CR78 Interpretation of contract – disability claim for permanent total disablement benefit
Interpretation of contract – disability claim for permanent total disablement benefit – policy containing no definition of permanent total disablement
The complainant, an official in a government department, was involved in a motor vehicle accident. He underwent surgery and was hospitalised for four months, having suffered head injuries with brain damage. He returned to work but was not able to cope. He crashed his new government vehicle the first time he drove it again and it appeared that he could no longer drive safely. He was boarded in 2004.
The neurosurgeon’s report stated that he anticipated problems with the complainant’s long-term higher functions, such as short term memory, concentration, planning of tasks, motivation, drive, and emotional abilities, all of which would have a serious impact on his future work situation. A medical boarding report stated that the complainant’s condition was permanent, and he was unfit for previous government service although he might be able to cope with service that required less cognitive functioning. Neuropsychological tests showed that the complainant had severe problems with body image, attention, spatial awareness and laterality, important aspects in all cognitive functioning, for example reading, writing and driving. There were also problems with immediate and short-term memory. An occupational therapist’s view was that he was incapable of performing his previous job, which required high levels of cognitive functioning. He might be able to perform simple tasks but would need constant supervision, and his below par work speed was problematic. There were also letters/reports from the complainant’s former employer indicating that he was unable to perform his previous tasks.
The complainant’s claim for a permanent total disablement benefit under his accident policy was repudiated by the insurer in May 2004 without explanation, whereafter the complainant lodged a complaint with our office.
There is no definition of the term “permanent total disablement” anywhere in the policy. The policy merely states that
“Your Accident Plan provides you with a cash lump sum should you suffer an accidental injury resulting in death or permanent total disablement”.
The insurer provided the explanation that, in terms of the policy wording, no consideration is given to occupational disability, and that
“permanent and total disablement is given the plain and simple English meaning which indicates that the person’s condition is of such a nature that he is unable to function in any way whatsoever and the damages are irreversible … to be permanently disabled you need to be totally unable to function”.
The insurer’s view was that, based on the OT report, the insured could perform simple tasks, therefore he was not totally and permanently disabled to function.
At issue here is the interpretation of the wording of the contract with regard to the benefit payable on “permanent total disablement”.
The interpretation of an insurance contract is a question of law, aimed at determining the actual or constructive intention of the parties, as expressed in the terms of their contract.
The first step in interpretation is to give words their ordinary grammatical meaning. The word “permanent” is defined in the New Penguin English Dictionary as meaning “continuing or enduring without change, lasting or stable”. “Total” means “whole, complete, absolute”. “Disability/disablement” means “1a. “the condition of being disabled; spec. inability to do something because of physical or mental impairment; b. something that disables, a handicap; 2a. legal disqualification. “Disable” means “1a. to make (somebody or something) incapable or ineffective; b. to deprive somebody or something of physical soundness, to cripple (them or it); 2. to deprive someone of legal right, qualification or capacity”. “Disabled” means “1. having physical difficulties; 2. having been made incapable of operating”. Applying the dictionary definitions in context, to somebody rather than something, the term permanent total disablement can be taken to mean an enduring condition of being completely and absolutely disabled, that is, unable to do something because of physical or mental impairment.
The insurer’s interpretation went a little further and included the meaning of disabled as “having been made incapable of operating”, or in the insurer’s formulation, “unable to function in any way whatsoever”.
It may be argued that “incapable of operating” refers to a thing rather than a person, but assuming that the words can mean, in relation to a person, that he is literally “permanently and totally unable to function in any way whatsoever”, in our view he would in that case, either be dead, or at best, a “vegetable”, unconscious and on life support as he could not function on his own in any way whatsoever, with no prospect of recovery.
Our view was that such an interpretation would be an absurdity, of the type contemplated in the leading case of Scottish Union and National Insurance Co Ltd v Native Recruiting Corpn Ltd 1934 AD 458, where it was stated that a court may modify the words if the ordinary grammatical meaning “necessarily leads to some absurdity or to some repugnance or inconsistency with the rest of the contract”. It has also been held that the ordinary grammatical meaning will not be applied if it is illogical or improbable that that meaning was intended (Bev’s Car Hire (Pinetown) Pty Ltd v Incorporated General Insurances Ltd 1988 2 PH A43 109 N). In Lehmbecker’s Earthmoving v Incorporated General Ins 1984 (3) SA 513 (A) the court stated:
“it not infrequently happens that the parties use simple words, in themselves unambiguous, but which cannot readily or unreasonably be applied in their literal sense to all the situations to which their agreement was directed. In such cases an element of ambiguity arises from the fact that “an absolutely literal interpretation” may be wholly or substantially impracticable, or productive of startling results which could hardly have been intended”.
In McGillivray Insurance Law the comment is made that, in such a situation, “some gloss on the words becomes essential and their superficially plain meaning is seen to be illusory”. In other words, a departure from the ordinary meaning of words is justified in such cases, and in our view the present case was such a case. It appeared inconceivable that either party could have contemplated a benefit being payable only in the event that the insured was rendered a vegetable.
