010, the Insurer advised the Insured that before the Waiver of Premium Benefit was "payable" additional medical evidence, as previously requested, had to be provided. The letter stated that the assessment of the claim could not proceed without the additional information.

39 On 29 April 2010, the Insurer notified the Insured that as the monthly premium due on 23 February 2010 had not been received, the Policy had lapsed.

40 By this stage, the Insured had engaged solicitors. Further correspondence took place in which the solicitors asserted that the Insured had not received documentation sent by the Insurer and the Insurer reiterated that it had not received the information and reports it had requested. Although the Insured completed some forms and returned them to the Insurer, in January 2011 the Insurer's internal records indicated that it had not received documentation that was required for it to give further consideration to the payment of benefits.

41 On 28 January 2011, the Insured filed a statement of claim in the Equity Division of the Supreme Court seeking a variety of orders including damages of $1,119,962.00 for breach of contract. The Insured drafted the pleading himself.

42 The internal records of the Insurer show that, despite the request sent to Allianz in February 2010, the Insurer had still not received the workers compensation file by the time the Insured commenced the proceedings.

43 After some preliminary skirmishing, the Insurer filed a defence on 5 August 2011. The defence pleaded that the Insured had failed to provide information requested by the Insurer and that he had commenced the proceedings "prematurely in circumstances where he was aware of the further information required by the [Insurer] in order to continue with its assessment of the Claim."

44 The case was set down for hearing on 26 September 2012. In written submissions filed on 21 September 2012, the Insurer identified the critical issue as whether the Insured's disability was caused by the combination of the 1996 injuries and the aggravation of these injuries by the 2009 Injury. If so, on the Insurer's case, the Insured's disability was not the result of the 2009 Injury "solely and directly and independently of a pre-existing condition or any other cause" and thus he did not satisfy the Policy definition of "Accidental Injury".

45 During the hearing on 26 September 2012 the parties agreed that the first issue to be determined was whether the Insured's "Total Disablement" was due to "Accidental Injury" within the meaning of the Policy.

46 The hearing did not conclude on 26 September 2012 and was adjourned until 19 November 2012. The Insured filed lengthy written submissions shortly before the adjourned hearing, in which he contended, among many other arguments, that it was not open to the Insurer to rely on the pre-existing injury as it had admitted liability under the Policy.

47 At the commencement of the second day of the hearing, the primary Judge granted the Insurer leave to amend its defence "to remove any ambiguity" (Primary Judgment, at [43]). An amended defence was filed on that day.

48 The effect of the amendments was to plead specifically the relevant terms of the Policy, in particular the definitions of "Total Disablement" and "Accidental Injury". The amended defence does not, however, plead the material facts that are said to have prevented the Insured from satisfying the definition.

49 The parties each filed further written submissions after the second day of the hearing. The Insured's submissions were very lengthy and included claims that the Insurer acted in bad faith.

The Primary Judgment

50 The primary Judge delivered judgment on 3 April 2013.

51 The primary Judge stated (at [5]) that the Insured's entitlement to a Total Disablement Benefit and a Waiver of Premium Benefit turned on whether he could be characterised as "totally disabled" within the meaning of the Policy. The Insured's contention was that he had become totally disabled as a consequence of the injury to his left ankle on 6 May 2009 and that this injury was unconnected with the injuries sustained in 1996, from which he had fully recovered.

52 The primary Judge found (at [12]) that there were two causes of the Insured's admitted disablement. The first of these was the 1996 injury, which had occurred well before the commencement of the Policy. The second was the 2009 Injury.

53 His Honour explained his reasoning as follows:

"13 On 6 May 2009 [the Insured] sprained his ankle; that was one cause. That injury aggravated an earlier (1996) injury - the second cause - arising from a fracture of the same ankle, which had been fixed with metal screws, compromising its strength and leaving the ankle with a degenerative arthritic condition. In 1996 he fractured both his ankles in the one incident. Critically, that incident left his left ankle vulnerable to further injury.

...

16 ... [E]vidence, prepared with the benefit of an MRI scan, establishes that the [Insured] had suffered a chronic tear of the deltoid ligament and an osteochondral lesion of the superior lateral talar dome as a consequence of the 1996 injury. ...

17 That evidence establishes that, when the [Insured] sprained his ankle on 6 May 2009, he aggravated the 1996 injury to that ankle, sparking a degenerative process that resulted in his total disablement otherwise than from an 'Accidental Injury' within the meaning of the policy.

...

21 [The medical report of Dr Lunz, on which the respondent relied, is not] inconsistent with a finding that the [Insured's] injury of 6 May 2009 was but one of two causes of his disablement that, during his convalescence, favouring his left ankle by placing more weight on his right ankle, he experienced pain in his right ankle, buttock and lower back.

...

23 The question remains whether the injury suffered by the [Insured] on 6 May 2009 can be said to have resulted in total disablement 'solely and directly and independently of a pre-existing condition or any other cause' within the policy's definition of 'Accidental Injury'.

