Remedies and Damages Available in Long Term Disability Litigation

Remedies and Damages Available in Long Term Disability Litigation Andrew Wray and Niiti Simmonds 1 Pinto Wray James LLP Table of Contents I. Introduction... 2 II. Basic Features of Long Term Disability Insurance Contracts... 2 Group versus Individual Policies... 2 Totally Disabled :... 3 Waiting or Elimination Period :... 3 Benefit Quantum and All Source Maximum:... 4 Subrogation... 4 III. Selecting the Appropriate Forum: Litigation, Internal Appeals and Limitation Periods... 5 IV. Overview of Remedies... 7 Payment of All Disability Benefits Owing to the Date of Trial... 7 Declaratory Relief... 7 Mental Distress and Punitive Damages... 8 Income Tax Payments... 13 Relief from Forfeiture... 13 V. Best Practices for Employers to Prevent Damages Awards... 14 VI. Tips and Best Practices for Managing LTD Litigation... 15 1 Andrew Wray is the Managing Partner and Niiti Simmonds is an Associate at the law firm Pinto Wray James LLP, which specializes in long term disability litigation, civil litigation, employment law, labour law, human rights and administrative law. 65 Queen Street West, Suite 1155 Toronto, Ontario, Canada M5H 2M5 T 416 703 2067 F 416 593 4923 www.pintowrayjames.com awray@pintowrayjames.com

I. Introduction This paper will provide an overview of the common features of Long Term Disability ( LTD ) insurance contracts, and will provide a primer on the remedies and damages available in LTD litigation. Finally, we will offer practical tips on managing LTD litigation. II. Basic Features of Long Term Disability Insurance Contracts Disability insurance contracts provide benefits to replace lost income in the event that an insured becomes disabled. The extent and nature of disability coverage in each case is governed by the terms of the insurance contract or policy ( policy ). It is important to review the policy carefully, as every policy is unique. In all cases, LTD litigation is based on contract law principles, although insurance law and, at times, employment law principles will also apply. Group versus Individual Policies: Increasingly, employees are being provided disability coverage as a term of their employment. When the disability coverage is arranged by the employer, this is referred to as group coverage. In group policies, the premium is paid for either by the employer or the employee, or a combination thereof. In group policies, the employee is a third party beneficiary of the policy. The insurer and/or employer will typically provide the employee with a brochure or booklet identifying key terms of the LTD policy. The underlying policy or contract of insurance itself is usually not furnished to the employee in the course of employment; however, the insurer and/or employer will have an obligation under the Rules of Civil Procedure to disclose the underlying policy in the event that litigation is commenced. In the event of discrepancies between the brochure and the underlying LTD policy, an argument can be made that the more favourable terms apply and/or that the insurer is bound by any representations made in the LTD booklet. In the case of group LTD insurance, it is important to clarify whether the group policy is an insured plan or an administrative services only ( ASO ) plan. In an insured plan, the insurance company manages and administers a LTD claim and is ultimately responsibility for paying LTD benefits. In ASO plans, the insurance company will manage and administer the LTD claim, however, it is the employer who is ultimately responsible for paying LTD benefits. Page 2 of 17

Individual LTD policies are policies purchased by an individual. In these cases, the insurer is required, as a result of the Insurance Act, to furnish to the insured particulars of the policy and a copy of the insured s application for insurance, at the time the contract is entered into and/or upon request. 2 Totally Disabled : The LTD policy will contain a definition of Total Disability, which defines the circumstances in which disability benefits will be paid. It is very common for the policy to pay disability benefits for a one or two year period, in the event that the insured employee is totally disabled from performing his or her own occupation ( the own occupation period ). After one or two years, disability benefits will only be payable in the event that that the insured employee is totally disabled from performing any occupation ( the any occupation period ). Sometimes, the definition of totally disabled will take into account the insured s skills, training and qualifications, or their ability to earn income that is comparable to the insured s pre-disability income. The conclusion of the initial one or two year benefit period is referred to as the change of definition date, as the definition of totally disabled changes at this time. Some deluxe policies of insurance, such as those for professionals, do not contain a change of definition date, and disability benefits will be payable as long as the insured is totally disabled from performing his or her own occupation. Waiting or Elimination Period : The LTD policy will usually identify a period of time during which the insured must be continuously disabled before LTD benefits will be paid. This is referred to as the waiting or elimination period. Sometimes the waiting period is defined by reference to the definition of totally disabled. For example, the policy may state that LTD benefits will be payable after the insured is continuously disabled from performing their own occupation for a period of six months. In other policies, the waiting/elimination is defined separately in the policy. The waiting period may be any period of time; however, it is common for the waiting period to be three, six or twelve months. 2 Insurance Act, RSO 1990 ci.8, ss. 174, 175, and 294(2). Page 3 of 17

