Shine Lawyers’ Insolvency Law Practice has won a landmark decision for a deserving client in the Western Australian Supreme Court, confirming for the first time under Australian law that the proceeds of Total and Permanent Disability insurance policies (TPD policies) belong exclusively to the TPD claimant, and are beyond the reach of creditors in bankruptcy.
A large granite rock crushed Mr Bruce Berryman’s right foot while he was at work, disabling him for life. Shine Lawyers, acting for Mr Berryman, commenced legal action against Zurich Insurance who refused to pay Mr Berryman his $2million lump-sum TPD insurance policy benefit (the action). Due to business loans that had also gone bad as a result of his accident, Mr Berryman became bankrupt after commencing the action.
In Berryman v Zurich Australia Ltd  WASC 196, the question to be determined by the Court was whether provisions in Australia’s Bankruptcy Act 1966 (the Act) put the TPD benefit beyond the reach of his creditors in bankruptcy. The judge, Justice Tottle, recognised in his judgment that this was the first time the question had come to be determined by an Australian court.
Section 116(2) of the Act sets out various categories of property which are not divisible amongst the creditors of a bankrupt. Section 116(2)(g) puts beyond the reach of a bankrupt’s creditors:
Any right of the bankrupt to recover damages or compensation:
- For personal injury or wrong done to the bankrupt…; or
And any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong.
Section 60(4) preserves the right of a bankrupt to continue with an action in respect of the rights specified in s 116(2)(g). It reads as follows:
…a bankrupt may continue in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of:
- any personal injury or wrong done to the bankrupt…
Section 60(4) reverses the default position in bankruptcy, which is that all of a bankrupt’s legal actions are lost to their bankruptcy trustee, who may then make an election to continue any action for the benefit of the bankrupt’s creditors.
Zurich Insurance’s argument
Zurich argued four things in defence:
- Mr Berryman’s action was not in respect of a ‘personal injury or wrong’ because it was a breach of contract claim in respect of Zurich’s refusal to honour the TPD policy;
- Any damages recoverable, namely the $2 million benefit, were assessed by reference to the contract, not by reference to his pain and suffering;
- The injury was an accident, hence it was not ‘done’ to Mr Berryman by anyone, which was based upon a literal reading of the above provisions; and
- As the action vested in Mr Berryman’s bankruptcy trustee (the Public Trustee) and the trustee had not made an election to continue the action, Zurich argued the action was permanently stayed and it no longer had any liability to pay the $2 million benefit, not even to Mr Berryman’s creditors.
Finding in favour of the arguments put forward by Mr Berryman’s legal team, led by Shine Lawyers, Justice Tottle found:
- When interpreting the Act’s provisions, the substance of an action is to be preferred over its form, so the mere fact that Mr Berryman’s claim was for breach of contract should not be permitted to distract from its substance as a claim in respect of a personal injury; and
- There was no policy reason why the legislation should be read narrowly to apply only to personal injuries ‘done’ to a bankrupt by a third party.
It was decisive that, had Mr Berryman not suffered the injury resulting in his ‘total and permanent disability’ within the meaning of the TPD policy, he would have had no claim. In this most significant and critical respect, Mr Berryman’s damages are determined by reference to his injury.
Whether the amount of compensation under a TPD policy is fixed or not does not detract from this connection.
The Right Decision
It is often the case that serious personal injury goes hand-in-hand with serious financial difficulties.
The decision squarely puts the Australian Insurance industry on notice to respect the rights of personal injury claimants, even in bankruptcy.
This landmark decision eloquently confirms the clear statutory intention behind Australia’s insolvency laws to temper the harshness of bankruptcy, and not to add insult to injury, by reserving “to the bankrupt the solace for personal injury”.
This article first appeared in the Lexis Nexis Insolvency Law Bulletin 2016 Vol 17 No 7 and is republished with its permission.
Written by Shine Lawyers on . Last modified: March 13, 2018.