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How your Long Term Disability Benefits get reduced: The Set Off

Long Term Disability Plans are what they call in the insurance industry “living policies” or “living benefits“. You need to be alive in order to recover on going LTD Benefits.

In their most basic form, these LTD policies are there to protect an insured person in the event of serious disability which prevents that person from working at their own occupation, or at any gainful occupation.

If an insured person meets the test for disability, and they have filed all of the proper paper work, then in a perfect world; that person will receive long term disability benefits for the period for which they are disabled.

The amount of the monthly LTD benefit depends on your policy along with your pre-disability income. Some polices have a set monthly benefit amount like $1,000/month; regardless of income. Other policies base the monthly benefit amount on a percentage of your monthly pre-disability gross or net income, depending on the wording of your policy (ie 66.67% of your gross income averaged in the year before your disability).

All of these calculations sound simple enough. But have you ever read the fine print of these policies? Have you ever paid attention to how long some LTD policies can be?

The devil’s in the details, and the wording of these LTD policies can rise up and have a negative impact on your long term disability case.

Take the recent Ontario Court of Appeal case of Hamblin v. The Standard Life Assurance Company of CanadaThis decision was just released on November 8, 2016.

In this case, the Plaintiff, Catherine Hamblin was involved in two separate car accidents. As a result of car accident #1, she was not able to return to work. She then had a second car accident. Instead of electing an income replacement benefit, she instead elected the non-earner benefit. This benefit is reserved for unemployed people, disabled people and the elderly. People who aren’t working at the time of their car accident (along with others) can opt to elect this benefit of $185/week. It’s reserved specifically for this group of people.

Ms. Hamblin was receiving her Non Earner Benefit at a rate of $185/week from her car insurer. This is standard under the Insurance Act.

When Ms. Hamblin’s Long Term Disability Insurer Standard Life caught wind that Ms. Hamblin was receiving a $185/week Non-Earner Benefit; they began to reduce her monthly LTD benefit by $185/week ($740/month) as well!!!

This is a significant set off for the insurer which amount to $9,620/year.mmdaf

This upset Ms. Hamblin; so she brought an application to the Court seeking re-payment of the $185/week which Standard Life was holding back.

The case went all the way up to the Court of Appeal. The Court of Appeal found:

….under the terms of its Group Insurance Plan, the respondent was entitled to reduce the monthly LTD payments by “any disability or retirement benefit … payable … under … a provincial auto insurance law.” After being notified by the appellant that she was receiving the NEB, the respondent began to deduct the amount of the NEB from its LTD payments.

…the deduction at issue in this appeal arises by virtue of the terms of the respondent’s policy of insurance. One must look to the language of the policy to determine the issue of deductibility. In our view, the policy language was clear and unambiguous and mandated the deduction.

 Nor do we accept the submission that the result gives the respondent a “windfall.” A deduction permitted by the plain language of the policy is not a “windfall.”

For these reasons, the appeal is dismissed, with costs payable to the respondent fixed at $2,500.00, inclusive of disbursements and all applicable taxes.

 The end result for poor Ms. Hamblin was that  Standard Life was allowed to chip away and deduct her Non Earner Benefits from her Long Term Disability Benefits, she lost the appeal, and was ordered to pay $2,500 in legal costs to Standard Life for having lost her case. Ouch! If she doesn’t pay those legal costs out of her own pocket, they will likely come out of any future Long Term Disability Benefits owed to her by Standard Life.

This is a very harsh decision for the Plaintiff for so many reasons. The wording of these policies is frankly so skewed in favour of the insurer, against people like Ms. Hamblin which makes these policies a hollow shell of what people expect them to be. The policies are drafted in such a way to completely minimize the exposure of the insurer to the detriment of the disability claimant.

I can understand if the money which Ms. Hamblin were receiving was a form of income. But the Non-Earner Benefit is the exact opposite of income. If it were intended to be income, or an income replacement, then an election for a non-earner benefit would not be necessary. The purpose of the non-earner benefit is to compensate a non-earner, such as Ms. Hamblin. That form of compensation in the non-earner benefit is effectively stripped from a person like Ms. Hamblin who was already receiving the non-earner at the time of her LTD benefits. The result was that there is really no net gain or non point to Ms. Hamblin earning or being entitled to both benefits simultaneously. This completely minimizes one claim, in favour of another unrelated claim. The person is not made whole as one policy only has to pay out a fraction of that they normally would.

For the Judges on the Court of Appeal not to recognize the allowance of the non-earner set off as a “windfall” is a shame. I was disappointed there wasn’t a single dissenting judicial opinion on this issue. This decision harms every single person across Canada who has access to Long Term Disability Benefits. It will be used by insurance lawyers across the country to find ways to access further set offs to minimize the exposure of their insurer clients.

Moral of the story: Your Long Term Disability policy is more complicated than what you think it is. There is a very good chance that monthly disability amount which you think you are entitled to on account of a disability will be trimmed based on set off provisions which are likely contained in your LTD policy (which you didn’t write). The Ontario Court of Appeal has given insurers permission to do so. If you think that you’re entitled to a monthly LTD benefit of $1,500/month, I strongly urge you to read this decision and see what happened to Ms. Hamblin. That $1,500/month benefit you’re expecting to get will likely get cut.

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