Benefit Quantum and All Source Maximum: The LTD policy will contain a formula for how the LTD benefit is calculated (for example, 65% of gross monthly earnings, up to a maximum of $5,000 per month). The definitions section of the policy will usually define earnings or income, and may or may not include overtime, regular bonuses, and commissions in addition to regular earnings. Typically, a group insurance policy will contain an all source maximum provision, which provides that the insured s LTD benefit and income from all other sources may not exceed 85% of the employee s pre-disability earnings. Subrogation: For group policies in particular, it is typical for the policy to contain a subrogation provision providing that the insured s LTD benefit will be reduced as a result of benefits received from other sources. For example, workers compensation benefits, Canada Pension Plan Disability benefits, and employment and self-employment income are usually fully or partially offset from an insured s LTD benefit, particularly in the case of a group plan. Many group LTD policies also contain deeming provisions, which means that the insurer can require an insured, as a term of the policy, to apply for WSIB or CPP benefits, etc. If the insured fails to do so, the insurer can then reduce the insured s LTD benefit by the quantum of benefit that would have been payable by WSIB or CPP, regardless of whether or not such benefits are actually received. This may not be permitted where the language of the policy refers to a right of the insurer to reduce the LTD benefit by any amounts that are paid by other sources (as opposed to a provision granting a right to the insurer to deduct amounts that are or may be payable by other sources). This was an issue in a recent case, RBC Life Insurance Co. v. Janson, 2013 ONSC 3154, in which the insured retained a lawyer who was successful in overturning a denial of WSIB benefits. The insured requested that the insurer only reduce the LTD benefits by the net amount the insured had actually received on account of WSIB benefits, after the lawyer s fees had been taken into account. The insurer refused to do so on the basis that it was entitled under the policy to deduct WSIB benefits payable by WSIB, and not the net amount received by the insured. 3 In relation to CPP disability benefits, this sometimes means 3 RBC Life Insurance Co. v. Janson, 2013 ONSC 3154. Page 4 of 17

that the insurer will seek to deduct the gross amount of the insured s CPP benefit, and not the net amount of that benefit after tax. Other common features of LTD policies to look for are a 1) cost of living adjustment; 2) a right of the insurer to perform an independent medical assessment; 3) a requirement that the insured be under the regular and ongoing care of a physician and that the insured be receiving treatment that is appropriate for the disabling condition; and 4) a termination date of benefits when the employee reaches age 65, among other terms. III. Selecting the Appropriate Forum: Litigation, Internal Appeals and Limitation Periods In the event that an insured s LTD claim is denied or terminated, a statement of claim can be commenced against the insurer for breach of contract. Typically, the claim will be brought under the normal or simplified rules of the Superior Court of Justice, as the plaintiff will be seeking damages in addition to a declaration from the court that the plaintiff is entitled to benefits under the plan. The insured plaintiff may wish to consider bringing a claim in the Superior Court of Justice, even if the monetary amount claimed is within or approaching the monetary jurisdiction of the Small Claims Court, as the Small Claims Court does not have jurisdiction to order declaratory relief. 4 In the case of any group policy, whether an insured or ASO plan, provisions of the Insurance Act allow an individual insured under a group policy to enforce his or her rights against the insurer directly and to bring a claim in his or her own name, even though there is no privity of contract between the insured and the third party beneficiary employee. 5 In the case of group insured plans and individual policies of insurance, the insurance company alone is the appropriate defendant in the claim. In some cases, under an insured plan, the employer should also be named as a defendant but only if the employer has improvidently terminated LTD benefit coverage, either before or after termination, such that the employer may, 4 Courts of Justice Act, RSO 1990, c C.43, s. 97. 5 Insurance Act, supra, s. 201 (Part V, Life Insurance) and s. 318 (Part VII, Accident & Sickness). Page 5 of 17

