LTD – The Year in Review: Twelve Things You Ought to Know

As the Ontario workforce ages, there is a significant likelihood that the number of workers finding themselves disabled and claiming LTD benefits will increase. Recent proposals to raise or eliminate the mandatory retirement age may also contribute to this trend. More disgruntled workers will complain of being wrongfully denied long-term disability benefits. It’s simple mathematics. More claims will lead to more disputes. In an era when legislative changes increasingly impair the ability of motor vehicle accident victims to obtain full compensation, there is good reason to believe that LTD litigation will naturally become a more prominent aspect of the civil dockets.

LTD litigation remains dynamic. Ten years ago, jury notices were barred in LTD actions in Ontario; now they are common. [1] The doctrine of bad faith has taken root in LTD litigation. Insurers are constantly developing new and innovative arguments which have the potential to defeat a claimant’s action for benefits. Tactics and strategy are essential weapons for the claimant and his/her lawyer as they cross blades with some of the largest insurers in Canada in these disputes.

With this in mind, we have set out a few recent developments that lawyers might find useful to consider as they litigate in this area. Please note that this list is by no means exhaustive.

Procedural issues

The impact of the pre-claim medical examination

Pursuant to Rule 33.01 of the Rules of Civil Procedure and s.105 of the Courts of Justice Act, a defendant is entitled as of right to compel the plaintiff to submit to a medical examination. However, what is the impact of medical examinations conducted prior to the issuance of the Statement of Claim? It is not uncommon for insurers to require regular medical examinations while a person is “on claim.” When a claim is denied, insurers have generally placed the onus for gathering additional medical information on the claimant, at his/her expense.

A common exception to this practice seems to occur after the insurer becomes aware that the claimant has retained counsel and is considering litigation. It is our common practice to write a letter asking for the file before suing. This allows us to evaluate the file and to determine if there is any evidence of improper conduct that should be specifically pleaded in the Statement of Claim. In some cases, however, LTD insurers have responded to a request to produce the file by sending the claimant to another round of medical examinations. If the examinations support disability, benefits are reinstated and the insurer avoids litigation.

If benefits are not reinstated, LTD insurers will routinely schedule another round of medical examinations. Be advised, however, that Zinchuk v. Unum Provident of Canada [2] stands for the proposition that a second round of medical examinations should not be granted. In this case, Zinchuk’s mental health was in question. In this case, Unum conducted three psychiatric examinations, in 1996, 1999, and 2002. Benefits were terminated shortly after the last examination, and the Statement of Claim was issued in 2003. Unum relied on Tsegay v. McGuire [3] which allowed a fresh examination after a tort action was started notwithstanding that the defendant had conducted two examinations prior to issuance of the claim. However, Master Egan preferred to follow a line of cases flowing from Binns v. Skinner Estate [4] where Justice MacDonald refused to allow the same insurer to have separate examinations for accident benefits and statutory third party purposes. MacDonald, J. stated,

I am of the view, therefore, that a prior medical examination under one statute or its regulation is relevant to the question of whether a medical examination properly may be ordered under the other statute or its regulation. [5]

Masters and Judges seem wary of allowing insurers to bolster their case when they have already had the benefit of choosing to send a claimant to the doctor of their choice and to make a decision regarding payment of benefits based on that examination. While the Zinchuk decision is clearly beneficial to claimants, this matter is far from decided.

The choice of who to examine of behalf of the insurer

This is a critical decision. Many LTD insurers have professional witnesses who travel the country appearing as the representative of the defendant at Examinations for Discovery. These witnesses will have no direct experience with the file or your client. Generally speaking, examining these witnesses is of limited value. If you have a legitimate bad faith case, examinations of this sort are a complete waste of time.

My practice is to require a sworn Affidavit of Documents with Schedule “A” productions BEFORE I advise the insurer of the person I want to examine. LTD insurers are usually good about providing you with internal correspondence. We try to identify the lowest decision maker on a file that had a significant role in the decision to terminate benefits. Examination of the decision maker may give you first hand information that you would never obtain by examining the insurer’s professional witness. For example, a couple of years ago, after reviewing the production documents, we determined that the decision maker on a file was a claims representative based out of Florida. I required that she be produced in Canada and under examination she admitted that she had a grade 12 education, no medical training, no training manual, no understanding of Canadian law, no knowledge of what “CPP disability” was, had never met my client, and did not bother to even schedule a medical before terminating benefits because “we don’t do that down in Florida.”

