Disability insurance is an important employment benefit for many workers.
The purpose of disability insurance is to provide income support to employees who are physically, mentally and financially vulnerable due to a medical condition that is preventing them from performing their jobs. As such, disability insurance is often referred to by the courts as a “peace of mind” contract.
However, “peace of mind” is all too often not the product delivered by insurance companies when disability benefit claims are made. Instead, claims are unjustifiably denied, with significant mental distress caused to the claimant .
When bad faith hurts the claimant
There is a trend among Canada’s highest courts towards seriously punishing insurance companies for adjudicating claims in bad faith and unjustifiably refusing to pay benefits to employees disabled from working by illness or injury. The Supreme Court of Canada and courts of appeal across the country are ordering insurance companies to pay aggravated and punitive damages of up to $1 million, recognizing that it is reasonably foreseeable that breaching a peace of mind contract will cause persons of ordinary fortitude mental distress. As recently stated by Justice Young in a British Columbia decision involving Desjardins Financial Security Life Assurance Company, in disability insurance contracts “an insurer has an implied obligation to deal with claims by its insureds in good faith.”
Examples of bad faith conduct on the part of insurance companies that have caused insured employees mental distress and attracted high aggravated and punitive damages awards against insurers by the courts include:
- failing to investigate the obvious mental health aspects of a disability;
- wrongly alleging that an employee did not pursue treatment;
- applying a standard of “optimal” treatment that was not contained in the policy;
- unjustifiably disregarding medical evidence that an employee is not fit to return to work;
- refusing to consider additional medical evidence supporting a claim once litigation was commenced;
- taking an adversarial approach to the insured’s claim for benefits payable under the “own occupation” definition of total disability;
- administratively mismanaging a benefit claim;
- improperly reporting benefits as taxable income;
- withholding relevant evidence and providing misleading testimony at trial;
- failing to request an independent medical examination when it was determined by the insurer that additional information was required;
- failing to administer in good faith an available rehabilitation benefit;
- applying tests for disability beyond those set out in the policy; and,
- relying on second-hand hearsay evidence to surmise that an employee was not motivated to return to work.
The impacts of bad faith
The consequences to employees of bad faith conduct by insurers can be devastating. In one recent B.C. case, the unjustified termination of an employee’s long term disability benefits resulted in his bankruptcy, the loss of his home, and a substantial deterioration in his mental health.
It is reassuring that the courts are increasingly holding insurance companies to account with significant aggravated and punitive damages awards. Hopefully this judicial trend will serve as a deterrent and result in an improvement in the conduct of insurance companies adjudicating disability insurance claims.
However, given that the litigation proceedings generating these awards are long, expensive and emotionally taxing, it remains the preferred approach when applying for disability benefits to be proactive by:
- filing comprehensive and persuasive medical evidence with the insurer from the outset of a claim, including detailed medical reports from family physicians and any treating specialists;
- ensuring that the physicians substantiating the claim properly understand the occupation-based definition of total disability that typically applies during the elimination period and the first two years of disability;
- attending regular medical appointments to ensure that symptoms, diagnoses, and ongoing treatment are well-documented, and that appropriate medical care is being received; and,
- obtaining a full copy of the insurance policy from the employer so the terms of coverage can be verified without reliance upon the insurer’s policy interpretation.
It may also be important to obtain legal advice and representation to keep the insurer’s conduct in check, so the payment of benefits is approved without the need for recourse to the litigation process . Getting legal support at the right stage can help avoid costly litigation down the road.
If you are experiencing issues with your disability insurer, contact one of our experienced employment lawyers to develop a strategy going forward.