Welcome to the May edition of our Financial Services Bulletin.

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1 Welcome to the May edition of our Financial Services Bulletin. This is a busy edition with lots of industry news, some important case law developments and our usual selection of FOS and SCT determinations and Top Tips. We hope you enjoy it and find it useful. Commencing in June 2015 TurksLegal will begin its exciting new Life Matters seminar series in Melbourne and Sydney designed to give our clients a more in depth opportunity to explore recent developments in life insurance and financial services with TurksLegal experts. Click here for the program and to express your interest in attending. INDUSTRY NEWS Trowbridge Report release The Final Report of John Trowbridge, the independent Chairman of the Life Insurance Advice Working Group, was released at the FSC Life Insurance Conference on 26 March 2015, read more ASIC to issue remediation guidelines for financial planning licensees On 6 May 2015, ASIC issued a media release stating that they intend to develop a new regulatory guide on review and remediation programs for Australian financial services licensees providing personal financial advice, read more Deciphering claims On 26 March, the Financial Services Council (FSC) Life insurance conference featured a number of interesting and newsworthy sessions (see related article on the Trowbridge report in this bulletin), none more so than the concurrent panel session on Deciphering Claims read more FOS approach to the Adequacy of Statements of Advice In April 2015, FOS published a FOS Approach document, Adequacy of Statements of Advice. It provides useful guidance regarding how FOS assesses the adequacy of Statement of Advices (SOAs) in financial advice disputes, read more New Duty of Disclosure Notices released A regulation prescribing new notices of the duty of disclosure for the purposes of Section 22 of the Insurance Contracts Act 1984 (Cth) took effect on 21 April 2015, read more FSPs to comply with timeframes At a recent open forum, FOS has revealed the following points of interest for financial service provider members, read more FOS goes into print on PECs The FOS recently published some written guidelines on how it approaches pre-existing conditions exclusions and its interpretation of section 47 of the Insurance Contracts Act (1984), read more NT Budget - stamp duty abolished for death cover From 1 July 2015, changes under the Revenue and Other Legislation Amendment Bill 2015 will exempt premiums relating to death cover. However, duty will be payable at general insurance rates of 10% on premiums relating to life insurance riders, such as TPD and trauma cover, read more RECENT FOS AND SCT DECISIONS n How the new and old provisions of the Insurance Contracts Act work together read more n The conduct of a complainant actually matters read more Financial Services Bulletin May 2015

2 CASES AND TRIBUNAL DECISIONS Suitable Training and education, training and experience Birdsall v Motor Trades Association of Australia Superannuation Fund Pty Ltd [2015] NSWCA 104 The NSW Court of Appeal has recently delivered a decision with respect to the role of suitable training in the context of a TPD claim in Birdsall v Motor Trades Association. The decision can be seen as another recent example of the appellate courts winding back the more liberal interpretation of the TPD definition adopted by the courts over the last decade, read more TOP TIPS How to get the most out of mediations Court referred mediations have become a central feature of the Australian dispute resolution landscape. The following tips may assist you in achieving settlement of your dispute, read more CONTACT US John Myatt Practice Group Head T: John Alph Edwards Partner T: Alph Fiona Hanlon Partner T: Fiona Michael Iacuzzi Partner T: Michael Lisa Norris Partner T: Lisa Darryl Pereira Partner T: Darryl Peter Riddell Partner T: Peter Kim Perry Special Counsel T: Kim Financial Services Bulletin May 2015

