You paid for long-term disability (LTD) coverage precisely so that, if illness or injury ever stopped you from working, there would be money coming in. So it can feel like a betrayal when the insurer denies your claim — or cuts you off — despite medical evidence that you cannot work.
Insurers are allowed to investigate and to say no when a claim genuinely does not qualify. What they are not allowed to do is act in bad faith. This guide explains the duty of good faith in LTD claims, what bad faith can look like, how punitive damages work, and what one leading Ontario case tells us about all of it. It is general information, not advice about your particular claim.
The duty of good faith in disability insurance
An LTD policy is more than a simple contract. Courts have long recognized that insurers owe policyholders a duty of good faith — a duty to handle claims fairly, honestly, and promptly. That duty flows both ways, but it places real obligations on the insurer: to investigate a claim reasonably, to weigh the evidence even-handedly, and not to prefer its own financial interest over a fair assessment of whether you are disabled.
When an insurer breaks that duty in a way that goes beyond an ordinary wrong denial, a court can respond with more than just ordering the benefits paid. It can award additional damages aimed at the insurer’s conduct itself.
What bad faith can look like
A denial being wrong is not, on its own, bad faith. Reasonable people — and doctors — can disagree. Bad faith is about how the insurer behaved. Patterns that courts have found troubling include:
Ignoring contrary medical evidence — brushing aside the opinions of treating doctors that support the claim.
One-sided reliance on surveillance — leaning heavily on video of a claimant on their better days, taken out of context, instead of the full medical picture.
Cherry-picking — quoting the parts of a report that help the insurer and ignoring the parts that do not.
Unreasonable demands or delay — repeated requests for the same information, or dragging out a decision while benefits go unpaid.
Relying on a paper review that never grapples with the treating specialists’ findings.
Any one of these might be defensible in isolation. The concern is when they combine into a process that looks designed to find a reason to say no rather than to reach a fair answer.
What Ontario’s largest LTD punitive-damages award teaches
The leading recent example is Baker v. Blue Cross Life Insurance Company of Canada. In 2023 the Ontario Court of Appeal upheld a jury’s award of $1.5 million in punitive damages against a long-term disability insurer — reported as the largest Canadian LTD punitive-damages award. The award was grounded in findings that the insurer had ignored medical evidence that contradicted its position and had relied on lengthy surveillance to support cutting off benefits.
The message is narrower and more useful than “every denial leads to a large award.” When an insurer disregards the medical evidence and builds its decision on surveillance rather than the full record, courts can and do treat that conduct as worthy of punishment on top of the benefits owed.
The case remains a reference point for bad-faith discussions in 2026. Its practical lesson is not that every denial leads to a large award — it does not. The message is narrower and more useful: when an insurer disregards the medical evidence and builds its decision on surveillance rather than the full record, courts can and do treat that conduct as worthy of punishment on top of the benefits owed.
How punitive damages work
It helps to separate the different things a court can award in an LTD dispute:
Type of award
What it is for
The disability benefits
The money you were owed under the policy, often as a lump sum plus ongoing payments.
Aggravated / mental-distress damages
Compensation for the added stress and hardship caused by how the claim was handled.
Punitive damages
Not compensation — these punish and deter conduct that is a marked departure from decent standards, such as bad-faith claims handling.
Costs and interest
Amounts that may be added depending on the outcome and how the case ran.
Punitive damages are exceptional. They are reserved for conduct the court considers high-handed, malicious, or a serious abuse of the insurer’s position — not for an honest but mistaken denial. Because they are exceptional, no one can promise them in any given case, and the amount depends entirely on the facts.
What claimants can do to protect themselves
You cannot control how an insurer behaves, but you can build a clear record. Steps that often help:
Keep every letter and email from the insurer, including denial letters and requests for information.
Ask your doctors to document your limitations clearly and in their own words — how your condition affects the specific work you do.
Respond to reasonable requests, and keep a dated note of what you sent and when.
Note delays and repeated demands, which can matter later if bad faith is alleged.
Get the policy and understand the definition of disability that applies to you (it often changes after two years).
Get advice early — before deadlines pass and while the record can still be shaped.
Watch your deadlines. LTD claims can be affected by both the policy’s own time limits and Ontario’s general two-year limitation period, and they can be shorter than people expect. Confirm the deadline that applies to you rather than assuming.
Key takeaways
Insurers owe a duty of good faith to handle LTD claims fairly and honestly.
A wrong denial is not automatically bad faith — bad faith is about unfair conduct, like ignoring medical evidence or misusing surveillance.
Baker v. Blue Cross (Ont. C.A., 2023) upheld a $1.5 million punitive award, reported as Canada’s largest LTD punitive-damages award, and still shapes 2026 practice.