Asking the insurer to produce the decision maker may also assist you in determining whether the LTD insurer has farmed out the file to a claims handling company. This practice, which has only recently come to light, involves situations in which large Canadian insurers have contracted with independent companies, usually American, to assist and/or take over claim handling of some files. Clients have complained that the claims handling practices in some of these cases have been very aggressive. A warning bell should sound if you are told that the decision maker is not an employee of the insurance company. Claims handling is a high-turn-over industry and the adjuster may have left; however, the adjuster may NEVER have worked for the LTD insurer in the first place. You need to determine if that is, indeed, the fact. If necessary, find out the identity of the independent claims handling company and add it as a party to your action.

The option to bring an LTD action in simplified rules

One of the ongoing barriers to LTD litigation is that the quantum of the claim is often not significant by the date of trial. Assuming you are retained shortly after benefits are terminated, and you move the action forward quickly, total arrears by the date of trial might be very modest. We have personally seen cases where there has been a CPP overpayment and the total arrears at the eve of trial has been less than $15,000. While the value of future benefits may be significant, that is only relevant for the purpose of settlement discussions. A Court can only order payment of arrears. From a cost-benefit analysis perspective, it can be a challenge for lawyers and clients.

One possible solution flows out of the recent decision of Keddy V. Clarica Life Insurance Company [6]. In this case, the Plaintiff sued for benefits from the date of termination to the date of trial plus damages for breach of contract, mental distress and/or aggravated damages. The twist is that she sued in Simplified Rules. Clarica brought a motion to amend its pleadings and claim that the action was not within the jurisdiction of Rule 76 and ought to be transferred to ordinary procedure. Clarica wanted, inter alia, an Examination for Discovery. Clarica noted the claim was for more than $50,000 and complained that the strategy adopted by the Plaintiff would likely lead to multiple proceedings. Mrs. Keddy responded by abandoning the amount of her claim exceeding $50,000. Justice Browne refused to move the claim out of Simplified Procedure. He found that any future litigation about future benefits would be based on evidence that would come into being at a later date and should not bar the current matter from proceeding in its current format.

Another recent case which considered the same issue is Antunes v. Great-West Life Assurance Co. [7]. In this case, the plaintiff commenced an action under the Simplified Rules for $50,000 in LTD benefits, $25,000 in punitive damages, and a declaration that she was totally disabled within the meaning of the policy. Great-West objected, and as a result, the plaintiff abandoned the claims in excess of $50,000 and her claim for declaratory relief. The insurer then moved to have the case transferred to the ordinary procedure. The basis of Great-West’s position was that (a) this case involved credibility issues, (b) the case would be worth more if the claimant remained disabled after the trial, and (c) the simplified procedure would effectively reverse the onus of proof and invite a multiplicity of proceedings. The Master refused to allow the amendments, noting

In my view, it would be an abuse of process to allow the defendant to put such declaratory relief back on the table when at their insistence the plaintiff took it off the table in order to keep the action in simplified procedure with its speedier and less costly process. The defendant has submitted that it requires discovery because of serious credibility issues and the possibility of amounts greatly exceeding $50,000 being claimed in the future. In my view it is clear that the defendant is seeking these amendments for the sole purpose of moving the action out of simplified procedure, which they would not otherwise be entitled to do given the Keddy decision, in order to obtain those oral discovery rights. In my view, It would be an abuse of the process to allow an amendment for this purpose. [8]

The Master found that the attempt to add a declaration added no further dimension to the issues at trial. Since the trial judge could not make a finding of disability into the future, the proposed amendment was a tactical attempt to force a discovery that would have delayed a trial scheduled to begin five weeks after the motion was argued.

There are some significant advantages in some cases to being able to get a case to Court quickly without having to go through the expense of examinations for discovery. This strategy is probably not the best in cases where the claimant feels that he/she has a legitimate bad faith or poor claims handling argument. In those cases, Plaintiffs’ lawyers will need the opportunity to examine the insurer in order to build the case.

