Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

The life insurance company appeals the Supreme Court decision ruling the paraplegia fell within the meaning of the insurance policy. In an agreed statement of facts prepared for the Supreme Court, item 4 stated "the plaintiff was insured for accidental disease/ dismemberment benefits including a $200,000 payment if the plaintiff furnishes proof of paraplegia, resulting directly and independently of all other causes from bodily injuries occasioned solely through external, violent and accidental means, without negligence on the plaintiff's part." Item 11 agrees "the plaintiff did not intend or expect to contract HSV-2 or develop transverse myelitis when he engaged in unprotected sexual intercourse with the women." And that "the plaintiff was aware that there is a risk of contracting a sexually transmitted disease when having unprotected sexual intercourse."

Citing Martin v. American International Assurance Life Co., 2003 S.C.C. 16, [2003] 1 S.C.R. 158, the court applied a generous meaning to accidental, and concluded Gibbens transverse myelitis did not arise naturally, but arose from an external factor or "unlooked for mishap". While finding it close to the line, the court felt that the injury Gibbens sustained was unintended or unexpected and therefore caused by accidental means as required by the insurance policy.

In May 1988, the Insured sustained an injury to her right hand caused by freezing during the course of her employment with the Government of Manitoba. She received total disability benefits for a total of 12 months, pursuant to a long term disability plan. After this time, her employer discontinued benefits on the basis that the Insured was no longer "totally disabled" from any employment for which she was suited.

By the Spring of 1989, the Insured had not returned to her employment with the Government but had chosen to become a foster parent together with her husband. The evidence at trial was that the Insured and her husband had fostered many children over the years, sometimes as many as 5 children at a time, and that they were paid for their efforts in this regard. 

In 1991, the Insured advanced a claim for disability benefits to the adjudicator of the plan. She was seen by a number of physicians in 1991, most of whom concluded that while the Insured would not be capable of repetitive use of her right hand, she was capable of some other suitable occupation. Several physicians also concluded that there was likely a psychological component to the Insured's continued complaints. In January 1993, a medical review panel, established pursuant to the workers compensation legislation, concluded that the Insured did not continue to suffer any physical effects from the incident in May 1989. 

At trial, the Insured argued that she suffered from a total disability as defined in the plan because she was unable to use her right hand following the incident. She maintained that being a foster parent was not an "occupation or employment for remuneration or profit" and the fact that she engaged in this activity should not detract from her position that she was "totally disabled" from employment. The Government maintained that, based on the medical evidence, the Insured was not totally disabled from any employment for which she was suited after May 1989. The Government also argued that, from 1989 onwards, the Insured had engaged in the occupation of foster parenting and had received remuneration for her efforts in this regard.

The Court considered the relevant case law and noted that in cases such as this, the plaintiff bears the initial onus of establishing disability after which the evidentiary burden shifts to the defendant to demonstrate the availability of work that can reasonably be performed by the plaintiff.  

The Court concluded that the Insured had failed to prove a prima facie case that she was, on May 12, 1989, or thereafter, totally disabled within the definition in the plan. Neither the medical evidence nor the testimony offered at trial demonstrated that she was completely unable to engage in any occupation or employment that was reasonably suited to her.  The Court further concluded that even if  a prima facie case had been proved, the Insured's claim would have failed because the Government had met the onus of showing that there was suitable employment available to her, namely as a foster parent.

The Plaintiff was a 44 year old lawyer who sought an order that she had been continuously disabled since September 14, 2000 and was entitled to long term disability benefits pursuant to the terms of a policy with RBC. The Plaintiff also sought damages for negligent investigation, damages for breach of duty of good faith and punitive and aggravated damages. 

In fall, 1999, the Plaintiff began to experience trouble sleeping and had difficulty concentrating and eventually left her office on September 14, 2000 and did not return to work. The Plaintiff qualified for LTD benefits but on May 3, 2002 RBC wrote to the Plaintiff advising that she no longer qualified due to a positive opinion obtained by RBC from an independent medical examination indicating that the Plaintiff could work in other situations. The Plaintiff did not commence her action until March 10, 2005.

