An insurer that used an hours worked exclusion to deny a disability claim has had its argument thrown out by the Queensland Court of Appeal.

AIA rejected a Queensland chef’s claim because he had not continuously worked for 15 hours or more per week in the three months before his disablement, as required by its policy.

But the court has found the essential character of the group life policy has nothing to do with the work requirement: “The event insured was the risk of harm to an insured member while covered by the policy.

“The event insured was not an insured member’s capacity to work more than 15 hours per week continuously for three months.”

Luke Kelly-Stevens was a member of Club Super when he injured a hand tendon in March 2015. He was paid income protection cover until he returned to work that July.

In September 2015 he stopped all work due to severe back pain, muscle spasms and other injuries, and he claimed on his TPD cover with AIA through the super fund.

The District Court of Queensland found that while the 15-hours exclusion gave AIA a contractual basis to refuse the claim, under the Insurance Contracts Act it could not reject the claim only because of the exclusion.

The court cited section 54 of the act, which says an insurer may not refuse a claim in certain circumstances.

AIA appealed, but its argument that the work requirement was part of the essential character of the policy has been rejected. It said an insurer must be free to decide the terms and conditions on which it offers cover, so must be entitled to differentiate between risks and set premiums appropriate to them.

The Appeal Court says Mr Kelly-Stevens’ failure to satisfy the work requirement occurred after the contract was entered into and did not contribute to him suffering the disabling injury.

The work requirement did not therefore protect a legitimate interest of the insurer.

Apart from three weeks off work with his hand injury, Mr Kelly-Stevens “squarely fell within the category of members to which the policy definitions applied”.

Section 54 aims to strike a fair balance between the interests of an insurer and insured, and its remedial purpose applied in this case, the appeal judges say.

Read the judgment here.