The continuing debate about where to litigate unionized workers’ LTD claims

There has been an ongoing debate in the caselaw for the better part of a decade as to whether LTD claims involving unionized workers should be resolved in the Courts or through the arbitration procedures set out in the Collective Bargaining Agreements (CBA’s). The Ontario Court of Appeal provided fairly clear direction on the matter in London Life Insurance Co. v. Dubreuil Brothers Employees Assn. [9] where Mr. Justice Gouge observed that the fundamental test was whether the parties intended that the facts in dispute be governed by the CBA. The Court relied upon the test set out in the “Brown and Beatty, Canadian Labour Arbitration”, [10] which applies a four-fold test:

1. where the CBA does not set out the benefit sought, the claim is inarbitable;
2. where the CBA obliges the employer to provide certain benefits, but does not incorporate the plan into the CBA, the claim is arbitable;
3. where CBA obliges the employer to pay premiums, the claim in inarbitable; and
4. where the insurance policy is incorporated into the CBA, the claim is arbitable.

Notwithstanding this clear statement of principles, the matter was recently litigated again in Morris v. Manufacturers Life Assurance Co. [11]. In this case, Manulife and City of Toronto were successful in having the LTD claim struck in a situation where the CBA clearly sets out the essential terms of the disability contract and the Group Benefits Contract clearly specified “No legal action for the recovery of any claim may be brought against Manulife” and directs that claims for benefits should be brought against the City of Toronto. [12] It is worth noting that the City and Insurer tried to split the claim so that the negligence, bad faith and punitive damages claims would remain in the Court; however, the judge refused to allow this and held that the City was liable for any misconduct on the part of its agent Manulife and the entire matter should be arbitrated.

While it is clearly open to employers and LTD carriers to draft Collective Bargaining Agreements so as to require arbitration rather than litigation, one has to question whether this course of action is in the best interest of anyone concerned. Labour arbitrators are generally unaccustomed to dealing with disability cases and the arbitration process is not generally well suited to this type of litigation in any respect. Unions have begun to consider hiring personal injury lawyers to deal with these sorts of cases. Parties will have to consider, however, the actual wording of the Collective bargaining Agreement before litigating unionized LTD claims to ensure that the Court has proper jurisdiction.

The impact of requiring a release when accepting a offer

An interesting case dealing with acceptance of offers to settle is Landry v. Standard Life Assurance Co. [13]. In this case, the plaintiff made a formal offer to settle in writing which the defendant purported to settle by letter. The defendant provided settlement funds and a release. However, prior to the defendant’s acceptance of the offer, the plaintiff instructed his lawyer to rescind the offer to settle (which was not communicated to the insurer). The plaintiff refused to sign the release, and Standard Life brought a motion to enforce the settlement. The motion was refused. Justice Spiegel held that a Court will enforce an offer to settle even though the settlement results from solicitor’s negligence; however, he refused to enforce this settlement because he found that the plaintiffs offer to settle did not include agreement to sign the ‘extremely broad’ offer to settle. [14]

This case stands for the proposition that the demand for a comprehensive release is not a mere formality, but rather a central term of any settlement which must be agreed upon before the parties can be said to have a binding settlement.

Collateral deduction disputes

Long Term Disability contracts are always written by the insurer and the insured has usually never seen a copy of the contract. This is especially true where the LTD policy is part of a workplace group benefits policy. It is not surprising that these contracts tend to contain very favourable terms for the insurer. Care should be taken when interpreting the collateral deductions clause of the contract. Generally, the insurer takes the position that it is entitled to any income paid to the worker, from any source, including but not limited to C.P.P. disability benefits, wages, severance packages, other insurance policies, etc.

It is worth noting that some insurers based outside of Ontario have often taken the position that they are entitled to deduct payments made to MVA victims for income replacement benefits paid pursuant to accident benefits provisions of policies. In the alternative, the insurer will write the victim a letter demanding that he/she advance a subrogated claim for repayment of those benefits from the accident benefits or tort insurer. Claims of this nature arise from a misunderstanding of the Ontario Insurance Act. [15] In these cases, our practice is to send them a copy of Section 267.8 which clearly sets out Ontario law which requires the LTD insurer to pay first. It is the motor vehicle insurer which gets the benefit of LTD insurance, and not the other way around.