Under Section 89 of part 4 of the Insurance Act RSBC, 1996, c. 226, an action or proceeding against an accident and sickness insurer must not be commenced more than one year after the date the insurance benefits became payable. The Court cited the decision in Holme Estate v. Unum Life Insurance Co., 2000 BCCA 627, where it was held that this was a rolling limitation period rather than a single fixed date which required the action to be commenced one year from the date when each payment became payable. As the Plaintiff did not commence her action until March 10, 2005, the Court held that her claims for benefits preceding March 10, 2004 was statute barred.

The Court reviewed the evidence and concluded that from March 10, 2004 to the time the policy lapsed, the Plaintiff was not under the regular and personal care of a physician. Therefore, she was not totally disabled as defined by the terms of the policy. As a result the Plaintiff's action for a declaration of entitlement to ongoing disability benefits was dismissed.

The Court further held that the Plaintiff's action for extra contractual damages must also fail as where an insurer prevails on a breach-of-contract action, it could not be found liable for acting in bad faith in its relationship with the policy holder.

The Plaintiff commenced an action against the Defendant insurer for disability benefits under a group benefits policy issued by the Plaintiff's employer. The Defendant argued that the Plaintiff's claim was barred by a time limit imposed by British Columbia's Insurance Act. Under the Act, "every action on a contract must be commenced within one year after the furnishing of reasonable sufficient proof of loss or claim under the contract and not after."

The parties agreed that there must be a clear and unequivocal denial of further benefits in order to trigger the limitation period. However, they disagreed on whether such a denial had occurred. The Defendant submitted that a letter to the Plaintiff advising his benefits would terminate on December 4, 2004 constituted a clear and unequivocal denial of further benefits. The letter read:

"There is insufficient medical evidence to support the reported restrictions and limitations and to support a continued absence from work. Therefore your file has now been closed.

If you disagree with this decision, you have a right to appeal. You will need to send us a letter explaining the reasons you feel a review is necessary. This will need to be supported by further medical information not already on file."

The plaintiff relied on the continued communication between himself and the Defendant's representatives pursuing the various levels of appeals of the Defendant's decision to argue that there had not been a clear and unequivocal denial of further benefits.

The Court reviewed the case law in this area and concluded that the legal test for the commencement of the limitation period was clear: the clear and unequivocal denial of benefits test agreed to by the parties. The Court also determined that whether there had been such a denial was a question of fact. The Court found that on the facts of the case, the Defendant's letter advising the Plaintiff of the closure of the Plaintiff's file constituted a clear and unequivocal denial of benefits and that a mere willingness to entertain an appeal if the Plaintiff were to obtain new evidence did not render the denial equivocal.

The Plaintiff was covered by a group policy of insurance with the Trustees of the Office and Professional Employees International Union Local 378 Ltd. Trust. The policy provided long-term disability coverage to eligible employees. The Plaintiff became disabled from performing the usual and customary duties of her own occupation on July 8, 2003. She received sick benefits from her employer from that date until October 21, 2003. On October 21, 2003, Co-Operators Life Insurance Co. began paying benenfits to the Plaintiff under the terms of the policy. She was eligible for own occupation benefits until October 18, 2005. By letter dated July 27, 2005 Co-Operators advised that as a result of a report from an independent medical examination, the Plaintiff would not receive benefits beyond October 18, 2005.

The Plaintiff sent Co-Operators additional information, and on August 23, 2005 Co-Operators wrote to the Plaintiff and advised her that they had received the additional medical information. The letter also stated that she would receive benefits until October 18, 2005 and then her file would be closed.

The parties agreed that s. 22 of the Insurance Act governed the litigation. The Court applied the decision of Balzer v. Sun Life Assurance Company of Canada, 2003 BCCA 306 and found that the limitation period ran from the date of the termination of the benefits, not the notice of the termination of the benefits. Accordingly, the limitation defence was struck and the Plaintiff could bring her action on the merits.

The Insureds were entitled to disability benefits under their respective policies with the Insurer as a result of injuries which they had suffered. Disability benefits were paid to each of the Insureds, but the Insurer deducted from the amount of entitlement CPP benefits paid to the Insureds and the secondary or dependent child's CPP benefit that each of the Insureds received by virtue of having dependent children.  The Insureds claimed that the deduction of the dependent child CPP benefit was unlawful and that, as a matter of contract interpretation, the LTD policies did not authorize the offset of CPP benefits payable to their children. Alternatively, the Insureds argued that the offsets were contrary to public policy. They claimed damages for breach of contract and punitive damages.