3 INDUSTRY NEWS Trowbridge Report released The Final Report of John Trowbridge, the independent Chairman of the Life Insurance Advice Working Group (LIAWG), was released at the Financial Services Council (FSC) Life Insurance Conference on 26 March The LIAWG was established by the FSC and the Association of Financial Advisers (AFA) immediately after ASIC s review of retail life insurance in October 2014 which had expressed concerns about high lapse rates and the quality of advice of some financial advisers in the life insurance industry. The Report expressly states that it is a report of the Chairman and that it is not necessarily endorsed by either the FSC, the AFA or anyone else associated with it. Since its release the Report has received a mixed range of responses from different players in the industry. The Report makes six Policy Recommendations, four Implementation Recommendations and one Review Recommendation. Policy Recommendations include the following: A Reform Model for adviser remuneration should be implemented over a 3 year transition period. Advisers would receive level commission of no more than 20% of premiums in addition to an initial advice payment. The initial advice payment would be 60% of the first year s premiums capped at $1,200 and it can then only be paid every five years and only if personal advice is given. Prohibit licensees from receiving benefits from insurers that might influence recommended product choices or advice given by their advisers in a similar manner to the restrictions for investment products in FoFA. However, it is suggested that a Licensee Support Payment of up to 2% of premiums could be made to cover the cost of licensees providing a range of essential services to their advisers such as research, business support, education, compliance and technical services. Every licensee must have at least half of the retail life insurers on its Approved Product List (APL). Licensees and their advisers re-examine their culture, behaviours and practices regarding the advice process to raise consumer understanding, ensure informed client consent and reduce administrative burden on advisers. A Life Insurance Code of Practice, modelled on the General Insurance Code, be developed aimed at setting best practice standards. Implementation Recommendations include: ASIC be asked to implement the adviser and licensee Policy Recommendations, through inserting suitable conditions in the Australian Financial Services Licences of product producers. The APL requirements be implemented voluntarily by licensees and ASIC review APL practices and provide guidance in this area. A task force be established to make recommendations to the advice sector, in conjunction with ASIC, for improving the advice process and documentation. The Life Insurance Code of Practice be developed by life insurers in consultation with licensees, advisers and consumers. The Review Recommendation is that the changes made as a result of the report be reviewed in To view the full Final Report, click here.

4 INDUSTRY NEWS ASIC to issue remediation guidelines for financial planning licensees On 6 May 2015, ASIC issued a media release stating that they intend to develop a new regulatory guide on review and remediation programs for Australian financial services licensees providing personal financial advice. This follows ASIC s involvement in a number of remediation programs by firms providing financial planning advice over the past few years. ASIC has indicated that its experience shows that a review and remediation program must consider the following issues: Getting the scope right to ensure that it covers the right advisers, clients and timeframe. This includes considering whether it could apply to more than one licensee in large institutional groups and whether particular conduct is isolated or could apply to a broader range of clients or advisers. advice. This could involve the licensee waiving time, monetary and other limits that apply to their existing EDR scheme. ASIC also expects that the EDR scheme be engaged early in establishing the program, clients should be given clear communication of their EDR options and that it may be necessary to offer assistance to clients who want to seek their own independent professional advice. To read ASIC s media release, please click here. Getting the communication to clients right to ensure it is effective, timely and targeted so that clients understand it and participate in the program. This includes proactively contacting potentially affected clients and keeping them informed throughout the process. Getting the process right by ensuring it is comprehensive, timely, fair and transparent. It needs to be well-documented, and have consistent methods of calculating any compensation to those methods used in the licensee s external dispute resolution (EDR) scheme. ASIC also expects that in most cases there should be independent oversight of the process. Providing for clients to have free access to external processes to review the licensee s assessment of the

5 INDUSTRY NEWS Deciphering claims On 26 March, the Financial Services Council (FSC) Life insurance conference featured a number of interesting and newsworthy sessions (see related article on the Trowbridge report in this bulletin), none more so than the concurrent panel session on Deciphering Claims. TurksLegal Partner, Alph Edwards, was asked by the FSC to be a member of the panel of experts for this timely session which aimed to better understand and come to grips with just what is going on with claims at the moment. Alph offered up a number of insights to the audience based on his extensive experience as a claims litigator spanning several decades, including helping clients weather previous claims surges. Asked what he saw as the reasons for the current increase in claims, Alph cautioned everyone not see the recent increased activity in this area as just a simple uptick that could be ignored. In Alph s view, this is in fact going to be the new normal and participants in the industry have to be prepared to build their resources and to make the appropriate changes to their products and processes on the assumption that the issue of higher claims volumes will not be going away any time soon. This is not just because of an increasing awareness that the industry s products are relevant and important to Australians, though this is one of the more positive implications of people realising that they have cover which is useful to them when they need it. It is also due to changes in societal attitudes which others have commented on, such as a less resilient population that is more willing to admit to illness, lessening sigma, particularly around mental health issues, and greater willingness to seek medical help. The medical profession also, in Alph s opinion, has become more willing in recent years to certify people as being totally and permanently disabled. Doctors are also more willing to do so purely on grounds of mental health. The activities of plaintiff law firms actively seeking clients who have claims or potential claims is incidental to this, but the industry is unwise to see increases in current claims incidences as mainly lawyer driven. How could the industry then seek to prevent litigation? The core answer to this, in Alph s view, is creating sustainable decisions. In other words, through detailed and careful claims assessment and proactive claims management. Claims assessors need to move quickly and be efficient. They need to have an active strategy in relation to every claim, know what information they need and get it systematically in accordance with that strategy, not just base the next enquiry on the last piece of paper to arrive on their desk. This just drags out the claims process and makes litigation more likely. Overall, Alph s message is an optimistic one, as the industry has gone through these problems before and life insurance is more wide spread and benefitting more people than ever before. However, there is clearly pressure on the future shape of the TPD benefit and one of the key issues facing the industry at the moment is the regeneration of TPD as a benefit. TurksLegal has been very active in advising about the product reform process. Recent changes to benefit designs that we have worked with clients on have certainly clarified important aspects of the benefit and in some cases have moved away from complete reliance on lump sums. According to Alph, some changes to the product have been clearly necessary. Some of the recent court cases in which TurksLegal has been involved have seen aspects of the standard definition more the industry s way. However, over the last decade TPD has increasingly been interpreted as a change of employment benefit, rather than a benefit payable at the end of an employee s working life. In Alph s opinion, the product clearly needs to adapt and the industry needs to come up with a benefit design that better engages the insured in rehabilitation.

