Solving Coverage Issues

As cases continue to become more challenging in traditional personal injury areas such as motor vehicle litigation, it is not surprising that increasing numbers of lawyers are turning their attention to long-term disability law in an attempt to maintain or grow practices. Given Canada’s aging population, it is reasonable to assume that we will see an increasing number of these sorts of cases going forward. It is important for injury lawyers to realize that disability litigation is profoundly different than motor vehicle or slip and fall actions. LTD litigation is primarily a lawsuit about breach of contract, as opposed to the more common tort-based actions that most plaintiffs’ counsel more commonly pursues.

The difference is profound. Tort cases are about standard of care, causation and making the plaintiff whole. LTD cases are about the contract. Period. [2] The primary question in any disability case is whether the claimant is covered under the policy so as to be entitled to receive benefits. This statement may seem obvious, but I am frequently advised by mediators that they continue to participate in mediations where plaintiffs’ counsel take unreasonable positions, seeking damages far in excess of anything payable under the contract of insurance, and failing to realize that tort concepts liking restitio in integram are inapplicable to most LTD disputes. To further complicate matters, unlike motor vehicle cases, plaintiffs cannot look to a standard form disability contract. The fact is that there are literally thousands of different LTD policies in place across Canada. Some of the policy differences are minor, while others are profound. Even worse, when creative plaintiff’s counsel makes a compelling argument to win a case, all too often, the insurers will learn from their mistakes and simply amend their policies to “close the loop hole.”

The starting point in any journey to find recovery for a claimant in a disability dispute is to look for coverage under the contract. Further, as I will discuss in more detail below, counsel should also be mindful of the fact that MOST (but not all) disability policies in Canada are provided to the employer pursuant to their own contractual obligations to the employee. [3] It is generally the employer that obtains coverage for disability and death under policies of insurance for its employees. Arguably, individual employees are only able to sue disability insurers at all due to sections 201 and 318 of the Insurance Act, which state,

201. A group life insured may in his or her own name enforce a right given to him or her under a contract, subject to any defence available to the insurer against him or her or against the insured. [4] …

318. A group person insured may, in his or her own name, enforce a right given by a contract to him or her, or to a person insured thereunder as a person dependent upon or related to him or her, subject to any defence available to the insurer against him or her or such person insured or against the insured. [5]

In order to make it clear that the Insurance Act creates privity of contract to allow us to claim benefits under the policy, it has been the longstanding practice in my office to include the following paragraph in our standard LTD Statement of Claim:

John Doe was, at all material times, an employee of Factory X, working out of Toronto, Ontario. At the commencement of his employment, he enrolled as a group insured under the policy. The plaintiff claims that his employment was the acceptance of a standing offer to insure made to all employees of Factory X by the defendant and created a contract of insurance between the defendant and the plaintiff.

Why is this relevant? In the first place, except for some union situations, employees are entitled to sue in contract for benefits from insurers even though they did not negotiate the agreement. More importantly, the provision of this benefit is a contractual obligation of the employer to the employee. This opens up the argument, which we will discuss below, that if an employer takes, or fails to take, some action that results in a claimant losing her contractual right to pursue benefits; the claimant may have a cause of action, in both contract and tort, against the employer for coverage.

Before determining how to proceed in long-term disability litigation, it is critical to obtain and carefully review the actual disability policy. I realize that employers and insurance companies often unreasonably refuse to provide the policy. As a result, we sometimes have to commence litigation just to obtain a copy of the insurance contract. In my experience, the policy is Exhibit 1 in their Affidavit of Documents. Once litigation is commenced, I recommend that you press defence counsel to provide early disclosure of the policy. Early review of the policy is essential because it is the contract that sets out the Rules of Coverage and entitlement. The majority of policies are somewhat similar having, for instance, two years of “own occupation coverage” followed by “any occupation coverage” until age 65. There are normally terms that provide for extensive deductions for collateral benefits such as CPP and employer severance payments. However, these provisions are not universal. Depending on the nuance of a particular policy relating to coverage, an average case can become uneconomical or high-value. For example, we were recently involved in a case where the employer had purchased a policy that provided coverage for only two years. In another case, we encountered a policy that provided coverage for “own occupation” to age 65 and specifically said that the insurance company was not entitled to collateral deductions. Even if a policy appears more standard, specific wording may impact coverage. For instance, at least one insurer has experimented with policy wording that stipulates what coverage will terminate if the employee is capable of returning to 20% of her regular job duties. The key takeaways here are that coverage is policy dependant and may vary widely from the norm.

