The Federal Court has dismissed a life insurer’s appeal against an Australian Financial Complaints Authority (AFCA) decision in a superannuation dispute arising from a total and permanent disability (TPD) claim.

The AFCA panel had initially found in March that Resolution Life’s decision not to pay the TPD benefit was fair and reasonable in the circumstances, as the claimant had a back condition that fell within the policy’s lumbar/sacral spine exclusion.

But the complainant then raised a number of issues and the panel found in a June decision that he had been deprived of a “meaningful” opportunity to have the exclusion reviewed, and that had a material effect on his claim. AFCA determined the insurer must make a gratuitous payment to the claimant. 

The exclusion was added to the policy in 2004, the year Gregory Teagle accepted the cover. He had disclosed he had a lower back strain a year earlier and that the symptoms lasted for one month.

The exclusion could be reviewed after a period of three years but AFCA found that the review was never undertaken in the 19 years that Mr Teagle had held the policy.

Mr Teagle asserted the condition leading to his TPD claim – submitted in December 2021 – was not related to the back strain that gave rise to the exclusion and produced a letter from his orthopaedic surgeon that stated his symptoms “had nothing to do” with previous back conditions.

Justice Angus Steward handed down his ruling on Monday, rejecting the insurer’s contentions that the ombudsman “erred in law”, was “legally unreasonable”, made “jurisdictional error” and failed to provide procedural fairness in its determination of the dispute in June.

He also dismissed the contention that AFCA erred in finding the insurer acted in breach of the duty of utmost good faith.

“As each of Resolution Life’s grounds of appeal must fail, the proceeding must be dismissed. AFCA has sought, and is entitled to, its costs,” the ruling said.

On procedural fairness, Justice Stewart said none of the insurer’s specific complaints have any “substance”.

Resolution Life had argued that AFCA erred in failing to provide procedural fairness when it recommended in favour of the insurer in March, determining no further action was required, and then proceeded to make a decision on the dispute and issuing another finding in June. 

The insurer said it was not given a “fair and reasonable” opportunity to respond to AFCA.

Justice Stewart said AFCA had asked the insurer a number of questions in relation to any request by the claimant for a review of the exclusion and the insurer had responded.

He said the questions and responses “covered whether Mr Teagle was advised of the opportunity of a review, what the likely outcome of a review would have been and whether Resolution Life could make a payment to Mr Teagle outside the policy terms in the event that a strict application of the exclusion would operate unfairly”.

“There is no unfairness in that process in relation to AFCA’s ultimate determination that Resolution Life failed to afford Mr Teagle an opportunity for a review of the exclusion because it failed to inform him of that opportunity, and that had a review taken place the likely outcome would have been that the exclusion would have been removed.

“Resolution Life had notice of those matters, and ample opportunity to make whatever submissions on them that it chose to.”

Justice Stewart also rejected the contention that AFCA “acted beyond power and in error of law” in purporting to make an underwriting decision of Resolution Life.

The insurer said the ombudsman “erred in law” in failing to exclude the complaint, citing C.1.4(b) of the AFCA Complaint Resolution Scheme Rules. The provision states AFCA must exclude a complaint about underwriting or actuarial factors leading to an offer of a life insurance policy on non-standard terms.

Resolution Life said the complaint fell within the meaning of the provision but Justice Stewart disagreed that AFCA had made a jurisdictional error.

“The complaint that was upheld by AFCA in its determination was not such a complaint,” he said.

“The complaint was that Mr Teagle was not afforded the opportunity of a review of the exclusion three years after his symptoms which led to the exclusion ceased. That is what was said to be unfair or unreasonable.”

In a statement to insuranceNEWS.com.au, Resolution Life Australasia says it acknowledges the decision by the Federal Court in relation to its appeal of an AFCA determination and will now make a payment to Mr Teagle.

Click here for more from the ruling.