6 INDUSTRY NEWS FOS approach to Statements of Advice In April 2015, FOS published a FOS Approach document, Adequacy of Statements of Advice. It provides useful guidance regarding how FOS assesses the adequacy of Statement of Advices (SOAs) in financial advice disputes. How does FOS assess the adequacy of SOAs? The question of whether a retail client has given their informed consent to take up the Financial Service Provider s (FSP) advice is a critical issue in the majority of financial advice disputes according to FOS. Where this issue is raised, FOS will consider whether the information in the SOA is clear, concise and effective and consider the eight questions outlined below. What does clear, concise and effective mean according to FOS? In determining whether the SOA is worded and presented in a clear, concise and effective manner, FOS will consider whether the information in the SOA: is expressed in plain language; is brief yet comprehensive; and promotes understanding of the adviser s recommendations. If the information in the SOA is not clear, concise and effective, then FOS might find that the client did not understand the advice and the FSP had failed to secure the client s informed consent to take up the advice. What other factors does FOS consider? FOS outline that they will also consider the following questions when examining the SOA: 1. Did the FSP consider the client s experience, language skills, literacy and numeracy? As each client is unique, FOS states that the client will more likely understand the SOA if the FSP first makes a reasonable assessment of the client s experience, language skills, literacy and numeracy. 2. Did the SOA use language the client was likely to understand? FOS does not consider whether the client subjectively understood the information in the SOA, but FOS must be satisfied that the client was likely to understand the language used in the SOA, assessed objectively, having regard to their experience, language skills, literacy and numeracy. 3. Did the SOA use legal, industry or technical language? FOS state that SOAs that use legal, industry or technical language are less likely to be clear, concise and effective. If such language is unavoidable, the concepts must also be accurately explained in plain english. 4. Was the information in the SOA in a logical sequence? FOS set out that the SOA must have the following broad structure: 1) A beginning - the client s objectives, available assets, timeframe and risk tolerance. 2) A middle - an analysis of strategies and/or products that are likely to meet the client s objectives given their available assets, timeframe and risk tolerance.

7 3) An end - an explanation of a recommended strategy and/or products that are likely to achieve the client s objectives given their available assets, timeframe and risk tolerance. 5. Did the SOA identify the client s objectives in quantitative terms and explain how the advice would achieve those goals? In the view of FOS, the SOA is more likely to be effective and contain a meaningful analysis if it identifies the client s objectives in quantitative terms (e.g to retire at age 60 with sufficient savings to generate a retirement income of $40,000 a year rather than simply as to retire at age 60. ) 6. Does the SOA resolve any internal conflicts? A client may, for example, want to retire with an income that cannot be achieved with the level of risk they are willing to take on. This internal inconsistency will need to be resolved in the SOA. 7. Did the SOA contain irrelevant information? If a client, for example, only sought advice about investment products and does not wish to borrow to fund the proposed investment, the SOA need not include information about margin loans and insurance products. 8. Is the SOA a template document? The FSP must take care to tailor the language used in the template to the client and remove irrelevant information. The FOS Approach document can be found at the following link.

