Equitable Remedies Relating to Long-Term Disability Policies
What happens if your Long-Term Disability (LTD) insurer denies your claim for LTD benefits, stating that you are either too late to make a claim or that you have not complied with the terms of the policy? Could you still be entitled to benefits under your policy?
LTD benefits are most commonly available pursuant to a group policy that an employer takes out on behalf of their individual employees. LTD benefits may be available to individual employees who can establish that they are “disabled,” as defined by their policy.
Each policy has different wording; it is imperative to read the specific language contained in the policy carefully. The policy will also include timelines for the submissions of both applications and other documentation.
In most LTD policies, to be deemed “totally disabled,” the individual must establish that they are unable to perform the essential duties of their own occupation for the first two years following the date of disability. After that, they must establish that they are unable to perform the essential duties of any occupation for which they are reasonably suited based on education, training, and experience.
When determining deadlines for information submission under the policy, the date of the disability’s onset can be an important consideration. In the event of a denial of entitlement to benefits, it was traditionally understood that the insurance company would be required to provide a “clear and unequivocal denial,” (see: Kassburg v. Sun Life Assurance Co. of Canada (2014), 124 O.R. (3d) 171). More recently, though, the Court of Appeal has noted in Kumarasamy v. Western Life Assurance Company, 2021 ONCA 849 that there is no authority for the proposition that a clear and unequivocal denial is required. However, the Court in Kumarasamy then went on to state that there will be some cases where an insurer may, by its conduct, lead an insured person to believe that their claim has not been denied.
The takeaway here is that there must be careful analysis as to whether the insurance company did, in fact, properly and effectively communicate a denial of benefits.
In the event of a denial, the Limitation Act provides that claimants have two years to commence a lawsuit against the insurance company to seek benefits. However, careful analysis is required as to when exactly the clock on that two-year time limit will start to run out. The Courts have determined that this is a matter of both fact and law.
Insurance companies may also seek to deny benefits in cases where they claim that there has been a lack of compliance with respect to other terms and conditions of the policy. The insurance company may take the position that, even if the claimant is, in fact disabled, they are still not entitled to benefits because they failed to provide certain essential information and documentation in a timely manner, consistent with the terms of the policy. However, just because an insurance company denies someone’s entitlement to benefits for what they say amounts to a breach of the terms of the contract does not necessarily mean that the applicant is not entitled to them.
There are several factors to be considered when considering a denial by an insurance company, including whether the doctrine of Relief from Forfeiture might apply.
Relief from Forfeiture
Relief from Forfeiture is an equitable remedy available through the Court’s inherent jurisdiction. It is a discretionary remedy that the Court can utilize to protect a person’s rights, even in cases where there is a lack of strict compliance with the terms of the Policy of Insurance. Equitable remedies have roots tracing back to the English Court of Chancery and were developed to address the concern of achieving a just result or outcome.
The inherent and discretionary power of the Courts is codified in section 98 of the Ontario Courts of Justice Act.
The statutory authority for granting relief from forfeiture in accident and sickness insurance policies (e.g., LTD Policies) is found in section 328 of the Insurance Act which states:
Where there has been imperfect compliance with a statutory condition as to any matter or thing to be done or omitted by the insured, person insured or claimant with respect to the loss insured against and a consequent forfeiture or avoidance of the insurance in whole or in part, and any court before which a question relating thereto is tried deems it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it deems just.
Relief from forfeiture has also been described as seeking to prevent hardship to beneficiaries when
there has been a failure to comply with a condition for receipt of insurance proceeds and where leniency in respect of strict compliance with the condition will not result in prejudice to the insurer (Dube v. RBC Life Insurance Co., 2015 ONSC 77).
The Court of Appeal of Ontario confirmed in Kozel v The Personal Insurance Company (2014 ONCA 130) that these remedial powers should be given a wide scope to provide relief where the result would otherwise be inequitable or unjust.
The Court of Appeal further confirmed in Kozel that relief from forfeiture would be available in cases of “imperfect compliance” with the terms of the policy but would not be available in cases involving “noncompliance” with the terms of the policy. What constitutes imperfect compliance as opposed to noncompliance with the policy requires careful analysis in each case.
Imperfect compliance occurs when the breach is incidental and not fundamental to the insurance contract (Dube).
One could reasonably expect that, when the insurance company states that someone is not entitled to coverage under the terms of their policy, this is due to non-compliance rather than imperfect compliance. The insurance company will not, however, provide the legal basis for their position.
