Bad faith in long-term disability (LTD) claims – Ontario?
Insurers offer long-term disability (LTD) insurance which protects persons who become disabled due to illness or injury and are unable to work. Legally, LTD policies are contracts and the law of contract applies. The parties’ interests and mutual promises are contained within the policy wording. In general terms the insured promises to be truthful when applying for benefits and to pay premiums and the LTD insurer promises to pay benefits if the insured meets the test of disability under the policy. The types of benefits paid, and conditions of payment are contained in the LTD policy. LTD policies and what is covered therein varies from policy to policy.
The insured person must act fairly and honestly with the insurer and the insurer must act fairly, honestly and in good faith when assessing entitlements under the policy and when making decisions. An insurer must act in good faith when processing a claim for LTD benefits. When deciding to deny, an insurer should outline the reasons or the denial and communicate the decision clearly to the insured. An insurer must fairly consider all medical evidence.
As a result of the stress and anxiety associated with the impact of the covid-19 (coronavirus) pandemic, we expect an increase of claims for benefits based on emotional or psychological disabilities. It is unclear how LTD insurers will react to such claims.
What happens when an LTD insurer denies a claim despite clear medical evidence supporting the insured is “disabled” as defined in the LTD policy?
In a situation where a claim had been denied, an insured can, if provided for in the policy, appeal the decision of the LTD insurer using the internal appeal process contained in the policy. Alternatively, the insured, unless there are union coverage or restriction issues which may prevent being able to sue in court and rather arbitrate the issues, commence a court action seeking judicial relief (payment of benefits and legal costs).
In some cases where the LTD insurer has acted unreasonably and in bad faith, an insured may also claim other damages such as reasonably foreseeable other losses associated with the denial and specifically seek punitive damages for bad faith actions. Punitive damages are reserved for the worst cases of bad faith where there is misconduct on behalf of the LTD insurer.
Punitive damages are a type of monetary damage awarded in a civil lawsuit meant to punish a wrongdoing for willful misconduct. This type of damage is intended to discourage insurers for bad conduct and act as a deterrence. Not all decisions and conduct of LTD insurers which are unpleasant meet the test resulting in an entitlement to punitive damages. Simply disagreeing or being upset with a decision made in good faith by an insurer would not result in punitive damages.
Because insurance contracts create a special type of relationship between an insurance company and an insured, courts have said that insurance companies owe insureds a duty of utmost good faith. When an insurance company denies benefits to an insured person who is ill or injured, the consequences can be serious and grave for an insured who relied on the insurance coverage. The LTD insurer must have good evidence to support their decision to deny benefits and the way it assesses the claim and make decisions on the claim must be reasonable and completed in good faith.
In Ontario (and Canada), denying a injured, ill or disabled person disability benefits can be a separate actionable wrong if the LTD insurer acted in bad faith, breached its duties owed to the insured person or took advantage of an insured in some way. The likelihood of a finding of misconduct depends on the facts of each case.
While denying a claim for disability benefits in and of itself will not entitle an insured to additional damages such as punitive damages, there are situations where an LTD insurer may be ordered to pay punitive damages in addition to paying disability benefits and legal costs. Each case is different, and it is important to retain a disability lawyer who can analyze the facts and determine what types of damages could be available in your specific case.
Our lawyers have extensive experience dealing with short-term and long-term disability claims. Our lawyers can help you fight the insurance company and take the steps necessary to convince the LTD insurer to pay the benefits you deserve or have a court order them to pay. Call us for a free consultation at 613-315-4878.
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