In accordance with the purposive approach to interpretation words cannot be construed properly if text and context are separated, and it is always legitimate to inquire into the context of the contract, so as to determine the intention of the parties, especially in the situation where the ordinary grammatical meaning of the words appears to lead to an absurdity or ambiguity. One is entitled to look at the objects which the contract was to achieve, in this instance, cover for death and disability. In the English case of Cornish v Accident Ins Co (1889) 23 QBD, cited in Clarke The Law of Insurance Contracts (4th edition), it was held, with regard to a similar contract, that “the object of the contract is to insure against accidental death and injuries, and the contract must not be construed so as to defeat this object, nor so as to render it practically illusory”. In the Canadian case of Consolidated Bathurst v Mutual Boiler (1980) 1 SCR 888, the court expressed this as follows:
“an interpretation which defeats the intention of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of the policy which produces a sensible commercial result. It is trite to observe that an interpretation of an ambiguous contractual provision which renders the endeavour on the part of the insured to obtain insurance protection nugatory, should be avoided.”
One is also entitled to look at the wider trade context. Part of an examination of the commercial context is an examination of similar policies. In this regard it is interesting to note that a survey of several South African, English and American textbooks on insurance law reveals that clauses in contracts defining total disability invariably define disability in relation to an object, that is, disability is defined as the inability to follow one’s usual, own, similar or any business or occupation or pursuits for gain or remuneration. We were unable to find a single example of a clause in an accident policy where total permanent disability was not defined in relation to its object in this way. Enquiries directed to the Ombudsman for Short-term Insurance also revealed that no-one in that office had any experience of a clause such as that in this policy.
The “trade usage” definition of total disability in relation to an object ties in with the dictionary definition which defines disability as the “inability to do something because of physical or mental impairment”. Indeed it does not make sense to speak of disability without incorporating some answer to the question: disabled/unable to do what? To interpret the policy in this case one must attempt to supply some answer to that question, in order to make businesslike sense of the policy, as discussed in McGillivray, Insurance Law:
“It is an accepted canon of construction that a commercial document, such as an insurance policy, should be construed in accordance with sound commercial principles and good business sense, so that its provisions receive a fair and sensible application. Several consequences flow from this principle. The literal meaning of words must not be permitted to prevail where it would produce an unrealistic and generally unanticipated result, as for example, where it would unwarrantably reduce the cover which it was the purpose of the policy to afford… A further result of this maxim is that a court may imply into the express words granting cover an extended scope beyond their strictly literal meaning in order to give effect to the only sound interpretation of the contract”.
The only way to make sense of the policy provision in this case is to read in words providing an object to the word “disabled”. The appropriate wording to be read in would clearly be one of the standard formulations used in disability policies, along the lines of “disabled to perform his/her own occupation / a similar occupation which s/he could reasonably be expected to follow in keeping with his/her education/training/status/experience/ability, / any other occupation whatsoever”.
Clearly the “own occupation” only formulation would be most disadvantageous to the insurer, as it would be liable in cases where the insured could not perform his own occupation, even if he could perform a similar or any other occupation. By the same token the “any occupation” formulation would be most disadvantageous to the insured, as he would have to prove that he could not perform any occupation before the insurer would be liable. In our view, where an element of ambiguity has arisen from the fact that a literal interpretation would be unsustainable, the contra proferentem rule, whereby a contractual provision is construed against the contracting party by which or on behalf of which it was formulated, would be the appropriate principle to apply to resolve the ambiguity. In other words, the policy should be interpreted in favour of the insured rather than the insurer.
In this instance, and having taken into account the premium charged, considerations of equity would justify the policy being interpreted as if the wording included an “own or similar occupation” rather than an “own occupation” clause.
Applying the facts of the case to the policy as interpreted, it would seem that, having regard to the complainant’s education, training, status, experience and abilities, he would not be able to perform, nor would it be reasonable to expect him to perform, a similar occupation to that in which he worked before. His job as a government official entailed a high degree of decision-making responsibility, intellectual work and administrative duties, with concomitant status. As stated by the occupational therapist, attention and spatial awareness, which were particular problems for the complainant since the accident and the injuries to his brain, are needed in any form of administrative tasks. He also had problems with immediate and short-term memory, critical elements of higher cognitive functioning, and his work speed was slow. While he might be able to perform simple tasks with supervision, he was clearly not equipped to perform either his own or any similar occupation.
The requirement of totality of disability was in our view met in this instance. It is not necessary for the insured to prove that he cannot do any part of his occupation (or a similar occupation) before he can be said to be totally disabled. As stated in Wickens Insurance par 1.360:
“A requirement that the insured be unable to carry out even one aspect of his or her work would mean that virtually no-one except a total paraplegic with little mental capacity could qualify, and this is unlikely to be the intention. A more reasonable interpretation (particularly in view of the implied good faith requirement) is that the insured must, in a practical sense, be unable to carry out his or her work.”
Certainly this applied to the complainant.
There was medical evidence that the complainant’s condition was permanent and that no appliance, operation, treatment or extended leave would render him fit for efficient discharge of his duties. The requirement of permanence appeared therefore to be satisfied.
We made a ruling that the claim in this case should be admitted and paid, and the insurer accepted the ruling.