as a result, be liable for the payment of LTD benefits. 6 This issue will be discussed in further detail below. In the case of a group ASO plan, the employer should be named as a defendant in addition to the insurer, as it is the employer/plan sponsor who is ultimately responsible for paying any past and future LTD benefits. The ASO insurer should be named as a defendant as well, in the same action, particularly if the plaintiff is alleging that the insurer acted in bad faith in handling and/or adjudicating the claim and has claimed mental distress, punitive or other extra-contractual damages. 7 As an alternative to commencing an action, the insured may also wish to consider initiating an internal appeal with the insurer. In our experience, however, once an insurer has decided to deny or terminate a LTD claim, it is unlikely to change its position at a later date. Further, it is important to note that the insurer will typically take the position that the limitation period runs even while an in internal appeal is ongoing. Determining the limitation period can be challenging in some cases. In the event that the claim for benefits is denied at first instance, the statement of claim should be commenced within two years of the date that benefits were first payable, by virtue of the terms of the policy and/or the Insurance Act provisions applicable to the policy. 8 In the event that benefits are paid, and then later discontinued, the statement of claim should be commenced within two years of the termination of benefits by the insurer. In some cases, it may be possible to argue that the claim was only discoverable after the insurer made a final decision on an internal appeal or, alternatively, that the insurer waived the limitation period by inviting multiple appeals. 9 However, there are a number of reports of insurers inviting an insured to participate in multiple 6 See for example, Egan v. Alcatel Canada Inc., 2004 CanLII 2553 (ONSC), rev g in part, 2006 CanLII 108 (ONCA). 7 See Nayyar v. Manufacturers Life Insurance Company, 2012 BCSC 28; but see Asselstine v. Manufacturers Life Insurance Company, 2005 BCCA 292. 8 Insurance Act, supra, ss. 203 and 300 (Part VII, statutory condition No. 10). 9 For a thorough discussion of limitation issues in long term disability litigation, see Steven Muller, Avoiding the Statutory and the Contractual Limitation Defence in Disability Insurance Disputes (April 2002) 25:3 Advocates Q 257. Page 6 of 17

levels of internal appeal, only to later discover that the insurer is taking the position that the limitation period was running during the appeal period and has since expired. In light of conflicting authorities in this area, the best practice is to commence a claim within two years of when benefits are first payable under the policy but denied, or within two years of the initial termination of benefits. IV. Overview of Remedies We will now provide an overview of the grounds of relief that are typically claimed in an action for disability insurance benefits. Payment of All Disability Benefits Owing to the Date of Trial: The plaintiff should claim a retroactive payment representing the amount that would have been paid to the plaintiff had the plaintiff been approved for benefits and/or continued on claim. The plaintiff does not need to specify the amount owing, as this amount will be quantified at trial or upon settlement of the action. Declaratory Relief: The plaintiff should seek an order and declaration that the plaintiff is entitled to recover long term disability benefits from the defendant insurer, as long as the plaintiff continues to be totally disabled within the meaning of the defendant s plan, and that such payments will continue until the plaintiff attains the maximum benefit period contained in the plan (such as age 65). Insurers will typically take the position that the trial judge is only entitled to order the payment of arrears of disability benefits up to the date of trial, and to order that the plaintiff, at the time of judgment, is totally disabled within the meaning of the plan and therefore should be reinstated onto his or her LTD benefits plan. Page 7 of 17