24 On the medical evidence, the [Insured's] 1996 injury was a major contributing factor in the deterioration of his left ankle at the time of, and following, the injury he suffered on 6 May 2009, resulting in his inability to perform the duties of his occupation as a carpenter. The 1996 injury does not come within the introductory words of the policy's definition of 'Accidental Injury', which require a 'physical injury ... which occurs while the benefit is in force'.

...

28 In the present case, as appears from use of the expression 'Accidental Injury' in the definition of 'Total Disablement' and in the language of the definition of 'Accidental Injury' itself, the policy was intended to protect the [Insured] against the consequences of accident only; and, moreover, an accident which occurred during the currency of the policy. It was not intended to provide cover against the consequences of a pre-existing condition.

29 It matters not if (as the [Insured] contends, and I find) the [Insurer] had knowledge, or the means of acquiring knowledge, that he had a pre-existing condition before the policy was issued. The policy did not, in terms, respond to an event constituting an aggravation of a pre-existing condition. It excluded from cover any injury with a causal connection to an injury suffered before its commencement.

30 The disablement of the [Insured] which underlies his claim for relief in these proceedings falls within this category. The injury suffered by him on 6 May 2009 was causally connected (and substantially so) with the injury he suffered in 1996. Accordingly, it was not an 'Accidental Injury' within the meaning of the policy."

54 Although this finding was enough to dispose of the proceedings, the primary Judge dealt with a number of other issues. He recounted the procedural history of the case, leading up to the filing of the amended defence by the Insurer. His Honour concluded (at [43]) that the Insurer's reliance on the existence of a pre-existing injury as a ground for denial of liability "was squarely within the questions for determination, and fairly litigated".

55 The primary Judge noted (at [44]) that the Insured in his submissions had attributed bad faith to the Insurer. According to his Honour (at [45]), these allegations took their colour from the Insured's expectation of immediate and unconditional acceptance of his claim. The evidence, however, did not support any finding of bad faith.

56 The primary Judge then rejected (at [48]) the Insured's claim to a Waiver of Premium Benefit. If the Insured was not "totally disabled", he was not entitled to the Benefit under cl 6.1.3 and the Policy automatically lapsed by the operation of cl 3.5.2.

57 His Honour also rejected a separate argument by the Insurer that the Insured was disentitled from the Waiver of Premium Benefit because he had failed to comply with the requirement in cl 3.18 of the Policy that he provide evidence in support of his claim. The requirement for an Insured to furnish evidence requested by the Insurer did not impose an obligation inter-dependent with the Insurer's obligation under cl 6.1.3 to waive premiums in the event of the Insured becoming totally disabled for longer than the waiting period (at [56]).

58 The primary Judge next dealt with the Insured's contention that the Insurer had admitted liability. The most powerful evidence of such an admission was that the Insurer deposited $3,224.46 into the Insured's account on 8 January 2010, although the Insured had also relied on other matters (at [59]-[60]). His Honour rejected the Insured's contention for the following reasons:

"62 Had the [Insurer] had, at the time it made its deposit to the [Insured's] bank account, the knowledge of the [Insured's] medical condition revealed in the radiologist's report of 8 July 2009 and medical reports bearing dates between that date and 30 December 2009, an inference that the [Insurer] had made an informed decision to accept liability in January 2010 might have been more readily available.

63 However, as the correspondence between the parties demonstrates, at the time the [Insurer] deposited money into the [Insured's] bank account and for some time thereafter, it did not have a copy of the file of the [Insured's] Worker's Compensation insurer (that would have revealed the medical reports of 2009) and it reserved its rights pending completion of ongoing investigation of the plaintiff's claim. The fact of that reservation of rights can be seen in letters addressed by the [Insurer] to the [Insured] respectively dated 25 November 2009, 22 January 2010 and 22 February 2010.

64 At or about the time the [Insurer] made its payment to the [Insured] it received a 'Medical Attendance Statement' dated 23 December 2009, signed by the plaintiff's General Practitioner, which referred to the [Insured's] 1996 injuries but suggested that he 'had fully recovered' from them. That statement was evidently not received in the [Insurer's] Claims Department until 6 January 2010, although it may have been despatched to the [Insurer] on 4 January 2010. In any event, the [Insurer] made plain to the [Insured] in its letter dated 25 November 2009 that it could not accept his claim until it had received the file of his worker's compensation insurer and, according to the [Insurer's] standard procedure, verified his medical history.

65 That process of verification continued throughout the early months of 2010, at least.

...

71 All in all, contrary to the [Insured's] contentions, the evidence does not permit a finding of fact that the [Insurer] had admitted liability under the policy. In defending the [Insured's] claim in these proceedings it has not been required to resile from any admission or any acceptance of the [Insured's] claim."

Insured's Submissions

59 The Insured's notice of appeal included 21 grounds of appeal. As the Insurer's submissions point out, several of these grounds are in the nature of conclusions and do not identify errors in the reasoning of the primary Judge.

