Hannover Life Re [Hannover] was the insurer of a superannuation fund. Kellogg Superannuation Pty Ltd [the Trustee] was the trustee of the fund. Diosdado Sayseng [Sayseng] was an injured member. The contract of insurance (the Group Life contract) was between Hannover and the Trustee, so Sayseng was not a party. The insurance covered its members for total and permanent disablement. To be indemnified by the policy, Sayseng required a favourable determination by both the Trustee and Hannover (at  and ) because not only was the Trustee required to form its own opinion but depended on the member satisfying the definition of total and permanent disablement contained in the Group Life contract.
The Trustee determined that Sayseng was, in its opinion, not totally and permanently disabled. It did so after being informed by Hannover of its decision. The Trustee put to Hannover twice, matters forwarded by Sayseng for its consideration. Hannover determined that Sayseng was not totally and permanently disabled. His Honour, Bryson J at first instance, declared that the determination by Hannover was void. Hannover had failed to put to Sayseng material (video and doctor’s opinion) adverse to his submissions. Bryson J held the decision of Hannover to be void as a result. He ordered that the question of whether Sayseng was totally and permanently disabled to be tried before the Supreme Court, replacing the subjective discretion of the insurer.
In relation to the Trustee, His Honour noted that the adverse medical opinion though forwarded to Trustees’ agent [Mercer] by Hannover, was followed by the letter declining indemnity without there being an opportunity for the Trustee to respond. There was also no offer to Sayseng of an opportunity to comment, and there was not even communication of the reports to Sayseng. His Honour Bryson J commented:-
“In my view, these reports were so important [relying and including video footage] that it was not possible for the insurer to reach a conclusion on the effect they produced in relation to other material submitted, in the course of good faith and fair dealing and with due regard to the interests of Mr Sayseng and of the trustee, without finding out what response if any would be made to them. “
Bryson J held that Hannover was under a duty of good faith and fair dealing viz Sayseng (at ). He accepted that the insurer owed duties to claimants notwithstanding the claimants were not privy to the policy.
The next question was whether Sayseng could sue to enforce those duties direct against the insurer. Brysen J accepted that Sayseng could sue. He did not so decide by applying the decision of Trident v McNiece. His Honour held that Sayseng had so great an interest in the discharge by Hannover of its duties under the contract of insurance with Kellogg, and that so greatly would the position of Sayseng be affected, that Sayseng was competent to sue.
His Honour decided that he would defer making orders disposing of the proceedings against the Trustee pending the Supreme Court’s decision [and the trustees;] as to whether Sayseng was TPD within the meaning of the Group Life contract.
Hannover appealed to the NSWCA. Hannover submitted that Bryson J erred in holding that Hannover was required to furnish material to Sayseng for his comment if that material were adverse. This necessitated the NSWCA to consider the question of the content of the obligations of an insurer to an employee in the position of Sayseng (an ‘indirect’ beneficiary of the policy).
Santow JA, with whom Spigelman CJ and Tobias JA agreed, discussed this issue thoroughly. Santow JA agreed with the trial judge that the duty of good faith inherent upon Hannover extended to indirect beneficiaries (at ).
This involved rejecting the argument of Hannover that a bilateral obligation uberrimae fidei was applicable only between parties to a contract, effectively denying that Sayseng accrued any rights under the contract.
Santow JA analysed the decision in Trident. Santow JA noted that only three of seven HCA justices (Mason CJ and Wilson J; and Toohey J) held that a third party (the indirect beneficiary) could sue the insurer upon a contract of insurance (confined to a public liability policy in that case). Those three justices held that it was unjust to deny third parties to sue because ‘a denial involved: (a) failure to give effect to the express intention of the party who effects the insurance; (b) failure to give effect to the common intention of the parties including the insurer, to benefit third parties; and (c) injustice to these third parties who, having been made aware of the existence of the policy, have ordered their affairs accordingly’ (at ).
A further argument against allowing Sayseng to sue was that any money recovered from Hannover under the contract would flow to the Trustee, rather than to Sayseng. This distinguished this case from Trident, where the money went directly to the third party. Santow JA dismissed this problem, noting that in comparison to ‘the position of the insured subcontractor in Trident, there is no relevant difference in principle. Indeed, insofar as the employee makes a contribution to the costs of insurance, the case [was] is even stronger’ (at ).
His Honour Santow JA though, was of the opinion that it was unnecessary to extend the principles of the Trident decision because there was ample authority for the proposition that the member could make a direct claim in any event [citing the decision of Verinder v. Australian Institute of Steel Construction Ltd (2004) 13 ANZ Ins Cas 61-589 and Cigna Insurance Asia Pacific Ltd v. Packer  WASCA 415]. His Honour upheld the trial judge in relation to the authority provided in the case of CE Heath Casualty & General Insurance Ltd v. Grey (1993) 32 NSWLR 25 at 27 which was authority that the member was a person necessarily involved in the insurance thus, giving standing to the member to sue.
His Honour restricted himself to making these observations alone about Trident, having already concluded that Sayseng had standing to challenge the Trustees’ determination and that this case, fell outside Trident.
It was held that Sayseng, though not entitled to the proceeds of the policy, was entitled to the same obligation of good faith and fair dealing as was owed by the insurer to the trustee, taking account of their respective positions. In so finding, it was noted that the member was totally dependent on payment by Hannover to the Trustee in circumstances where that must have been appreciated by all parties to the tripartite agreement and because, in particular, the policy was held by the Trustee for the benefit of the employees in the wide sense of the benefit.
Santow JA noted that the material not disclosed to Sayseng was used by experts retained by Hannover to draw adverse findings concerning the determination of the condition of Sayseng. Santow JA considered the decision in Beverley [Beverley v Tyndall Life Insurance Co Ltd  WASCA 198] and found that, as there, crucial material was not disclosed to the claimant. This included surveillance footage.
Hannover tried to argue that Beverley should be distinguished because the material relating to Sayseng was supplementary and not conclusive. This submission was rejected. Hannover then tried to argue that it passed evidence of the existence of further reports to a neutral body [the Complaints Tribunal], from which Sayseng should have then requested disclosure. This submission was also rejected. His Honour Santow J, upheld that these documents were vital and that they should have been forwarded to Sayseng’s solicitors so that they could answer them or what could be derived from them. This included the surveillance footage.
His Honour upheld the findings of the trial judge and remitted the matter to the Supreme Court for a finding whether Sayseng was TPD. His Honour upheld the decision also, in relation to the Trustees, that it was proper that orders were deferred disposing of those proceedings until the decision by the Supreme Court was made.
Presumably, if the Supreme Court holds that Sayseng is TPD, the Trustees will then exercise their decision making powers under the terms of the Trust Deed to grant indemnity to the member.
On the basis of this authority, the same duties as were formerly only owed by trustees to their member beneficiaries, are now owed by the insurer to fund members, despite the fact that the insurer is not a fiduciary in the accepted sense and despite there being a lack of privity by the member to the policy contract.
This is a welcome development for underwriters of trustees’ professional indemnity policies, as it will allow proceedings by the member to be taken direct against the insurer for breach of the duty of good faith and fair dealing, without suit against the trustees. It is for the same reasons, not so welcome for life insurers who will now have to cross claim against trustees.
In practise, we consider that plaintiffs will continue to join trustees as well as the insurer as a matter of prudence, noting that the flow of documents between all the parties to the tripartite agreement is crucial in proving the liability of the insurer to the member.
 Spigelman CJ, Santow JA & Tobias JA