WSIB benefits

LTD insurers will also try to get the benefit of WSIB coverage. As a general rule, a person opts for either WSIB benefits or LTD benefits. Even if entitlement to LTD benefits survived the election for WSIB payments, the WSIB quantum would likely wipe out any obligation on the LTD insurer to pay. An important case dealing with the interaction between WSIB money and LTD payments is Abdulrahim v. Manufacturers Life Insurance Company [16]. Here the Plaintiff was seriously injured with a cutter and sustained injuries to his arm and leg. He originally opted to receive WSIB benefits and he also applied for LTD benefits through his Group Policy. ManuLife took the position that it was entitled to an off-set for any WSIB money paid. The Plaintiffs solicitors then wrote to the parties advising everyone that they had decided to “de-elect” WSIB benefits and wanted to proceed with a tort action against the German-based manufacturer of the cutter that injured Abdulrahim. WSIB demanded full repayment by certified cheque and discontinued payments in the interim. Manulife strongly objected to the Plaintiffs decision and argued that the Policy obligated Abdulrahim to apply for benefits to which he was entitled, including WSIB, and his decision to de-elect was improper. Manulife attempted to deduct the money that would have been paid by WSIB and relied on a section of the policy which stated,

If an Employee does not apply for a benefit for which he is eligible, the amount of such benefit will be estimated by Manulife Financial and assumed to be paid. [17]

The central issue at the motion was the proper interpretation of the phrase “receives, or is entitled to receive” in the Policy. Justice Himel applied the principles of interpretation relating to insurance contracts as set out by Mr. Justice Sopinka in Brissette V. Westbury Life Insurance Company [18]. These principles include the idea that ambiguities should be construed against the insurer. After a lengthy analysis he concluded that the contract was not clear and should be interpreted in favour of the insured. He found that since the Plaintiff elected to proceed in tort, the WSIB benefit was not available to him.

Deducting severance payments from LTD payments

Most LTD contracts stipulate that they are entitled to deduct money paid by the employer to the employee by way of severance. Employers, on the other hand, have tried to claim a set off for LTD payments when paying out severance packages. It is very common for employers to terminate workers that have been off for an extended period of time, with or without a severance. Plaintiffs’ lawyers running LTD actions will almost certainly be asked to provide advice on the inter-action between LTD payments and severance packages.

Employers have been trying to deduct LTD payments from severance packages for a considerable period of time. The Supreme Court of Canada seemed to support their position in Sylvester v. British Columbia [19] when the Supremes allowed the employer to take credit for disability payments and deduct those payments from damages for wrongful dismissal. Justice Major found that since the disability policy was entirely funded by the employer, there was no expectation that the employee could receive both benefits.

There was significant criticism to Sylvester as many felt that the Courts were making it all too easy for employers to terminate ill employees at reduced cost. The potential harm caused by Sylvester was greatly limited by the Ontario Court of Appeal in Sills v. Children’s Aid Society of Belleville [20]. Simmons, J.A. relying on an earlier decision of the Supreme Court [21] concluded,

Absent an express provision precluding double recovery, in my view, the principles in Cunningham assist in determining whether an intention that there would be double recovery in the event of a wrongful dismissal can be inferred. I consider it reasonable to assume that an employee would not willingly negotiate and pay for a benefit that would allow her employer to avoid responsibility for a wrongful act. I consider it reasonable to infer that parties would agree that an employee would retain disability benefits in addition to damages for wrongful dismissal where the employee has effectively paid for the benefits in question. [22]

The key here is to note that benefits can be paid for directly OR INDIRECTLY. Since most employees can argue that they take less to have their group benefits paid for by the employer, it can be said to be an indirect benefit. These principles have been followed repeatedly in Ontario. See for example the recent decision of Dowling v. TNT Logistics North America [23].

What about the reverse? LTD insurers claim they are entitled to severance packages? Their contracts often state this specially. However, recent authority suggests that they may not be on solid ground. Consider, for example the closing statement of Speigel, J. in Dowling,

There is nothing in the employment contract that would indicate that Dowling cannot receive both employment benefits and LTD benefits. Further, the provisions of the Plan are contractual provisions with the insurer, not with TNT. There are the usual provisions that state that an employee on LTD has his or her benefits reduced if an employee is earning money elsewhere. I do not interpret these provisions to apply to an employee receiving damages for wrongful dismissal; an insurer under an LTD policy would be hard-pressed to deduct these damages. [24]

Until recently, the question of how to treat severance packages was rare because most employers use the doctrine of frustration to terminate contracts without paying severance. However, employers should be aware of the recent Ontario Court of Appeal decision of O.N.A. V. Mount Sinai Hospital [25] which holds that notwithstanding the exemptions set out in the Ontario Employment Standards Act, an employer MUST pay severance to an employee even if the contract is frustrated.

