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LTD Benefits Claims Part Five: Limitation Periods and Quasi Relief from Forfeiture

This is part 5 of our series on recent long-term disability jurisprudence in Canada. You can read part four here. This week we will be discussing Halladay v Manufacturers Life Insurance Co (c.o.b. Manulife Financial Corp), 2020 ONSC 2802, a decision  concerning a motion for Summary Dismissal. The Defendant sought summary dismissal of the Plaintiff’s claims for both short-term and long-term disability benefits based on an allegation that a formal LTD application was never filed and that the action had been filed after the expiration of the limitation periods in the policies.

The Plaintiff went on sick leave in 2008 due to her mental health and did not return. She was initially approved for one month of short-term disability benefits, but the insurer later denied benefits after requesting additional documentation to continue benefits.  The Plaintiff responded by submitting further documentation and several internal appeals before receiving a final denial in February 2013. It wasn’t until after the final denial that the Plaintiff brought her action. 

Due to being denied benefits during the short-term disability period, the Plaintiff did not initially apply for LTD benefits at or around the time that she would have otherwise qualified for such benefits.  While the mistake was eventually caught and the Plaintiff authorized her union representative to advance a claim for LTD benefits, the application was submitted late and not within the proper Manulife form and procedure. The union representative had only sent a letter to Manulife stating that it was “hereby submitting a claim for long-term disability benefits”. The Insurer argued that the procedurally deficient application, and the fact that the application was filed outside the notice provisions, disentitled the Plaintiff from advancing a claim for LTD benefits. 

The Court acknowledged that the Plaintiff had not realized that Manulife had issued two separate policies to her employer and that she was required to apply for both under the terms of the policies.  And, despite not following the insurer’s format, the Court found that the letter submitted by the union was a sufficient application for LTD benefits. The Court noted that the insurer had never questioned the LTD application procedure and had reviewed the claim despite the procedural deficiencies.  The Court further stated that there was no prejudice to the insurer as a result of the pleading not specifically referencing the LTD benefits policy.  In effect, the Court implicitly applied the doctrine of relief from forfeiture and balanced the equities. 

With respect to the limitation defence, the Court found that the claim was not limitation barred because the limitation clock did not begin to run until the insurer clearly and unequivocally denied the claim on February 21, 2013, three years after the initial denial.  This was also when the insured had exhausted the internal appeal process. The Court noted it was reasonable for the insured to exhaust the appeal process before commencing an action. Further, and more importantly, the insurer had failed to make a non-waiver statement in its earlier communications.  

Most insurers no longer make this omission of a non-waiver statement and, failing the omission, Courts have been generally unwilling delay the start of the limitation clock commencement passed the initial denial.  Therefore, this case should not be taken as leave for late filing of claims beyond two years from the initial denial.  Careful review of the policy and denials needs to be undertaken before any such delay is considered.

by Michael AA Shepherd