Accounting for Law
Employment & Labour

Disability benefits: no peace in peace of mind contracts

By Bram Lecker

Many employers offer short and long-term disability Insurance benefits as enhancements to remuneration packages. These valuable extra perks, often used as carrots, allow them to attract the best candidates and retain valued employees. Disability benefits provide you with a modicum of security, both financial and psychological. They promise income replacement if you are suddenly taken ill or disabled. That is why the legal community refers to disability benefits agreements as peace of mind contracts. However, employees receiving such benefits are usually quite unaware of the special nature of such contractual relationships.

Dealing with insurance companies

If you require disability benefits, you will quickly discover that they are anything but peace of mind contracts when you file a claim. Even after years of paying premiums for them, they are not as readily available to you when you need them the most. Almost always, insurers will either deny your claim or cause interminable delays by asking you for repetitive proof of your illness or injury. And even after you qualify to receive them, your insurer could prematurely terminate them on a technicality. These tactics will cause you much distress. For some people, they exacerbate the medical condition, causing adverse effects on mental well-being. And all of this happens at a time when you have little capacity to cope. There is very little peace of mind built into the processes of applying for and receiving the disability benefits you believed you were entitled to.

Peace of mind contracts: the legal perspective

The Supreme Court of Canada’s interpretation of the objective of “peace of mind” contracts is to provide “pleasure, relaxation, peace of mind or freedom from molestation.” With increasing frequency, trial judges apply this definition to disability insurance contracts. They fully expect insurers to handle disability claims honestly and in good faith. When they play the “frustration game,” Canadian courts will invariably cry foul. The law recognizes the vulnerability of the insured in these circumstances. And consequently, judges are not shy about holding insurers accountable for the clear breach of these peace of mind contracts.

Mental distress

Psychological health problems and illnesses are the number one cause of employee absenteeism and disability in Canada. They cost our economy $51 billion annually. Short-term disability and long-term disability are among the top claims at most disability insurance companies. Nonetheless, and they habitually deny virtually all claims for anxiety and/or depression arising out of the workplace, especially in the initial stages.

Insurers offer numerous reasons for the denials: most commonly, they claim the policy will not cover such illnesses. Of course, nothing is farther from the truth. Excluding mental health illnesses is illegal – doing so would completely offend our Human Rights Code.

Even worse, they reject the diagnosis made by qualified medical professionals, citing adverse medical opinions, when no physician has actually met with the patient or read their file. Through the process, they demand unnecessary and excessive evidence, creating extra work for both the claimant and their medical team. Mental health sufferers often express feelings of “re-victimization” by the process. They suffer more psychological trauma for simply trying to claim what was promised to them.

Insurance companies know this all too well. Yet many refuse to adjudicate claims for mental illness, hoping the ignorance of the claimant will prevail. By design, these tactics serve no purpose other than to delay the payments or confuse and frustrate applicants into simply giving up. It is no wonder that this doctrine of peace of mind contracts was introduced to augment the protections long needed by employees with claims of mental illness arising out of the workplace.

Punitive damages

Denial of disability claims remains a cornerstone of our business. We advocate strongly on the position that no vulnerable person should fall prey to the whims of an insurance company. They cannot treat you unfairly just because you did not directly negotiate the terms of your employer’s disability benefits program or only paid part of the premiums.

There is both hope and recourse in such matters. When insurers fail to honour their contractual commitments, our lawyers understand the game. We pursue them for aggravated and punitive damages on top of the payments they already owe you. Courts routinely award these damages when insurers unfairly deny benefits or delay and frustrate claimants during the claim process and through the course of litigation. They also penalize insurance companies for failing to manage claims honestly and in good faith.

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