Deductibility of Long Term Disability Benefits from Income Replacement Benefits

November 29, 2009, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

Arbitrator: Alec Fadel
Decision Date: May 26, 2009

Diane Massa, was injured in a motor vehicle accident on August 18, 2006. She applied for and received statutory accident benefits from Allstate Insurance. Allstate paid an income replacement benefit at the rate of $288.26 until it was terminated on December 15, 2006.
Allstate raised the issue of deductibility of long-term disability benefits (LTDs) potentially available to Ms. Massa through a policy with Great-West Life (GWL) and made available to her as an employee of Black's Photography (Black's).
Ms. Massa took the position that she would meet the eligibility requirements for the LTD benefits with the warning that there was no guarantee that GWL would have approved the application if the benefits were available.

The preliminary issue of the hearing was to determine if the long-term benefits under a GWL plan were available to Ms. Massa as a result of any injuries or disabilities arising from the August 18, 2006 motor vehicle accident, and if so, were they deductible from the past income replacement benefits, if found owing.

As a result of the motor vehicle accident of August 18, 2006, Ms. Massa was unable to return to her employment and received an income replacement benefit from Allstate. At the time of the accident, Ms. Massa was employed as a lab technician for Black's where she had worked since September 19, 2001. An employer's confirmation of income form (OCF-2) completed by Ms. R., a payroll representative from Black's, indicated that Ms. Massa was not eligible to receive an income continuation benefit (short-term or long-term disability plan) and Allstate proceeded to pay the IRB on that basis. Allstate informed Ms. Massa that it had discovered that in fact there was an income continuation benefit available to her as an employee of Black's. The income continuation benefit provided entitlement to a long-term disability benefit with GWL and was a policy fully funded by Black's. It was confirmed that Ms. Massa had not applied for the LTD benefit from GWL.

Ms. Massa gave her evidence in a clear and straightforward manner and the arbitrator found her to be a credible witness. She was adamant in her belief that there was no LTD benefit available to her even after hearing that there may be a policy in place at the pre-hearing. The arbitrator believed Ms. Massa when she stated that by signing the spousal exemption, she thought she was signing away any benefits available to her through her employer and that this was the foundation of her belief that the benefit was not available to her. The arbitrator noted that the "Black Photo Corporation Employee Benefits Profile" form names the relevant benefits available as "Group Dental Care Plan," "The Health Care Plan" and "Long Term Disability Income Protection" compared with the spousal exemption form that lists the two benefits being waived as "medical" and "dental". The two forms when compared do not clearly show what benefits were being waived on the spousal exemption form relative to the listed benefits on the "Black Photo Corporation Employee Benefits Profile".

In the arbitrator’s review of the employment file, including the noted attempts to accommodate Ms. Massa with a return to work, the log notes concerning the discussion with the family doctor and the attempts to contact Ms. Massa, there was no mention of a possible LTD application and no attempt to send the requisite forms to Ms. Massa. Even after speaking with Dr. Rodrigues in January 2007, more than four months after the motor vehicle accident and less than two months before an application could be made for LTDs from GWL, it did not appear to the arbitrator that Black's put its mind to the possibility that Ms. Massa may be eligible to apply for the LTD benefit through GWL. The arbitrator therefore found that at no time during the relevant period, being from the date of loss to the date of termination of the GWL policy, did Black's inform either Ms. Massa or Allstate that, despite the OCF-2, there were in fact collateral benefits available.

The parties presented a number of cases that dealt with the issue of deduction of future collateral benefits and its effect on settlement with an accident benefit insurer.
Essentially, the cases found that past benefits were deductible if they were available and if they had not been refused. The case law relied upon by the parties did not deal with the question of whether actual knowledge of a benefit was a necessary component to finding whether or not a collateral benefit is available and therefore deductible. In Ms. Massa's situation, the question was even more specific, being: Was the LTD benefit "available" when the applicant has no knowledge of it and when this is confirmed by an OCF-2 completed by the actual employer?

In most cases where an applicant is unaware of collateral insurance through their employment they would find out early in the application process that it actually exists, provided the employer correctly completes the OCF-2. The arbitrator found that it is the employer who has the most accurate information on collateral benefit coverage through employment, especially in the case where the collateral policy is set up as a "self-accounting" policy making the employer responsible for the record keeping. Ms. Massa had the mistaken belief that she was not entitled to collateral benefits and since this was supported by the information coming from the employer on the OCF-2, this belief continued beyond the time she could actually apply for the LTD. Based on these facts, the arbitrator concluded that the LTD benefits with GWL were not "available" to Ms. Massa.

In the arbitrator’s view it was a stretch to say that benefits were available to Ms. Massa when she believed she had no coverage and when the actions of the employer supported that they were not available. It is a necessary condition that the applicant actually has knowledge that there was collateral coverage in place during the relevant time so that an application could be made. There is no reason why Ms. Massa is not entitled to rely on the information provided by the employer that confirmed her belief that there was no collateral insurance coverage. After the fact, evidence has been provided to show that, at the relevant time, an application for LTD could have been made to GWL. The arbitrator believed that when Ms. Massa testified that had she known she would have applied for the collateral benefit at the relevant time.

A review of section 7(1)1(ii) of the Schedule suggests that there is no subjective consideration for the arbitrator’s review. However, in this particular situation, it is important to ask whether a reasonable person would have been aware that there was collateral insurance in place. An income continuation plan cannot be found to be available under section 7 of the Schedule if the applicant has no knowledge of its existence combined with an employer's reporting on an OCF-2 that there is no coverage (unless that error is discovered by the employer and reported to the accident benefit insurer or its employee prior to the time that the relevant collateral policy terminates).

While one of the purposes of section 7 of the Schedule is to prevent double recovery, another is to allow the deduction of valid collateral insurance in favour of the accident benefit insurer. In this instance, since Ms. Massa was no longer entitled to apply for LTDs and, given the testimony of the GWL representative that an application made at the time of the hearing would have been refused without an explanation, the arbitrator found that there was no longer any availability to LTD benefits through the GWL policy and therefore no chance of double recovery.
Posted under Accident Benefit News, Automobile Accident Benefits, Car Accidents, Disability Insurance

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