Insurers also seek to limit coverage by implementing procedural requirements into the policy. Insurance disability contracts often contain provisions setting out deadlines for applying for benefits or providing supporting information. They often include an internal appeal process which they will require that claimants follow. In some cases they also attempt to impose limitation periods for commencing legal challenges that are shorter than the general two-year limitation period set out in the Limitations Act.

Contractual limitation periods are especially complicated for individuals claiming LTD benefits. Many insurance contracts have mandated waiting periods before LTD benefits can begin being paid. This results in a system where claimants are prohibited from submitting claims too early, but also from submitting them too late. These limitation periods are especially onerous considering the significant evidentiary burden placed upon claimants to prove the severity of their injuries. [6] Additionally, convoluted internal appeal processes can result in ambiguity and confusion, and if you are not careful, missed limitation periods.

For claimants who inadvertently submit LTD benefit claims outside of the prescribed limitation period (either contractual or statutory), there is a remedy that may be granted by the court to allow the claims to proceed. Relief from forfeiture is an equitable remedy which is granted based on a court’s interpretation of the facts of the case. As such, if the circumstances pertaining to the claimant’s case pass both the threshold questions and three-part test, the remedy can be applied and the expired claim can be validated.

Historically, relief from forfeiture was granted sparingly. However, the scope of the test’s applicability was recently expanded by the Court of Appeal, which in its decision also clearly laid out the requisite threshold questions and three-part test, increasing the remedy’s applicability while simultaneously reducing any ambiguities. In Kozel v. The Personal Insurance Company, [7] the plaintiff was involved in a motor-vehicle accident and her licence was four-months expired. The defendant-insurer denied the plaintiff coverage on the basis of the expired licence violating a term of the insurance contract. In determining that the plaintiff could still receive coverage, the Court first posited two threshold questions:

First, does the breach in this case constitute imperfect compliance with a policy term or non-compliance with a condition precedent to coverage? Second, is relief available under s. 98 of the CJA despite the existence of a specific relief against forfeiture provision in the Insurance Act. [8]

The Court then explained the distinction between imperfect compliance and non-compliance, and then outlined whether the remedy was applicable to contracts regulated by the Insurance Act:

…the distinction…[is] whether the breach of the term is serious or substantial. Where the term is incidental, its breach is deemed to be imperfect compliance; where the provision is fundamental or integral, its breach is case as non-compliance with a condition precedent. [9]

…the relief from forfeiture provision in s. 98 of the CJA applies to contracts regulated by the Insurance Act…[as] s. 129 of the Insurance Act is restricted to instances of imperfect compliance with terms of a policy after a loss has occurred. [10]

The court then outlined the three-part test that follows the threshold questions:

In exercising its discretion to grant relief from forfeiture, a court must consider three factors: (i) the conduct of the applicant, (ii) the gravity of the breach, and (iii) the disparity between the value of the property forfeited and the damage caused by the breach…[11]

Applying these tests to the facts-at-bar, the Court determined that circumstances warranted granting relief from forfeiture. The two threshold questions were resolved in favour of validating the plaintiff’s claim for insurance coverage. The three-part test was also passed; the plaintiff’s conduct was reasonable, the breach was not grave, and the value of the property forfeited was significantly more than the damage caused by the breach.

Around the same time, the Court of Appeal also clarified two ambiguities pertaining to LTD benefit claims, limitation periods, and the classification of insurance contracts. In Kassburg v. Sun Life Assurance Company of Canada [12], the plaintiff-respondent suffered physical and psychological disabilities that resulted in her inability to work. The plaintiff applied for LTD benefits through her workplace’s group policy, which was denied by the insurer. The information provided in the policy was ambiguous about whether the limitation period would be extended if the claimant submitted appeals. The plaintiff’s representative from her former workplace sent numerous inquiries to the defendant, none of which received a response. The plaintiff continued to appeal the decision, until she was informed that the most recent appeal was declined at the final appeal level. It was at this point where the plaintiff retained a solicitor, and promptly issued a Statement of Claim. Sun Life defended alleging that the limitation period had expired and the claim was out of time.

At first instance, Justice Ellies ruled that the policy fit within the business agreement exception to contracting out of the statutory limitation period, but the ambiguity in the policy’s language meant that the defendant had not properly contracted out of the statutory limitation period. He also found that the limitation period only started running when the final avenue of appeal was exhausted, and therefore the plaintiff’s Statement of Claim was not out of time.