60 The Insured's written submissions in chief essentially rely on two arguments. The first is that the primary Judge erred in finding that the Insured's total disablement resulted otherwise from an "Accidental Injury" within the meaning of the Policy. In particular, so it is argued, his Honour incorrectly found that the 2009 Injury did not result in the Insured's Total Disablement "solely and directly and independently of a pre-existing condition or any other cause" for the purposes of the definition of "Accidental Injury".

61 The Insured emphasises that the 1996 injury affected the medial malleolus of his left ankle, while the 2009 Injury affected the talus, a separate bone in the left ankle. He acknowledges that at the date of the later injury, two screws remained inserted in the medial malleolus. However, he relies on medical evidence indicating that he had fully recovered from the 1996 injury and that he was able to perform heavy lifting and other work as a builder, building supervisor and carpenter until the date of the second injury. On this basis, the 2009 Injury was an Accidental Injury that had resulted in his Total Disablement (within the meaning of the Policy).

62 The Insured's second submission is that the Insurer, by making the payment on 8 January 2010, after it had knowledge of the 1996 injury, accepted that his claim was within the Policy. He contends that this submission is supported by the Insured's internal records, which showed that his claim had been accepted. Understandably, in view of the fact that he was unrepresented, the Insured did not identify the legal significance of the "admissions" he attributed to the Insurer.

63 The Insured's written submissions in chief also suggest that the primary Judge misapprehended the case he was presenting and, in particular, failed to appreciate that it was a "breach of contract" case. In his submissions in reply the Insured adds a complaint that the Insurer was belatedly allowed to amend its defence and thus the Insured was denied the opportunity to put his case.

Reasoning

Authorities

64 The approach to the construction of an insurance policy of the kind involved in the present case was stated by the High Court in Australian Casualty Co Ltd v Federico [1986] HCA 32; 160 CLR 513 at 525, per Wilson, Deane and Dawson JJ:

"The policy is a standard document used by [the insurer] in the course of its insurance business. It is apparently offered in different States of the Commonwealth to ordinary working people ... who are unlikely to have the advantage of the advice of a commercial lawyer when they purchase from an insurance company protection against the contingency of sustaining disability from earning as a result of injury or sickness. It contains nothing which would be likely to suggest to those to whom it is proffered that its terms are to be construed in any special technical sense or as conveying other than what they convey as a matter of ordinary language read in the context of the whole policy. That being so, the starting point of a consideration of whether [the insured's] central disc prolapse and its consequences were an "injury" for the purposes of the policy must be a consideration of what the words of the policy convey, as a matter of contemporary language read in the context of the whole policy, to a reasonable non-expert in this country. If that meaning is plain, it can be of but limited significance if, at other times and in other places, other courts, however eminent, have held that similar words in other policies were to be construed as having had some different meaning."

65 The primary Judge considered (at [27]) that little assistance was to be derived from decided cases on provisions similar to those contained in the Policy, since each contract of insurance "must be construed according to its own terms and having regard to its own factual context and purpose." His Honour did refer to two authorities cited by the Insurer: Giles v National Mutual Life Association of Australasia Ltd (1986) 4 ANZ Ins Cas 60-751 (Supreme Court of Western Australia, Pidgeon J) and the dissenting judgment of Kirby P in American Home Assurance v Saunders (1987) 11 NSWLR 363 at 369-372. However, his Honour thought that these two authorities illustrated the proposition that each case must depend on its own facts.

66 This proposition is undoubtedly correct. It is also true that neither of the authorities cited is of great assistance in the present case. Giles involved very similar wording in a contract of insurance, but the decision turned on the fact that the plaintiff had quite a severe degenerative condition in his spine. The injury which the plaintiff (a chiropractor) sustained while manipulating a patient was characterised (at 74,532) as resulting in a relatively minor aggravation of his pre-existing condition. The aggravation was neither the direct nor sole cause of the condition that was developing and subsequently did develop. Kirby P's observations in American Home Assurance v Saunders do not bear directly on the present case.

67 While the cases cited by the primary Judge are not particularly relevant to the present case, it is helpful to refer to authorities dealing with similarly worded policies, as did the High Court in Federico, at 529-530 (acknowledging assistance from "helpful and instructive discussions" in other cases about the particular policy requirement). That is so notwithstanding that the authorities acknowledge that it can be very difficult to determine questions of causation in the context of wording such as that in the Policy.

68 In Fidelity and Casualty Company of New York v Mitchell [1917] AC 592 (Mitchell), a policy covered an insured against bodily injury sustained through accidental means and resulting "directly, independently and exclusively of all other causes" in total disablement. The insured, a medical specialist, severely sprained his wrist. In the ordinary course, the sprain would have healed in about six months. About ten years before the accident, the insured had experienced a "tubercular affection " in one lung. This resulted in a lesion which had completely healed and would have remained harmless but for the accident. However, on the evidence accepted at trial, the presence of tuberculosis in some form within the plaintiff's system prevented the sprain from healing and resulted in the plaintiff's total disablement.

