Occupational hazard: defining what you do

Investment advisers no doubt constantly review financial markets to ensure that when advice is given it is as informed as possible so that the client’s risk exposure is minimised. By doing this, they, in turn, ensure a minimisation of their own risk exposure.

Risk insurance is, however, viewed by some as being less dynamic.

Certainly, there are the constant product upgrades being launched by the various insurance companies, but once they are in place not much changes, so it is safe to simply rely on formal risk insurance research as a back-up to advice.

Unfortunately, nothing could be further from the truth.

The professional risk insurance adviser not only has a sound knowledge of the client and the products that may be appropriate for them, but they also retain access to background information so they can remain well informed about what is going on in other areas that may influence their advice or the way in which they work with clients.

Two recent court cases graphically demonstrate some hidden risks by providing valuable insight into what appears to be an easy question with an obvious answer: what is a client’s usual occupation?

The case of the aggrieved accountant

Mr B was claiming under an income protection insurance policy and a disagreement arose with his insurer as to whether or not he was medically able to work in his usual occupation.

In order to reach a determination on this there needed to be agreement as to what in fact was his ‘usual occupation’.

Mr B was an accountant, running a one-person practice. He worked 50 or more hours a week and serviced around 900 clients. It was necessary for him to meet face-to-face with his clients.

In undertaking his duties as an accountant, he prepared taxation returns (95 per cent) and performed audit work (5 per cent).

Mr B argued that the above were the components of his occupation and as he was medically incapable of working in line with the above, he was disabled within the context of the policy.

The insurer, however, took a different view on what was Mr B’s usual occupation. It simply saw his usual occupation as ‘that of an accountant principally (95 per cent) preparing taxation returns and also performing some audit work (5 per cent)’.

After assessing the information available to them, the insurer felt that Mr B did not satisfy the definition of total disability within the policy.

When an agreement could not be reached, the case eventually ended up in court.

“In my view”, the judges said, “the description suggested by the plaintiffs (Mr B) is too broad and that by the defendant (the insurer) too narrow.”

The judge went on: “Bearing in mind the 10-hour element in the definition, the number of clients and the hours of work per week should not normally be included in the definition. In addition, I have come to the conclusion that the methods employed in conducting the usual occupation, which may be capable of variation, should also not normally be part of the description.

“It seems to me, however, that it is part of the description of Mr B’s usual occupation that he was engaged in conducting a ‘one-man practice’. Accordingly, I incline to the view that his ‘usual occupation’ should be described as that of an accountant engaged in the conduct of a one-man practice preparing tax returns (95 per cent) and performing audit work (5 per cent).”

Risk exposure for the adviser primarily comes at the time of the recommendation, that is, for what occupation did the adviser state or imply Mr B would be covered? If the adviser thought the question of what was Mr B’s usual occupation was simple and straightforward, there could be a problem.

Further risk exposure for the adviser may come in that the judge appears to be adjusting his view in so far that there is a “10-hour element in the definition”. As a result of this, “the number of clients and the hours of work per week should not normally be included in the definition”.

Following on from this, one might surmise that a different style of definition would enable the inclusion of the number of clients and hours of work, which may or may not be to the advantage of a particular client.

(Baneth v Asteron September 21, 2005, Supreme Court of Victoria.)

The case of the super salesman

The circumstances in this case were quite different in that the insured had returned to work.

Mr K suffered a breakdown but, after some time off work, he was advised by his psychologist that he would benefit from attending his employment premises and doing whatever work he could, which ended up being “odd jobs, cleaning the yard, painting”, and so on. He also attended board meetings and signed company returns, but only in a nominal capacity.

The insurer gained the impression that these attendances were evidence of an ability by Mr K to perform the duties of his usual occupation.

The insurer therefore maintained Mr K had returned to work in his ‘usual occupation’ whereas Mr K maintained, not only had he not returned to work in his usual occupation but he was medically incapable of doing so.

In order to make a decision, the court again, in part, needed to decide what his usual occupation was.

The court drew upon legal precedent; on this occasion a case from 1860 (Hooper v The Accidental Death Insurance Company) in which the judge stated in regards to the plaintiff: “His ‘usual business and occupation’ embrace the whole scope and compass of his mode of getting his living”.

Even though this approach appears to differ from the approach of the judge in the previous case, using this precedent, the court found: “He (the plaintiff) was the chief executive and general manager and accounting manager. He described himself … as the ‘chief rainmaker, chief contact for attracting customers.”

The court further accepted the evidence of a fellow manager who described Mr K as “a talented salesman”, who “worked hard, spending 60 hours a week on (company) business”, whose role “entailed energetic application of effort by the plaintiff in a leadership role involving contact and interaction with customers, bankers and staff”.

The court, on the other hand, found “the plaintiff no longer has the capacity to act as overall manager of a business and to perform the role of chief rainmaker, chief contact for attracting customers, etc… whereas he was previously ... a very good salesman … he became a person who could not confront the kinds of promotional and customer interface essential to even basic ability to perform such a role”.

Thus, while on first glance it might have appeared reasonable for the insurer to assume someone could perform their own occupation if they were attending the workplace and participating in tasks such as, in this case, board meetings, signing documents, and so on, the court ruled that the mere act of participating in a task does not of itself demonstrate a capability to perform that task.

One further relevant point in this case was the comment of the judge that: “Neither the certificate nor the rules define ‘usual occupation’ in the sense of ascribing a particular meaning to the particular expression.” This omission may well have added to the uncertainty.

(Kon v AMP — NSW Supreme Court, December 2006.)

Implications

The implications of these two cases are many and far reaching, and in total they are well beyond the scope of this article.

Suffice to say, however, there are some key messages:

(i) It may be worth insurers considering the inclusion of a definition of ‘usual occupation’ within a policy document, as this could assist in providing clarity and thus reducing the risk of dispute.

Any definition should cover the contingencies of:

n what components of the occupation are included and what are not;

n is there a minimum time of involvement in an occupation before it is considered to be the insured’s ‘usual occupation’;

n what is the position if the insured is working in more than one occupation;

n what is the position if some occupations being performed are remunerated and some are not;

n what is the position in the event of extended leave, for example, long-service, maternity/paternity, sabbatical, and so on;

n what is the position if there exists any combination of the above?

(ii) How careful must the adviser be when completing applications and claim forms to get the essential nature of the client’s usual occupation accurately reflected;

(iii) How much timely investigatory work needs to be undertaken by the claims assessor in order to reach a reasonable determination as to what is the client’s usual occupation;

(iv) Advisers and insurers should keep in mind ‘usual occupation’ is a term used not only within income protection and business expenses policies but also in total and permanent disability contracts; and

(v) Advisers should consider the monetary value that should be ascribed to access to resources that can analyse and advise in regards to complexities similar to the above, such that they are freed up to focus on the giving of advice.

Col Fullagar is the head of life risk at Challenger Financial Services.