Catherwood v Asteron Life Ltd [2022] NZHC 3296

The High Court has recently denied Mr Catherwood’s claim for breach of a life insurance policy for terminal illness. The Court addressed the issue of whether the definition of “terminal illness” and “terminally ill” in the policy intended to take into account the effect of available medical treatment on a person’s life expectancy. The Court held that Asteron Life Limited (Asteron) had not breached the terms of the contract of insurance by denying the terminal illness extension of the life policy, when Mr Catherwood had treatment available to him that meant he was not going to die.

Background

In 2009, Mr Catherwood purchased a life insurance policy from Asteron that provided a death benefit should he die or if he became terminally ill. The words “terminally ill” are defined in the policy to mean:

Your life expectancy is, due to sickness and regardless of any available treatment, not greater than 12 months.

Mr Catherwood also purchased Trauma Cover that provided cover for a range of serious medical conditions or if he underwent major surgery.

In 2018, Mr Catherwood’s wife sadly passed away after a prolonged struggle with breast cancer. Prompted to investigate his own health, Mr Catherwood undertook a series of tests. In 2019, Mr Catherwood was diagnosed with stomach cancer. His oncologist advised that if he did not receive treatment then he would die within twelve months. However, if he received both treatments available to him, surgery and chemotherapy, his chances of survival would significantly improve. With treatment, Mr Catherwood’s chances of dying within twelve months were less than 10%.

Asteron accepted Mr Catherwood’s claim under the trauma recovery option, and he was paid $564,185.23. Mr Catherwood also claimed he was entitled to early payment of life cover under the terminal illness benefit for $1,200,020. Asteron declined the claim on the grounds that Mr Catherwood did not meet the terminal illness criteria because, based on the medical evidence provided, his life expectancy was longer than 12 months.

Mr Catherwood brought proceedings for breach of contract. The medical evidence, life expectancy and the treatment available to Mr Catherwood were not disputed. The primary issue in this case was the interpretation of the definition of “terminally ill.”

The issue

Dunningham J confined the issue to deciding whether “terminally ill”, as defined in the policy, meant:

a) Life expectancy no more than 12 months, disregarding the effect of any available treatment, as argued by Mr Catherwood; or

b) Life expectancy no more than 12 months, despite the effect of any available treatment, as argued by Asteron.

Mr Catherwood’s position was that, despite now being cancer free, at the time the claim was made he met the policy definition and remained entitled to the payment of the sum insured under his life policy and the monthly premium payments paid pursuant to the policy. He argued that the ordinary and natural meaning of the words “… and regardless of any available treatment…” meant that Asteron was required to disregard the existence and/or prospect of success of any available treatment. The prospect of a “commercially absurd result” – in this case paying a maximum benefit to an insured who is not going to die – should not override the natural and ordinary meaning, except in extreme circumstances.

Mr Catherwood argued that the underlying purpose of the benefit was to give the person who faced the likelihood of death a choice in how the benefit was spent. He argued this showed the terminal illness benefit was payable where there was a choice to undergo treatment.

In contrast, Asteron argued that the policy must be viewed reasonably and objectively. A construction of a policy that concludes Asteron’s objective intention was to pay the maximum benefit payable to an insured who is, on the basis of medical evidence available, not going to die, is unreasonable.[1] The word “regardless” should not be singled out and read in isolation. The other benefits available, such as the trauma cover, responded to Mr Catherwood’s circumstances and pointed against the wide interpretation of the illness benefit.

Decision

The High Court upheld Asteron’s construction of the policy. It is the only reasonable interpretation of “terminally ill” that, construed objectively, is intended to take account of available medical treatment.[2] The Court held it would be entirely artificial to suggest an insured was entitled to a terminal illness benefit when treatment available meant the insured was likely to live longer than twelve months.

The Court determined that the terminally ill benefit is part and parcel of the life cover offered.[3] The idea that someone can be described as “terminally ill” when there is an available cure is contradictory. It is contrary to common sense to describe someone as terminally ill when there was an available and successful cure.

The Court referred to the Australia case of Tower Australia Ltd v Farkas[4] and cited Mason P, who rejected the construction of “terminal illness” requires the insurer to ignore the likely outcome of treatment, stating:[5]

To refuse to take account of available treatment in any and every case… would convert the Policy into a lottery ticket without textual justification and contrary to a fair, commercial and reasonable reading of it.

A reasonable interpretation of “terminally ill” must consider the available medical treatment within the definition.[6]

The Court did not need to consider whether or not the insured could reject treatment and still qualify for the benefit as these considerations did not arise on the facts. In any case, it would not affect the insured entitlement to the terminal illness benefit but it would merely affect the point at which the insured may be entitled to receive it.[7]

Comment (Rachel Anderson)

Given the strained interpretation that Mr Catherwood was attempting to apply to the policy wording, our view is that the case was determined correctly.

Mr Catherwood is appealing the decision. In the unlikely event that he were to succeed, it could open up the definition of terminal illness to many illnesses that are curable with modern treatments, but death sentences without.

In this case, there was a dispute on a fairly confined interpretation issue, but the decision confirms that the intention of life insurance policies is to pay out only in very narrow circumstances. For that reason, other benefits are generally available to provide cover for life-altering medical diagnoses. These other benefits, including trauma cover, will more appropriately apply in these circumstances.