What deductions & offsets can be applied to my long-term disability benefits?

What deductions & offsets can be applied to my long-term disability benefits?

What are typical sources that can reduce my long-term disability?

Disability policies often provide that benefits are to be reduced by the amount of certain payments, called “offsets,” which the insured receives from third parties. It’s important to understand that your disability benefits can, if called for in your policy, be reduced by these offsets. Some typical sources which may reduce your long-term disability beneift LTD benefit amount include benefits you receive or you are entitled to receive from:

  • Canada pension plan (CPP).
  • Workers’ compensation (WSIB) or similar coverage.
  • Group, association or franchise plan.
  • Retirement or pension plan.
  • Earnings or payments from any employer, including severance payments and vacation pay.
  • Self-employment income.
  • Government plans, except those that are excluded such as EI benefits.

CPP Benefits and Offset

This is the most common deduction that a long-term disability policy can make. Most offset clauses provide for the deduction of Canada Pension Plan disability benefits.Most policies have a requirement that the insured apply for CPP disability benefits and, in some cases, also require the insured to appeal a denied claim. In addition, there may be a provision for an offset for CPP disability benefits received by the insured.  If you apply for CPPD and you are considered totally disabled from any occupation, your long-term disability will be reduced by your monthly CPPD benefit.

Severance Packages

The deductibility of severance packages depends on the policy wording for the most part. If the wording is clear and unambiguous, you will have to look no further, but that is not always the case. Where the wording is not clear, consideration must be given to the nature of the severance package. For example, in Consolidated-Bathurst Export Ltd. c. Mutual Boiler & Machinery Insurance Co., 1979 CarswellQue 157 (S.C.C.), the court held that because the exclusion in the policy did not specifically mention severance pay, the insurer had not made it clear that payment of this nature qualified for integration. The court therefore declined to consider whether the severance pay received by the policy holder should be integrated or deducted from LTD payments. As an alternative, the court found that the severance that was received was neither a continuation of salary or income from any employment (Henderson v. Canadian General Life Insurance Co., 1994 CarswellOnt 962 (Ont. Gen. Div.)).  More recently, in Kerwin v. Manulife Financial, 2017 CarswellOnt 19096 (Ont. S.C.J.), where an employee received a severance package from his employer. The LTD carrier argued that the full amount of the settlement that the employee received as a retirement package must be set off against those LTD benefits the LTD carrier would have otherwise paid to him.

Workers’ Compensation Benefits (WSIB) Claims

Some policies contain offsets for amounts received through WSIB claims. In Richer v. Manulife Financial, 2007 CarswellOnt 1713 (Ont. C.A.), the insured’s policy provided for an offset for amounts he was entitled to receive through a WSIB claim. The insured plaintiff had made a WSIB claim but it had not yet been resolved. Entitlement to receive payments was not dependent on an application for compensation being approved. Manulife was entitled to reduce the monthly benefit payable to the insured under the policy by the amount of WSIB benefits to which he would have been entitled had he not elected to proceed with an action. See also Robert Wilken v. Sun Life Assurance Company, 2017 CarswellOnt 19517 (Ont. C.A.), where the court noted, at paragraph 3:

“The plaintiff’s voluntary decision to make a retroactive election, foregoing WSIB benefits to pursue a tort action, effectively would deny the insurer its contemplated and permitted offset, thereby elevating the insurer’s relevant coverage obligation to a ‘first payor’ status that obviously was not intended.”

Have you been denied long term disability benefits?

If you have been denied long-term disability benefits, call us at 905-333-8888 or use our online form to request a legal consultation. We offer free no-obligation consultations. Matt Lalande has been assisting disability insurance claimants during all stages of a claim for disability insurance benefits since 2003. We would be please to talk to you about your case and situation and provide you with your legal options.

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