8 INDUSTRY NEWS New Duty of Disclosure Notices released A regulation prescribing new notices of the duty of disclosure for the purposes of Section 22 of the Insurance Contracts Act 1984 (Cth) (the ICA) took effect on 21 April Changes made by the Insurance Contracts Amendment Regulation 2015 (No.1) (Amending Regulation) include prescribing notices which can be used from 28 December 2015 and other notices which can be used in the interim. The purpose of the new duty of disclosure notices is to reflect changes made to the duty of disclosure which commence from 28 December The new notices also reflect the changed remedies for life insurers which took effect from 28 June The introduction of new prescribed notices from 28 December 2015 and the option to use different forms of notice in the interim period raises a number of practical issues for life insurers regarding transitioning to the new notices. What are the new notices? The following three types of notice are prescribed to apply from 28 December 2015 (as set out in Schedule 2 of the Amending Regulation): 1. Notice to the proposed insured this now reflects the change that a failure by a life insured to disclose a relevant matter may be treated as a failure by the insured to comply with the duty of disclosure in relation to that matter (see new section 31A of the ICA). 2. Notice to the proposed life insured if they are a different person to the proposed insured to reflect the requirement to give a notice informing a life insured of the general nature and effect of the duty of disclosure and the effect of section 31A of the ICA. 3. A reminder notice to reflect the new requirement to give notice to the insured where the insurer s acceptance or counter-offer is made more than 2 months after the insured s most recent disclosure (see new section 22(3) of the ICA). A new Regulation 42 allows life insurers to use the previous prescribed form of wording or a new interim notice for any contract entered into before 28 December 2015 (interim notices). An interim notice is necessary because the consequences of the proposed life insured non-disclosing will only apply for contracts which commence or are varied on or after 28 December Implications Life insurers should consider the following when implementing and transitioning to the new duty of disclosure notices: 1. Period prior to 28 December 2015 It is likely to be impractical for most life insurers to put in place procedures to ensure that: the new form of notice is being used in all relevant circumstances precisely from 28 December the interim notice is used prior to 28 December 2015 and to replace that interim notice with the new notice from 28 December Life insurers may consider using the new form of notices prior to 28 December 2015 with additional wording that explains that the references to non-disclosure by the proposed life insured will only apply to cover which commences on or after that date. This additional wording could then be removed at a suitable time afterwards. Life insurers that have drafted their own notices in the past should review those notices as a result of the

9 changed remedies and the new requirements for giving notices. 2. Period from 28 December 2015 Section 22(4) of the ICA provides that the prescribed notice to the proposed insured and the reminder notice may be used. However, it continues to be the case that it is not mandatory to use the prescribed notices provided the general nature and effect of the duty is clearly explained. insured s most recent disclosure. The reminder notice must be given with the acceptance or the counter-offer. In the case of acceptance of cover, life insurers need to consider whether they should allow the insured time to comply with the reminder notice prior to cover commencing. Whilst it is likely that life insurers will use the prescribed notices if it is practical to do so, this is not always possible and many life insurers do not always use the exact prescribed form of wording. For example, where there is insufficient space to provide the prescribed notice. These problems would be amplified with the new notices that include an additional notice being given to the life insured where applicable. Life insurers who do not incorporate the prescribed notices may wish to consider: Modifying the notice to the proposed life insured because it is in a similar format to the notice given to the proposed insured, or Incorporating the notice to the proposed life insured and insured into the one notice. 3. What notices should be given for group life Most life insurers have always provided the existing notices to each life insured seeking underwritten cover under a group life policy. From 28 December 2015 these persons should be given the new format of notice to the proposed life insured rather than the notice to the proposed insured. The owner of the policy should also be given the appropriate notice prior to it being issued the group policy. 4. When should the reminder notice be given Section 22(3) introduces the new requirement from 28 December 2015 that the proposed insured be given a reminder notice if the life insurer s acceptance of cover or counter-offer is made more than 2 months after the

