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Better Understanding How Long Term Disability Awards Work

Long Term Disability Claims are NOT claims for pain and suffering.

Long Term Disability Claims are not based in negligence.

Nobody from long term disability insurer ran you over with a truck or hit you with a baseball bat resulting in your disability. You had something completely unrelated to your relationship with the long term disability insurer; before your disability arose. It could be serious medical condition; a bad slip and fall; or a stressful work environment. Nonetheless, the long term disability insurer had nothing to do with giving you the disability in the first place.

To be fair the way a long term disability insurer treats you can result in mental anguish, financial distress or harm. These sort of claims along with bad faith claims handling is a separate tort all together. These cases are the exception, but they certainly do happen.

But the foundation of a long term disability claim are the long term disability benefits themselves; which are a creatures of contract, not tort.

Standing alone from any separate tort or bad faith claim; quantifying the value of arrears and futures is a mathematical equation based in contract. It’s not an imaginary number which is made up by the Court.

If you were to magically have a Long Term Disability trial tomorrow before a Judge, and magically that trial were to only last a single day; the only thing a Judge can award (aside from any mental distress of bad faith claim) is to order that the insurer pay the value of the arrears owing, less any set offs, and order that the insurer re-instate your long term disability benefits.

To be clear, the Judge CANNOT order that the long term disability insurer pay you a lump sum for your future benefits. A Judge CANNOT order that the insurer pay you benefits for 20 years in to the future. It’s outside of their power. It’s also not fair to the long term disability insurer. Imagine that: a personal injury lawyer saying that something isn’t fair for an insurer. But it’s true; and here’s why:

Let’s pretend for a moment that you have your long term disability trial and you WIN. Excellent! The insurance company does not appeal the verdict. Double Bonus!

The Judge orders that the insurer pay the outstanding benefits owed to you plus interest. The Judge also orders that the insurer pay out the remaining benefits owing under the policy in to the future. Let’s say for argument sake, those benefits will run for the next 20 years, up to 2041. The Judge orders that those benefits are paid to you not month to month, but in one big lump sum.

You receive the lump sum and enjoy the money as best you can; which is great.linkedin-2-300x300

Here is why this lump sum payment scenario which the imaginary Judge has ordered is unfair to the insurance company:

  1. What happens if you return to work or you are no longer deemed disabled under the policy? Is it right for an insurance company to be ordered to pay a person benefits who no longer qualifies for those benefits? Should you be entitled to this sort of windfall whereby you are essentially double dipping (earning an income and recovering Long Term Disability benefits?). How can one be gainfully employed; earning a stable income and be deemed disabled at the same time? Seems remote, but it can happen in certain situations depending on the
  2. What happens if you die before 2041? Long Term Disability Benefits are “living benefits“. You need to be alive in order to receive them. Is it right for an insurer to pay a dead person for a disability benefit if they’re dead? Long Term Disability Benefits is NOT Life Insurance. These are two totally different policies of insurance..
  3. What happens if you qualify for another collateral benefit in the future for which the insurance company is entitled to a set off? This would reduce quantum owed to the Plaintiff under the Long Term Disability Policy. Is it fair for a Judge to order an insurer to pay a lump sum which does not accurately reflect what they would owe under the policy?
  4. The Judge may not have factored in the future value of the award vs. the present value of the award. There is a concept at law called “present value“. Present value is the concept that states an amount of money today is worth more than that same amount in the future. In other words, money received in the future is not worth as much as an equal amount received today. When quantifying lump sums in to the future, this will need to be accounted for. You can do so by using a simple to use present value calculatorĀ 
  5. What happens if immediately after the trial, the long term disability insurer does surveillance on you and finds out that you are skiing, snowboarding, long distance running; and running a not-for-profit agency 50+ hours a week? The Long Term Disability insurer would not be pleased having paid you 20 years of long term disability benefits when it appears that you aren’t disabled.

It’s for these reasons that all a Judge can do for a Plaintiff at trial, is award them the long term disability arrears owing under the policy, and Order that the insurer re-instate your benefits on a month to month basis. But, the long term disability insurer can turn around and cut you off benefits in the event that your medicals don’t support your disability claim any longer. Hence the vicious litigation cycle continues yet again.

Many Plaintiffs with Long Term Disability claims make up their own calculations for past and future benefits. The problems with these calculations is they often use the wrong data, and the wrong formulas to get their outputs. Some common mistakes we see include:

  • Incorrect monthly disability benefit amount
  • Incorrect start date and end dates used
  • No off sets taken in to consideration such as CPP Disability, WSIB, Disability Pension or other when factoring in the monthly benefit
  • No Present Value Discount Applied
  • 100% of salary factored in to the equation where policy only provides of 60% or 70% less set offs
  • Income Tax deductions not taken in to consideration. Long Term Disability benefits are either taxable or not. If the benefits are taxable, it will result in less money in the Plaintiff’s pocket.
  • No litigation risk taken in to consideration (winning any legal case is never a certainty, there is always a risk at trial)
  • Definition of disability shifting from “own occupation” to “any occupation” not taken in to consideration

 

 

 

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