Big win for insurers, big lesson for planners

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A major decision in the NSW Court of Appeal has clarified the law in relation to total and permanent disablement (TPD), overturning a decision originally in favour of the claimant.

The case involved a former truck driver who claimed he was unable to continue in his job due to an injury but then undertook a refresher course to retrain as a part-time taxi driver. The court originally found that ‘retraining’ meant that work as a taxi driver fell outside his previous education, training and experience because the man had to obtain a licence. The decision was unanimously overturned last week, and Lisa Norris, life insurance expert and partner in the Sydney office of specialist law firm TurksLegal, says financial planners can take something away from the decision.

“I think an important lesson from the judgement is to make sure that the TPD cover they are arranging for their clients will cover the eventuality they thought it would,” she says.

There are two basic types of TPD insurance:

  • Any occupation – which covers a person who by reason of disability is unable or unlikely to be able to return to work in any occupation they are reasonably fitted for, and;
  • Own occupation – which covers a person who by reason of disability is unable to return to their pre-disability occupation, specifically.  

These products cover different risks and are priced accordingly. 

“If a client requires TPD cover that will still pay a benefit if there is an ability to work on a part-time basis, or following retraining, financial planners may consider that an ‘own occupation’ product is more suitable for that client.” 

The truck driver’s claim would have seen a blurring between those two types of cover. The Court of Appeal’s decision clarified that with an ‘any occupation’ definition, capacity for different work following ‘reasonable’ retraining may mean a client is not TPD.  It also held that regular part-time work could be taken into account in deciding if a client is TPD.

“This is an important decision and a welcome development for group life insurers,” Norris says. “In fact, had the decision gone the other way, it may have meant that any form of ‘retraining’ could not be taken into account when determining TPD which would have caused great uncertainty in the superannuation sector.”

Superannuation trustees have seen a substantial upswing in claims for TPD over recent years. The insurance premiums paid by members have also been rising to match. Had the plaintiff been successful it could have opened the way for many more marginal claims and put further pressure on insurance premiums, says Norris.