Entitlement issues

Denial based on failure to mitigate

Winning in LTD litigation is about more than proving your client is disabled according to the terms of the policy. LTD litigation seems simpler than motor vehicle cases because you don’t need to worry about liability questions. There are a host of arguments, however, that an insurer can raise to deny liability. It is necessary to anticipate and counter these arguments as early as possible in the litigation process.

Some concerns are common to all personal injury litigation. For instance in Deyonge v. Liberty Mutual Insurance Company [26], the trial judge found that the plaintiff was “someone who was quite sick”; however, he also found that she had failed to seek sufficient medical treatment. He concluded on the evidence that she would have recovered earlier if she had sought psychiatric assistance as per her doctor’s recommendation. He reduced the allowable period of her disability accordingly. When mitigation arguments are in play it is essential that you be able to argue with supporting medical evidence that (1) the proposed treatment is unrealistic or doctors think it is a bad idea, (2) that your client has tried a form of the treatment without success already, (3) that the treatment will not cause improvement in any event, and/or (4) that your client has taken all reasonable steps to assist with his/her own recovery. Failure to cover off mitigation may result in a claim being dismissed even when the Court finds the client is disabled. Denial based on Misrepresentation

Another area of particular concern in LTD contracts is misrepresentation. Insurers have relied upon failure to disclose and misrepresentation to deny numerous claims. Consider the leading Court of Appeal decision of Gregory v. Jolley, Aetna Life Insurance, et al. [27]. In the case, Gregory asserted a claim for disability benefits and was successful after a 19 day trial, notwithstanding that the trial judge found he had misrepresented material facts relating to his medical condition and income. The trial judge’s decision was based on his conclusion that there was no evidence of fraud, and therefore, the incontestability clause applied. This clause, which is common to most policies, holds that an insurer cannot void a policy for misrepresentations after two years from the application for insurance in the absence of fraud. The decision was overturned by the Ontario Court of Appeal which found that Gregory had misled the insurer with respect to his medical conditions and had grossly overstated his income. He was in fact losing money not making the six digit income he claimed. The Court found that the misrepresentations were sufficiently reckless as to be considered fraudulent in the civil sense. The result of the insured’s failure to disclose material facts or act in good faith, therefore, made the policy voidable and Aetna was not obliged to pay any benefits even though Gregory was clearly profoundly disabled.

Material misrepresentation is routinely pleaded by insurers. In cases where clients have filled out an application for insurance (which will likely not happen in group policy situations), counsel should get a copy of the application early in the process and go over the form with the client line by line to look for any possible inaccuracies. Remember that innocent mistakes are treated differently at law than fraudulent misrepresentations.

Limitation and qualifying period issues

Often LTD insurers will provide a relative short appeal window when they send out a denial letter. Many letters typically give claimants 60 or 90 days to appeal failing which the insurer will close its file. We have had several instances where claimants, for whatever reason, don’t take action within this appeal window and then conclude that they have missed the opportunity to appeal the decision to deny benefits. In some cases, claimants will wait months if not years before consulting a lawyer.

If you are consulted by a claimant, it is important to actually see a copy of the denial letter. The stated appeal window on the letter is not determinative, but unless you have evidence to the contrary, you should assume that you are governed by the standard limitation period. It is worth noting that historically LTD claims were governed by Statutory Condition 12 of the Insurance Act, which required that an action be commenced within one year after the date the insurance money became payable or would have become payable if it had been a valid claim. However, changes to the Limitation Act, [28] have brought claims of this nature within the standard two-year limitation period. [29] Section 22 holds that there is no contracting out of the two-year limitation period in the Act unless the agreement was made before the Act came into force. [30] It remains to be seen whether contractual limitation periods of less than two years contained in long-standing LTD policies will stand up pursuant to this provision.