Punitive damages punish conduct; they are exceptional and never guaranteed.
Keep records, get clear medical documentation, and mind short deadlines.
Frequently asked questions
The insurer denied my claim. Does that mean it acted in bad faith?
Not necessarily. Insurers are entitled to deny claims that genuinely do not qualify. Bad faith is about the process — for example, disregarding your doctors’ evidence or relying unfairly on surveillance. Whether that happened depends on the facts of your file.
Can I count on punitive damages if I win?
No. Punitive damages are exceptional and are awarded only where the insurer’s conduct is a serious departure from fair standards. Many successful LTD claims recover the benefits owed without any punitive award. No one can promise them.
Is surveillance allowed?
Insurers can lawfully conduct surveillance. The concern arises when they rely on short clips of good moments, out of context, while ignoring the fuller medical picture. Courts have criticized that kind of one-sided reliance.
How long do I have to act?
It depends on your policy and on Ontario’s general two-year limitation period, and the applicable deadline can be shorter than you expect. Because missing it can end your claim, it is wise to confirm your specific deadline early.
If your long-term disability benefits have been denied or cut off and you are worried the insurer is not treating you fairly, Azimi Law is happy to review your denial letters and policy, explain how the good-faith duty applies, and walk you through your options and deadlines. Reaching out to ask carries no obligation.
Worried your insurer is not playing fair?
A denied or cut-off LTD claim does not have to be the end. Get a clear, plain-language read on your options and deadlines.
This article is general legal information, not legal advice, and does not create a lawyer–client relationship. Laws, benefit amounts, deadlines, and government policies change and depend on your specific circumstances. Please confirm current details with the official source or contact Azimi Law for advice about your situation.
Why Valid LTD Claims Get Denied
Long-term disability insurers in Ontario routinely deny legitimate claims. Common stated grounds include: the claimant does not satisfy the policy’s disability definition; the condition is pre-existing; the claimant failed to participate in rehabilitation; or medical evidence is deemed insufficient. An experienced LTD lawyer scrutinizes every stated ground against actual policy language and the medical record.
Step 1 — Read the Denial Letter Carefully
A denial letter must identify the specific policy provision relied on and the factual basis for refusal. Compare every stated reason against the exact text of your LTD policy. Insurers sometimes invoke exclusion clauses that do not actually apply to your condition.
The limitation period trap: Ontario courts apply a two-year limitation period to LTD lawsuits, running from the date you knew or ought to have known your claim was denied. The Supreme Court’s decision in Kassburg v. Sun Life confirmed this clock can start earlier than claimants expect. Consult a lawyer within weeks of any denial.
Step 2 — Internal Appeal
Most group LTD policies include an internal appeal process. An appeal can succeed — particularly when new specialist reports, functional capacity evaluations, or updated diagnostic evidence are available. Any appeal letter should be drafted by a lawyer to preserve legal arguments and avoid making admissions.
Step 3 — Civil Lawsuit
An LTD dispute proceeds as a breach of contract claim in the Ontario Superior Court of Justice. You sue for all denied monthly benefits to date, a declaration of continued entitlement, interest on arrears under the Courts of Justice Act, and — where warranted — punitive damages for bad faith. Most LTD cases resolve through discovery, examinations, and mediation before trial.
Expert Evidence Is Decisive
The insurer relies on physicians who review your file without examining you. Your lawyer must retain independent treating experts who can explain your functional limitations in terms courts recognize as credible. The quality of your medical evidence frequently determines outcome.
Two Definitions, Two Standards
Virtually every group LTD policy uses two sequential disability definitions. For the first 24 months, disability is assessed by reference to the claimant’s own pre-disability occupation. After 24 months, a stricter definition applies: whether the claimant can perform the essential duties of any occupation for which they are reasonably suited. This transition is predictable, planned, and must be prepared for well in advance.
Own Occupation: The More Generous Standard
Under own occupation, a claimant is disabled if unable to perform the substantial duties of their specific pre-accident job — not some other role. A cardiovascular surgeon who can no longer operate due to hand tremors is disabled even if capable of administrative medical work. The focus on the specific occupation makes this standard relatively claimant-friendly.
Any Occupation: The Stricter Standard
After 24 months, insurers evaluate whether the claimant can perform the essential duties of any occupation for which their education, training, and work experience reasonably suit them. Vocational assessors identify sedentary roles in the labour market and use those identifications to justify termination.
Prepare well in advance: The 24-month transition is entirely predictable. Build the “any occupation” evidentiary record at least six months before the definition changes. Functional capacity evaluations, comprehensive specialist reports, and detailed occupational histories are essential.
