Insured argued that his life expectancy, without treatment, was not greater than 12 months
In a recent insurance dispute, the Court of Appeal rejected a claim for death benefits by an insured who recovered from an alleged terminal illness.
In Catherwood v Asteron Life Limited [2023] NZCA 357, Hugh Catherwood is a senior lawyer in Christchurch who obtained a life insurance policy from Asteron Life Limited. The policy provided a death benefit which would be paid should the insured dies or becomes terminally ill.
In mid-2019, Catherwood was diagnosed with oesophageal adenocarcinoma. A tumour was found at the top of his stomach near the oesophagus and diaphragm. His treatment involved eight weeks of chemotherapy followed by surgery. That was then followed by a further eight weeks of chemotherapy once he had healed from the surgery.
Catherwood filed a claim for death benefit under his life insurance policy because he asserted he was “terminally ill”. He eventually completed treatment, and it has been successful. Notwithstanding that he is alive and in good health, he contended that he remains entitled to the payment of the sum insured because he met the “terminally ill” definition when he made his claim.
The policy provides that an insured is terminally ill of their “life expectancy is, due to sickness and regardless of any available treatment, not greater than 12 months”. Catherwood argued that when he claimed the death benefit in 2019, he was sick, that the policy requires that the treatments available to him be ignored, and that, when they are ignored, his life expectance at the time was not greater than 12 months.
Asteron declined to pay the sum insured, arguing that Catherwood’s condition at the relevant time did not fall within the definition of the words “terminally ill” contained in the policy. Asteron contended that the policy requires Catherwood’s life expectancy to be not greater than 12 months, despite the treatments available to him at the time. The insurer noted that Catherwood’s prognosis, considering the treatments he was then receiving and was likely to undergo, was that he was unlikely to die within 12 months.
The High Court ruled in favour of Asteron and rejected Catherwood’s assertion that Asteron was in breach of the policy when it declined to make payment of the sum insured to him.
Catherwood raised the matter to the Court of Appeal, arguing that the judge failed to interpret the relevant provisions in the policy correctly. On the other hand, Aston argued that the high court judge correctly interpreted the policy and that it is not yet obliged to pay the sum insured to Catherwood under the policy.
The appeal court noted that the dispute between the parties focuses on the meaning of the words “regardless of” found in the definition of “terminally ill.” Catherwood asserted that the words “regardless of” mean “ignoring the effect of” any treatment. Meanwhile, Aston argued that the words “regardless of” means “despite the effect of” any treatment.
The appeal court further noted that the effect of the terminal illness benefit was to accelerate payment of the sum insured when an insured was terminally ill, presumably so that the insured could ease their final months and better arrange their affairs.
In resolving the dispute, the appeal court considered that an insurance policy is a contract. Consequently, it is subject to the rules of construction which apply to any contract. Traditionally, New Zealand courts have used the “plain meaning rule”—if the words of the contract were plain and unambiguous as they stood, they were treated as speaking for themselves.
However, the courts have recently become more willing to receive evidence of surrounding circumstances to interpret written contracts. The courts have considered that evidence of the context in which an agreement was entered into can be admitted because it is not always possible that what appears to be the plain meaning of the document may, on further examination, turn out not to be.
The court analyzed the dictionary definition of “regardless of” and found that it can bear two meanings. The court acknowledged that several dictionary definitions favour the interpretation advanced by Catherwood—that the words “regardless of” mean disregarding or ignoring. However, the court also recognized that “regardless of” could mean “despite” or “in spite of”. In the court’s view, the words “regardless of” and “despite” can, in many contexts, be used interchangeably. Consequently, the appeal court said that the high court judge did not commit an error when she observed that the interpretation advanced for Catherwood was not the only interpretation available.
Accordingly, the court rejected Catherwood’s argument that the words “regardless of” used in the terminally ill definition have the ordinary and natural meaning “disregarding”. Instead, the court accepted the argument that the words “regardless of” are capable of two meanings and that it is necessary to examine the context in which the terms are used to ascertain their meaning in the definition of terminally ill.
The appeal court noted that the policy was primarily a life insurance policy, and any payment by the insurer under the terminally ill provision was, in effect, an early payment of the sum insured—the death benefit. Furthermore, the court acknowledged that the idea that an insured can be described as terminally ill and claim an accelerated death benefit when there is an available cure, and the insured is likely to survive is contradictory.
The court also noted several optional benefits that an insured could elect to take out under the policy, such as those triggered by diagnoses of certain health conditions. The court accepted the view that the optional cover available under the policy responds to specific health-related circumstances. There would be little or no need for the optional cover provisions if the terminal illness benefit did not require consideration of the impact of medical treatment on the imminence of death.
The court agreed with the high court judge’s conclusion that the definition of terminal illness and terminally ill, construed objectively, was intended to account for available medical treatment and that this was the only reasonable interpretation. Accordingly, the court upheld the high court’s interpretation of the policy and dismissed Catherwood’s appeal.
