Long term disability (LTD) policies are benefits that are payable to you in the event that you can no longer work as a result of an injury or illness. These insurance products—usually offered by employers as part of your overall compensation package—are provided by a third party insurance company and designed to ensure peace of mind through income support while you are unable to work. Most LTD insurance policies commence payment of benefits after short-term disability insurance (or sometimes employment insurance benefits) expires, usually at the three- or six-month mark. LTD benefits usually pay a percentage of the employee’s salary at the time of onset of the disability, for a prescribed period of time. Many policies only provide coverage for two years, unless the employee is unable to return not only to their own job, but to any job for which they are reasonably suited, or could be re-trained to perform. This is known in the insurance industry as the “any occupation” phase of the LTD policy.
Frequently, the transition to the “any occupation” phase results in termination of benefits, with the insurance company suggesting that the employee is able to return either to his or her own job, or to another job. The termination of LTD benefits can be stressful for the employee, who may disagree with the insurance company’s decision. Adding to this stress is that insurance companies often terminate a sick or injured worker’s disability benefits without sufficient or any legitimate reason to do so. When this happens, a policyholder is entitled to sue his or her insurance company for the benefits that have been improperly denied.
While the transition to the “any occupation” phase of a policy is where a claim for disability benefits is typically denied, there are many other ways that an insurer can attempt to avoid paying benefits. These can include alleging that an insured person has failed to provide timely or appropriate medical information, failed to file their application on time, or failed to participate in treatment or a return to work plan. Again, when this happens, legal action may be required in order to gain access to the benefits that were improperly denied.
Finally, a long-term disability insurer has an obligation to manage claims fairly and in good faith. A failure to do so could result in punitive damages or mental distress damages beyond what is payable under the contract of insurance. While these damages are rare, they present another avenue of recovery for those whose benefits are unfairly denied.
Every insurance company owes a duty of “good faith” to its insured. This duty requires an insurer to compensate its policy holder in a timely manner. The duty also requires the insurer to investigate the claim promptly, fairly and diligently. Sometimes an insurer fails to treat its insured fairly. In cases where the insurer’s conduct becomes high handed, malicious or arbitrary, the insurer is considered to have breached its duty of good faith to its insured. In these cases, the insurer is said to have acted in “bad faith” towards its insured and the insurer may be required to pay punitive damages, aggravated damages or damages for mental distress to its insured.