It is important to get a hold of the termination letter because some policies have extended notice periods. We have encountered one large insurer that regularly incorporates a two year appeal period. [31]

Even if a client has missed the limitation period, Morgan v. Dominion [32] is the root case in a long line of authority that stands for the proposition that benefits cannot be denied until they become due, and claimants therefore have a rolling limitation period in which to claim benefits. If a potential client comes into your office after the expiry of a limitation period, it is important to immediately issue a Notice of Action to preserve the claim to as much of the arrears as possible.

In situations where the client has improved over time, however, Morgan v. Dominion may not be able to help you. In order for a client to qualify for benefits, it is necessary to prove that he/she was disabled during what is commonly referred to in policies as “the qualifying period.” It is not enough to prove that your client is disabled as of the date of trial, you must also prove that he/she was disabled as of the end of the qualifying period. Consider, for example, Lyons v. Canada Life Assurance Company [33] where the jury awarded the Plaintiff six months worth of disability benefits covering a six month period in 1995 even though the claim was not commenced until November 1998. The Court of Appeal overturned the award, primarily on the basis that an award for benefits for this time period was barred by the limitation period in the policy. [34] Plaintiffs counsel attempted to defend the decision using the discoverability principle, but that argument was doomed to failure because the trial judge did not reference discoverability in his charge to the jury.

A better example of the “qualifying period” pitfall at work is Martin v. Manufacturer’s Life Insurance Company [35]. Martin injured herself in a ski accident in April 1998. She did not submit a claim until October 2001, and it was denied in January 2002 due to “late filing”. In June 2003, she commenced an action. Justice Bouck conducted a detailed analysis of the policy and concluded that Martin was obligated to file a claim within a specified period of time after the injury. Further, to succeed she needed to prove that she was totally disabled from working within the qualifying period. In Martin’s case, the evidence showed that she was not disabled during the qualifying period, but only became disabled later when she ceased working in order to undergo surgical treatment. However, this later period of disability was found irrelevant. Because there was insufficient proof that Martin was disabled during the qualifying period, the claim was dismissed.

The risk of being found to have become disabled after the end of a qualifying period is significant especially in cases where individuals are suffering from degenerative problems, have been terminated from their employment, and do not seek legal advice for an extended period of time after benefits are denied.

Injunctive relief

Perhaps the most intriguing case to come out of LTD litigation in recent years is the motions decision of Traynor v. Unum Life Insurance Company of America [36]. After developing chronic fatigue syndrome, Andrew Traynor applied to Unum for disability benefits, but he was denied. Traynor not only launched a Statement of Claim, but also brought an immediate motion for an interlocutory mandatory injunction to require Unum to pay monthly disability benefits pending trial. Significant evidence was led concerning bad faith claims handling practices by Unum. The motion was granted at first instance, but overturned on appeal to the divisional court in a sharply divided decision.

Justices Cunningham and Matlow issued a terse four page decision allowing the appeal. The majority was clearly concerned with the floodgate argument noting that mandatory interlocutory injunctions are exceptional relief granted only in exceptional circumstances, and that if this were such a case “similar results might be held to constitute irreparable harm in a broad variety of breach of contract cases even outside of insurance policies, a result which is not supportable by the present state of the law.” [37] The majority also concluded that it could not be said that Traynor would suffer irreparable harm if the injunction was not granted. Finally, the majority found the ruling would wrongfully deprive Unum of the right to require sufficient proof in order to continue payments as entitlement to future payments without proof was not a benefit covered by the policy.

Justice Kurisko wrote a spirited dissent supporting the ruling of the motions judge. He found ample evidence of irreparable harm, and further found that Unum’s conduct was so blameworthy that the insurer could not be said to be coming to Court with clean hands, and its own actions should disentitle it to relief. Kurisko, J. relief in part on the ruling of Keenan, J. who, even though he granted leave to appeal, ordered continuation of disability payments pending the appeal. He said:

I have concluded, however, that it would be manifestly unfair to Mr. Traynor to permit Unum to withhold payments under the insurance policy pending the outcome of this matter. At this point, there appears to be responsible medical evidence that he suffers from chronic fatigue syndrome. … Without the payments under the policy, Mr. Traynor would be reduced to a level below the level of poverty. His circumstances would be such that he would not even be able to afford food for himself and his family because of all the other obligations that he confronts each month. [38]

Justice Kurisko’s decision is extensive and supported by considerable authority. While the decision of the majority is clearly a significant obstacle, the dissent at least leaves open the possibility that the law will evolve in this direction in the future.