How Ontario Courts Scrutinize “Any Occupation” Terminations
Ontario courts have consistently rejected insurer positions that treat “any occupation” as any conceivable sedentary role regardless of earnings, availability, or realism. The occupation must be one the claimant could realistically obtain given actual skills, age, geographic location, and the real labour market. Courts have rejected arguments that a severely impaired professional could transition to minimum-wage employment.
Mental Health as a Recognized Disability
Major depressive disorder, generalized anxiety disorder, PTSD, bipolar disorder, and severe personality disorders are medically recognized disabling conditions. Ontario courts have consistently held that these conditions can qualify as total disabilities under LTD policy definitions. Yet insurer adjudication practices and most group LTD policy structures create unique obstacles not present in physical injury claims.
The 24-Month Mental Health Cap
Many group LTD policies limit payment for disabilities arising from mental or nervous conditions to 24 months over the policy lifetime. After those 24 months, benefits cease regardless of severity — unless the condition is caused by or attributable to an underlying organic brain disorder. This structural limitation affects thousands of legitimate claimants annually.
Human rights challenge: Ontario Human Rights Tribunal decisions and some court rulings have examined whether 24-month mental health caps constitute disability discrimination under the Ontario Human Rights Code, with evolving results. A concurrent human rights complaint alongside a civil LTD lawsuit can be a significant strategic tool. Consult your lawyer about whether this applies to your situation.
The “Objective Evidence” Problem
Many LTD insurers demand “objective evidence” comparable to imaging studies for physical conditions. No such equivalent exists for psychiatric illness. Ontario courts have held that appropriate objective evidence for mental health claims is the documented clinical assessment, symptom rating scales, longitudinal treatment records, and collateral observations of treating mental health professionals.
Building a Compelling Record
The foundation of a successful mental health LTD claim is a robust and consistent treatment relationship with a psychiatrist or psychologist. Standardized assessment tools, detailed clinical notes documenting functional limitations, and an occupational therapist’s functional capacity evidence are all valuable. The treating clinician’s ability to articulate — plainly — why the claimant cannot perform employment duties is often the central element of a successful claim.
Insurer Surveillance Is Routine
Both LTD insurers and auto insurance companies routinely retain licensed private investigators to conduct covert video surveillance of claimants. This practice is legal in Ontario: activities in publicly visible areas carry no reasonable expectation of privacy, and insurers have a legitimate interest in verifying that benefit payments reflect genuine disability.
What Investigators Can Legally Do
Investigators may: film claimants in publicly accessible spaces; document activities visible from public vantage points; note duration, frequency, and nature of observed activities. They may not: trespass on private property; use equipment to see into private residences; or capture activities in inherently private locations such as medical offices or washrooms.
Social media surveillance: Insurers conduct extensive review of all publicly accessible social media content. Photographs, tagged photos from friends, check-ins, and event participation records are all accessible. Discuss your entire social media presence — including profiles you believe are private — with your lawyer before and during any claim or litigation.
Litigation Disclosure Obligations
All surveillance material must be disclosed to the claimant’s lawyer before trial. Surveillance withheld and then introduced at trial as surprise evidence has been excluded by Ontario courts, accompanied by adverse costs awards. The disclosure obligation means your lawyer reviews all surveillance before trial and can develop responses to it.
Protecting Your Claim
The most important principle: live consistently with what you tell your doctors. Chronic conditions are characterized by variable symptom levels — good days and bad days are clinically expected and entirely consistent with genuine disability. Discussing your variable presentation honestly with your medical team and lawyer creates a coherent record that surveillance cannot undermine.
What Is CPP Disability?
The Canada Pension Plan Disability benefit (CPPD) is a federal income support program payable to CPP contributors with a severe and prolonged disability preventing them from regularly pursuing any substantially gainful occupation. CPPD is an earned benefit based on contributions. The maximum monthly CPPD payment in 2025 is approximately $1,538.
The LTD Offset Provision
Most group LTD policies permit insurers to deduct “other income sources” — including CPPD — from the monthly LTD benefit. Whatever CPPD you receive is subtracted from the LTD benefit otherwise payable. You receive the same combined income; the insurer simply pays less. This provision is standard in virtually every group policy in Ontario and directly benefits the insurer.
CPPD application as a condition of LTD: Many LTD policies require claimants to apply for CPPD as a condition of receiving LTD benefits. Refusing to apply can result in benefit suspension. Your lawyer should confirm whether this obligation applies and assist in ensuring the CPPD application is supported by comprehensive medical documentation.
Common Offset Calculation Errors
Insurers routinely make errors in applying CPPD offsets: deducting CPP survivor benefits (generally not deductible); incorrectly applying retroactive CPPD lump-sum payments; and calculating offsets on gross rather than net CPPD amounts. These errors can amount to thousands of dollars over a multi-year claim.