10 INDUSTRY NEWS FSPs to comply with timeframes At a recent open forum, FOS has revealed the following points of interest for financial service provider (FSP) members: FOS has cleared its previous backlog of cases and now intends to impose stricter timeframes on all parties to a dispute. This means it is likely that deadline extensions for submissions and the like, which have to date been fairly easy to obtain, will now be harder to obtain. FOS has indicated that it perceives FSP s submissions to be formulaic and too generic. It encouraged FSPs to produce more bespoke work and specifically make their submissions more relevant to the circumstances in each specific case. Between 8-11% of its Recommendations are overturned on Determination. This is obviously a very low rate and should be borne in mind when considering prospects of challenging a Determination. FOS Case Managers are encouraged to consult the Ombudsman throughout the assessment process and prior to any Recommendation being made so that both are of a similar view. This obviously explains the low reversal rate of Determinations. The message from FOS to FSPs is thus fairly clear. Namely, be timely, avoid a cookie cutter approach to submissions and do not expect Determinations to be overturned.

11 INDUSTRY NEWS FOS goes into print on PECs The FOS recently published some written guidelines on how it approaches pre-existing conditions exclusions and its interpretation of section 47 of the Insurance Contracts Act (1984) (ICA). Section 47 applies to claims arising from sickness or disability irrespective of whether the policy is a general insurance policy or a life policy. It prevents an insurer from limiting or excluding the insurer s liability under the contract in certain situations. In other words, it prevents an insurer declining a claim or refusing it in part, if two requirements are met, namely if, at the time the contract was entered into; (i) the insured was not aware of. the sickness or disability, and (ii) provided a reasonable person in the circumstances could not be expected to have been aware of the sickness or disability either. Deciding what constitutes awareness in the context of section 47 is not, however, as easy as it might seem. We will turn to that problem in greater detail in a moment. The FOS outlines some useful guides to the way it approaches the section stating; If the consumer was aware of the pre-existing condition at any time before the contract was entered into, section 47 will not assist them. This is even if the consumer reasonably believed they no longer had the pre-existing condition. If the consumer was aware of symptoms associated with the pre-existing condition, but not the actual condition itself, FOS will consider whether the consumer should reasonably have been aware that they were suffering from a condition. This will depend on various considerations, such as the degree of symptoms and/or extent of medical investigation/ consultation undertaken. If the consumer was not aware of the symptoms or the diagnosis when the contract was entered into, and a reasonable person in their circumstances could not have been expected to have been so aware, then section 47 will assist. All of these statements can bear a meaning that is unobjectionable from a legal perspective and they are to be commended as a useful guide for insurers. Where care is necessary, is in applying the case studies provided by the FOS in interpreting how these guidelines work, as the brevity of the case studies can leave them open to misinterpretation. Case study 1 for example deals with a claim for chronic fatigue syndrome (CFS), where before the policy was entered into, the consumer was aware of lethargy while attending work and playing regular competitive sport. Despite the consumer s clear awareness of what proved to be the symptoms of CFS, the FOS says that in this situation section 47 does not apply. The study concludes; Based on the above, FOS did not accept that the Applicant was aware of, or a reasonable person in her circumstances could have been expected to have been aware of, the CFS before the policy was issued. Viewing this conclusion in isolation, it is possible to infer, that it was the fact the customer did not know she was suffering CFS that attracted section 47 of the ICA. If this was what had turned the decision in favour of the customer it would be contrary to the correct interpretation of section 47 as the section does not require an insured

12 to be aware of any diagnosis to be aware of a sickness or disability within the meaning of the section. In reality it was the fact the consumer was unaware that what she was experiencing was abnormal, which attracted section 47. As the full background to the case study states Her symptoms could reasonably be expected to have been associated with her extensive activities, rather than a particular medical condition. In other words, it was because she was unaware that anything she was experiencing was abnormal which was the decisive factor. From a legal perspective, the essential reason why section 47 was correctly seen as being attracted in this case, was that the consumer was not aware, and a reasonable person in their circumstances would not be aware, that she was exhibiting any form of symptom of a disease or disability. Consequently, though it may not appear to be the case from a cursory look at the case studies, it is perfectly compatible with both section 47 and the written outline of the FOS approach to it, that a person is aware of a sickness or disability within the meaning of section 47 if they just have symptoms, and even though the condition has not been diagnosed and they don t know what the sickness or disability is called.

