A superannuation fund member’s entitlement to benefits payable from the fund are governed by the rules of the fund.[1] Where the rules of the fund provide for a benefit payable on a member’s total and permanent disablement, in determining a member’s entitlement, it will be necessary to consider whether the trustee is required to form an opinion that is a necessary condition for the payment of the benefit, or whether it is the insurer that has the only decision-making role. For example, the rules of the fund may require the trustee to form the opinion that the member is disabled to the extent that the member is unlikely to ever engage in full time employment, as a necessary condition for payment of the disablement benefit.
In Finch v Telstra Super Pty Ltd,[2] (‘Finch’) the High Court established that, where the rules of a fund require the trustee of the fund to form an opinion in relation to the payment of a disablement benefit, the formation of that opinion is not a discretionary decision that attracts the kind of protection that applies to the decisions of trustees of discretionary trusts (which the High Court distinguished from superannuation trusts), as expounded in Karger v Paul.[3] Rather, the opinion is an ‘ingredient in the performance of a trust duty’ (the duty being the duty to distribute to those who fall within the relevant disablement definition in the trust deed, and not to distribute to those who do not).[4]
Where a superannuation fund trustee is required to form an opinion as part of the exercise of a trust duty, various obligations will apply to the trustee in forming that opinion. For example, the trustee must act impartially and give proper consideration to all relevant matters. The statutory duties under section 52(2) of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act) will also be relevant.
Obviously, whether the governing rules of a fund require the trustee of the fund to form an opinion that is a condition for the payment of a disablement benefit is a fundamental matter for the trustee in the proper administration of fund benefits. Accordingly, trustees will have established procedures for considering disablement claims made by members that reflect the requirements of the governing rules.
However, the question of whether a trustee is required to form an opinion as to a member’s ‘TPD status’ is a matter of construction of the relevant provisions of the trust deed. Accordingly, it’s worth considering some different approaches that appear to have been taken by the courts in construing the terms of superannuation fund trust deeds on this issue.
Sometimes it will be clear that the governing rules of a fund do not require the trustee to form any opinion as a condition for a member’s entitlement to a total and permanent disablement (TPD) benefit. For example, in the case TAL Life Ltd v Shuetrim[5] (‘Shuetrim’), which concerned a disputed disablement benefit payable from a superannuation fund through an external insurance policy, the rules of the relevant fund merely provided that ‘The insured benefit of a member is…only payable to the extent that the Trustee receives payment from the insurer under an insurance policy.’ There were, apparently, no other provisions of the fund trust deed that related to members’ entitlements to, or the payment of, disablement benefits. In that case the New South Wales Court of Appeal relevantly noted the following (at paragraphs 8 and 50):
[U]nlike some other cases, Mr Shuetrim’s entitlement to benefits as a member of his superannuation fund was not dependent upon the formation of an opinion by the Trustee of the fund, but, instead, was entirely contingent upon the insurer making payment to his Trustee.
…
[T]he Trustee promised to remit payment of any TPD payment to Mr Shuetrim if and only if the payment was made by the insurer. Unlike the position in Birdsall, the trust deed did not require the Trustee to form an opinion at all, and there could be no suggestion that the Trustee had delegated its obligation to do so to the insurer, so that the obligations owed by the Trustee to Mr Shuetrim in equity and under statute were not directly applicable. [Emphasis added]
Many modern superannuation fund trust deeds will contain provisions concerning total and permanent disablement benefits that are more expansive than the brief insured benefit provisions considered in Shuetrim. In modern funds it will be relatively common for:
- the trust deed to provide for payment of a TPD benefit upon the member suffering ‘total and permanent disablement’ as defined in the trust deed (the TPD benefit clause);
- the trust deed to define TPD as having the same meaning as the group life insurance policy which supports the disablement benefit (and it will usually be necessary for an insurance policy to support a disablement benefit payable from a superannuation fund because of the operation of regulation 4.07E of the Superannuation Industry (Supervision) Regulations 1994, which, subject to some exceptions, prohibits superannuation fund trustees from ‘self-insuring’ in respect of members’ rights to have their benefits increased on the realisation of risks, such as the risk of becoming permanently disabled);
- the insurance policy to define TPD as requiring the insurer to form the requisite opinion that is a necessary condition for the insurer paying the insured benefit to the trustee to be held on trust for the disabled member (for example, that the member is disabled to such an extent that, in the opinion of the insurer, the member will never again engage in full-time employment);
- the fund trust deed to expressly provide that an insured benefit payable in respect of a member is only payable to the extent that the trustee receives the payment from the insurer under the relevant insurance policy; and
- the trust deed not to include any other provision that expressly refers to the trustee forming an opinion about a member’s TPD status.