The Court of Appeal took a different approach regarding classifying the contract, outlining:

The clear wording of s. 22(5) permits contracting out of the statutory limitation period, unless the parties to the contract include an individual and the contract was for “personal, family, or household purposes”. There are therefore two requirements for a business agreement to exist: the parties must not include individuals, and the contract must not have been for personal, family or household purposes.[Emphasis added by the Court] [13]

Based on this two-pronged test, the Court held the limitation period was two years instead of one, the court addressed the criteria required to determine when the limitation period would start to run by stating that:

…it was appropriate for the motion judge to consider what was…communicated to the respondent at that time, and whether the claim had been clearly and unequivocally denied… [14]

Applying this logic to the facts of the case, the limitation period only started to run once the plaintiff was informed of denial of her appeal at the final stage. Prior to that point, the plaintiff continued to appeal the decision and provide the requested additional information to the defendant. In short, there was no evidence to suggest that her benefits were being clearly denied, nor did the appeal process conclude. As such, the claim was allowed to proceed.

The combination of the Kozel and Kassburg rulings has resulted in Ontario courts granting the remedy of relief from forfeiture to an increasing number of LTD benefits claimants, even if the contractual or statutory limitation period is not properly adhered to. If a case’s facts comply with the aforementioned tests, then the remedy can be granted. There are numerous examples of instances where claimants have benefited from the expanded scope of relief from forfeiture, coupled with the reduction of ambiguity surrounding limitation periods. These include: when a plaintiff is mislead by employers and insurers alike about the terms of the policy, delaying the claim past the limitation period (Dube v. RBC Life Insurance Co.) [15]; where a plaintiff is unable to read or understand the policy, nor was informed by his employer of the availability of LTD benefits, delaying the claim past the limitation period (Nguyen v. SSQ Life Insurance Company Inc.)[16]; and where a plaintiff is unaware of the seriousness of an injury suffered and as such does not apply for LTD benefits within the limitation period, and did not raise relief from forfeiture at trial (MacIvor v. Pitney Bowes). [17]

While the Kozel and Kassburg rulings function as means to protect LTD benefits claimants from the convoluted insurance system, there are still limitations on validating a benefit claim. If the claimant is unable to provide evidence explaining the delay in submitting the LTD benefit claim, relief from forfeiture will likely not be granted and the benefits claim will remain barred. This evidentiary onus is illustrated in Wiles v. Sun Life [18].

In Wiles, the plaintiff was terminated without cause after she was totally disabled the month prior. Upon her termination, the plaintiff retained a solicitor who requested an application for disability coverage from the insurer and promptly received the complete Salary Continuance Services, Plan Members Package. The package specifically outlined the difference between salary continuation and LTD benefits, in addition to the different application procedures for each. The plaintiff sought salary continuation and was denied, bringing an action against the defendant insurer as a result. This action was defended on the basis that it was not liable for the plaintiff’s salary continuation benefits, as the defendant was only an administrator.

The plaintiff alleged that she only learned about the difference in applying for LTD benefits compared to salary continuance services when the defendant issued its Notice of Motion for Summary Judgement. The Court did not agree with the argument raised, stating:

The plaintiff and/or her solicitor were aware of the distinction between Salary Continuance Services and Long-Term Disability benefits…upon the receipt by the plaintiff’s solicitor of the Salary Continuance Services, Plan Members Package from Spaenaur… [19] There is no explanation as to why the plaintiff or her solicitor failed to notify Sun Life of the intention to submit a claim for long-term disability benefits no later than the 90 days after the end of the elimination period… [20]

There is no explanation as to why an action was not commenced claiming long-term disability benefits prior to September 29, 2017… [21]

…the plaintiff’s failure to commence the action against Sun Life to claim disability benefits until more than one year after the end of the time period in which the initial submission of proof of claim was required would be non-compliance with the contract and would not be subject to relief from forfeiture. [22]

Relief from forfeiture would have been available to the plaintiff, if she imperfectly complied with the policy. There were numerous instances where the plaintiff (or her solicitor) had opportunities to submit the correct claim within the limitation period – the plaintiff had all of the information, but did not use it. Therefore, the court classified the breach as non-compliance, and denied the request to grant relief from forfeiture. This result illustrates that while relief from forfeiture is easier to obtain than ever before, there are still limitations on the remedy’s scope that lawyers must be aware of.