With respect to future payments, the court may order that the disability benefits be reinstated and continued provided the plaintiff continues to be totally disabled. 10 The difficulty of course is that the defendant insurer may always adopt the position at a later date that the plaintiff is no longer disabled under the policy. This means that the plaintiff may have to bring actions in the future, from time to time, in the event that the insurer terminates benefits at a later date. Often, the insured may prefer to accept a lump sum settlement of the claim, so that they no longer have to deal with the insurer or face the risk of benefits being terminated in the future. In some cases, Courts have ordered future payments of disability benefits when the Court finds that the plaintiff has proven on a balance of probabilities that his or her disability will last for the remaining term of the policy. 11 This will be easier to establish when the medical evidence is strong, and/or establishes a permanent disability, and when the remaining term of the policy is a short period of time. In the recent Saskatchewan case, Branco v. American Home Assurance Company, the Court ordered the defendant insurer to continue to pay disability benefits to the plaintiff until he attained the age of 65. 12 At the time of the decision, the plaintiff was 62 years old and the Court found that the plaintiff was permanently disabled and would never return to work. In that case, the plaintiff was entitled to a portion of his disability and medical benefits for the rest of his lifetime. In different factual circumstances, query whether a court could instead order an insurer to pay a lump sum representing the present value of the plaintiff s future benefits entitlement under the policy. Mental Distress and Punitive Damages: It goes without saying that the plaintiff should seek an order for damages, as well as aggravated, mental distress, bad faith and punitive damages. Although a claim is often made for all of the above, the damages awarded in long term disability cases generally fall into two categories: mental distress damages (also referred to as a form of aggravated damages) and punitive damages. 10 For a discussion of the Court s powers of declaratory relief with respect to disability claims, see Andersen v. Great West Life Assurance Co., [1988] OJ No. 987 (SCJ). 11 See: Brito v. Canac Kitchens, 2011 ONSC 1011; Porter v. Metropolitan Life Insurance Co., [1984] NSJ No. 277; and Andersen v. Great West Life Assurance Co., [1988] OJ No. 987 (SCJ). 12 Branco v. American Home Assurance Company, 2013 SKQB 98 (CanLII) at para. 153. Page 8 of 17

Fidler v. Sun Life is the leading case from the Supreme Court on the availability of mental distress and punitive damages flowing from the breach of peace of mind insurance contracts, such as contracts for disability insurance benefits. 13 In Fidler, the plaintiff, Connie Fidler, was awarded $20,000 in damages for mental distress (sometimes referred to as aggravated damages) as a result of Sun Life s refusal to pay disability benefits for more than five years. 14 In Fidler, the Court explained that damages for mental distress are available where: 1) an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and 2) the degree of mental suffering caused by the breach was a degree sufficient to warrant compensation. 15 According to the Supreme Court, a contract for disability insurance is a peace of mind contract, as it was reasonably contemplated by the parties at the time the contract was formed that mental distress would result from the insurer s breach of the contract. While mental distress damages are compensatory in nature, conversely, punitive damages are designed to address the principles of denunciation, deterrence and retribution. 16 Punitive damages may be awarded when a party s conduct constitutes a marked departure from the ordinary standards of decency and gives rise to an independently actionable wrong. 17 In disability insurance cases, a breach by the insurer of the express or implied contractual duty to act in good faith constitutes an independently actionable wrong. In 702535 Ontario Inc. v. Lloyd s London, Non-Marine Underwriters, (2000) 184 DLR (4 th ) 687, the Ontario Court of Appeal described the following standard to which insurers are held: The duty of good faith also requires an insurer to deal with its insured s claim fairly. The duty to act fairly applies both to the manner in which the insurer investigates and 13 Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 SCR 3. 14 See Fidler, supra at paras. 51-55 for the Court s discussion on the distinction between aggravated and mental distress damages. While mental distress damages arise out of a breach of a peace of mind contract itself, aggravated damages typically rest on a separate cause of action, usually in tort. 15 Fidler, supra at para. 47. 16 Fidler, supra at para. 61, citing Whiten v. Pilot Insurance Co., 2002 SCC 18 at para. 43. 17 Fidler, supra at para. 63. Page 9 of 17

