Interest on Life Insurance Policy Dispute - Federal Court Decision

FEDERAL COURT OF AUSTRALIA

[NAME] v [NAME] [2002] FCA 1058 INSURANCE – payment of life policy monies into Court – from when interest should run INSURANCE – payment of costs of life company from proceeds of policy paid into Court Life Insurance Act 1995 (Cth) ss 202(3), 202(4), 202(5), 215 Insurance Contracts Act 1984 (Cth) s 57 Federal Court of Australia Act 1976 (Cth) s 43(1) [NAME] v [NAME] of England Insurance Company (1879) LR 4 CPD 68 referred to [COMPANY] v [NAME] (unreported, Supreme Court of Victoria, O'Bryan J, 29 April 1988) referred to National Mutual Life Association of [COMPANY] v [NAME] & Ors (1986) 4 ANZ Ins Cas 60-746 followed HCF Life Insurance Co Pty Ltd v Lamb [2000] FCA 573 followed

[NAME] and [NAME] v [NAME] and [COMPANY] (ABN [PHONE]) N 278 OF 2002 GYLES J SYDNEY 26 AUGUST 2002

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 278 OF 2002

BETWEEN: [NAME] and [NAME]

APPLICANTS

AND: [NAME]

FIRST RESPONDENT

[COMPANY] [PHONE]

SECOND RESPONDENT

JUDGE: GYLES J

DATE OF ORDER: 26 AUGUST 2002

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: The proceeding stand over with leave to the parties to provide submissions as to costs and for the parties to bring in short minutes of order to give effect to these reasons. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 278 OF 2002

BETWEEN: [NAME] and [NAME]

APPLICANTS

AND: [NAME]

FIRST RESPONDENT

[COMPANY] [PHONE]

SECOND RESPONDENT

JUDGE: GYLES J

DATE: 26 AUGUST 2002

PLACE: SYDNEY

REASONS FOR

JUDGMENT 1 [COMPANY] ("[NAME]") issued a term life insurance policy upon the life of [NAME] ("[NAME]"). Claims to the beneficial ownership of that policy have been made by [NAME] ("[NAME]"), the owner of the policy, on the one hand, and [NAME] and [NAME] ("[NAME]"), the daughter and son of [NAME], on the other. [NAME] paid the policy monies into Court, seeking a declaration pursuant to s 215(1) of the Life Insurance Act 1995 (Cth) as to the persons entitled to the proceeds of the policy. Proceedings in the Supreme Court of New South Wales concerned with the beneficial ownership of the policy have been cross-vested to this Court, and both proceedings have, in effect, been consolidated. The substantive hearing is fixed for later this year. There are two discrete issues which affect [NAME] and in relation to which the other parties have a common interest, namely, a claim for interest pursuant to s 57 of the Insurance Contracts Act 1984 (Cth) against [NAME] and a claim by [NAME] to be paid its costs out of the proceeds of the policy. Determination of those issues will permit [NAME] to take no further active part in the proceedings.

Interest 2 The relevant provisions of s 57 are as follows: "57 Interest on claims (1) Where an [NAME] is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the [NAME] is also liable to pay interest on the amount to that person in accordance with this section. (2) The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the [NAME] to have withheld payment of the amount and ending on whichever is the earlier of the following days: (a) the day on which the payment is made; (b) the day on which the payment is sent by post to the person to whom it is payable. …" 3 A chronology of the relevant events includes the following: January 1997 [NAME] issued to [NAME] a life insurance policy on the life of [NAME], commencing on 1 January 1997, consisting of what was called a "Term Life Plan Benefit" which, in return for premiums, involved paying a lump sum benefit to the policy owner in the event of the death of [NAME] prior to a particular date. 18 April 1997 [NAME] was made bankrupt. 21 May 2001 Death of [NAME]. 22 May 2001 Solicitors acting for [NAME] wrote to the then solicitors for [NAME], advising of the death and claiming an interest in the proceeds of the policy, and requesting non-payment of the proceeds to the owner until the dispute was resolved. 23 May 2001 [NAME] was advised by an insurance agent that [NAME] wished to claim under the policy. 23 May 2001 [NAME] wrote to the insurance agent, requesting the following documents to enable consideration of the claim: certified copy of the full death certificate; certified copy of the will; certified copy of the probate documents; the original policy document. 28 May 2001 Fax from the insurance agent to [NAME] (copy not in evidence) and a related discussion (details not in evidence).