Another weapon that insurers may use to limit coverage is the insertion of onerous requirements and harsh exclusions in the policy. These exclusions have evolved over time. For instance, we used to come across policies that excluded coverage for individuals who were not able to work due to drug or alcohol addiction. Our response, when faced with this provision, was to plead that the exclusion was invalid as it violated the Ontario Human Rights Code. Other attempts to exclude coverage that are plead, but in our experience not vigorously advanced, are exclusions for claimants not receiving “active medical treatment” or claimants who have been provided with a recognized diagnosis by a medical professional. In the rural setting in which we operate, it can be very difficult to obtain access to the proper medical specialists necessary to provide proper diagnosis and treatment of medical conditions – most especially mental and psychiatric illnesses. Again, our practice has been to argue that these conditions are unreasonable in the circumstances. In more populated centres, claimants who chose not to use the medical system may find provisions of this nature to be a barrier to recovery.

Another argument that might be used to deny coverage is that the claimant suffers from a pre-existing medical condition that caused or contributed to her current disability. This argument was used successfully as early as Hartman v. Sun Life, [23] to deny coverage in a case where Justice Borins was asked to consider an exclusionary provision that specified,

Payment will not be made … (b) in respect to total disability resulting directly or indirectly from any illness which existed on the date of commencement of the employee’s insurance … [Emphasis added by the Court.] [24]

In this case, the plaintiff’s insurance coverage commenced on June 10, 1981 and she became totally disabled on June 21, 1981 at which time she suffered a traumatic episode. The Court accepted expert evidence that the claimant had been suffering from psychiatric disorders as early as 1979, and “any new disorder” was a manifestation of previous disorders for which she had been diagnosed and received treatment for prior to the date of commencement of the employee’s insurance. The Court concluded that her total disability was a direct or indirect result of her pre-existing illness, and coverage was therefore denied.

The Court came to a different conclusion in the more recent decision of Greensides v. Industrial Alliance. [25] Mr. Greensides purchased loan repayment insurance from Industrial Alliance as part of financing arrangements that he made to purchase a trailer for his haulage business. In October, 2001, Mr. Greensides was involved in and injured in a motor vehicle accident and claimed benefits under the policy. However, that claim was denied because the waiting period had not yet expired. In May 2003, he was unfortunately injured in another motor vehicle accident. This time, Industrial Alliance denied the claim on the basis that he was not able to perform the usual duties of his occupation on the date that he signed the insurance certificate because he had been injured in October 2001. They canceled his policy and refunded premiums paid to date. Industrial Alliance argued at trial that the claim should be dismissed because the exclusion in the policy stipulated that no insurance would be paid in the event that the claimant’s total disability is caused or contributed by a pre-existing disease or disorder for which treatment was sought or obtained within the 12 months of the effective date of insurance. However, the court refused to accept this argument. Based on a careful review of the medical records, Justice Roberts found that the plaintiff had recovered sufficiently from the neck and back injuries sustained in the October 2001 accident to permit him to return to full-time employment well in advance of the May 2003 accident. He further found that the injury sustained in the two accidents was not the same as the neck, back, and knee injuries from the first accident were on the left side whereas in the second accident injuries were mostly on the right side. The court did agree that the plaintiff still had headaches from the first accident, but noted that he was not disabled by them, and he was in fact only disabled by headaches arising from the second accident. As a result, the court found that the exclusion provision did not prevent coverage.

An extremely helpful recent decision that considered whether coverage should be denied based on excluded medical conditions is the British Columbia Supreme Court case of Tanious v. The Empire Life Insurance Company. [26] The plaintiff brought an action for damages from December 28, 2011 onward on the basis that that is the date when her family physician determined that her medical condition prevented her from continuing to work. Her employer terminated her contract of employment on January 10, 2012. In March 2012, Empire Life rejected her claim for weekly indemnity benefits as well as her claim for long-term disability benefits. The plaintiff’s position at trial is that her MS had progressed since it was diagnosed in February 2005. She argued that while she was still employed she was covered by the Empire Life Policy and that prior to January 10, 2012, she became occupationally disabled due to MS and symptoms related to it especially anxiety, depression and fatigue. The plaintiff also suffered from drug addiction from crystal methamphetamine; however, the parties agreed that she did not have to prove that MS was a more serious because of her disability than her substance abuse, but rather she only needed to prove that her MS was a proximate cause of her disability and that it was occupationally disabling. In other words, the plaintiff would succeed in a claim if she could prove that she qualified for benefits because of her MS irrespective of her problems substance abuse.

