Unsurprisingly, both the High Court and the Court of Appeal agreed with the insurer, concluding that it was right to take the treatment into account, and therefore to decline cover.1 In reaching its decision, the Court of Appeal made a number of broader observations about the interpretation of insurance policies more generally.
Background
Mr Catherwood’s policy with Asteron provided for both trauma and life cover:
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- Under the trauma cover, an insured is entitled to payment of a trauma benefit if they undergo major surgery and survive for at least 2 weeks. Mr Catherwood had approximately $565,000 of trauma cover.
- Under the life cover, an insured is entitled to payment of a death benefit it they become “terminally ill”. This occurs if the insured’s “life expectancy is, due to sickness and regardless of any available treatment, not greater than 12 months”. Mr Catherwood’s death benefit was approximately $1.2 million.
Mr Catherwood was diagnosed with a tumour at the top of his stomach in January 2019. He was treated with 8 weeks of chemotherapy, surgery to remove part of his stomach and oesophagus, and a further 8 weeks of chemotherapy.
Mr Catherwood claimed under his trauma cover. Asteron accepted that claim, and paid him $565,000.
Once he had received his trauma payment, Mr Catherwood then claimed under his life cover, arguing that the assessment of his life expectancy should be undertaken “regardless of any available treatment”. He said that this meant that the effect of any available treatment should be ignored, and that the evidence was that, in the absence of any treatment, he would have likely died in the 12 months following diagnosis.
Asteron declined the claim, saying that Mr Catherwood needed to have a life expectancy of less than 12 months even after any available treatment. It said that “regardless of any available treatment” means “despite any available treatment”. The evidence was that, taking into account the treatment, Mr Catherwood’s chance of dying in the 12 months following diagnosis was less than 10%.
Court of Appeal
The Court of Appeal rejected Mr Catherwood’s interpretation of the policy.
It accepted that the policy was “not well worded”, and that the words “regardless of” can mean either “ignoring the effect of” (as contended for by Mr Catherwood) or “despite the effect of” (as contended for by Asteron).
This then raised an important question: how does the Court interpret words in an insurance policy where those words are capable of bearing two different meanings?
In this case, the Court considered three different approaches:
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- looking at the broader context in which the words are used in the policy;
- applying the contra proferentem rule; and
- considering the approach used in other policies in the market.
Broader context
The Court of Appeal ruled that, under the modern approach to contract interpretation, it was appropriate to consider the context in which the words were used. It said that this context supported Asteron’s interpretation:
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- The argument that an insured can claim a death benefit for a terminal illness in circumstances where there is an available cure and the insured is likely to survive is contradictory. It gives no meaning to the “terminal” in “terminal illness”.
- There are other options under the policy (such as the trauma cover) for conditions falling short of death.
In our view, this is clearly correct. No reasonable person would understand the terminal illness cover to apply in circumstances where the insured is in fact likely to survive for more than 12 months.
Contra proferentem
The Court of Appeal accepted that the definition of terminal illness was “ambiguous” because the words “regardless of” can bear two different meanings. However, the Court rejected Mr Catherwood’s argument that this invoked the contra proferentem rule, namely that “where a policy is ambiguous, it must be construed against the party who drafted it”.
While the Court accepted that the rule can be of use in interpreting insurance policies, it concluded that the rule did not apply here. This was because the Court considered that there “is no ambiguity as to the proper interpretation of the definition”.
In our view, this is a helpful explanation as to how the contra proferentem rule applies. It is not enough that the words themselves are ambiguous. It must be the case that, even after considering the broader context, there is still an ambiguity as to the proper interpretation of the policy.
Evidence of industry practice
Finally, the High Court admitted evidence that other insurance policies in the market have terminal illness benefits that apply after taking into account available medical treatment, although it did not rely on that market evidence in interpreting the policy. Mr Catherwood challenged the admissibility of that evidence.
The Court of Appeal commented briefly on the admissibility issue, saying that evidence of industry practice “speaks to the general context within which Mr Catherwood’s contract was entered into”, and that the evidence was therefore properly admissible in this case.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.
[1] Catherwood v Asteron Life Limited [2021] NZHC 2612 and Catherwood v Asteron Life Limited [2023] NZCA 357.