69 The Privy Council described (at 596) the question of construction as difficult. The reasoning was brief (at 597) and is not easy to follow other than as a statement of the conclusion:

"Prior to the accident there was only a potestative tuberculous tendency; after it, and owing to it, there was a tuberculous condition. In other words, the accident had a double effect - it sprained the tendons and it induced the tuberculous condition. These two things acted together, and were the reason of the continuing disability; but while they are both ingredients of the disabled condition, there has been and is, on the true construction of the policy, only one cause, namely, the accident."

(The word "potestative" is not defined in the Macquarie Dictionary, but means having power or authority: Oxford English Dictionary Online (May 2014, Oxford University Press).

70 A case similar to Mitchell, but more closely reasoned is Silverstein v Metropolitan Life Ins Co (1930) 171 NE 914 (Court of Appeals, NY) (Silverstein). The policy covered the results of bodily injuries "caused directly and independently of all other causes by accidental means". The insured suffered abdominal injuries while lifting a milk can. A surgeon, on opening the insured's abdomen, found a perforation through which the contents of the insured's stomach escaped, leading to peritonitis and death. A duodenal ulcer about the size of a pea was located at the point of the perforation. But for the accident, the ulcer would have had no effect, since it was dormant and not progressive. Even so the ulcer weakened the wall so that the impact of the blow on the abdomen was followed by perforation at the point of least resistance.

71 Cardozo CJ held (at 914-915) that the ulcer was not a disease or infirmity within the meaning of the policy (disability caused by disease or infirmity was excluded from coverage). The ulcer was harmless in itself and incapable of causing harm except through a catastrophic cause not commonly to be expected. Thus it was not a disease or infirmity "in the common speech of men." At most, it created a "predisposing tendency" to infirmity. Cardozo CJ approved the following statement of principle:

"If there is no active disease, but merely a frail general condition, so that powers of resistance are easily overcome, or merely a tendency to disease which is started up and made operative, whereby death results, then there may be recovery even though the accident would not have caused that effect upon a healthy person in a normal state."

He went on to say that:

"Any different construction would reduce the policy and its coverage to contradiction and absurdity. The infinite interplay of causes makes it impossible to segregate any single cause as operative at any time and place to the exclusion of all others, if cause is to be viewed as a concept of science or philosophy.

The courts have set their faces against a view so doctrinaire, an estimate of intention so headed toward futility. 'We are to follow the chain of causation so far, and so far only, as the parties meant that we should follow it. "The causes within their contemplation are the only causes that concern us."'" (Citations omitted.)

72 The decision in Mitchell was applied by Kaye J in Lipertis v Australian Casualty Company Pty Ltd [1983] 2 VR 280 (Lipertis). A policy indemnified the insured against disability sustained by "injury", which was defined to mean injury caused by an accident "resulting directly and independently of all other causes in loss covered by this Policy." The insured suffered a soft tissue injury to his thoracic spine at work. The insured subsequently developed a "decompensatory reaction" which produced a disabling psychiatric condition. The psychiatric condition, on the evidence, was causally related to the accident. The insurer argued that both the accident and the insured's personality were causes of the disability. Thus the accidental injury did not result, directly and independently of all other causes, in the insured's disability.

73 Kaye J considered that the decision in Mitchell turned on the "simple commonsense test" of causation, citing for this proposition Wayne Tank and Pump Company Ltd v Employers' Liability Assurance Corporation Ltd [1974] 1 QB 57 at 68 (Cairns LJ). Kaye J applied Mitchell to the facts of the case before him (at 285-286):

"In Mitchell's Case, the insured suffered a sprain to his wrist, which activated a pre-existing yet dormant tubercular condition whereas, in the present case, the plaintiff suffered a soft tissue injury to the area of his thoracic spine and a decompensation reaction. Under the common sense test, the question - although not expressed by his Lordship - which was required to be answered in Mitchell's Case was: what caused the insured['s] wrist to become tubercular? The answer was the accident and no other cause. Applying the same test in the present case, the question must be: what caused the plaintiff's injuries? The answer, in my judgment, must be the accident because, if it had not been for the accident, the plaintiff would not have suffered both the physical injuries and the associated psychiatric disorder. The plaintiff was possessed of a particular type of personality which was susceptible to a decompensation reaction. It was the accident alone which caused the plaintiff to react to his physical injuries in a manner which disabled him from pursuing his normal lifestyle and means of livelihood.

To come within the risk covered by the policy, the plaintiff was required to prove that his injuries were caused directly by the accident, and independently of all other causes. In Mitchell's Case it was accepted that the activation of a latent disorder nurtured by the insured was caused by injury resulting directly from his fall and independently of all other causes. In my opinion there is no justification in this connection for distinguishing between the activation of an established yet dormant disease and vulnerability to a psychiatric disorder. Moreover, the present case, unlike the Wayne Tank Case, does not necessitate a selection to be made between two causes of the plaintiff's physical and psychiatric injuries; both, in my opinion, were caused solely by the accident."

