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Long-term disability insurance part 4: after termination

In the final instalment of a four-part series on long-term disability insurance, Toronto personal injury and disability lawyer Nainesh Kotak discusses LTD for terminated employees.

Terminated employees may still be able to make a claim under their former long-term disability (LTD) policy, Toronto personal injury and disability lawyer Nainesh Kotak tells AdvocateDaily.com.

When individuals are dismissed from their position, Kotak, principal of Kotak Personal Injury Law, says the severance package will often include a release that precludes them from making LTD claims related to their employment.  

But, depending on the circumstances, employees may still be able to make a claim for coverage or compensation, says Kotak, who acts for a number of individuals suing their former employers and LTD carriers.

“It makes no sense to sign a release that bars you from making an LTD claim when no consideration has been paid for waiving that right,” he says. “Sometimes, the allegation is that an employer had a fiduciary duty to provide the person with the knowledge that they had an LTD policy and present them with the forms that needed to be filled out."  

In one recent case, a mail clerk with a large insurance company was granted the right to continue with a claim for LTD benefits, even though he had signed a settlement agreement releasing such an action.

“It was a really well-reasoned decision that I think was right in the circumstances,” Kotak says.

According to the decision, the man was initially denied benefits and remained engaged in an appeal before his termination. However, his severance settlement released the LTD claim, without mentioning the ongoing appeal.

The judge concluded that the man should able to continue with his appeal, in spite of the settlement after finding the release met all four elements of "unconscionability:"

  • a grossly unfair and improvident transaction
  • lack of independent legal advice for the employee
  • an overwhelming imbalance in bargaining power between the parties
  • the former employer knowingly took advantage of this vulnerability

And in another recent appeal court case involving a resignation, rather than termination, the three-judge panel ruled that a man could claim LTD payments, despite waiting until after he left the job where he was covered to apply for benefits.

According to the decision, the man was a senior employee when he suffered a traumatic brain injury and severe damage to his back during a company event abroad in 2005.

After taking four months off to recover, he returned to work, but the ruling says his performance had deteriorated badly compared with his old level, resulting in a continuous downgrade of his responsibilities before he resigned in the summer of 2008. 

The man found a new job almost immediately, but suffered similar difficulties with his work performance, and was fired a year later.

By the time he applied for LTD coverage from the first employer, two years had passed since his departure, and it was more than five years on from his accident.

After his application was denied, the man launched a legal claim, and the appeal court ruled he was entitled to coverage because the injury occurred while he was employed.

"The language of the [policy] when considered as a whole is clear — it means that coverage does not continue when an employee begins working for another employer or after the employee has retired," wrote Justice Jean MacFarland on behalf of the panel.

"The ‘Termination of Coverage’ language relates to future claims, not claims that may have arisen during the course of the employee's employment," she added. "In other words, if an employee’s claim arises as the result of an occurrence that takes place during their employment, the policy provides coverage."

The claim survived a limitation defence because the man could not have known he had a cause of action until August 2009, less than two years before he launched the lawsuit, MacFarland wrote.

Click here to read part one — which covers the basics.

Click here to read part two — handling denial of claims.

Click here to read part three — the obstacles claimants with mental health disabilities face. 

To Read More Nainesh Kotak Posts Click Here
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