CPPD Approval as Evidence in Litigation
A federal government determination that a claimant is “severe and prolonged” disabled provides independent third-party validation of disability status. While a CPPD award does not bind an Ontario court in a concurrent LTD lawsuit, it is meaningful evidence that contradicts any insurer argument that the claimant is capable of working.
The Role of Vocational Assessors in LTD Claims
When a claimant’s LTD claim approaches the 24-month definition change, insurers routinely retain vocational rehabilitation consultants to assess employment potential. These assessors review the claimant’s education, work history, and functional limitations and identify sedentary or light-duty occupations they assert the claimant could perform. The insurer then uses this report as the basis for terminating benefits.
The Legal Standard Vocational Evidence Must Meet
Ontario courts have scrutinized insurer-commissioned vocational assessments carefully and found many to be legally insufficient. A vocational report identifying theoretical occupations without regard to availability, the claimant’s realistic competitive position, actual wages offered, or the real state of the labour market does not establish that the claimant can engage in any occupation for which they are reasonably suited. Courts require that the identified occupation be one the claimant could actually obtain and perform.
Functional capacity as gatekeeper: Any vocational assessment exceeding the claimant’s documented functional capacity is invalid. If a physiatrist has documented inability to sit for more than 30 minutes, a vocational report identifying full-time sedentary work as available employment cannot withstand challenge. The functional capacity evidence governs what the vocational assessor can legitimately identify.
Responding to a Vocational Assessment Termination
The most effective response combines: an updated comprehensive functional capacity evaluation from an experienced occupational therapist; updated specialist medical opinions addressing the functional demands of the insurer’s identified occupations; a responding vocational report from your own vocational expert; and, where appropriate, a psychiatric or psychological assessment confirming cognitive and emotional limitations preclude competitive employment regardless of physical capacity.
The Pre-Existing Condition Denial Strategy
One of the most common LTD denial strategies involves pre-existing condition exclusion clauses. Group LTD policies typically exclude disabilities arising from, caused by, or resulting from pre-existing conditions that were diagnosed or treated within a specified period (usually 3–12 months) before coverage commenced. Insurers use medical records — sometimes gathered without claimants’ full awareness — to identify historical diagnoses that can be characterized as causing the current disability.
How Pre-Existing Condition Clauses Are Interpreted
Ontario courts apply established principles of insurance contract interpretation: exclusions, as exceptions to coverage, are construed narrowly. The insurer bears the burden of establishing the exclusion applies. A prior diagnosis or treatment episode does not automatically trigger exclusion — the insurer must establish a causal connection between the pre-existing condition and the specific disability claimed. Prior back pain three years ago does not exclude an LTD claim arising from a completely different spinal condition today.
The aggravation principle: Where an accident or workplace incident aggravates or accelerates a pre-existing condition beyond its natural progression, the disability may still qualify for benefits depending on policy language. The thin skull principle informs causation analysis in insurance law. Predisposition to a condition does not mean the disability is “pre-existing” in the exclusionary sense.
Protecting Your Claim
The most effective protection is a treating physician who clearly distinguishes the current disabling condition from any historical conditions and articulates why they do not constitute a pre-existing condition within the policy definition. Medical records that accurately document the history and trajectory of the claimant’s health — without conflating distinct conditions — provide the clearest foundation for defeating an exclusion argument.
The Threshold Question for Unionized LTD Claimants
When a unionized employee’s group LTD benefits are denied or terminated, they face a fundamental strategic choice: pursue the matter through a union grievance and binding labour arbitration, or bring a civil lawsuit against the LTD insurer in the Ontario Superior Court of Justice. The right answer depends on the terms of the collective agreement, the nature of the denial, and careful strategic assessment requiring experienced legal advice.
The Grievance and Labour Arbitration Route
Where the collective agreement incorporates group LTD benefits and requires grievance arbitration as the exclusive dispute resolution mechanism, the employee is typically required to use the grievance process. Union resources may be available — but the union represents its members collectively and may not always prioritize individual LTD disputes. The claimant should understand both what the union can do and the limits of its obligations.
Grievance filing deadlines: Collective agreements impose their own grievance timelines — often 15 to 30 days from the date of denial. These are much shorter than civil court limitation periods and must be strictly observed. Contact your union and a lawyer immediately upon receipt of any LTD denial.
The Civil Lawsuit Route
Where the collective agreement does not make LTD benefits a matter of collective bargaining, or where the insurer (rather than the employer) is the contracting party on the LTD policy, a direct civil lawsuit against the insurer may be available regardless of union membership. In some cases, both a grievance and civil action are theoretically available; in others, electing one forecloses the other. The interplay of collective agreement language, Insurance Act provisions, and limitations law makes this one of the more technically demanding issues in Ontario LTD litigation.