assesses the claim and to the decision whether or not to pay the claim. In making a decision whether to refuse payment of a claim from its insured, an insurer must assess the merits of the claim in a balanced and reasonable manner. It must not deny coverage or delay payment in order to take advantage of the insured s economic vulnerability or to gain bargaining leverage in negotiating a settlement. A decision by an insurer to refuse payment should be based on a reasonable interpretation of its obligations under the policy. This duty of fairness, however, does not require that an insurer necessarily be correct in making a decision to dispute its obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith. 18 Two recent cases, Branco v. American Home Assurance Co. 19 and Fernandes v. Penncorp Life Insurance Co., 20 illustrate circumstances in which mental distress and punitive damages were awarded. The Branco case was a disability insurance case involving two defendant insurers, American Home Assurance Company ( AIG ) and Zurich Life Insurance Company ( Zurich ). Luciano Branco was a Portuguese Canadian welder who was working with a Saskatchewan company overseas in Kyrgyzstan, when he was severely and permanently injured on the job in 1999 after a steel plate fell on his foot. Although Mr. Branco initially received some insurance benefits from AIG to replace his lost income, AIG stopped paying his benefits just a few months after approving his insurance claim. After withholding his disability benefits for two months, AIG then offered Mr. Branco a lump sum payment of $22,500 to settle his entire insurance claim. Mr. Branco was 50 years old at the time of his injury and was earning just under $52,000 a year. AIG s lump sum settlement offer represented less than six months of wages, even though Mr. Branco was potentially entitled 18 702535 Ontario Inc. v. Lloyd s London, Non-Marine Underwriters, (2000) 184 DLR (4 th ) 687 at para. 29, cited in Fidler, supra at para. 63. 19 Branco v. American Home Assurance Co., 2013 SKQB 98. 20 Fernandes v. Penncorp Life Insurance Co., 2013 ONSC 1637. Page 10 of 17

to a portion of his lost wages up to the age of 65 and other health care benefits for his lifetime. Mr. Branco refused the company s low-ball offer, commenced a legal claim, and spent the next several years being subjected to arbitrary suspensions of his benefits from the company and ongoing requests for medical reports, despite the fact that he was permanently disabled and clearly entitled to benefits. For its part, Zurich allowed Mr. Branco s long term disability claim to become lost in an administrative black hole and delayed the payment of Mr. Branco s long term disability benefits for a period of nine years, despite the fact that Zurich had approved Mr. Branco s claim when he first applied in 2002. After receiving his application for long term disability benefits, and before issuing any payments, Zurich also offered to settle Mr. Branco s claim for a lump sum of only $53,600, despite the fact that Mr. Branco was entitled to over 10 years of lost wages benefits, worth more than $500,000 over the life of his disability insurance claim. Further, in its settlement offer, Zurich insisted that Mr. Branco should pay for the legal expenses that Zurich had incurred in bringing a motion to strike Mr. Branco s action against Zurich, a motion in which costs had been ordered against Zurich in favour of Mr. Branco. In March 2013, the Court of Queen s Bench for Saskatchewan released its decision in Mr. Branco s case. The Saskatchewan Court found that the companies had breached their contractual obligations to pay Mr. Branco s benefits and had acted unfairly and in bad faith. The Court was particularly aghast at the defendant insurance companies for withholding payments, then offering to settle both claims for far less than their actual value. The Court found that the act of withholding benefits placed undue pressure on Mr. Branco to accept a low settlement, as he would have no income upon which to live unless he accepted the offers. Describing the insurance companies conduct as cruel, malicious and torturous, the Court ordered punitive and aggravated damages totaling $4.95 million against AIG and Zurich, as well as all of the past and future benefits Mr. Branco was entitled to under his policies. Specifically, AIG and Zurich were ordered to pay $150,000 and $300,000 in mental distress/aggravated damages, respectively, and $1.5 million and $3 million in punitive damages, respectively. Page 11 of 17

In justifying this large punitive damages award, the Court observed that a punitive damages award of $3 million may not be particularly significant to the financial bottom line of a successful worldwide insurance company. The Court stated that it hoped that the award would gain the attention of the insurance industry, so that it would recognized the destruction and devastation caused by failing to honour their contractual policy commitments to insured persons. 21 Notably, based on the medical evidence, the Court determined that Mr. Branco would be totally disabled for the rest of his life and ordered AIG and Zurich to continue Mr. Branco s monthly disability benefits until age 65, and ordered AIG to reimburse him for his medical expenses for the rest of his life, as required by the policy. 22 On December 17, 2013, the Saskatchewan Court released its decision on costs, and ordered the defendant insurers and the employer to pay costs to Mr. Branco at five times the highest costs tariff available under the Court of Queen s Bench Tariff of Costs. 23 According to counsel for the plaintiff, the defendants have appealed the Court of Queen s Bench s decisions on damages and costs and it is anticipated that the appeal may be heard this year. In the recent case of Fernandes v. Penncorp, the Ontario Superior Court of Justice ordered the defendant insurance company to pay $500,000 in damages for Penncorp s failure to pay a long term disability benefits. The plaintiff was a 48 year old bricklayer who became injured after a fall in the workplace. The plaintiff had an individual policy of insurance with Penncorp. While initially some benefits were paid, the insurer later terminated benefits and took the position that the plaintiff could perform some form of work. At trial, Penncorp relied on video surveillance evidence, which purported to catch the plaintiff doing manual labour that was inconsistent with his alleged restrictions. The Court rejected the surveillance evidence and agreed with the plaintiff that he was totally 21 Branco, supra at para. 216. 22 Branco, supra at para. 153. 23 2013 SKQB 442 at para. 18. Page 12 of 17