Where a TPD benefits clause is drafted in this way, in a disputed claim for a disablement benefit a question may arise as to whether the trustee was required to form its own opinion (independent from the insurer’s opinion) as to whether a member claiming a TPD benefit is totally and permanently disabled in the relevant sense.
This may seem a surprising question. After all, if the fund trust deed defines TPD by reference to what is set out in the relevant insurance policy, and the policy requires the insurer to form an opinion as to whether the member is TPD, and the trust deed contains no other provision expressly referring to the trustee forming an opinion about a member’s TPD status, on what basis can such an obligation be imposed on the trustee? As we shall see, a Court can construe the terms of a trust deed to imply such an obligation.
Firstly though, we can consider an example of a ‘strict’ or literal approach to the construction of the terms of the relevant trust deed in considering the question of whether the trustee has a duty to form an opinion as to the member’s TPD status. Williams v Mercer Superannuation (Australia) Limited & Ors[6] (‘Williams’) concerned a disputed disablement claim and a trust deed and insurance policy with provisions drafted in a similar way to that described above. The TPD benefit clause was in the following terms:
7.2 Upon a Member ceasing Employment due to the Member’s death or Total and Permanent Disablement on or before attaining age 65 there shall be payable in respect of the Member a lump sum benefit equal to the sum of:
(a) The Member’s Member Account Balance; and
(b) An Insured Amount.
After setting out the TPD benefit clause and the related provisions of the fund’s trust deed, the Court made the following observations (at paragraphs 234 – 236):
The plaintiff’s counsel submitted against the trustee that it had a duty to consider relevant information and make relevant inquiries and relied upon Edington and that the trustee’s decision was so unreasonable that no reasonable trustee could make it. Reference to those sub-paragraphs of Edington shows that they are premised on a particular type of deed: “where the form of the deed was such as to condition the entitlement of the benefit on the formation of opinion by the trustee, together with a power in the trustee to take into account relevant information.”
The obligation which is imposed upon the trustee in this proceeding is fundamentally different if, as here, there is a relevant policy of insurance in force. The existence of a relevant policy of insurance relieved the trustee of the requirement to come to its own opinion. One sees this from the deed’s definition of “Total and Permanent Disablement” that the trustee has no duty to form an opinion. The trustee’s duty to make a determination does not arise because of the insurance policy. The scheme for imposing duties upon the trustee’s duty [sic] was plain and logical. If there was a policy of insurance, the trustee defers to the insurer’s determination about whether the member is TPD. If there was no policy of insurance the trustee would determine whether the member is TPD.
The trustee in this proceeding was not required to consider relevant information and make relevant inquiries or to make a determination about whether the plaintiff is TPD.
[Emphasis added, citations omitted]
However, some courts have taken a different approach to the approach taken in Williams to the construction of a TPD benefit clause, and to the identification of a requirement on the part of the trustee to form an opinion in relation to a member’s TPD status.
An example is Carroll v United Super Pty Ltd [7] (‘Carroll’). That case also concerned a disputed disablement benefit and a trust deed with broadly similar TPD benefit provisions to the common TPD provisions described above. The TPD benefit clause was in the following terms:
5.12 Total and Permanent Disablement
Subject to this Deed, the Benefit payable to a Member who ceased to be Gainfully Employed prior to attaining the age 65 having suffered Total and Permanent Disablement shall be the sum of:
(a) the Member’s Retirement Credit; and
(b) the amount of any Insured Benefit, if any, provided in respect of the Member.
(It should be noted that this clause was similar in substance to clause 7.2 of the fund rules considered in Williams, as extracted above.)