The defendant took the position that the plaintiff was not entitled to long-term disability benefits because she was working not totally disabled as of the date of her termination. In the alternative, Empire Life took the position that she was disabled due to an excluded illness, substance abuse disorder. After a careful review of the evidence, Justice Brown launched into a detailed analysis of the law relating to causation. [27] He referenced the following:

[233]  The Supreme Court of Canada has revisited this issue in recent years in the context of liability insurance, in the process distinguishing Ford Motor because of the clause’s express exclusionary language in that case. The Court accordingly held in Derksen v. 539938 Ontario Ltd., 2001 SCC 72 (Cni.,11), [2001] 3 S.C,R, 398 [Derksen] at para. 46:

[46] … [T]here is no compelling reason to favour exclusion of coverage where there are two concurrent causes, one of which is excluded from coverage. A presumption that coverage is excluded is inconsistent with the well-established principle in Canadian jurisprudence that exclusion clauses in insurance policies are to be interpreted narrowly and generally in favour of the insured in case of ambiguity in the wording (contra proferentem). [28]

Justice Brown found that the policy did not contemplate a situation where an insured’s disability was caused by both a covered injury and a non-covered illness. Even if you consider that the proximate cause of the plaintiff’s disability was both her substance abuse and MS, he found that the reasoning in Derksen should cause him to resolve the ambiguity in the plaintiff’s favor. In any event, he found that the MS was the proximate cause of her psychiatric and neurological difficulties and that she had been disabled in December 2011 and was therefore entitled to benefits because the evidence established that she would have suffered disability irrespective of her illicit use of methamphetamine.

The growing use of increasingly draconian exclusion provisions to limit coverage is something that should cause considerable concern and unease. If any pre-existing medical condition contributes to the onset of the disability, even if that disability is separate and apart from the original medical condition, should that be a sufficient to deny justify denial coverage? If so, then the value of long-term disability insurance is profoundly diminished. Consider the case of an individual who suffers from pre-existing depression but was able to function and be gainfully employed for years through the proper management of her illness and medication. What if this person is subject to a traumatic incident and develops PTSD? Is it proper or just to exclude that person from coverage if an expert opines that her pre-existing depression may have made her more vulnerable to, or contributed to, the development of the PTSD? What about an individual who suffers from high blood pressure and hypertension and who suffers a heart attack even though they are a generally healthy individual with the exception of the high blood pressure/hypertension medical condition. Should that individual be denied coverage? Given the fact that high blood pressure, hypertension, stress, obesity, high cholesterol, and a host of other relatively common medical conditions arguably increase the risk of heart attacks, disability policies that exclude coverage if a “pre-existing condition caused or contributed to” the onset of disability have the potential to effectively deny coverage to a significant portion of a relatively healthy population. One wonders if long-term disability coverage would really be worth it.

A recent example where creative legal arguments enables a plaintiff to obtain coverage pursuant to a long-term disability policy even after he had left active employment with his original employer is MacIvor v. Pitney Bowes. [29] In this case, the plaintiff was working for Pitney Bowes, an insured under the company’s ManuLife group benefit policy, when he was seriously injured on April 16, 2005 during a company trip to Costa Rica. The Plaintiff resigned from Pitney Bowes on August 11, 2008 and became an employee of Samsung on August 13, 2008. He was paid by Samsung for a period of time, but it was not until 2011 that he brought an action for disability benefits effective from May 24, 2010. ManuLife denied coverage based on the wording of the policy which stipulated that MacIvor’s coverage would terminate on the earlier of either the last day of the month for which contributions had been remitted on his behalf, or the last date on which he was actively employed. The defendant therefore argued that the plaintiff was no longer contractually able to submit a Proof of Claim under the Policy. Mr. Justice Pollak agreed with the insurance company’s findings found, based on his interpretation of the wording of the policy, as it was clearly stated that there is no coverage for persons who are not employed by Pitney Bowes. MacIvor did not qualify for benefits at the time that he made his claim, there was no coverage available to him, and he could not therefore make a successful claim for benefits against ManuLife.