13 INDUSTRY NEWS Northern Territory Budget Stamp Duty abolished for death cover but increased for Life Insurance riders From 1 July 2015, changes under the Revenue and Other Legislation Amendment Bill 2015 will exempt premiums relating to death cover. However, duty will be payable at general insurance rates of 10% on premiums relating to life insurance riders, such as TPD and trauma cover. These changes will apply to life policies as follows: for individual life insurance policies if the policy is issued on or after 1 July 2015; and for group insurance policies only to lives who become insured under the policy on or after 1 July By imposing general insurance rates of duty on life insurance riders only, these amendments are similar to the changes that came into effect in Victoria from 1 July 2014.

14 RECENT FOS AND SCT DECISIONS How the new and old provisions of the Insurance Contracts Act work together Link to determination Summary This Determination of the Financial Ombudsman Service (FOS) is a good example of the interaction between former and amended provisions of the Insurance Contracts Act as well as FOS s cautious approach towards allegations of fraudulent misrepresentations by insurers. Background On or about May 2013, the Applicant entered into a life insurance policy (Policy) which provided income protection and critical illness cover. However, he did not disclose that he had a history of excessive use of alcohol and understated mental health issues. When the Applicant made a claim under the Policy, the insurer sought to avoid it under section 29(3) of the Insurance Contracts Act (ICA) for non-disclosure. Decision The FOS affirmed the insurer s decision. As a starting point, the FOS unbundled the Policy under section 27A of the ICA so that the income protection and critical illness portions of the policy would be reviewed separately with respect to remedies for non-disclosure. The medical evidence showed that the Applicant had breached his duty of disclosure. Upon review of two sets of underwriting evidence for the income protection and critical illness portions of the Policy, FOS was satisfied that the insurer would not have entered into a policy on any terms for either and that the insurer was entitled to avoid the policy. The FOS also distinguished this dispute from Graham v Colonial Mutual Life Assurance Society Limited (No 2) [2014] FCA 717 in that the insurer in this case sought to avoid the policy for innocent rather than for fraudulent misrepresentation, as was the case in Graham. The FOS commented that fraud must be proved by clear and cogent rather than vague or circumstantial evidence. Implications The key implications of this determination are that: 1. In light of the 28 June 2013 amendments to the ICA, care needs to be taken in terms of applying the correct provisions. Here, because the policy was entered into in May 2013, the post-amendment section 27A applied and the pre-amendment section 29 applied as well. 2. Where section 27A applies and cover is unbundled, an insurer will need underwriting evidence relevant to the specific requirements of each bundle to support the remedies sought under section As you would expect, the FOS has indicated that it will scrutinise allegations of fraudulent misrepresentation more closely than allegations of innocent misrepresentation. Consequently it is always better if timely action can be taken to avoid the policy for innocent misrepresentation.

15 RECENT FOS AND SCT DECISIONS The conduct of a complainant actually matters Link to determination Summary In this Determination, the Superannuation Complaints Tribunal (SCT) considered that the Complainant s conduct with respect to her treatment and the presentation of her complaint were relevant factors in its findings against her. Background The Complainant lodged a claim for TPD benefits due to an injury from a fall and psychological symptoms in response to her physical limitations caused by the fall. Her claim was declined by both the trustee and insurer. Relevantly, with respect to her education, training and experience, the Complainant had TAFE qualifications and experience in various administrative and clerical roles. Decision The SCT affirmed the trustee and insurer s decision. The SCT held that a majority of the medical evidence stated that the Complainant could not resume her pre-injury occupation but, could, after treatment, resume at least part-time sedentary work in an administrative role which would be squarely within the Complainant s education, training and experience. The SCT also took into account the Complainant s failure to comply with recommended treatment regimes, including intermittent taking of medication and failure to see her treating professionals for cost reasons despite receiving workers compensation payments and medical coverage. The SCT commented that the Complainant was selective in quoting various medical specialists assessments of her work capacity. Implications The key implications of this determination are that: 1. The SCT will consider the conduct of a complainant, including compliance or non-compliance with medical treatment regimes, in its decision-making process. 2. The SCT does not look favourably to any party cherry picking evidence (i.e. not giving the full picture of what the evidence stands for). Insurers should be aware of a complainant attempting to do so and avoid doing so themselves.

