Mr V was a member of a group insurance scheme for income protection. He suffered from chronic pain syndrome, which prevented him from working in his former occupation. Under his policy, Sovereign could cease payment of his benefit after two years if it considered on reasonable grounds that he was not suffering from a total disability. Sovereign obtained expert opinions from an occupational physician and a vocational assessor, and decided that Mr V was no longer entitled to a benefit.
The Court identified the following principles that an insurer should follow when making a decision on whether an insured is entitled to a benefit:
1. The insurer should interpret the policy to determine the correct questions in issue.
2. Where an expert opinion is sought, the expert should be provided with all the relevant information.
3. The expert must be asked the correct questions. However this does not require the insurer to request the expert to analyse specific policy provisions, where the insurer is not delegating the determination to be made to the expert.
4. The insurer is bound by a duty of good faith and fair dealing.
5. The insurer must have due regard for the interests of the insured, but this duty is contractual, not fiduciary.
6. Where a state of affairs governing the entitlement to a benefit turns on the opinion of the insurer, the insurer must act reasonably in considering the matter and forming its opinion.
7. The insured bears the onus of proof in both the original claim and any review application.
The Court will not substitute its judgment for that of the insurer. If the insurer has addressed itself to the right questions and taken account of the relevant information available to it, and the decision reached is reasonably open to the insurer, the Court cannot intervene. This test is similar to the Wednesbury principle applied in judicial review applications.