What’s your definition of ‘total and permanent disablement’ (TPD)? In particular, does the definition in your trust deed or insurance policy use the word ‘unlikely’ or ‘unable’, when describing a disabled member’s chances of working again?
Many trust deeds and policies contain definitions of TPD that use expressions along the lines of “…unable ever to engage in or work for reward in any occupation or work which he or she is reasonably capable of performing by reason of education, training or experience”. Others use formulations such as “…unlikely he will ever be able to engage in any regular remunerative work for which he is reasonably fitted by education, training or experience”. Is there a difference between these two words and, if so, is it important? The answers are ‘yes’ and ‘yes’.
Clearly the two words mean different things. ‘Unlikely’, in this context, means that it is improbable that the person will work again, but not impossible. ‘Unable’ means just that: as presently advised, the person is incapable of following his or her usual or any other occupation.
The significance of the difference in meaning lies in the fact that the courts have made clear in some recent decisions that a definition using the word ‘unable’ sets a more difficult threshold than one using the word ‘unlikely’.
To put it another way, a disabled member applying for TPD benefits will have a much easier task proving he or she is within the definition if that definition requires the member to be ‘unlikely’ ever to work again than if it requires him or her to be ‘unable’ to work again.
As was noted during in the Ivkovic case in 1994, “…even if the evidence were to leave open a possibility that in the future [a claimant] might be able to do so, if it is nonetheless established that he or she was unlikely to be so able, that would be sufficient to make out the claim”. The Ivkovic decision was relied on in two recent Federal Court cases, Constantinides v Du Pont Superannuation Fund and Davis v Rio Tinto Staff Superannuation Fund.
In Davis, the insurance policy definition of TPD used the word ‘unlikely’. The Superannuation Complaints Tribunal decided on the medical evidence that the member had a capacity to work in a position he was “reasonably qualified by education, training or experience” to perform and that the decision of the trustee and insurer was fair and reasonable in the circumstances. On appeal, the Federal Court upheld the tribunal’s decision, and expressly approved the Ivkovic view of the meanings of ‘unable’ and ‘unlikely’.
In Constantinides, there was a complication: the definition of TPD in the insurance policy used the word ‘unable’, while the amended trust deed referred to the policy, but went on to set out its own definition of TPD, using the word ‘unlikely’. The court decided, however, that the definition in the policy was the relevant one.
The member had argued that the two words meant essentially the same thing: the definition, in substance, determined the ability or capacity of the member to work and the test constructed by each word was the same. The word ‘unable’ could not mean ‘utterly unable’ because if it did, it would so restrict the numbers of people who were eligible for benefits as to make a nonsense of it. The court rejected this argument, relying on the decision in Davis, and the 1994 decision.
The tribunal had decided that the definition of TPD under the insurance policy required an ‘inability’ to ever engage in work, which the member is reasonably capable of performing by reason of his education, training or experience. In view of this requirement, and the medical evidence, the tribunal decided that it was fair and reasonable in the circumstances for the trustee and the insurer to decline the TPD claim. On appeal, the court upheld the tribunal’s decision.
The tribunal’s proper function
In Constantinides, the court engaged, yet again, in a discussion of the extent and nature of the tribunal’s power of review. The tribunal, it seems, has sometimes misunderstood its proper function, and has had to be corrected by the court. As an earlier Federal Court judgment put it: “The tribunal’s task is not to engage in ascertaining generally the rights of the parties, nor is it to engage in some form of judicial review of the decision of the trustee or insurer. Rather it is to form a view, from the perspective of the trustee or insurer, as to whether the decision of either was (recognising the overriding framework given by the governing rules and policy terms, respectively) unfair or unreasonable.”
In Constantinides (and in Davis, as noted above), the tribunal got it right.
But in another recent case, Alcoa of Australia Retirement Plan Pty Ltd v Thompson, the court held that the tribunal had erred when it limited itself to an extensive review of medical evidence, formed its own view on that evidence and based its decision on that view. The tribunal, in that case, did not ask itself whether the decisions complained of were fair or reasonable in the circumstances, but whether in its opinion the respondent was totally and permanently disabled. The matter had to be sent back to the tribunal to try again.
— Brian Egan is a freelance commentator on superannuation, tax and corporations law matters, and a principal of Sirius Information Services.
