Long-term disability benefits, generally
Long-term disability insurance is intended to provide a level of income support should an employee become disabled and unable to work. The definition of a disability can vary between insurance companies and plans, but most plans will provide 60% to 70% of a disabled person's normal income.
A claim to long-term disability benefits arises when a person becomes disabled. If an insurer denies a legitimate claim, the disabled person ("the insured") may pursue legal action to receive compensation for the lost long-term disability benefits since long-term disability insurance is a contractual agreement between an insured and an insurer – denying a legitimate claim is a breach of contract and the insured has a right to pursue compensation for the insurer's wrongdoing.
Damages for Mental Distress
In addition to compensation, it is also possible to claim damages for mental distress from an insurer who denies a legitimate claim. Insurers have an implied duty of good faith, and a breach of this duty – for example, when an insurer denies a legitimate claim – can lead to damages for mental distress. The law regarding damages for mental distress was articulated by the Supreme Court of Canada in Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30. In essence, Fidler provided that damages are awarded based on the expectation of the parties at the time the contract was made.1 Where the parties contemplated that psychological distress could result from a breach of contract, and the mental distress caused by the breach was sufficient to warrant an award for damages, the courts would make such an award.2
This was the case in Kardaras v. Sun Life Assurance Company of Canada, 2020 ONSC 3925.
Kardaras v. Sun Life
In September 2014, the plaintiff was diagnosed with major depressive disorder with anxious features. The plaintiff took a medical leave from work and received disability benefits from the defendant. The plaintiff attempted a gradual return to work in December 2015 and was set to return to full-time hours by the end of January 2016. However, by the time the plaintiff got up to working four days per week, her psychiatrist advised that she should return to three days per week due to worsening of her depressive disorder. The defendant then terminated the plaintiff's benefits as of the date originally scheduled for her return to full-time work.3
The defendant's policy required a person to "totally disabled" in order for benefits to be paid. The Court reviewed the legal test for total disability:
An insured is considered to be totally disabled from performing her own occupation where she is unable to perform "substantially all of the duties of that position." Total disability does not mean absolute physical disability, but rather that the insured's injuries are such that common care and prudence require her to desist from her occupation in order to effectuate a cure: Paul Revere Life Insurance v. Sucharov, 1983 CanLII 168 (SCC),  2 S.C.R. 541, at p. 546.4
The position of the parties
The plaintiff's psychiatrist noted that, although the plaintiff was physically capable of working more than three days per week, it was expected that her depressive order would worsen if she worked beyond three days per week. The psychiatrist noted that the plaintiff experienced increased distress during her gradual return to work and testified that in order to avoid having to pull the plaintiff out of work altogether, it was important to decrease her rate of return to work.5
The defendant took the position that the plaintiff's failure to return to work full-time was due to her desire to maintain a work/ life balance, dismissing the plaintiff's legitimate concerns for her health. After initially reaching the decision to deny the plaintiff the continuation of her benefits, the defendant maintained its position through several levels of appeal, despite more detailed reports from the plaintiff's psychiatrist outlining the plaintiff's disability.
Breach of the duty of good faith – the plaintiff's entitlement to damages for mental distress
The Court found that the plaintiff was entitled to long-term disability benefits beyond the date they were terminated by the defendant.
Further, the Court concluded that the defendant did not approach the issue of the plaintiff's health condition in an even-handed manner. Despite the compelling medical evidence in the plaintiff's favour, the defendant continued to characterize the plaintiff as having a "sense of entitlement" in seeking payment of her benefits. The Court noted that the defendant discontinued the plaintiff's benefits when the only medical evidence it had was that the plaintiff was not able to work more than three days per week and maintained its position despite never receiving any differing opinion from any doctor. Further, the defendant discontinued the plaintiff's benefits when she, in good faith, was participating in a gradual return to work program.
The Court held that the defendant's breach of the duty of good faith caused the plaintiff mental distress that was in the reasonable contemplation of the parties. In awarding damages for mental distress, the Court held that the plaintiff, in a time in which she was highly vulnerable, experienced an increase in stress, a loss of dignity, and a feeling of not being heard and acknowledged.6
1 Fidler v Sun Life Assurance Co of Canada, 2006 SCC 30 at paras 42–44 [Fidler].
2 Fidler at para 47.
3 Kardaras v Sun Life Assurance Company of Canada, 2020 ONSC 3925 at para 1 [Kardaras].
4 Kardaras at para 12.
5 Kardaras at para 27.
6 Kardaras at para 83.
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