74 Mitchell was distinguished in the well-known case of Jason v Batten (1930) Ltd [1969] 1 Lloyd's Rep 281 (Batten). In Batten, the policy covered bodily injury resulting in and being, independently of all other causes, the exclusive direct and immediate cause of the insured's disablement. The insured suffered minor injuries in a motor vehicle accident. Six days later he suffered a coronary thrombosis. Fisher J found (at 290) that there were two concurrent causes of the disablement. One was the insured's pre-existing arterial disease, which would have produced a coronary thrombosis within three years even without the accident. The second cause was the formation of a blood clot as a result of the accident. The arterial disease and the clotting were "simultaneously present together, each a necessary condition of the thrombosis" (at 291). It therefore could not be said that the bodily injury sustained in the accident was the exclusive cause, independently of all other causes, of the continuing disability.

75 Fisher J distinguished Mitchell (at 290):

"In that case there was an undoubted bodily injury, the sprained wrist, and quite independently of the tuberculosis there were disabling consequences. The tuberculous condition was a second consequence of the accident. There was no previous tuberculous condition which combined with the accident to produce disabling consequences. There was only what Lord Dunedin called a potestative tendency. Here, in the present case, there was actual arterial disease, albeit unknown, without which the clotting alone would not have caused the thrombosis or any disability." (Emphasis added.)

76 His Lordship approved observations made in Penn v Standard Life Insurance Company (1912) 76 SE 262 at 268:

"If the accident causes the disease which, together with the accident, results in the death or injury, the accident is alone the cause. If at the time of the accident the insured was suffering from disease, but the disease had no causal connection with the injury or death, the accident is the sole cause. When at the time of the accident there was an existing disease which co-operating with the accident resulted in injury or death, the accident is not the sole or independent cause."

77 Batten was itself distinguished in Wells v Australian Aviation Underwriting Pool Pty Ltd [2003] QSC 226. The policy in that case provided coverage where bodily injury was caused by an accident and "solely and independently of any other cause ... occasions the ... disablement of the Insured Person". The insured suffered concussion in a motor vehicle accident and claimed to be disabled as a result of post-concussional syndrome, the symptoms of which included a variety of psychological conditions. One of the insurer's arguments was that the insured's pre-existing anxiety condition predisposed him to suffer psychological consequences from the concussion. The insurer cited Batten in support of this contention, but McMurdo J held (at [7]) that that decision was actually inconsistent with the insurer's submissions. Her Honour distinguished Batten on the ground that a pre-existing disposition, not of itself an illness, is not to be characterised as a cause of the disablement.

The Approach to this Case

78 Each individual policy must be construed on the basis of its own wording, in accordance with the principles stated in Australian Casualty Co Ltd v Federico (see at [64] above). The policy conditions so construed must be applied to the individual circumstances of each case. As I have explained, care must be taken in applying earlier decisions; bright lines are not always discernible.

79 As I have noted, the Policy required the Insured to show that he had sustained a physical injury which resulted:

"solely and directly and independently of a pre-existing condition or any other cause in Total ... Disablement."

The wording of each of the policies in the cases to which I have referred was similar, but not identical to the provisions of the Policy. Nonetheless, the authorities indicate that the language used in the Policy does not necessarily preclude a claim by the insured simply because he had a pre-existing condition that can be said to have contributed in some way to the disability. As Cardozo CJ observed in Silverstein, the infinite interplay of causes makes it impossible to segregate any single cause as operative to the exclusion of all others. Accordingly, judgments will have to be made as to the meaning conveyed by the words of the Policy in the circumstances of each case.

80 Even so, the authorities suggest that in determining whether an injury results solely, directly and independently of any pre-existing condition in total disability, a distinction should be drawn between two situations. The first is where a dormant or inactive condition creates a propensity in the insured to suffer disabling consequences from what otherwise might be a relatively minor injury. The second is where a significant medical or physical condition is aggravated by the injury or combines with the injury so as to result in disability. In the first case, exemplified by Mitchell and Silverstein, the accidental injury will ordinarily be regarded as the sole, direct and independent cause of the disability. In the second case, exemplified by Batten, a court is likely to conclude that the accidental injury is one of two concurrent causes and is therefore not the sole, direct and independent cause of the disability.

81 Without attempting an exhaustive classification, there is a third kind of case which was the subject of discussion in oral argument. An insured might suffer an accidental physical injury which is sufficient in itself to cause permanent disablement. The accident might also aggravate or activate a pre-existing condition which, independently of the direct consequences of the physical injury, is also sufficient in itself to cause total disablement. An example is an accident in which the insured suffers a serious hand injury and also a back injury which aggravates an existing chronic back condition. Let it be assumed that each of the hand injury and the aggravated back condition is sufficient to prevent the insured working at his or her usual occupation and thus renders the insured totally disabled. In this situation, the better view is that the injury to the hand results solely and directly in total disablement and does so independently of the aggravation of the pre-existing back condition.

Was the Policy Satisfied?