The primary issue before the Court was to determine the nature of the relationship between private LTD insurance and disability benefits provided to contributors under the Canada Pension Plan (the "Plan").

Under the Plan contributors are entitled to certain benefits, and, in some circumstances, a disability pension. A disabled contributor's child is also entitled to receive a child benefit paid directly to him or her, or, in the case of a dependent child, paid to the disabled contributor. The disabled contributor's child benefit is established by s. 59 of the Plan. The Court observed that while the disabled contributor's child benefit belongs to the children, this is not determinative of the issue of whether the Insurer can offset the dependent child benefit from the amount payable to the Insured.  This issue, the Court said, is a matter of interpretating the insurance contract and a matter of private, not public, law.

The Court noted that the exception in s. 65 to the prohibition against assignment of a contributor's pension benefit was designed to recognize the integration of public and private insurance and that it implicitly endorses or accepts that insurers providing LTD benefits will offset CPP benefits. The exception encourages the insurer to make an overpayment pending a subsequent CPP disability pension that may be used to reimburse the insurer for the overpayment. 

The Court noted that an important factor in determining the cost of private LTD insurance is the amount of benefits, which are expected to be paid by the Insurer. The amount of expected claims is reduced by reducing the amount paid by the Insurer or deducting or offsetting other sources of income replacement received by the employee, including benefits paid under the Plan. The expert who testified on behalf of the Insureds indicated that "private insurance premiums in the aggregate are much lower than they would otherwise be because [the CPP disability benefit] is treated by private insurance as the first payor".

The Court reviewed the wording of the contracts of insurance in issue and found that the provisions allowing for an offset of CPP benefits were unambiguous such that there was no need to apply the contra proferentem rule to interpret their meaning. The Court held that the clear language of the policies authorized the offset of the disabled contributor's child benefit from the amount paid for LTD benefits. In doing so, the Court considered the factual background at the time when the insurance contracts were signed and specifically, the fact that the Insurers and those purchasing private LTD insurance understood that offsets of CPP benefits were an option that would reduce the price of the premium.

The Court rejected the argument that the CPP child benefit could not be an offset because it was not paid or payable to a disabled contributor, noting that for an offset, Clause 2(a) of Section 5 of the Policy required only that the disability benefit be payable under the Plan and did not specify to whom it was payable. The Court also rejected the Plaintiffs' argument that it was unfair to both the Claimant and his children to offset the children's CPP benefit against the private LTD insurance. In this regard, the Court noted that the offset is applied only when the child is an infant under the custody and control of the disabled contributor and the indirect beneficiary of the benefit is therefore the disabled contributor. When the child becomes adult, custody and control by a disabled contributor is at an end, as is the contributor's indirect benefit. When the indirect benefit ends, the offset also ends.

With regard to the argument that the offset provision is contrary to public policy and therefore illegal, the Court noted that the Plan does no regulate private insurance, and, rather, anticipates integration with and offsets in those private insurance policies. Further, the Court noted that the Federal Government had not acted on the Subcommittee's recommendation to make the offset of a child CPP benefit illegal.  The Court stated that declaring offsets illegal is a social policy decision yet to be made by Parliament.

In conclusion, the Court found that the Insureds had not established that it was contrary to public policy or contrary to the provisions in the Plan to limit the amount of LTD benefits by allowing an offset for the disabled contributor's child benefit.

The Insured claimed that she was entitled to benefits from the Insurer as a result of being "totally disabled" as defined in the policy. She claimed that because of improper actions by her employer, through whom the insurance had been provided, she was not aware of her entitlement to benefits until too late.

The Insured’s claim had been denied on the basis that she had not provided a Proof of Loss to the Insurer within the time stipulated in the policy. In her Statement of Claim, the Insured sought a declaration that she was entitled to disability benefits, relief from forfeiture and various damages, interest and costs. The Insurer took the position that the Insured was not entitled to benefits as she was neither "actively at work" nor "totally disabled". The Insurer also pled that the Insured was not entitled to benefits because of the late filing of the Proof of Loss.