disabled. When cross examined on the surveillance evidence, the plaintiff provided a credible explanation that he had performed limited manual labour around his home, but could only do so because of pain medications. The plaintiff also explained that he would be in pain and immobile for several days after attempting to perform such activities. The Court rejected the surveillance evidence and criticized the insurer for cherry picking selective and purportedly inculpatory portions of the video surveillance evidence. In the result, Mr. Fernandes was awarded $236,773 in damages for breach of contract, aggravated damages of $100,000 and punitive damages in the amount of $200,000. According to the Court, the award of aggravated damages was justified as Penncorp s refusal to pay benefits caused the plaintiff great humiliation, rendered him financially dependent on others, and caused great mental suffering. 24 The Court found that punitive damages were justified as Penncorp handled the plaintiff s claim in bad faith and unfairly, and its conduct was highly reprehensible. 25 Income Tax Payments: The plaintiff may also seek an order that the defendant pay all extra income tax payments that arise due to the delay in payment of disability benefits and the resulting lump sum awarded at trial. This will apply in the event that the disability benefits are taxable. The taxability of disability benefits is determined by who pays the premium. Where the premium is paid wholly by the employee in a group plan or the insured in an individual plan, then disability benefits are non-taxable. Conversely, if some or all of the premium is paid for by the employer, then the disability benefit is considered taxable income. One exception to the taxability of benefits is when the plaintiff accepts a lump sum payment in lieu of future disability benefit payments. In those circumstances, when the future taxable benefits are paid out as a lump sum in the settlement of a claim, the tax status of the lump sum payment is non-taxable. 26 Relief from Forfeiture: The plaintiff is entitled to seek relief from forfeiture. Relief from forfeiture can be claimed pursuant to the Courts of Justice Act, in addition to specific provisions of the Insurance Act which may also apply. 24 Fernandes v. Penncorp, supra at para. 63. 25 Fernandes v. Penncorp, supra at paras. 64-65. 26 Tsiaprailis v. Canada, 2005 SCC 8. Page 13 of 17

In addition to the foregoing relief, the plaintiff should also request a waiver and return of premiums with interest for any premiums paid during the period of total disability, as well as costs and interest pursuant the Courts of Justice Act. V. Best Practices for Employers to Prevent Damages Awards Employers who provide long term disability policies for their employees are obligated to advise their employees of the availability of LTD benefits and assist them by providing information regarding how to make a claim. This includes an obligation to provide the employee with the benefit claim forms in order to access disability benefits, and to complete the employer s portion of the disability claim form in a timely and accurate manner. In the event of termination, employers are also required to maintain long term disability coverage in place for the duration of the reasonable notice period. Egan v. Alcatel Canada Inc. is a leading case on an employer s obligation to keep an employee whole by maintaining short term and long term disability coverage in place for the duration of the reasonable notice period. In Egan, the plaintiff, Mary Egan, was terminated without cause from her employment with Alcatel on July 3, 2002. Upon termination, the employer provided Ms. Egan with a separation payment equivalent to her Employment Standards Act entitlements, and maintained her short term and long term disability coverage in place for 12 weeks, until September 25, 2002. In October 2002, Ms. Egan became disabled. When she applied for disability benefits, her claim was denied as Alcatel had terminated benefit coverage on September 25, 2002. After her claim was denied, Ms. Egan commenced an action for wrongful dismissal and damages for lost disability benefits. At trial, the Court determined that the reasonable notice period was 9 months, and that the employer was legally obligated to maintain full disability benefit coverage for the duration of the 9 month notice period. The trial judge observed that the law is clear that dismissed employees are to be kept whole throughout the entire reasonable notice period. Accordingly, upon termination, a dismissed employee is entitled to receive their salary as well as any other benefits that would have continued if the employee had remained in the job. In short, LTD coverage Page 14 of 17