28 June 2001 Letter from the insurance agent to [NAME] on behalf of [NAME] enclosing a copy death claim application form signed by the owner, an uncertified copy of the death certificate, a copy of the policy schedule and a copy of a renewal notice dated 5 December 2000. 5 July 2001 Communication from [NAME] to the solicitors for [NAME], seeking an undertaking that no payment would be made except pursuant to Court order or agreement between the parties in dispute. Confirms that they had been notified of a claim by [NAME]. 11 July 2001 Reply from solicitors for [NAME] to [NAME], agreeing to recommend that no payments be made for a specified period to enable negotiation and undertaking to give five days notice prior to payment. 2 August 2001 [NAME] wrote to solicitors for [NAME], referring, inter alia, to payment of monies into Court. 3 August 2001 Solicitors for [NAME] acknowledge the letter of 2 August, advising that they were seeking instructions and also referring to receipt of a notice from the Trustee in Bankruptcy seeking information. 3 August 2001 Letter from [NAME] to solicitors for [NAME] confirming that by close of business on Wednesday, 8 August, they would be provided with written advice in respect of the claim by [NAME]. 8 August 2001 Letter from [NAME] to solicitors for [NAME] requiring formal notification that they were acting for [NAME]. 9 August 2001 Solicitors for [NAME] provide that notification. 9 August 2001 Further letter from [NAME] to the solicitors for [NAME], referring again to the possibility of arrangements between the parties and also to payment into Court. 10 August 2001 Solicitors for [NAME] respond to the previous letter, referring to communications with the Trustee in Bankruptcy and saying that [NAME] was unable to determine its position until the Trustee indicated he had no interest or claim. 10 August 2001 Letter from [NAME] to solicitors for [NAME] responding to the claim, referring, inter alia, to the requirement for production of the original policy document. 12 September 2001 Communication from [NAME] to [NAME], including a draft deed with a view to settling the matter. 1 November 2001 Proceedings commenced by [NAME] against [NAME] in the Supreme Court of New South Wales, claiming a declaration that the policy proceeds are held by [NAME] on trust. 24 December 2001 [NAME] receive a letter (dated 21 December 2001) from new solicitors acting for [NAME] and enclosing, inter alia, the original policy document and copy memorandum of transfer. 1 March 2002 Cross claim by [NAME] against [NAME] in the Supreme Court proceedings, claiming an order that [NAME] pay her the proceeds of the policy, with interest under s 57 of the Insurance Contracts Act from 18 June 2001. 9 April 2002 Application by [NAME] pursuant to s 215(1) of the Life Insurance Act. Most of the material relating to the position of the Trustee in Bankruptcy has been omitted from this chronology. 4 Well before 28 June 2001 [NAME] had been apprised of the death of [NAME] and of the existence of a dispute as to the beneficial ownership of the proceeds of the policy. It knew from its own records that the policy was in force. The text of the letter of 28 June from the insurance agent (which was directed to [NAME] of [NAME]) was as follows: "We refer to previous discussion with you and our fax dated 28/5/2001 concerning the above matter. In accordance with [NAME] requirements, please find enclosed the relevant documentation from our client to finalise this claim. If you have any questions or if there is anything we can do to expedite this matter, please contact me on the number above." [NAME] gave evidence and confirmed that he did not go back to the insurance agent with any query about the sufficiency of the documents which had been provided. The letters from [NAME] in early August did not raise any difficulties concerning formalities. The letter (from [NAME]) of 10 August which responded to the claim was in the following terms:

