Here's what to do if you're denied your long-term disability claim

By Howard Levitt and Rob Lilly

Answers to six common questions as claims, denials rise

Long-term disability (LTD) insurers are sophisticated profit-generating machines often operating to the detriment of employees in need of disability benefits. That means that with long-term disability claims on the rise, so, too, are denials. To assist those who find themselves in the unenviable position of navigating the muddied waters of a claim, here are answers to some of the common LTD questions we have received recently.

After denial or discontinuance of a claim should the employee appeal internally or commence a legal action?

Insurers do not have an internal appeals process because they, acting benevolently, want to overturn their erroneous positions. Rather, they are forced by legislation to have the mechanism in place. Appeals are riddled with dilatory foot-dragging when a speedy resolution is required for an employee without income. They can take months to resolve with no guarantee of success. Unless the employee has new incontrovertible evidence of a disability, we recommend commencing a claim immediately to avoid delay. The employee will gain leverage and move closer to mediation, where approximately 80 per cent of actions settle.

How long does it take for a claim to resolve?

A claim can be issued in short order — usually within a few days of retaining a lawyer. The insurer will have 30 days to submit a defence. Over the next few months, the law firm does the heavy lifting by gathering relevant documents. Most insurers opt to bypass discoveries (or questioning) in favour of an early mediation. With skilled counsel and an experienced mediator, the matter could settle within six to eight months after initiating the process. Of course, if the matter does not settle, a trial date could be one to two years away, which is rare as less than two per cent of LTD cases make it to trial.

What damages are available under an insurance policy?

Until age 65, 60 per cent to 70 per cent of an employee’s salary is covered by most LTD policies. That’s a considerable sum for most. For example, a 45-year-old making $100,000 is potentially entitled to $1.4M in LTD benefits. Employees, however, should not settle for the benefits amount only.

Insurers acting in bad faith should be held to account. An insurer’s incorrect decision to refuse to pay benefits is not, by itself, tantamount to bad faith. But, significant damages can flow when the decision is made in spite of its own practices or expert’s advice. That’s what happened in a 2022 case involving an Ontario woman and Fenchurch General Insurance. Fenchurch’s orthopaedic assessor recommended an assessment by a psychologist specializing in chronic pain. Fenchurch ignored the recommendation. It denied the claim, yet noted that if the woman appealed the decision, they should have “the psych assessment ready to go.” The woman sued. Fenchurch ultimately approved the claim retroactively and so the trial dealt with damages only.

Finding there was no “rational or logical explanation” for not following its expert’s recommendation, the court awarded the woman $150,000 in punitive damages and $10,000 in aggravated damages. In doing so, the court admonished the insurer, stating a request for LTD benefits — which ought to provide peace of mind — “should not be seen as a game between an employee and a wily insurer to see who can out-manoeuvre who.”

What happens to an employee’s group benefits when disabled?

They usually continue while receiving LTD benefits. Most policies require that. After a denial, benefits may stop to pressure the employee to return to work. Benefits are provided in exchange for work. Unless mandated by an insurance policy or employment standards legislation, employers are within their right to discontinue group benefits.

Employees without benefits are in a precarious catch-22 position. With no income and no benefits coverage, how can they afford therapy or prescriptions? Yet, insurers argue they should receive less money for not following a treatment plan. Considering the insurer caused the impecuniosity by denying the claim, the argument is more of an untenable scare tactic. If funds are very tight, we encourage clients to use publicly funded drug programs (if available) and to participate in home exercises or therapy offered on a sliding scale.

Can an insurer force an employee to apply for CPP disability?

If an LTD insurer makes the request, the employee must comply or run the risk of the insurer subtracting the imputed value from benefits payments.

Can an employer set off LTD payments from severance?

LTD payments do, at times, overlap with severance. In Ontario, as long as the employee pays a portion of LTD premiums, employers cannot reduce the severance. Courts in Alberta and British Columbia take a more nuanced approach — permitting a set-off in certain circumstances. Most policies, however, allow the insurer to subtract severance from LTD payments. For that reason, we virtually always recommend settling the LTD matter first before pursuing an action for wrongful dismissal against the employer.