Mr. MacIvor appealed to the Ontario Court of Appeal. Writing for a unanimous Court, MacFarland, JA rejected the lower court analysis and found for the plaintiff. The Court found that MacIvor had been disabled at the relevant time, and despite being paid by Samsung, he was unaware of the seriousness of his brain injury and failed to realize that his disabilities were permanent. Court noted that he was terminated by Samsung in August 2009. He attempted to make a long-term disability claim with Samsung, but he was advised that because his injury had occurred when he worked for Pitney Bowes, he would have to apply under that policy. Working under an agreed statement of facts, both sides agreed that the plaintiff was unable to perform the essential material duties of his regular occupation, or any occupation for which he was reasonably fitted by education, training or experience, and had been so disabled since the date of his injury in Costa Rica on April 16, 2005. The Court of Appeal quite simply rejected the insurance company’s position that coverage is only available during employment and the coverage ended when the plaintiff resigned from his position on August 11, 2008. The court carefully considered the actual wording of the policy that provided coverage and concluded that the policy wording should be interpreted in a manner that was favourable to the plaintiff. It found that the policy wording meant that Termination of Coverage language related only to future claims, and not claims that may have arisen during the course of the employee’s employment. That is, if the employee’s claim arose as a result of an occurrence that took place during their employment, the policy should provide coverage. In rejecting the insurer’s position, the court found,

[21] T. he language of this provision confirms the entitlement to be paid a monthly benefit if the total disability occurs during the coverage period. I note that this provision contains no language indicating that it applies only to current employees.

[22]   Where the language of a policy is ambiguous, the general rules of contract construction must be employed to resolve that ambiguity: Ledcor, at para. 50. These principles include that the interpretation “should not give rise to results that are unrealistic or that the parties would not have contemplated in the commercial atmosphere in which the insurance policy was contracted”: Ledcor, at para. 50. If ambiguity still remains after applying the general principles, then the principle that coverage provisions are to be interpreted broadly, and exclusion clauses narrowly, may be considered: Ledcor, at para. 51.

[23]   These principles do not support the respondent’s position. The Manulife Policy does not contain the type of exclusionary language that terminates coverage for undiscovered disability claims the employee had and that originated during their employment, when their employment ceases. To so conclude would leave former employees, like the appellant, in the untenable position of having no disability coverage from either their former employer or any new employer. Such a result would be contrary to the very purpose of disability insurance and the plain meaning of the coverage provision. [30]

ManuLife also asked the court to consider denying coverage in the policy because the proof of claim had not been submitted within 90 days of the date the benefits would begin. The court found that the record was ambiguous, but in any event, if necessary, it was in the interests of justice to grant relief from forfeiture when,

[28].  It would be most unfair, in my view, to permit the imperfect compliance with the 90-day contractual period to defeat the appellant’s claim in the particular circumstances of this case. The appellant was injured during his employment when he was covered by a Long Term Disability policy, but did not appreciate the significance of his injury during his employment. The respondent has conceded the appellant’s total disability as of the date of the accident and that he enjoyed coverage under its policy at the time of his injury. The appellant left his employment sometime after he was injured but before he was aware of the extent of his injury. The imperfect compliance with the requirement to file the proof of claim form may only be a matter of 10 days at most. His employer and the insurer were aware that he had suffered a serious injury that included a brain injury at the outset. All of the foregoing facts have been known to the parties for years now. [31]

MacIver is a courageous decision. How many lawyers would have taken a case where an individual returned to work, resigned, worked somewhere else for several years, and then sought to commence a claim against the disability insurer of his original employer six years after the onset of disability and three years after resigning. The plaintiff was ultimately successful because he refused to simply accept denial of coverage and retained legal counsel who was prepared to carefully read the disability policy to see if the insurer and employer denials were valid. The Court of Appeal decision is instructive to counsel seeking to expand the scope of coverage.

Even if an exhaustive examination of the policy and the facts does not provide a road to coverage under the insurance contract, diligent counsel should not automatically conclude that they cannot assist claimants. As noted earlier, the relationship between employer and employee is also based in contract. In additional to the purely contractual obligations, such as providing money for work done, there are also extra-contractual obligations flowing in both directions. There is a developing body of case law which holds that employers may be found liable for failing to meet those contractual obligations. Consider, for instance, the recent Ontario Human Rights Tribunal decisions of Talos v. Grand Erie District School Board [32] found that the employers who are providing health, dental and life insurance pursuant to employees are in violation of section 15 of the Canadian Charter of Rights and Freedoms when they terminate those benefits for active employees at age 65. The same obligations arguably apply to employers’ obligations to provide access to disability policies.