"We refer to your letter of 9 August 2001 confirming that you act for [NAME] in relation to the claim made by her to [COMPANY] ("[NAME]") under the Policy. We acknowledge receipt from [NAME] of the Death Claim Application, an uncertified copy of the death certificate of [NAME], a copy of the Policy Schedule dated 20 January 1997 and a copy of one page of the renewal statement date 5 December 2000. We note that we had requested that your client produce the original policy document and this remains outstanding. [NAME] has also received notice of an alleged interest in the policy proceeds from [NAME] acting on behalf of the estate of [NAME]. [NAME] has advised the estate that it will not proceed to making any payment under the policy without allowing the estate five days notice of the intended payment. [NAME] has also been served with a notice under Section 77A of the Bankruptcy Act by the trustee of [NAME]'s bankrupt estate. [NAME] has today written to the trustee in relation to the notice seeking clarification from the trustee as to what interest, if any, it may have in relation to the policy. We will contact the trustee by the end of this week to obtain a timeframe as to when the trustee will provide a response. At the present time therefore until the trustee provides a response [NAME] is not in a position to take any further action in relation to the claim. [NAME] also requires production of the original policy document (including memorandum of transfer) which had previously been requested but not provided." Counsel for [NAME] agrees that the issue concerning the Trustee in Bankruptcy can be ignored for present purposes, as the most that it could indicate was the possibility of a further claim upon the proceeds. 5 The argument (in my opinion, correctly) has proceeded upon the implicit assumption that, in the circumstances of this case, "payment" for the purposes of s 57 of the Insurance Contracts Act includes payment into Court. 6 Counsel for [NAME] submits that by 28 June 2001 [NAME] had more than adequate information to make it obvious that the provisions of s 202(3) or s 215 of the Life Insurance Act could and should have been availed of. Counsel for [NAME] submits that a claim in proper form was not received until 24 December 2001 and that the evidence establishes that in the period between then and the time upon which the monies were paid into [NAME] was acting reasonably in obtaining legal advice in order to make a decision as to what ought to be done. 7 Sections 202(3), (4) and (5) and section 215 are as follows: "202 Effect of notice of trust etc … (3) If a life company has received express notice in writing of a trust, right, equity or interest claimed in relation to money payable under a policy, the company may pay the money into the Court. (4) Payment of the money into the Court discharges the company from liability to any person in respect of the money. (5) The money is to be paid out in accordance with an order of the Court. … 215 Power to pay money into Court (1) A life company may pay into the Court any money payable by the company in respect of a policy for which, in the company's opinion, no sufficient discharge can otherwise be obtained. (2) Payment of the money into the Court discharges the company from any liability under the policy in relation to the money. (3) Any money paid into the Court under this section is to be dealt with according to the order of the Court. (4) This section has effect subject to the Rules of the Court." 8 Clauses 7.1, 7.4 and 7.8 of the policy are as follows: "7.1 General These claim conditions must be satisfied before payments from the policy can be made. … 7.4 Claim Requirements Payments under the policy will be made when we admit liability and upon receipt of the following in a form satisfactory to us: · policy document · proof of claimable event or condition · proof of age (unless previously provided) · proof of ownership · signed discharge from the person entitled to receive payment. For Income Reserve Plan and Business Expense Plan, if appropriate, it will be necessary to provide proof of your pre-disability earnings, monthly earnings and business expenses. … 7.8 Payment of Claim If legally competent to give a valid discharge, all benefits will be paid to the policyowner, or the policyowner's legal personal representative if the policyowner has died. If the policyowner is alive, but not legally competent, we will pay benefits to the person we reasonably consider should receive them. If we do this in good faith, the policyowner will not be able to hold us liable for any amounts paid." 9 In my opinion, the only point of substance which has been raised by [NAME] relates to non-production of the original policy. The known existence of claims by two, and possibly three, parties to the proceeds of the policy is precisely the kind of situation which ss 202 and 215 are designed to solve. It must be taken that [NAME] knew of the terms of those provisions. In any event, the possibility of payment into court was mentioned by the [NAME] in the first communication from them in May. 10 I accept that insistence upon production of the original policy by [NAME] before payment would normally be a prudent course and that, in the usual case, compliance with cl 7.4 of the policy may not be a mere formality, as if the owner is unable to produce the policy it may indicate that there are other interests which have been created in the proceeds. However, in the circumstances of this case, it is difficult to see production prior to payment into court as anything but a mere formality. There could be no suggestion that there would be payment out of court without appropriate scrutiny, including production of the original policy or a proper accounting for its absence. It seems to me that once the death of [NAME] and currency of the policy was established, absent special circumstances which were not present here, it was unreasonable not to pay the money into court. The statutory procedure safeguards the policy monies against, for example, insolvency of the [NAME], and gives the opportunity for the earning of interest upon it. Furthermore, every day of delay enriched [NAME] at the expense of those entitled to the policy, whoever that may be. 11 It was not argued that the production of the policy was a condition precedent to liability. It is only a claims procedure (cf [NAME] v [NAME] of England Insurance Company (1879) LR 4 CPD 689; [COMPANY] v [NAME] (unreported, Supreme Court of Victoria, O'Bryan J, 29 April 1988)). 12 I should add that consideration of both the course of correspondence and the evidence of [NAME] during cross-examination leads me to the view that lack of the policy document was not seen as of any practical significance by [NAME] until the solicitors' correspondence in early August 2001. The letter from the insurance agent of 28 June indicates that there had been prior contact with [NAME] concerning that which was required, and [NAME] accepts that he did not respond to indicate any deficiency in the documents which had been produced. [NAME] had had since late May to consider its position by the time the formalities were dealt with in the letter from the agent of 28 June 2001. 13 In my opinion, it was unreasonable for the [NAME] to have withheld payment of the policy proceeds from 28 June 2001 and interest should run from that date.