must be maintained for the entire duration of the reasonable notice period. According to the Court, because Alcatel had wrongly discontinued disability benefit coverage during the reasonable notice period, Alcatel was liable for any resulting loss. On appeal, the Court of Appeal agreed with the trial judge that Alcatel was on the hook for the disability benefits Ms. Egan would have received had her coverage been maintained. The Court of Appeal also explained that an employer who wrongfully discontinues disability benefit coverage will be liable for the value of the disability benefits that would otherwise have been payable. This means that an employer will assume the role of the disability insurer and could be liable for disability benefits beyond the reasonable notice period and up to age 65, provided the employee remains totally disabled. This occurred in a recent decision, Brito v. Canac Kitchens, in which the employer was ordered to pay $203,742.94, which represented 10 years of disability benefits the terminated employee would have received if disability coverage had been maintained during the reasonable notice period. 27 Many insurers are unwilling to extend disability coverage to employees post-termination. This creates significant risk for employers who may be forced to assume the role of the disability insurer in the event that the employee becomes disabled during the common law notice period. VI. Tips and Best Practices for Managing LTD Litigation 1. Make note of your limitation period: Best practice dictates commencing a statement of claim as soon as benefits are terminated or denied by the insurer. Even if the insurer has invited an appeal of its decision, chances are that the insurer will treat the limitation period as beginning to run from the date that benefits were payable under the policy but denied, or the date that benefits were first terminated. 27 Brito v. Canac Kitchens, 2011 ONSC 1011, aff'd in part. 2012 ONCA 61. Page 15 of 17

2. Obtain good medicals: Take the time to review the medical reports available. If the medical reports do not address the specific question of whether the employee is totally disabled from performing their own or any occupation, write to the physician to request a comprehensive medical-legal report. 3. Communicate with the insurer: Communicate with the insurer to ensure the insurer has the medical reports and records it requires. As well, you may wish to consider agreeing to have the insured participate in an independent medical examination at the expense of the insurer, in addition to furnishing a medical report from the client s own doctor. 4. Do the math: Take the time to calculate the value of your client s claim and review your calculations with your client. It is important to advise your client that his or her long term disability benefits will be reduced by the value of other benefits the client is receiving, such as WSIB or Canada Pension Plan disability benefits. As well, take the time to explain present value calculations with your client. This is particularly important when preparing for a mediation session as, assuming the client has strong medicals demonstrating total disability, one of the primary disagreements between the parties will be the appropriate present discounted value of any lump sum settlement for future benefits. 5. Be wary of employee-employer releases: Ensure that the insurer is not inadvertently released when there is a settlement of the employment relationship between the employer (policy holder) and employee. This occurred in the recent case Zelsman v. Meridian Credit Union 28 in which the insurer, Great West Life, succeeded in establishing that minutes of settlement executed between an employee and her employer (the group policy holder), the College of Family Physicians of Canada, had the effect of releasing the employee s claim against Great-West Life for disability benefits. Great-West Life was not present at the mediation or aware of the minutes of settlement; further, Great-West Life was not a party to the release and provided no consideration to the insured employee 28 Zelsman v. Meridian Credit Union, 2011 ONSC 1680, aff d 2012 ONCA 358, leave to appeal to SCC refused, 2012 CanLII 76968 (December 6, 2012). Page 16 of 17

Page 17 of 17 in exchange for the release. Despite the foregoing, the Court held that the minutes of settlement had the effect of releasing any claims of the plaintiff against Great-West Life under the group policy and that Great-West Life was entitled to enforce and rely on the terms of the minutes against the plaintiff. Importantly, the minutes executed by the employee and the College expressly provided that the intention of the parties was to resolve all matters arising from the plaintiff's employment with the College, including any claims for long term disability benefits provided pursuant to the group policy by Great-West Life. At all times, in the event of a dissolution of the employment relationship, counsel should ensure that the employee with access to a group plan has been provided with the opportunity to make an application for disability benefits while group coverage is still in place, and that the employee does not implicitly or expressly waive their right to future benefits in a release executed between the employee and employer.