In other words, if an employer provides access to disability benefits such as sick benefits, short-term and long-term disability, then there is a clear contractual obligation to make access to those benefits reasonably accessible. For instance, in Tarailo v. Allied Chemical, [33] an employee resigned under threat of dismissal for unacceptable conduct. The conduct was later shown to be due to mental illness and the court found that the employer was liable to provide sickness benefits. The court carefully considered the facts and concluded that the plaintiff had established that he was unable to perform each and every duty for which he was reasonably qualified by education, training or experience, and he therefore would have been qualified to receive benefits. [34] The court further found that, on the balance of probabilities, if the proof of loss had been provided to the disability insurer, Mutual, in a timely fashion then Mutual probably would have honoured the claim for long-term disability benefits. The court was critical of the employer for failing to provide application documentation and also critical of the insurance company for failing to properly consider the claim. The court therefore found that the employer was liable for salary benefits and spousal pension benefits for 15 weeks and the employer and insurance company were jointly liable for long-term disability benefits on an ongoing basis.

The Ontario Court of Appeal considered a similar question in Perlett Estate v. Riverside Health Care and Mutual Life. [35] This case, Ms. Perlett was a registered nurse employed by Riverside until she was killed on March 22, 1996. The executors of her estate sought payment of enhanced benefits due pursuant to a life insurance policy. Unfortunately, it appears that Riverside negligently administered the policy resulting in a determination by the insurance company that the enhanced benefits were not payable. The insurance company, Mutual, made a contribution, but the majority of settlement in this case was paid by the employer. The Court found that the employer had contractual and tort obligations Ms. Perlette and breached its duty of care in several respects. As such, the employer was found liable for all of the money that the estate would have received had the life insurance investments been properly handled.

The failure to meet contractual obligations to provide access to long-term disability benefits pursuant to an employment contract was specifically considered by the Ontario Court of Appeal the leading decision of Brito v. Canac Kitchens. [36] The employer dismissed the plaintiff without cause as a result of restructuring. They were not dissatisfied with his work. The plaintiff mitigated his damages by securing alternative employment, at a much lower rate of pay, commencing on August 1, 2003. In November 2004, the plaintiff underwent surgery for laryngeal cancer, received chemotherapy and radiation treatments, and was sufficiently ill that a tracheotomy tube was inserted into his throat until June 2005. Further cancer surgeries were conducted in November 2008, May 2009, and October 2009. Further surgeries were contemplated into the future. The employer provided only eight weeks disability coverage upon the date of dismissal and did not offer disability coverage as part of the compensation package for the entire period of reasonable notice. It is important to remember that pursuant to employment law, employees are contractually entitled to receive reasonable notice of termination (in which case he or she would be entitled to ongoing access to group disability benefits) or payment in lieu thereof (in which case they are still contractually entitled to access group and disability benefits). The Employer argued that, even thought it has terminated entitlement to LTD coverage when it stopped paying premiums, Mr. Brito should have taken steps to mitigate his claim by purchasing private coverage. The trial judge rejected this argument observing,

12   How should the law deal with the events of the period of November 6, 2004 [the disability date] to May 15, 2005 [the end of the 22 month notice period]? If it is to place Mr. Luis Romero Olguin into the position he would have been in had Canac provided him with working notice, he would have received his regular cash employment compensation, plus all benefit coverages for the entirety of his 22 month notice period at law.

13   Canac consciously chose not to make alternative arrangements to provide its loyal, long-service employee with replacement disability coverage. Rather, it chose to go the “bare minimum” route. It provided only the statutory minimums in pay and benefits and then gambled that he would get another job and stay well. When it lost that gamble, it chose to litigate this matter for over five years. When confronted with its potential significant exposure, it raised the argument that Mr. Luis Romero Olguin failed to mitigate his potential damages by purchasing a replacement disability policy.

14   I reject that argument. The onus is upon Canac to establish the Plaintiff’s failure to mitigate. Canac has failed to do so in this instance. Insufficient evidence was led to show that comparable coverage would have been available and would have provided Mr. Luis Romero Olguin with comparable coverage. While Mr. McKechnie conceded that in this setting, the law transforms the employee into a “notional employee” he argued that Mr. Luis Romero Olguin failed to satisfy the “at work”” requirement contained in the policy wording. I reject this argument and find it to be circular logic to argue that, if the Plaintiff was to be deemed a “notional employee” then how can it be asserted that he was “not actively at work”?