The growth of bad faith in LTD litigation

Considerable attention has been given to the development of the bad faith doctrine in fire loss and accident benefits cases, but a good argument can be made that bad faith and aggravated damages claims will likely be more successful in LTD litigation than anywhere else. In house lawyers at the large disability insurance companies are very aware of recent bad faith decisions.

Further, there is increasing evidence that Canadian insurers are being influenced by American claims handling practices which have historically been highly aggressive. Some Canadian companies have farmed out difficult claims to American Claims Handling companies. Mergers and competitive business practices have put increasing pressure on claims handlers. In the United States, questionable claims handling practices have resulted in large damage awards and significant fines. [39]

Lawyers for LTD insurers seem prepared to accept that aggravated and bad faith damages are appropriate in some cases provided supporting evidence is tendered, and they will settle cases on that basis. [40]

It is important, however, that steps be taken BEFORE the claim is drafted to identify specific instances and occurrences that might support a claim for bad faith and/or aggravated damages. Kennedy v. Manulife [41] is authority for the proposition that a claim that contains allegations without “any factual backing” of bad faith conduct runs the risk of being struck out. The best course of action is to do your homework before the claim is drafted, plead specific allegations that can be supported, and refrain from making the bad faith argument in the absence of compelling evidence.

It is beyond the scope of this paper to summarize the law as it relates to the growth of bad faith, aggravated and punitive damages claims in LTD litigation in Canada. However, there are some recent cases that lawyers following the developments in this area of the law consider. Cross v. Canada Life [42] is a case where the Court awarded $18,000 because the claimant suffered from anxiety and distress as a result of slow claims handling and poor communication. Ms. Cross was awarded a further $11,000 in damages for having to collapse her RRSP. A case the insurers should be aware of, is the recent employment case of Keays v. Honda Canada [43], where the employer was ordered to pay 9 months additional notice for bad faith conduct, $500,000 punitive damages for violating Mr. Keays human rights, and solicitor and client costs with a 25% premium.

Perhaps the most important case worth watching right now is Fidler v. Sun Life [44], which is currently before the Supreme Court of Canada. Ms. Fidler claimed disability benefits due to a kidney infection and then onset of chronic fatigue syndrome and fibromyalgia. Sun Life paid benefits for six years, but then terminated benefits after conducting surveillance. After litigation commenced, Sun Life reinstated benefits with interest and costs. The case proceeded to trial solely on the issue of entitlement to aggravated and punitive damages.

The trial judge ruled that Sun Life’s refusal to pay LTD benefits for five years caused sufficient mental distress to justify an aggravated damages award of $20,000, but denied her claim for punitive damages. The B.C. Court of Appeal dismissed the insurers appeal concerning aggravated damages, but upheld Ms. Fidler’s appeal on the punitive damages claim. The insurer’s breach of good faith was found to be an independent actionable wrong which warranted condemnation through an award of $100,000 in punitive damages. The case was appealed to the Supreme Court of Canada, and a decision is expected in the near future.

Conclusion

LTD litigation is likely to be an expanding area of the law in Ontario. This is an evolving area of the law. Claimants have historically been disadvantaged by the fact that the LTD insurers write and interpret the Policies. However, recent cases show that the Courts are becoming more likely to recognize this long standing situation of power-imbalance which may operate to the detriment of insurers. There are many innovative weapons available to both sides as they litigate this interesting area of the law.

Thank you.

Notes

[1] M. Steven Rastin, “Judge or Jury: Where to Turn for Insurance Claims”, 1998 OTLA Spring Conference, Day II, Tab 2 and Ramm v. Sun Life Assurance Company of Canada, (1999), 43 O.R. (31-4) 652 (Gen. Div.)

[2] (February 2, 2005, Master J. Egan, Court File No. 03-CV-251214CM, CanLII 2327 (Ont.S.C.))

[3] (2000), 1 C.P.C. (5th) 311 (Ont. S.C.J.)

[4] [2000] O.J. No. 3739 (S.C.J.)

[5] at para. 14; See also St. Pierre v. Liberty Mutual Insurance Group [2001] O.J. No. 5973, affirmed on appeal at [2002] O.J. No. 5356 (S.C.J.) and Ebrani v. Citadel General Assurance, [1998] O.J. No. 6279 (Gen. Div).