82 One of the evidentiary difficulties confronting the Insured at the trial was that the medical reports, other than those prepared by treating doctors in the ordinary course of their practice and Dr Heks' Medical Attendant's Statement, appear to have been directed to whether the Insured was entitled to workers compensation in respect of his disability in 2009. The issues presented by the Insured's workers compensation claim were quite different to those presented by his claim to a Total Disablement Benefit under the Policy. For example, subject to statutory requirements, the Insured was entitled to workers compensation if the 2009 Injury aggravated a pre-existing condition and led to his disablement, regardless of whether the 2009 Injury was the sole cause of his disability. The medical practitioners who prepared reports for the workers compensation insurer were not asked to consider the latter question.

83 On the basis of the medical evidence, the critical findings made by the primary Judge were the following:

● the 1996 injury was one of the causes of the Insured's total disablement (at [12]);

● the 2009 Injury aggravated the earlier injury to the left ankle, compromising the strength of the left ankle and leaving it with a degenerative condition (at [13]);

● the 1996 injury rendered the left ankle vulnerable to further injury (at [13]);

● when the Insured severely sprained his ankle in 2009, he aggravated the 1996 injury, sparking a degenerative process that resulted in his total disablement (at [17]); and

● the Insured's 1996 injury was a major contributing factor in the deterioration of his left ankle at the time of and following the 2009 Injury, resulting in his inability to work as a carpenter (at [24]).

The primary Judge did not make a finding as to whether the physical injuries sustained by the Insured in 2009, independently of any aggravation of the 1996 injuries, would have resulted in his disablement.

84 In substance, the Insured challenges the findings that the 1996 injury was a major contributing factor in the deterioration of the left ankle at the time of the 2009 Injury and subsequently. In oral argument he characterised the injuries as "completely separate", and the 1996 injury as "dormant" until the time of 2009 Injury. He also appears to submit that the 2009 Injury, being to a different part of the ankle, was the sole cause of his inability to perform duties as a carpenter.

85 The medical evidence shows that the Insured suffered a serious injury to both ankles in 1996. While he had recovered from that injury in the sense that he had returned to full time work, the injury had continuing physical consequences. The report of an X-ray conducted on 7 July 2009, shortly after his accident, stated about the left ankle:

"Old injury of the medial ankle is seen with internal fixation by screws. Chronic tear of deltoid ligament is seen. This is also associated with an old osteochondral lesion of the superior lateral talar dome."

An X-ray on 19 July 2010 revealed degenerative changes in that ankle.

86 Dr Lose, a practitioner in occupational medicine, noted that there was no evidence of "hardware complications" with the internal fixation of the ankles, but that there was early degenerative arthritis of the medial aspect of the left ankle, with early marginal osteophytes. There was also an un-united old fracture involving the tip of the medial malleolus. His diagnosis was:

"Mild ankle sprain - aggravation of pre-existing compromised left ankle joint, degenerative medial ankle joint arthritis."

87 Dr Mastroianni, a consultant occupational physician placed greater importance on the 2009 Injury as a contributing factor to the Insured's disability than did Dr Lose. Nonetheless, Dr Mastroianni stated in his reports of 21 July 2009 and 30 December 2009 that the Insured had aggravated a pre-existing ligament tear and caused a new bone contusion. He described the Insured as having an "irritable ankle".

88 It was not only the Insured's pre-existing injury to his left ankle that was aggravated by the 2009 Injury. Both Dr Lunz and Dr Heks referred to difficulties the Insured was experiencing with his right ankle following the 2009 Injury. Dr Heks in her Medical Attendant's Statement of 23 December 2009 said that the Insured had aggravated his right ankle injury and was experiencing significant walking difficulty. Dr Lunz said in his 21 December 2010 report that as a result of the injury to his left ankle he was forced to carry the bulk of his weight on his right leg and this could have aggravated the underlying subtalar joint arthritis present due to his previous calcaneal fracture.

89 None of the medical experts suggested that the Insured's inability to work after the 2009 Injury was unconnected with his pre-existing condition, although they varied in the significance they attributed to the earlier injuries. Dr Lose, who saw the Insured on at least three occasions shortly after the 2009 Injury, expressed the view in a report of 9 July 2009 to the workers compensation insurer:

"it is improbable that any significant injury was sustained to [the Insured's] left ankle or foot from the work incident ... More probably, the work incident contributed only as an exacerbation/aggravation to an ankle joint previously compromised by fracture, surgery and subsequent arthritis."

90 In his report of 30 December 2009, Dr Mastroianni disagreed with Dr Lose's view that the Insured's disability was wholly due to the aggravation of the 1996 injury. However, he adhered to the diagnosis he had given in July 2009, namely that the Insured had aggravated a pre-existing ligament tear and had experienced a new talus bone contusion.

91 Dr Patrick, a surgeon, stated in a report of 3 August 2010, that the Insured had sustained a "significant further injury" to his left ankle on 6 May 2009. This had occurred:

"on a background of prior significant injury to both ankles/hind feet, right worse than the left in the past...