Costs 14 [NAME], in effect, seeks payment out of the proceeds of the policy of all the legal costs it has incurred in relation to this policy since the death of [NAME]. [NAME] has precedent for an order for costs to be paid out of the policy proceeds pursuant to s 43(1) of the Federal Court of Australia Act 1976 (Cth) (National Mutual Life Association of [COMPANY] v [NAME] & Ors (1986) 4 ANZ Ins Cas 60-746; and HCF Life Insurance Co Pty Ltd v Lamb [2000] FCA 573) although there was no opposition to such an order in either case. It is not suggested by counsel for [NAME] that there is no jurisdiction to make such an order, and it seems to be accepted that it would be appropriate to make an order covering costs properly incurred in ascertaining that s 202 or s 215 should be utilised and then commencing the proceedings. In those circumstances, I am content to proceed on the basis that there is jurisdiction, without deciding the question for myself. 15 In my opinion, the argument for [NAME] is correct in principle. It was apparent that circumstances made the application of s 202 or s 215 likely prior to 28 June. I would allow an amount for obtaining legal advice by that time to confirm that question, an amount to cover the costs of the preparation and filing of the relevant application, an amount to cover an appearance by counsel on the return day and an amount for the solicitors to maintain liaison about the case thereafter. If the proceeding had been commenced in a timely fashion, the New South Wales proceedings would have been unnecessary and (apart from the disputed question of interest) there would have been no need for [NAME] to take an active part in the proceeding in this Court. In any event, as matters transpired, [NAME] should not be entitled to any costs in relation to the joinder of the Trustee in Bankruptcy as, by the time proceedings were commenced, it was apparent that no claim was being made. 16 In all the circumstances, as the question of quantum is largely hypothetical, my inclination is to fix a sum which is appropriate rather than cause further costs to be incurred by reference to the Registrar. I appreciate that this may well cause [NAME] to be out of pocket. That is not unusual in commercial life. The procedures of the Life Insurance Act are for the benefit of both the [NAME] and the insured. [NAME] is a commercial organisation which offers life insurance as a means of making profit. It generally bears the cost of administering policies, and any unrecovered solicitor/client costs here properly fall into that category. I will consider short submissions from each side both as to the appropriate approach to costs and as to the quantum of costs on the basis I have outlined. The costs of [NAME] of the argument as to interest should be paid by [NAME] in the ordinary way. 17 The proceeding will stand over to enable any submissions on costs to be received and for the bringing in of short minutes of order. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

Associate: Dated: 26 August 2002

No appearance for the Applicants

Counsel for the First Respondent: [redacted]

Solicitor for the First Respondent: [redacted]

Counsel for the Second Respondent: [redacted]

Solicitor for the Second Respondent: [redacted]

Date of Judgment: 26 August 2002