The Court relied on employment contract and tort principles to find coverage for LTD benefits, payable by the employer in a lump sum, of past and future benefits up to the age of 65. [37]

To conclude, the search for coverage is a critical task faced by counsel assisting claimants in pursuing long-term disability benefit claims. The full scope of this question is expansive and could fill entire textbooks. The search for coverage in LTD claims is, first and foremost, an exercise in contractual interpretation. Innovative legal arguments, such as those made in MacIvor, demonstrate that counsel should be prepared to challenge denials of coverage based on late application, limitations, change in employment status or alleged exclusions. We should not simply accept the arguments put forward by the employer or disability carrier, but rather, should obtain and review the actual policy and conduct our own analysis. Even if coverage is lost as against the disability insurer, there may be a cause of action against the employer in contract or tort.

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[1] The author would like to acknowledge the able assistance of Michael Rattray of Rastin Gluckstein Lawyers in completing this paper; most especially, I appreciate his contribution to the relief from forfeiture section.

[2] With the exception of extra-contractual damages which are beyond the scope of this paper.

[3] Technically, in union situations the contract is the Collective Bargaining Agreement between the Union and the Employer, but the legal difference is usually irrelevant given that this is still a contractual arrangement. Counsel should be aware that, in some cases, however, the contract in unionized settings will take away the right to sue in civil courts and require workers to grieve any disputes concerning entitlement to benefits.

[4] R.S.O. 1990, c. I.8, s. 201.

[5] R.S.O. 1990, c. I.8, s. 318.

[6] For a more detailed discussion of specific issues related to limitations in LTD litigation, we recommend that the lawyer review the excellent paper by Geoffrey Larmer and Nilti Simmonds, Limitation Pitfalls in Disability Claims: Lessons Learned from Kassburg v. Sun Life Assurance Company of Canada. (OTLA 2015 Long Term Disability Conference: Good Practices and Bad Faith from Coast to Coast, 2015)

[7] 2014 ONCA 130, [2014] OJ No 753 (QL).

[8] Ibid, para 39.

[9] Supra note 1, para 41.

[10] Ibid, para 58.

[11] Ibid, para 31.

[12] 2014 ONCA 922, 124 OR (3d) 171.

[13] Supra note 6, para 58.

[14] Ibid, para 42.

[15] 2015 ONCA 641, 127 OR (3d) 161.

[16] 2014 ONSC 6405, [2014] OJ No 5253 (QL)

[17] 2018 ONCA 381, 422 DLR (4th) 232.

[18] 2018 ONSC 1090.

[19] Supra note 12, para 34c)

[20] Ibid, para 34f)

[21] Ibid, para 34g)

[22] Ibid, para 37.

[23] 1994 CarswellOnt 859, [1994] O.J. No. 1089 (Ontario Court (General Division))

[24] Ibid., para 2.

[25] 2009 Carswell Ont 6857; 182 A.C.W.S. (3d) 181.

[26] 2016 BCSC 110 (CanLII). I am grateful to the members of the OTLA ListServ for brining this case to my attention.

[27] Ibid., para. 229ff.

[28] Ibid., para 233.

[29] 2017 ONSC 1550 (Ontario Superior Court); 2018 ONCA 381 (Ontario Court of Appeal).

[30] Ibid., Court of Appeal, paras 21-23.

[31] Ibid., Court of Appeal, Para. 28.

[32] 2018 HRTO 680; 2018 CarswellOnt 8879; [2018] O.H.R.T.D. No. 525.

[33] 68 O.R. (2d) 288; [1989] O.J. No. 489 (Ontario High Court of Justice)

[34] Ibid., p. 15.

[35] 2005 CanLII 18184 (Ont. C.A.)

[36] 2011 CarswellOnt 934, 2011 ONSC 1011 [2011], O.J. No 1117; affirmed at 2012 CarswellOnt 760; 2012 ONCA 61, [2012] O.J. No. 376 (Ont. C.A.). The Court of Appeal did overturn the $15,000 punitive award but otherwise left the rest of the lower court decision intact.

[37] In this case, $146,723 for past benefits plus $47,941 for future benefits. This is interestingly an award that can not be made against an insurer. The Judge also awarded $15,000 in punitive damages, but this was overturned by the Ontario Court of Appeal (which did however affirm the LTD damages award)