Unfortunately the significant injury sustained on 6 May 2009 has resulted in considerable deterioration and decompensation of his overall condition with difficulties recovering from this further significant injury to left lower extremity, not made any easier because of the pre-existing difficulties with the right (other) leg."

Dr Patrick opined that the Insured's work had "been a substantial contributing factor to his injuries sustained at work on 6 May 2009." He did not address whether the 2009 Injury was the sole and independent cause of the Insured's disability, but the clear inference from his report is that it was not.

92 The most favourable medical opinion, from the Insured's perspective, was that of Dr Lunz, a foot and ankle surgeon. In an early report Dr Lunz had been hopeful that the Insured would return to work within two months of the 2009 Injury. On 6 August 2009, Dr Lunz said that the Insured's current presentation "is more related to the incident at work on [6 May 2009] than to his previous ankle/foot injury". In subsequent reports Dr Lunz noted the Insured's slow progress.

93 In a report of 21 December 2010, Dr Lunz responded to a request by Allianz to comment on the opinion of Dr Mastroianni that the 2009 injury had aggravated a pre-existing condition:

"[The Insured] had a previous injury to his left ankle namely a fracture that was treated with internal fixation. He recovered from this injury and was functioning normally. He then re-injured his ankle on the 6th of May 2009. I certainly accept that there has been an injury to this ankle in the past, however he fully recovered from that injury and returned to normal duties. He then re-injured the ankle sustaining a different injury to the same joint. I feel that the bulk of his symptoms are due to the new injury with only a small component likely to be due to an aggravation of a pre-existing injury."

94 Dr Lunz put the matter somewhat differently in the next paragraph of his report. He said that the Insured had not recovered from the 2009 Injury and that:

"this has been aggravated by the development of a chronic regional pain syndrome which has slowed his recovery. I am not convinced that the aggravation of a pre-existing condition is the major cause of his current symptoms." (Emphasis added.)

Dr Lunz's report did not identify the precise extent to which the aggravation of the pre-existing condition contributed to the Insured's inability to work, but he clearly considered that it played some role.

95 The following conclusions can be drawn from the evidence before the primary Judge:

● in 1996, the Insured sustained severe injuries to both ankles, requiring surgical intervention;

● in time, the Insured recovered sufficiently from these injuries to resume full time work, but the 1996 injuries to both ankles had continuing and observable physical consequences;

● apart from the surgical screws, these consequences included a ligament tear in the left ankle and developing arthritis in that ankle;

● on 6 May 2009 he injured his left ankle, sustaining the injuries described by Dr Lunz (at [26] above);

● the Insured's pre-existing condition materially contributed to his disability in May 2009 and thereafter, in that the 2009 Injury aggravated the physical consequences of that accident in both the left and right ankles; and

● while the pre-existing condition is unlikely to have resulted in permanent disablement had the 2009 Injury not occurred, there is no evidence that the 2009 Injury, independently of the aggravation of the pre-existing condition, would have rendered the Insured totally disabled for the purposes of the Policy.

96 The effect of these findings is that there were two concurrent causes of the Insured's disability, namely the aggravation of his pre-existing condition and the new injuries sustained in the 2009 Injury. It follows that the Insured's challenge to the factual findings made by the primary Judge does not succeed.

97 If it is necessary to distinguish cases such as Mitchell and Lipertis, the distinction lies in the fact that the Insured in the present case had a pre-existing physical condition that was susceptible to aggravation, and the aggravation contributed to his total disablement. This is not a case of an inherent propensity, whether by reason of personality or a benign and symptomless minor condition, to the adverse consequences of an accident unrelated to the aggravation of a pre-existing physical condition.

98 For these reasons, subject to the Insured's argument that the Insurer admitted liability, his Honour was correct to conclude that the Insured was not entitled to claim a Total Disability Benefit under the Policy. While this may seem a harsh result, there has been no allegation by the Insured that he was misled when taking out the Policy. The wording of that Policy, like many similar policies, is very restrictive. When the wording is read as a matter of contemporary language in the context of the document as a whole, from the perspective of a reasonable non-expert, it does not cover the disability experienced by the Insured following the 2009 Injury.

Was there an Admission?

99 The Insured's second argument can be dealt with more briefly. Not surprisingly, given that he was unrepresented, the Insured did not explain the legal significance of the Insurer's actions in paying the sum of $3,224.46 into his account on 8 January 2010 and sending the letter of 22 January 2010 (which he apparently did not receive until later). The Insured simply asserted that these actions constituted acceptance of his claim.

100 An unequivocal statement by the Insurer that it accepted that the Insured's claim was covered by the Policy might well have legal consequences. If, for example, the Insured relied on the statement to his detriment, the doctrine of promissory estoppel would be attracted. If the Policy provided for a procedure whereby the Insurer would consider and determine claims, a formal acceptance might have contractual consequences. In some circumstances, an unequivocal acceptance of a claim might involve a variation of the contract of insurance. The Insured did not rely on those principles and, importantly, there appears to be no basis for their application to the present case. For example, there was no evidence of detrimental reliance by the Insured on any express or implied representation by the Insurer and his Honour made no finding to that effect.

