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Sickness Insurance

Employers frequently arrange for their employees to become a member of a group sickness insurance plan.  This means that by the payment of a premium which may be paid either by the employer or the employee or both, in the event of sickness when an employee would not be otherwise earning a salary or wage, he would receive an income from the Insurance Company, either on a temporary basis or, in cases where the illness is of a permanent nature, on a long-term or even permanent basis until a certain age is reached or some other event happens.

This type of insurance is intended to give security to an employee against loss of income through sickness.  Whilst insurance companies make a contractual commitment to pay long-term benefits to employees while sick, there are many cases where insurers attempt to avoid long-term payments and there may be a contest as to whether the employee is unable to work within the meaning of the policy.

When joining a group scheme therefore, it is important that one obtains a copy of the policy or manual which sets out the definition which would entitle one to long-term disability payments in order to ensure that such definition is fair and does not easily give an insurance company an excuse for not making a payment on the basis that a person is not totally disabled from working, within the meaning of the policy.

What determines total disability is a question of definition contained in the policy and should be carefully scrutinized before entering into an arrangement with an insurance company.  A policy which enables an insurance company to avoid payment on the basis that an employee is capable of doing some form of work (and therefore not entitled to payment), even if he is totally unqualified for it, should be avoided.  Obviously, a person has to mitigate his loss and if he is capable of doing some form of work, he should endeavour to do so; however, there must be a balance of what may reasonably be expected and what in some instances some insurance companies expect a person to do, and which is totally unreasonable.

If an insurance company is quick to refuse payment when a person should be entitled to it or, after having commenced payment, discontinues in circumstances when an employee thinks it is unreasonable to do so, it is important to obtain good legal advice immediately so that the circumstances may be investigated while evidence is still fresh and before an employee suffers too much by being out of work for too long without receiving any income, or to ensure that a person does not do anything which would prejudice a claim.

A contract of insurance is one of the utmost good faith and if an insurance company acts in a manner which offends the principle of good faith, it will justify an award of punitive or aggravated damages.  Refusing or delaying payment and thereby causing hardship under certain circumstances may justify an award of such damages.  On the 14th day of December, 2000, the Supreme Court of Canada in the case of Whiten v. Pilot Insurance Company considered such a case where an insurer stopped payments in a fire claim unjustly and thereby causing hardship to the insured.  In that case, an Ontario jury awarded damages of $1,000,000.00, which was reduced to $100,000.00 by the Ontario Court of Appeal and a judgment from the Supreme Court as to what is appropriate is still being awaited breathlessly.

The purpose of this Article therefore is to warn potential policyholders:  When you buy a group insurance policy for loss of income, it is important not only to consider the cost, but also to carefully look at the policy to understand what in fact one is getting for one's money.  Insurance is like any other product.  You get what you pay for.  Cheap may not be enticing when you are looking for the payment of claims.   It is important to understand how the benefits one expects are defined and if such definitions are acceptable.  To argue about them at claim time may be too late.

By Herbert Fielding, Q.C.
June 27, 2001