Despite the trust deed in Carroll defining TPD by reference to what was set out in the relevant insurance policy, and that the policy required the insurer to form an opinion as to whether the member was TPD, and that the trust deed contained no provision expressly referring to the trustee forming an opinion about a member’s TPD status, Slattery J construed clause 5.12 of the trust deed as implying such an obligation (at paragraphs 120 – 121):
Under Deed clause 5.12, the Trustee must determine “the benefit payable to a member”. Whilst the clause does not expressly refer to the Trustee forming an opinion about the Member’s TPD status in the same way that the Policy does, Deed clause 5.12 clearly implies that the Trustee must form such an opinion.
A Deed, clause 5.12 determination necessarily involves the Trustee deciding whether or not the member is one who, “ceased to be Gainfully Employed prior to attaining age 65 years having suffered Total and Permanent Disablement”. Once the Trustee decides that a member so qualifies, clause 5.12(b) quantifies the amount the Trustee is to pay as “the amount of an Insured Benefit”. Although the focus of analysis then quickly turns to the definition of TPD under the policy, because no Insured Benefit would be payable unless this definition is satisfied, it should not be forgotten that clause 5.12 represents a real decision-making event of the Trustee before the Trustee pays any available Policy proceeds to the Member. And as stated earlier, in making that determination the Trustee has a duty to apply the Fund, which represents trust assets, only in accordance with the Deed: Finch at [30]…
[Emphasis added]
A similar approach to the same trust deed provisions appears to have been taken in Lazarevic v United Super.[8]
Accordingly, it may not always be entirely clear whether a fund trust deed should be construed as requiring a trustee to form an opinion that a member is TPD in the relevant sense. Reasonable minds may differ on such constructions. The opinions of the New South Wales Court of Appeal in Birdsall v Motor Trades Association of Australia Superannuation Fund Pty Ltd[9] allude to different possible constructions of a TPD benefit clause in this regard.[10]
It should be noted that, whether a fund trust deed requires the trustee to form its own opinion as to a member’s TPD status or not, the trustee is not free to simply ‘rubber stamp’ whatever opinion the insurer forms on the matter.
The trustee has, along with its fiduciary duty and other duties, statutory duties to ‘exercise, in all matters affecting the fund, the same degree of care, skill and diligence as a prudent superannuation trustee would exercise’,[11] to ‘perform the trustee’s duties and exercise the trustee’s powers in the best financial interests of members’[12] and to ‘do everything that is reasonable to pursue an insurance claim for the benefit of a beneficiary, if the claim has a reasonable prospect of success’.[13]
These duties would seem to require that a trustee, when faced with an insurer’s decision to decline a TPD claim, critically review the decision and determine whether the trustee is satisfied the insurer has complied with all the legal duties and obligations that apply to the insurer in relation to the insurer’s consideration of the claim. However, ‘testing’ or ‘reviewing’ an insurer’s decision in this regard is not the same thing as the trustee forming its own opinion on the question of whether a member is TPD, as an ingredient of a trust duty, in the sense described in Finch.
If the provisions of a TPD benefit clause in a superannuation fund trust deed are drafted in a way that leaves the clause open to be construed as requiring the trustee to form an opinion on a member’s TPD status (such as the provisions that were the subject of the Carroll decision), and that result would be contrary to what the trustee intends in relation to its TPD decision-making process, it may be prudent to consider a simple deed amendment to remove any doubt about the matter. For example, a simple suggested provision could be inserted in the appropriate place in the deed along the following lines:
If an insurance policy provides an insured benefit in respect of a member which is payable by the insurer to the trustee on behalf of the member, and the policy provides that payment of the benefit is subject to the insurer forming an opinion on any matter relating to the member’s claim for an insured benefit, the trustee is not required to form that opinion unless expressly stated in this deed.
This article was first published in the Australian Superannuation Law Bulletin (Volume 34, No 3), March 2023.
[1] See, for example, Erzurumlu v Kellogg Superannuation Pty Ltd [2013] NSWSC 1115, 53.
[2] [2010] HCA 36.
[3] [1984] VR 161.
[4] Ibid, 30.
[5] TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim [2016] NSWCA 68.
[6] [2017] QDC 289.
[7] [2018] NSWSC 403.
[8] [2014] NSWSC 96, 96.
[9] [2015] NSWCA 104.
[10] Ibid, 16 (per Basten JA) and 60-62 (per Meagher JA).
[11] SIS Act, s52(2)(b).
[12] SIS Act, s52(2)(c).
[13] SIS Act, s52(7)(d).