In Kozel, the Court of Appeal stated that a finding of noncompliance would be “rare.”
The test for Relief from Forfeiture is well-established and has three components. The Court must consider:
- The conduct of the insured /applicant
- The gravity of the breach
- The disparity between the value of the property forfeited and the damage caused by the breach
While not expressly stated as a component part of the test, the insurance company will also have to show evidence that it has been prejudiced by the alleged lack of compliance with the terms and conditions of the policy to deny entitlement to benefits on a purely contractual basis (see Wiles v. Sun Life Assurance Company, 2018 ONCA 766).
When determining prejudice, it is important to be aware that the insurance company cannot create prejudice by its own failure to do something that it reasonably could or ought to have done under the policy but failed to do. The Court stated in Halladay v. Manufacturers Life 2020 ONSC 2802 at paragraph 56:
… the [insurer’s] prejudice argument cannot be sustained in circumstances where it has itself failed to take any step to request a medical examination or assessment from the time it received notice of the claim. The defendant cannot create prejudice by its own failure to do something that it reasonably could or ought to have done.
In Halladay, the Court granted relief from forfeiture based in part on the insurance company’s own conduct and their failure to take certain steps available to them, including requesting additional records and medical examinations.
The insurance company cannot, therefore, be complicit in creating its own prejudice as the basis for denying a claim.
Equity in Action – A Case Study
Preszler Injury Lawyers was retained to represent an individual who was denied entitlement to LTD benefits. In their letter denying entitlement to benefits, the insurance company wrote the following to our client:
In order to be eligible for Long Term Disability Benefits, you need to meet all the contractual provisions outlined in your policy.
With regard to claim submission, your policy states:
Proof of claim includes the initial claim forms and all medical, psychiatric, psychological, educational, vocational and other information [The Insurance Company] considers necessary to assess the claim.
The initial claim forms must be received by [the Insurance Company] within 6 months after the date of completion of the qualifying period.
Whenever [the Insurance Company] requests further information, it must be received within [12 months]
[The Insurance Company] will not be liable for benefit payments if proof of claim is not received within the required time.
Your LTD claim was received … beyond the allowable timeframe for claim submission according to the contractual requirements of the policy.
The delay in claim submission has resulted in a substantial prejudice to [The Insurance Company’s] opportunity to medically manage your claim. As a result of the lengthy delay, we no longer have the opportunity to request your participation in an Independent Medical Examination or the ability to provide rehabilitation services which may have assisted with your timely return to the workplace. If your claim were submitted within the appropriate timeframe, the claim would have likely come to resolution within a shorter timeframe.
Your claim for Long Term Disability benefits is therefore declined…
On its surface, the denial letter appears to clearly state that the individual has no entitlement to benefits due to their failure to meet specific timelines contained in the policy. The insurance company claims to have suffered prejudice as a result of the failures of our client.
Upon receiving this denial letter, the client wisely contacted Preszler Injury Lawyers. A statement of
claim was issued on behalf of our client against the insurance company disputing the denial.
During initial communications with the Insurance Company, the doctrine of relief from forfeiture was raised.
The insurance company was reminded that, simply because they take the position that a claim is barred due to noncompliance with the terms of the policy, it does not necessarily make it so. There are several factors to consider that were not contemplated or addressed in their denial.
Consistent with the jurisprudence, we argued that several other steps were both available to and, in fact, required of the insurance company for them to act in accordance with the duty of good faith they owed our client. It was also argued that they could not now claim that they had been prejudiced when they were complicit in creating the alleged prejudice for failing to take necessary steps, such as:
- Gathering additional medical information
- Requesting our client attend an Independent Medical Assessment
- Having an internal paper review conducted by a medical consultant
These were failures on the part of the insurance company, not our client. Taking these steps would have prevented any possible prejudice to the insurance company. Any prejudice that arose, therefore, was due to the Insurance Company’s failures, not our client.
In the end, even though the insurance company had taken what appeared to be a clear position by writing that our client’s case was barred due to noncompliance with the terms of the Policy, the insurance company ultimately settled this case for a substantial amount.
Just because your insurance company claims that you have not adhered to the contractual provisions of your policy, there may still be remedies available to you. In situations where an insurance company claims you are out of time, Relief from Forfeiture may result in entitlement to benefits.
If the insurance company has denied you entitlement to LTD benefits for any reason, contact Preszler Injury Lawyers for a free consultation to see if you have a case.
This article was written by Matthew Lefave.