Don’t Delay on Claiming Rights to LTD Benefits – Even if You Have a Lawyer

A recent case raises an interesting issue:  For the purposes of suing an insurer for ceasing to pay disability benefits, does your right to sue start on the date those benefits are cut off, or only after the insurer definitively advises that your ongoing claim is being denied?

In Pepper v. Sanmina-Sci Systems (Canada) Inc. the worker, a punch-press operator, injured his spine on-the-job after falling out of a chair on job and landing on a raised platform.   Based on his claim that he suffered from chronic pain and was unable to work, he started receiving long-term disability (LTD) benefits. However, the insurer ceased paying those benefits in November of 2007, after having concluded that the worker no longer met the definition of “total disability” under the relevant policy.   Some time later the insurer wrote him a letter definitely stating so, after receiving (and rejecting) the worker’s additional medical evidence.  The letter also advised the worker that he had a right to appeal.

By January 2008, less than two months after the November 2007 benefit cut-off, the worker had hired a lawyer, who requested the LTD file from the insurer and made a few other inquiries on the worker’s behalf.  However, nothing substantive was accomplished to advance his legal position until February 17, 2010, when with the help of his lawyer he formally launched a lawsuit against the insurer for breach of contract.

Unfortunately, the worker’s right to sue was subject to the two-year deadline provided for in the provincial Limitations Act, 2002.   The insurer’s position was that the lawsuit against it was too late; in its view the deadline started to run in November 2007 when the worker’s benefits had been cut off, or else in January 2008, when he first hired a lawyer.  Either way, the insurer considered that the February 2010 lawsuit was launched out of time, and that the worker rights to sue was now fully foreclosed.

In contrast, the worker claimed that even though his LTD benefits were terminated in November 2007, the deadline for suing only started to run at some much later point, after the parties had concluded their back-and-forth discussions and the insurer had made it unequivocally clear that it was unwilling to continue paying benefits to him.

In this scenario, the Ontario Court of Appeal was tasked with determining whether the worker’s lawsuit was indeed too late. It noted that under the relevant limitations legislation, the two-year deadline only started to run only once the worker’s “cause of action” (i.e. right to sue) was “discovered”.   The latter term was specifically defined to mean the point in time where the worker knew, or ought to have known, that he could start a breach of contract claim against the insurer.

The Court found that in this case the worker’s cause of action arose in November 2007, when the insurer first stopped paying out benefits as the policy seemed to require.  At this point the worker had what the Court called a “fully ripened claim”; the fact that he went almost immediately to consult a lawyer undermined his contention of being still-unaware at that point that suing the insurer for its breach might be an appropriate next step.

The Appeal Court also verified that the insurer had no obligation to advise the worker about the limitations legislation.  Nor was there anything in the facts to suggest that by continuing to deal with him after November 2007, it had lulled him into believing that he did not have to proceed with his lawsuit in a timely matter.  In fact, a court action was the only way for the worker to assert his rights, since the insurance policy provided for no formal appeal process in situations where LTD benefits were being denied.

Even though the lower court had previously ruled that the insured’s claim was not statute-barred, the Court of Appeal allowed the insurer’s appeal, set aside that judgment, and dismissed the worker’s action outright.

For those who think they may have an action against an insurer arising from the non-payment of LTD or other benefits, this decision shows the importance of quickly making a decision to investigate and pursue your legal rights.   Be sure to take appropriate and well-informed steps from the moment you think you may have a claim.