Friday 7 June 2013

Disability Insurance 101 - What Constitutes "Total Disability"?

    Peace Bridge from the north side of the Bow

    River, June 5, 2013 (another sunny day in Calgary!)

Do you have a question about your long-term disability policy? Are you thinking of making a claim, or have you already put in a claim that the insurance company has denied? This post is part of a series explaining the basics of disability insurance coverage and the ins and outs of the claims process.

Disability insurance provides protection for loss of income when an illness or injury prevents the insured from working. With other types of insurance it is usually not difficult to determine whether or not a loss has occurred - in automobile insurance, for instance, it is typically pretty clear that a collision has taken place, and it is rare for an insurance company to question a life insurance claim on the grounds that the insured is only missing and might not actually be dead.
Disability insurance is different because there are degrees of disability.  We have all gone to work with a minor injury or worked through a cold, and we've seen people try to work when everyone is telling them they are too sick and should take time off. At what point is the disabling condition so serious that the insured is no longer able to work, and is entitled to benefits under the disability policy?

The evaluation of a claim is especially difficult in cases where the disabling condition involves chronic pain or fatigue, or where depression, anxiety disorder, or some other psychological condition is a factor. In these cases the insurer has no objective standard for determining the extent of a person's disability, and the insured can't point to a lab test or x-ray to prove that his claim is real.

The majority of disability insurance disputes arise when the insurer denies that the claimant is "Totally Disabled" as this term is defined in the policy. This is also the issue that is most likely to lead to litigation.

There are two common policy definitions of Total Disability, which are often referred to as "Own Occupation" coverage and "Any Occupation" coverage. In an Own Occupation policy, the definition of Total Disability typically says that benefits are payable when the insured is "completely unable to engage in his regular occupation". This type of insurance provides coverage when the claimant can't do his usual job, even if he is capable of performing another type of work for which he is qualified. Own Occupation policies provide a higher level of coverage, usually at a higher premium rate.

Any Occupation coverage contemplates alternative employment. A standard Any Occupation definition provides that the insured is Totally Disabled when he is incapable of performing an occupation "for which he is reasonably fitted by education, training, and experience".

Most long term claimants are covered under employee group policies. These insurance plans usually provide a period of Own Occupation coverage for the first one or two years of disability. At the end of the Own Occupation period the policy definition of Total Disability changes to an Any Occupation definition, and the employee is cut off if she can perform other, suitable work.

The leading case on the definition of Total Disability is Sucharov v. Paul Revere Life Insurance Co.,  The insured in that case was an insurance agent who owned and managed his own brokerage.  He claimed disability based on high blood pressure and an anxiety disorder.  Although he could perform most of the discreet tasks involved in his business, such as making sales calls or updating policy information, the pressure of performing all of these tasks together was too much.

The policy said the insured was Totally Disabled when "completely unable to engage in his regular occupation".  The insurer argued that a claimant who could perform each of the tasks involved in his occupation, albeit separately, was not "completely unable" to perform that occupation.

This literal approach to policy interpretation was rejected by the Supreme Court of Canada, which held that Totally Disability means the substantial inability to perform an occupation.  Under Own Occupation coverage the claimant is disabled if he cannot perform any of the important duties of his job, or if he is unable to perform the work in its totality.

In subsequent cases, courts have held that a claimant is unable to perform "each and every duty" of his occupation if he is substantially disabled from performing essential job duties.  Disability arises when a person who has the physical capacity to perform the tasks making up the job is hindered in his performance by pain, fatigue, or prescribed medication.  Total Disability doesn't require complete helplessness, and benefits are payable if the insured is unable to perform the substantial and material acts that make up his usual work.

This approach to the interpretation of Total Disability is in keeping with the principles that the courts use for the interpretation of any kind of insurance policy: the words in the policy are to be applied in their plain and ordinary sense, as members of the general public would understand them.  Standard form policies will be interpreted against the interests of the insurance company that drafted them, so coverage clauses are to be interpreted broadly in favour of the insured, and exclusion clauses are to be given a narrow reading.

In the next post in this series, I will talk about the interpretation of Any Occupation definitions of Total Disability.

Contact Richard Hayles at Billington Barristers:
(403) 930-4106

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Any legal information provided is general in nature and may not apply to particular situations. It does not constitute legal opinion or advice. Please consult your lawyer regarding your specific legal issue.

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