On the application by the Insurer to strike the Jury Notice, the Court considered the provisions in the British Columbia Supreme Court Rules, which provide guidance as to when a trial shall be heard without a jury. In particular, the Court considered Rule 39(25) which provides that a trial shall be heard by the Court without a jury where it relates to a matter referred to in Rule 10(1). The provision at issue in this case was Rule 10(1)(b), which states "the sole or principal question at issue is alleged to be one of construction of an enactment, will, deed, oral or written contract, or other document". The Insurer argued that the principle issues, namely whether the Insured was "actively at work" and "totally disabled", relate to the interpretation of the policy and that the action must be tried by a judge sitting without a jury.

After reviewing case law involving the determination of whether an insured is "totally disabled", Mr. Justice Frankel concluded that such a determination involves issues concerning the application of the policy, rather than its interpretation. Accordingly, he found that Rule 10(1)(b) did not preclude the Insured’s right to a jury trial as the sole or principal question was not construction of the policy. However, his Lordship held that relief from forfeiture, as sought by the Insured in her Statement of Claim, was an equitable remedy that could only be decided by a judge. Accordingly, he ordered the trial to proceed in front of a judge sitting without a jury.

The insured dentist ("Armstrong") claimed $63,600 plus interest for benefits for the period July 4, 2003 to July 3, 2004 under a one-year overhead expense policy issued by a predecessor company of RBC Life Insurance Co ("RBC").

An action was commenced by Armstrong on September 10, 2005. RBC denied the claim under the overhead expense policy on the basis that it was barred by the limitation period set out in the policy and in the Insurance Act, R.S.B.C. 1996, c. 226.   Armstrong argued that RBC waived the limitation period by its conduct in asking him for further information both during and after the limitation period without advising him that it was relying on that time limitation.

Both parties agreed that the overhead expense policy was properly classed as accident and sickness insurance and that the applicable limitation provision was section 89 of the Insurance Act. Section 89(12) provides for a "rolling limitation period" as follows:

An action or proceeding against the insurer for the recovery of a claim under this contract must not be commenced more than one year after the date the insurance money became payable or would have become payable if it had been a valid claim.

The policy had a 30 day Elimination Period. Armstrong’s claim was for the period commencing July 4, 2003 and his completed disability claim form was date stamped September 3, 2003. Therefore, if the claim was proven, RBC was required to pay the initial benefits within 30 days, by October 3, 2003 and to pay subsequent months within each succeeding 30 day period. Applying the "rolling limitation period", the Court held that Armstrong should not have sued for the first two months of benefits after October 4, 2004 and for benefits for the following months on the 3rd or 4th of each corresponding month in 2004 and 2005. He should not have sued for the final month of benefits after August 4, 2005. In fact, Armstrong sued on September 13, 2005, a month after the last date allowed under the limitation.

The Court then reviewed the issue of whether the actions of RBC gave rise to waiver or estoppel. The Court noted that the leading decision regarding the application of the doctrine of estoppel to limitations periods contained in the policies of insurance was the Supreme Court of Canada decision in Maracle v. Travellers Indemnity Co. of Canada, [1991] 2 S.C.R. 50. In that case, the Court held that to establish waiver, the Insured must establish that the Insurer had, by words of conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. Furthermore, the Insured must establish that, in reliance on the representation, he acted on it or in some way changed his position. In this case, the Court held that there was nothing in the correspondence between Armstrong and RBC suggesting that RBC unequivocally intended to abandon its rights under the limitation period.

The Court noted that there was no legal obligation on the part of the Insurer to state in positive terms that it will rely on a limitation period. In the result, Armstrong’s claim benefits under the overhead expense policy was dismissed as the claim was barred by the expiry of the limitation period. RBC had brought a counterclaim seeking the return of approximately $125,000 in disability benefits paid out to Armstrong in error. A disability policy had been issued to a different dentist with the same first and last names as Armstrong and RBC’s claims staff provided Armstrong with a claims form for that policy at the time he was making his claim under the overhead expense policy. Armstrong filled out the claims form but advised the RBC claims person that he did not believe he had such a policy, although he could not be sure as his accountant paid his premiums for him. The mistake was ultimately discovered and RBC sought a return of the funds. By that time, Armstrong had made an assignment into bankruptcy.