101 Some other doctrines that might conceivably be attracted by an unequivocal acceptance of the Insured's claims were analysed in the joint judgment of three members of the High Court in Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 (Gummow, Hayne and Kiefel JJ). These include election, forbearance and renunciation, although there might be difficulties in applying any of these principles even in a case where an insurer unequivocally accepts a claim. The principle of waiver might also be invoked. In Gardiner, the High Court made it clear that the term "waiver" has frequently been used loosely and that great care must be used in relying on the principle. Nevertheless, the joint judgment left open the application of waiver in the manner contemplated by Toohey and Gaudron JJ in Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394 at 472-473, 484-485, at least in the context of adversarial litigation: see Gardiner at [60]-[62] (Gummow, Hayne and Kiefel JJ, with whom Heydon J agreed). It is not necessary to pursue the possible application of waiver or the other principles since the evidence does not establish that the Insurer accepted or communicated the acceptance of the Insured's claims.

102 The Insurer's letter of 25 November 2009 indicated that the Insurer had completed its initial assessment, but required further information before accepting the claim. That letter also advised that the Insurer would be contacting the workers compensation insurer to obtain further information and that it was standard procedure to verify medical history on all claims lodged. The Insurer's internal records, although not accessible to the Insured at the time, show that at the time of the payment on 8 January 2010 the client had been certified Totally Disabled pending further assessment. The records also show that information was awaited from the workers compensation insurer and that this information might result in the Insurer reclaiming benefits in the event of "discrepancies". The letter of 22 January 2010 makes it clear that the Insurer was still waiting on correspondence from the workers compensation insurer and that there might be matters of concern to it when that information was received. The letter also stated that upon receipt of the information requested, further consideration would be given to the payment of benefits. That point was reiterated in the letter of 22 February 2010.

103 The prolonged delay in finalising the claim came about, in part, because the Insurer did not receive the information requested from the workers compensation insurer. It appears that the insurer was slow in following up the request and that it was not until the Insured instituted proceedings that the file was finally supplied. The file contained the medical reports that ultimately provided the basis for the Insurer's rejection of the claim.

104 In these circumstances, payment made by the Insurer on 8 January 2010 cannot be regarded as an acceptance of the Insured's claim. This is so notwithstanding that two days before the payment, the Insurer received Dr Heks' Medical Attendant's Statement. The Statement confirmed what the Insurer had already known, namely that the Insured had sustained injuries to his ankles in 1996 but did not express a clear view as to whether the 2009 injuries satisfied the definition in the Policy. In any event, the Insurer reserved its position. In all of the correspondence, the Insurer's position was that final determination of the Insured's entitlement to benefits would depend upon receipt of additional information, including the file from the workers compensation insurer.

Conduct of the Case

105 As often happens with unrepresented litigants, the primary Judge had to deal with submissions that raised several issues, many of which were not pleaded and not the subject of evidence or were otherwise irrelevant. His Honour went to considerable pains to ensure that the issues raised by the Insured were properly identified and that he had every opportunity to address them.

106 The Insurer did not plead it in its original defence material facts supporting the argument on which it ultimately succeeded. It is not clear whether the failure to do so was due to the delay in obtaining the workers compensation file or to other reasons. In any event, the critical issues were identified before the first day of the hearing on 26 September 2012. Between that date and the adjourned hearing held on 19 November 2012, the Insured filed further submissions. At the adjourned hearing, the primary Judge granted leave to the Insurer to amend its defence. The Insured was then permitted to file additional written submissions.

107 The Insured was given ample opportunity to address the significant issues arising out of his claim. It is true (although the Insured did not rely on this point) that the amended defence is deficient in that it did not plead the material facts supporting the contention that the Policy did not respond to the Insured's disability. But this deficiency does not alter the fact that the significant issues were clearly identified in the proceedings and the Insured made submissions on these issues.

108 The Insured's insistence that his case rested on breach of contract was never disputed, in the sense that the principal issue in the proceedings was whether the Insurer was entitled to regard the Insured's claim as not within the terms of the Policy. The Insured's complaint on that score may reflect a misapprehension on his part as to legal characterisation of the issues in dispute between the parties.

Other Complaints

109 The Insured makes other complaints, for example that the primary Judge gave insufficient reasons and that his Honour did not refer to authorities cited by the Insured. There is no substance to these complaints.

110 The Insured also sought to tender additional evidence in the appeal. The evidence was apparently intended to demonstrate that the medial malleolus and talus are different bones in the ankle. There was, however, never any dispute that this is so. That fact does not militate against the findings made by the primary Judge and upheld on the appeal. Other documents included in the tender were irrelevant to the issues arising in the appeal. The tender must be rejected.

Orders

111 The appeal must be dismissed. The Insured must pay the Insurer's costs.

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Decision last updated: 30 May 2014