Long-Term Disability Denials in Ontario: How Appeals Work

What a denial actually means

An insurer that denies long-term disability (LTD) benefits is applying the definition of disability in the policy to the information in its file. In the Usanovic case, for example, the insurer's lawyer wrote that its review of the medical information did not support a total disability and that surveillance was inconsistent with the limitations the claimant described (Usanovic, 2017 ONCA 395, para. 5). The question is therefore whether the evidence meets the policy's definition, which is not the same as asking whether a person is unwell.

Two policy types appear in the cases discussed below:

• Group policies are arranged through an employer or an association. In Kassburg v. Sun Life, the policy was issued to a police association and covered members such as the claimant.
• Individual policies are bought privately, as in Usanovic, where the claimant was self-employed and bought his own coverage.

The full policy wording is the document that governs. An employee benefits booklet may be a summary, and in Kassburg the policy was made up of a contract document and a booklet that described the limitation period in different terms. How such a conflict is resolved depends on the documents involved and should be reviewed by a lawyer.

The deadline that ends many claims

Section 5(1) says a claim is discovered on the earlier of the day the person first knew of the listed matters and the day a reasonable person in that position first ought to have known of them. The listed matters include whether, given the nature of the loss, starting a lawsuit would be a suitable response.

The Court of Appeal for Ontario looked at how this applies to a disability denial in Kassburg v. Sun Life Assurance Company of Canada, 2014 ONCA 922. The insurer had declined the claim in a December 2008 letter, but later letters invited more medical information and treated further appeals as open. The motion judge found the claim was discovered on February 24, 2011, the date of the letter saying the final appeal had failed, and the Court of Appeal declined to disturb that finding. It said the conclusion that the earlier denial was "not clear" was open to the motion judge on the evidence, which included the contract wording and the communications between the parties (paras. 38 and 42). The Court also upheld the finding that the policy's one-year contractual limitation period was ambiguous and so did not validly replace the statutory one.

The Court added a further view, while treating the cross-appeal as moot: in its opinion the group disability policy was not a "business agreement" under s. 22(5) of the Limitations Act, 2002 (paras. 53 and 61-62). Section 22(1) provides that a limitation period under the Act applies despite an agreement to vary or exclude it, subject only to the listed exceptions.

Two cautions follow from the cases:

• Kassburg turned on its own facts and on the wording of the letters in that file. It does not mean a denial can be treated as open-ended. Other letters may be clearer, and the period may be running.
• In Usanovic v. Penncorp Life Insurance Company, 2017 ONCA 395, the Court of Appeal held that the insurer's duty of good faith did not require it to give notice of the limitation period to its insured, and that Ontario had no statutory requirement to that effect (para. 2). The Court noted that the Insurance Act was amended to require certain policies to contain a statement that actions are barred unless commenced within the time in the Limitations Act, 2002 (paras. 41-42).

Whether a particular denial started the clock, and whether an older denial can still be pursued, depends on the exact wording received and should be confirmed with a lawyer immediately.

Common reasons insurers give, and what a lawyer looks at

Insurers state many reasons for denying or ending benefits. The table lists reasons that can appear in denial letters and the kind of material a lawyer typically reviews for each. What is relevant in any case depends on the policy wording and the file.

When the definition of disability changes after a set period

Some policies define disability differently after an initial period. The policy in Usanovic is an example: for the first 24 months the insured was covered if unable to perform the important daily duties of his occupation, and after 24 months the definition changed to cover only the complete inability to engage in any occupation for which he was reasonably fitted (para. 10).

• Initial period. The test is tied to the insured's own occupation, as the policy words it.
• Later period. The test is tied to occupations the person is reasonably fitted for, as the policy words it. In Usanovic the letter referred to "education, training and experience" (para. 5).

Whether a policy has a change like this, when it takes effect, and how terms such as "reasonably suited" or income comparison are defined all depend on the policy wording, and a lawyer should review it. A letter arriving near the end of the initial period may be connected to that change, and the policy wording shows what the insurer is applying.

Mental health claims and benefit limits

Some policies set different benefit periods for different kinds of disability, including limits tied to mental illness. Whether a limit exists, how the policy words it, and how a particular condition is characterised under it all depend on the policy wording. A lawyer should review the definitions section of the full policy, since a summary booklet may not show them.

Internal appeal or lawsuit?

A denial letter commonly describes an internal appeal. In Kassburg, for instance, the insurer's letters invited the claimant to submit further medical information and described stages of appeal (paras. 9-14). An internal appeal is a review within the insurer's own process, and the policy or the letters set out what that process is.

Whether an internal appeal changes when the limitation period starts was disputed in Kassburg and was decided on the evidence in that case. A lawyer can advise how it may apply to a particular file.

On the insurer's conduct, the Court of Appeal in Usanovic repeated, from an earlier decision, how the duty of good faith is described. That passage says the duty requires an insurer to deal with claims promptly and fairly and not to deny a claim to take advantage of an insured's economic vulnerability. The Court also repeated that a mere denial of a claim that later succeeds "is not, in itself, an act of bad faith" (paras. 26 and 29). Whether any particular insurer's conduct breached the duty is a question of fact for a court.

If benefits come through a union

When LTD coverage is part of a unionized workplace, whether a dispute belongs in court or in another process can depend on the collective agreement and how the benefit is set up. No court decision on that question is relied on here. A lawyer should review the collective agreement and the plan documents before any step is taken.

Surveillance, medical examinations and file reviews

Insurers may rely on different kinds of material when assessing a claim. The Usanovic letter mentioned a review of the medical information on file and surveillance (para. 5). The policy wording usually says what an insurer may require, such as attending an examination. Whether a particular piece of surveillance or a file review is reliable is something a lawyer can assess against the full claims file. Whether a recorded statement is required depends on the policy, and a lawyer can advise before one is given.

What a claim can include

The remedies in a particular case depend on the policy and the facts. Heads of claim commonly considered include:

• Unpaid benefits that were owed under the policy, and interest where it applies
• Future benefits, whether as reinstatement or as part of a settlement
• Other damages, where the facts support them and the law allows them
• Costs, which are in the court's discretion under s. 131(1) of the Courts of Justice Act

Some policies reduce the benefit by other income, such as disability payments from other sources. Whether and how an offset applies depends on the policy wording, and a lawyer should check how the insurer has calculated it.

What to gather after a denial

A lawyer reviewing a denial typically asks for:

1. The denial letter and all later letters, with the dates received
2. The full policy wording and the benefits booklet
3. The insurer's claim file, if it has been obtained
4. Medical records and reports, including anything addressing the insurer's stated reason
5. Employment records, including a job description and details of duties
6. Any settlement offer or release the insurer has proposed

The date on the denial letter matters because limitation periods are measured from discovery of the claim (Limitations Act, 2002, ss. 4 and 5). Whether a resignation or a release could affect coverage depends on the policy wording, so a lawyer can advise before either is signed.