16 CASES AND TRIBUNAL DECISIONS Suitable Training and education, training and experience Link to decision The New South Wales Court of Appeal has recently delivered a decision with respect to the role of suitable training in the context of a TPD claim in Birdsall v Motor Trades Association of Australia Superannuation Fund Pty Ltd [2015] NSWCA 104. The decision can be seen as another recent example of the appellate courts winding back the more liberal interpretation of the TPD definition adopted by the courts over the last decade. The Claim Mr Birdsall suffered an injury to his right wrist in May 2009, when attempting to lift a heavy gearbox at work. At the time of the injury Mr Birdsall was working as a motor vehicle mechanic. Mr Birdsall subsequently returned to work on a part-time basis performing administrative work until the end of 2010, and his employment was terminated in 2011 as the employer was unable to continue to offer him alternative duties. In 2011 Mr Birdsall lodged a claim for a TPD benefit with Motor Trades Association of Australia Superannuation Fund Pty Ltd (the Trustee). The Trustee s group life insurer was MetLife Insurance Limited ( MetLife ). MetLife and the Trustee both considered Mr Birdsall s claim for a TPD benefit and declined to pay a benefit in 2012 on the basis that in their opinions, Mr Birdsall was fit to return to an occupation within his education, training and experience, as the evidence confirmed that Mr Birdsall had the capacity to perform the occupations of a sales assistant, sales representative, and customer service assistant on a full time basis. The Proceedings Mr Birdsall commenced proceedings against the Trustee and MetLife in the Supreme Court of New South Wales. The matter was heard by Justice Hallen. His Honour noted that the relevant Group Life Policy (the Policy) contained the following definition of TPD: Where the Insured Person has been employed at any time during the six months prior to the Date of Disablement:. as a result of Injury or Illness, he/she has been unable to work for an initial period of six consecutive months and in our opinion is incapacitated to such an extent as to render the Insured Person unlikely ever to engage in or work for reward in any occupation or work for which the Insured Person is reasonably capable of performing by reason of education, training or experience. It was not in dispute that the evidence supported Mr Birdsall s contention that he was unable to return to his usual occupation as a motor mechanic. However, Mr Birdsall disputed MetLife and the Trustee s decision that he was not TPD as the evidence indicated that he was fit for an alternative occupation within his education, training or experience. His Honour vitiated MetLife s and the Trustee s decisions to decline the claim on the basis that they had failed to specifically consider the fact that Mr Birdsall had unsuccessfully applied for alternative employment. His Honour then went on to determine whether as at April 2011, six months after Mr Birdsall ceased employment as a motor mechanic, he was TPD as defined in the policy. Ultimately, His Honour was not satisfied that Mr Birdsall met the definition of TPD contained in the policy, and dismissed his claim after reviewing the evidence and concluding that there were specific areas of work available that Mr Birdsall was reasonably capable

17 of performing by reason of education, training or experience. Specifically, it was His Honour s view that it did not matter that Mr Birdsall may have to undertake further training in order to perform some of the roles identified because the TPD definition did not exclude the possibility of a need for further training where that training would not change the character of the work for which he was already fitted, but would enable him to use his existing skills to pursue work of that character. His Honour further noted that any further training would have been minimal and would assist Mr Birdsall in utilising his existing skills. Court of Appeal Mr Birdsall appealed Hallen J s decision on the basis that work which required re-training is not work for which a person is reasonably fitted, referencing the decision in Halloran v Harwood Nominees Pty Ltd [2007] NSWSC 91. The Court of Appeal delivered judgment on 22 April In their unanimous decision, Meagher JA, Gleeson JA and Basten J considered the meaning of education, training and experience in the context of the TPD definition and the extent to which suitable training could play a role. In short, their Honours found that a life insured can be reasonably capable of performing roles within their education, training and experience notwithstanding the fact that in order to obtain a particular job, specific training or certification may be required. This further training can include certification obtained in the form of a TAFE course, other certification course, or on the job training by the employer. The critical paragraph of the judgment is at paragraph 77 which states: I agree with the primary judge s conclusion that the need for this further training did not mean that the appellant was not already reasonably capable of performing the roles to which it was directed. The expression reasonably capable recognises the reality that a person may have to undertake specific training or certification to enable him or her to engage in particular employment for which he or she is otherwise qualified by education, training or experience. That training or certification may be available in the form of a TAFE or other certification course or from the employer. The job advertisements in evidence show that different employers place different emphasis on particular aspects of the skills necessary to undertake employment of the same kind and recognise that some training may be required to fit the employee s skills to the particular employment. The training the appellant may have required answered that description. The evidence showed that he had computer skills but needed to be trained in the use of particular computer software. It also showed that the appellant had the innate intelligence necessary to learn how to operate a cash register without any difficulty. Mr Birdsall s Appeal was dismissed on the basis that any further training he may be required to undergo in order to obtain suitable employment was reasonable, given his underlying existing skills and experience. Birdsall was distinguished from Halloran v Harwood Nominees on the basis that in that case, Mr Halloran s existing training and experience did not provide him with any underlying suitability for the role he subsequently obtained; rather Mr Halloran only became suited to his subsequent employment by reason of re-training. Implications Birdsall extends the minimal retraining carve out set out in Hannover Life Re of Australasia Ltd v Dargan [2013] NSWCA 57. Specifically, it is arguable that the permissible retraining which can be taken into account does not necessarily need to be minimal, although it must enable an insured to gain employment utilising existing skills and capacity for the work in question. It would seem the extension of this retraining carve out will enable insurers to have regard to retraining prospects that were previously excluded from consideration. In his further reasons, Basten JA also raised the issue of whether the Court can step in to determine a TPD claim where the definition in the policy contains the words in [the insurer s] opinion. Ultimately his Honour did not reach a finding on this point and did not disturb the decision in McArthur v Mercantile Mutual Life Insurance Co Ltd [2001] QCA 317; [2002] 2 QdR 197. However, Basten J was clearly troubled by the issue and it will be interesting to see if it is ventilated further in future TPD cases.