[6] (November 13, 2002, Justice E.R. Browne, Court File No. 38656, CanLII 10004 (Ont. S.C.)).

[7] [2005] O.J. No. 5529 (Ont. S.C., Master Dash, December 5, 2005).

[8] Ibid., para. 11.

[9] (2000), 49 O.R. (3d) 766 (Ont. C.A.).

[10] “Canadian Labour Arbitration”, 3rd ed., (1988) (loose-leaf).

[11] [2005] O.J. No. 712 (Ont. S.C., February 24, 2005, Pardu,J.)

[12] Ibid., para. 22.

[13] 2005 CanLII 30875 (Ont. S.C., Spiegel,J., September 1, 2005)

[14] The release included a confidentiality clause and a broad liability release which also covered any possible OHRC complaint.

[15] R.S.0, 1990,1.8

[16] (2003), 65 O.R. (3d) 543; 2003 CanLII 48161 (Ont. S.C.)

[17] Para 17 of decision; clause “g” of Benefit Calculation Rules.

[18] [1992] CanLII 32 (S.C.C.), [1992] 3 S.C.R. 87 at 92-93.

[19] (1997), 146 D.L.R. (4th) 207 (S.C.C.)

[20] (2001), 53 O.R. (3d) 577 (C.A.)

[21] Cunningham v. Wheeler, 1994 CanLII 120, [1994] 1 S.C.R. 359.

[22] At para. 45.

[23] (May 24, 2004, Justice G. Speigel, 2005 CanLII 18293 (Ont. S.C,)

[24] Para 13 (emphasis mine).

[25] [2005] O.J. No. 1739 (C.A.)

[26] (2003), 25 C.C.E.L. (3rd) 27, 2003 CanLII 42935 (Ont S.C.); affirmed at 2004 CanLII 30220 (Ont. C.A.)

[27] (2001), 54 O.R. (3d) 481, 201 D.L.R. (4th) 729, 147 O.A.C. 336 (Ont. C.A.)

[28] specifically, s.39(4) of the Limitation Act, 2002, S.O. 2002, c.24, repealed Statutory Condition 12. Schedule B, Section 4 now governs.

[29] See the most recent LawPro limitations chart, s.v. “Accidents and Sickness.” Note however, that for the new Limitations to Apply to claims needs to have been DISCOVERED before January 1, 2004.

[30] January 1, 2004.

[31] The Great-West Life Assurance Company of Canada

[32] (1980), 31 O.R. (2″) 285 (H.C.J.)

[33] (2002), 22 C.C.E.L. (3d) 217, (2002) 166 O.A.C. 299, CanLII 18089.

[34] The Court also overturned the award of $235,000 aggravated and $25,000 punitive damages.

[35] (August 2004, Bouck,J., 2005 BCSC 528 (CANLII)).

[36] (2003), 65 O.R. (3d) 7; 2003 CanLII 40149 and 17998 (Divisional Court).

[37] There appears to have been no consideration of the special considerations that the Supreme Court of Canada and others have afforded, at law, to contracts involving situations of significant power imbalance including employment contracts and contracts of first party insurance. See Wallace v. United Grain Growers, [1997] 3 S.C.R. 701 (S.C.C.); Whitten V. Pilot [2002] 1 S.C.R. (S.C.C.); Keays v. Honda Canada [2005] O.J. No. 1145 (Ont. S.C.).

[38] Dissent of Kurisko, J. paragraph 46 quoting Keenan,J.

[39] Consider the precedent setting fine of $1 million (US) imposed against Unum/Provident as a result of the Georgia Insurance Commissioner’s investigation of its practices.

[40] For judicial confirmation of same see Bryan v. Crown Life Insurance, 2004 CanLII 22955 (Ont. S.C.). As part of a previous settlement, Crown Life paid the plaintiff “$59,000 lump-sum for her difficulties during the times when her payments were held up.” (para. 9).

[41] 2003 CanLII 32544 (Ont. S.C.)

[42] [2002] O.J. No. 293 (Ont. S.C.)

[43] [2005] O.J. 1145; [2006] O.J. 560 (Ont. S.C.)

[44] [2004] B.C.J. No. 982 (BCCA).