The Court held that the counterclaim could not proceed as RBC was unable to establish that Armstrong acted fraudulently and, therefore, section 178(1)(e) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 did not protect the claim from the order of discharge.

Duke was an engineering technician who entered into a critical illness insurance policy with Clarica. At the time he entered into the policy, Duke had no particular health concern and was farming, flying regularly and running 6 km a day, three times a week. He passed his pilot’s physicals on a regular basis. Duke further passed a physical by a physician retained by Clarica. Subsequently, the plaintiff was diagnosed with Parkinson’s disease.

 During the investigation into his condition, Duke told one of his physicians that, in hindsight, "I’d been carrying my arm on an angle and dragging my heel" over the last five years. Once diagnosed with Parkinson’s disease, Duke made a claim for critical illness benefits under the policy. Clarica denied coverage based upon an exclusion in the policy excluding coverage where "the insured person had a covered critical illness or any symptoms associated with a covered critical illness before the date the policy came into effect".

 The Court held that the requisite timing of the association of the symptoms with the covered critical illness was unclear from this exclusion clause. The Court noted that it could not determine from a plain reading of the exclusion clause that having symptoms of Parkinson’s disease before the policy was issued would exclude coverage whether or not anyone made an association between the symptoms and Parkinson’s disease as of that date. In this case, the Court interpreted the ambiguity in the exclusion clause against Clarica and in favour of Duke such that, under the exclusion clause, the association of the symptoms with Parkinson’s disease had to occur before the policy was issued to exclude coverage. The Court found that neither Duke nor any of the physicians who had treated or assessed him had "associated" his symptoms with Parkinson’s disease prior to the issuance of the policy.

Therefore, the Court held that the exclusion clause did not apply and Clarica had improperly denied the critical illness benefits under the policy.

On May 12, 2006, the Reasons for Judgment were released in this case. Subsequently, but prior to a formal Order or Judgment being issued in the case, the Supreme Court of Canada released its decision in Fidler v. Sun Life Assurance Co. of Canada, [2006] S.C.J. No. 30. Rowe brought an Application requesting that the Court vary its decision by awarding and fixing consequential damages resulting from the breach of the disability policy.

The Court reviewed the decision in Fidler, and noted that the Supreme Court of Canada accepted the “peace of mind exception” to the general rule against recovery from mental distress and contract breaches. The Supreme Court of Canada indicated that the Court must be satisfied that: 1) that an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and 2) that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation.

In this case, Rowe sought to add a claim for aggravated damages in the amount of $100,000 for mental distress. Rowe also sought $600,000 for consequential damages, including damages related to the sale of Rowe’s home and damages related to the reduction of his investment portfolio. The Court was satisfied that Rowe suffered mental distress as a result of the breach of contract and that such distress was significant and deserving of compensation. The Court assessed the damages for mental distress in the amount of $30,000.

The Court declined to allow Rowe to amend his claim to seek $600,000 for consequential damages, including damages relating to the sale of Rowe’s home and the reduction of his investment portfolio. The Court noted that Rowe failed to adduce substantive evidence to substantiate the financial losses. Further, the Court held that as this was a group disability insurance policy, consequential financial losses (for example, the cashing in of RRSPs or the selling of one’s home) might well exceed the claim for disability benefits and that this would significantly stretch the concept of what was in the reasonable contemplation of the parties at the time of the making of the contract. The Court held that the damages for financial loss arising out of the collapsing of RRSPs or the sale of a home could not be considered damages which arise naturally in the context of the group disability insurance contract. As a policy consideration, an extension of the circumstances when such consequential damages could be awarded may cause business people to be wary of dealing with persons with mental disabilities for fear of exposure to claims for damages much higher than the value of the contract. The Court accepted Unum’s submissions that the awarding of consequential damages relating to the specific financial loss suffered by a plaintiff due to an incorrect decision to deny or terminate benefits would lead to potentially unlimited and unpredictable liability for disability insurers.