18 TOP TIPS How to get the most out of mediations Court referred mediations have become a central feature of the Australian dispute resolution landscape. The following tips may assist you in achieving settlement of your dispute. Adequate preparation Prior to the mediation, formulate your strategy. You may wish to discuss this with your business contact or lawyer either by way of a preliminary conference or telephone conversation. If you anticipate issues arising that might prevent an agreement being reached on the day, ensure that you flag these in advance with your lawyer or the mediator (for example, payment terms or conditions of release.) A decision can then be made if these matters are brought to the attention of the other party prior to the mediation. Position papers Mediators will vary in their preferences regarding position papers and whether they are required or not. A good position paper will set out a brief history of the matter, the essential issues and arguments, as well as referring to perceived weaknesses in the other party s case. Before the mediation, it is a good idea to review key documents and consider any matters or documents which you would like to draw to the attention of the other parties or mediator. Adherence to good faith obligations Lawyers and clients should act in good faith to attempt a settlement of the dispute 1. Although the courts have avoided narrowing the obligation of good faith with specific requirements, it is generally agreed that the obligation includes a requirement that parties consider options for resolution of the dispute put by the other party, and equally put forward possible solutions 2. A party is not required to agree to unjust or unfair outcomes. Situations of duress Issues of duress in mediations do not generally arise when both parties are represented. However, you should tread carefully if dealing with an unrepresented litigant. If a party is vulnerable, they may feel compelled to agree to settlement, and it is important that all negotiations are made willingly and voluntarily. Strategies for a successful mediation Allow adequate time for preparation and selection of a mediator who will enhance the prospects of resolution. Look for experience and expertise relevant to the area in dispute. Listen carefully to the other party s submissions. You will gain insight into their motivations and their side of the argument. Remember that it is not a courtroom. Mediations are designed to facilitate open and honest communication and a collaborative approach to resolving disputes. It is important to adjust your attitude accordingly, and approach the mediation with the intent of reaching a good outcome for everyone, rather than focusing on winning or losing. Be strategic. Consider your best alternative to settling, and the likely outcome if the matter does not settle. When negotiating, bear in mind the worst alternative to settling when deciding whether to make or accept an offer. Be respectful. Being courteous and respectful will not only make the situation more pleasant, it can have a positive impact on the other party s attitude to settlement. Documenting the agreement In the event of a settlement, it is highly desirable for the parties to sign the fundamental terms which have been agreed upon before departing the mediation. If this is not possible, the mediator should at least document those terms which can then form the basis of a settlement agreement to be entered into between the parties. 1 Law Council of Australia; Guidelines for Lawyers in Mediations, August Aiton Australia v Transfield Pty Ltd (1999) 153 FLR 236 Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 427.