Reversing the trial judge’s decision, on April 19, 2018, the Court of Appeal for Ontario concluded that an employee can still benefit from a former employer’s long-term disability coverage despite discovering the disability while working for a new employer. The exclusionary language did not limit the long-term disability coverage to current employees, and was extended by the Court to apply to undisclosed disability claims that arose during employment.
Was the former employer really accountable to provide LTD coverage even after the employee quit? Here’s what happened:
Starting his career in 1996, a worker rose through the ranks from junior sales representative to Division Sales Vice President, where he managed over 130 sales representatives.
In April 2005, he suffered a traumatic brain injury and severe back injury during a company-sponsored event. Following the accident, he took four months off to recover but did not immediately understand the permanent and disabling nature of his injuries. He was no longer the same person when he returned to his position as his work performance deteriorated dramatically from what it had been. Out of frustration from his continuously reduced responsibilities, he severed the employment relationship in August 2008.
Thereafter, the worker took up employment with another company to perform a similar role to the one he held with his former employer. He experienced similar difficulties in job performance at his new employment, and was fired in August 2009. He attempted to make a long-term disability (LTD) claim but was told that he had to apply under the policy that covered him at the time the injury occurred.
In September 2010, the worker filed an LTD claim with his former employer, which was covered by a third party insurer, Manulife. In November 2010, Manulife denied his claim, arguing that the policy does not extend to former employees.
The worker filed a civil suit against both his former employer and Manulife in April 2011. The worker sought a declaration from the court that he was entitled to benefits from May 24, 2010, (or alternatively December 23, 2010), in the amount of $5,834 per month, less 85 percent of the amounts he received from WSIB and CPP disability over that period of time. He also requested a declaration that he continued to be entitled to benefits under the policy.
The Ontario Superior Court of Justice found that the former employee is not covered because he is no longer employed at the company offering LTD benefits
At trial, the parties agreed that the worker is “unable to perform the essential and material duties of his regular occupation and for any occupation for which he was reasonably fitted, or could so become, by education, training or experience under the terms of the Manulife policy, and has been since the date of his injury in Costa Rica on April 16, 2005.” As such, the parties further agreed that the worker meets the qualification for LTD benefits as set out in the Manulife Policy, for which the employer had sufficient notice dating back in April 2005.
However, the trial judge accepted the employer’s argument that the worker would have had access to the LTD benefits if he had applied during his employment but that the worker was no longer entitled to claim once he was outside of this coverage. The trial judge concluded that the policy “states in clear terms that there is no coverage for persons who are not employed by [the employer].”
Accordingly, the trial judge dismissed the worker’s claim. In response, the worker appealed the trial judge’s decision.
Ontario Court of Appeal holds former employee is covered because the accident occurred while employed at the company offering LTD benefits
The Court of Appeal reviewed the trial judge’s decision to be a question of law, reviewable on the standard of correctness.
The recent decision by the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 informed the Court of Appeal on the governing principles of interpretation applicable to insurance policies. Namely,
“[t]he primary interpretive principle is that where the language of the insurance policy is unambiguous, effect should be given to that clear language, reading the contract as a whole.”
With this in mind, when considered as a whole, the Court found the language of Manulife Policy’s “Termination of Coverage” to be clear and mean that coverage does not continue when an employee begins working for another employer or after the employee has retired.
However, the principles in Ledcor further informed the Court that
“if ambiguity still remains after the above principles are applied . . . coverage provisions in insurance policies are [to be] interpreted broadly, and exclusion clauses narrowly.” As such, the Court found the “Termination of Coverage” to only relate to future claims and not to claims that already arose during the course of the worker’s employment. The Court found that “if an employee’s claim arises as a result of an occurrence that takes place during their employment, the policy provides coverage.”
Manulife Policy’s “Total Disability Benefits” further confirms the entitlement to be paid a monthly benefit if the total disability occurs during the coverage period as it does not contain any language indicating that it applies only to current employees.
In this regard, the Court concluded that,
 These principles do not support the respondent’s position. The Manulife Policy does not contain the type of exclusionary language that terminates coverage for undiscovered disability claims the employee had and that originated during their employment, when their employment ceases. To so conclude would leave former employees, like the appellant, in the untenable position of having no disability coverage from either their former employer or any new employer. Such a result would be contrary to the very purpose of disability insurance and the plain meaning of the coverage provision.
For the foregoing reasons, the Court of Appeal allowed the appeal, set aside the judgment of the trial judge, and instead exercised its discretion to grant an equitable remedy of relief from forfeiture, even though it was not raised at trial.
The decision arising from this case may no longer shield employers and their insurers from undiscovered LTD claims of former employees who come to appreciate the seriousness and significance of their injury until after the employment relationship has ended. It may not be sufficient to base exclusionary language on current employment status, as employees may still be successful in claiming LTD benefits where the injury occurred during their active employment.