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Rehab clauses in LTD contracts


Rehab clauses in LTD contracts

In the Rehab clauses cases which come to plaintiff lawyers where facts related to rehabilitation are pertinent, often the obligation to participate in rehabilitation has been used by the insurer to set the plaintiff up for failure and to terminate benefits.

One of the reasons clients are ready and willing to take 40 cents on the dollar in settling a claim compared to the money they would receive if they were put back on claim to age 65 or whatever age the policy stipulates for termination of LTD benefits is that they want the insurance company out of their lives. One tactic that insurance companies have always used in these cases is the monthly or more frequent contacting of the client to provide access to updated medical information and or to insist that the client actively seek medical treatment (even in cases such as fibromyalgia where ongoing and regular consultations with a rheumatologist are not part of what rheumatologists do) and the repeated completion of forms such as “lifestyle surveys”. Clients end up feeling harassed, exhausted and resentful.

The Rehabilitation Clause

In crafting rehab clauses for group insurance policies insurers typically strive to have the best of both worlds: they don’t necessarily want to be obligated to pay for or participate in rehabilitation assistance but if they do decide in their absolute discretion to require the client to participate in such a program then the client has no choice but to do so.

Generally, freedom of contract prevails and furthermore every group policy is different. Even policies from the same insurer can and will have different wording. Rehab clauses can take various forms such as the following fairly broad clauses from a Great West Life policy:

“Benefit Provisions – LTD

Vocational rehabilitation involves a work related activity or training strategy that:

1. is designed to facilitate a disabled person’s return to his or her job or other gainful employment; and

2. is recommended or approved by Great-West Life.

In considering whether to recommend or approve a rehabilitation proposal, Great-West Life will assess such factors as the expected duration of disability, and the level of activity required to facilitate the earliest possible return to work.

The goal of a rehabilitation plan must be:

1. to return the person to work in the same job;
2. to return the person to work in a modified job with the same employer; or
3. to return the person to work in a different job that capitalizes on transferable skills.

If a person does not participate or cooperate in a rehabilitation plan that has been recommended or approved by Great-West Life, he will no longer be entitled to income benefits.

The duration of the rehabilitation plan must be approved by Great-West Life. Once approved, a person’s benefit period is guaranteed for that duration as long as he continues to participate and co-operate in the plan….

No benefits will be paid for:

any period in which the person does not participate or cooperate in a reasonable and customary treatment program….

any period after the person fails to participate or cooperate in a rehabilitation plan that has been recommended or approved by Great-West Life….

any period after the person fails to participate or cooperate in a medical coordination program that has been recommended or approved by Great-West Life….

any period after the person fails to participate or cooperate in a medical or vocational assessment required by Great-West Life….

The following clause which is from a Manulife policy and which appears under the policy subheading Rehabilitation Assistance seems to confine such assistance to a structured Vocational Plan. Although there is some convenient ambiguity (for the insurer) in the following provisions as to whether rehabilitation assistance is something separate and in addition to a vocational plan, the terms are not defined anywhere in the policy and it seems that rehabilitation assistance will focus on the vocational aspect:

“Rehabilitation Assistance
Once Manulife Financial determines that an Employee is Totally Disabled, where appropriate, the Employee will be offered rehabilitation to assist him in returning to gainful employment, either to his pre-disability occupation or to another occupation.

In partnership with the Employer and the Employee, Manulife Financial will provide the Employee with a structured Vocational Plan that will prepare the Employee for a return to work:
a) with the Employer;
b) with an alternate employer; or
c) in a self-employed capacity.

In considering whether Rehabilitation Assistance is appropriate for an Employee, Manulife Financial will take into account:

a) the nature, extent and expected duration of the Employee’s Disability;
b) the Employee’s level of education, training or experience; and
c) the nature, scope, objectives and cost of the Vocational Plan.

Manulife Financial may require an examination of the Employee by an independent expert to assist in determining the appropriateness and structure of the Vocational Plan. An Employee will continue to be entitled to Disability Benefits while participating in the Vocational Plan. …

If an employee ceases to participate in a Vocational Plan because of a change in his medical status, Manulife Financial will require medical evidence documenting how the Employee’s medical condition is deteriorated such that the Employee’s inability to continue with the Vocational Plan is due to an increase in restrictions or lack of ability.

If the employee is not available or does not co-operate or participate in the Vocational Plan, the Employee will no longer be entitled to Disability Benefits.”

A little bit broader than the above is the following clause from a Sun Life policy. You will note that this clause moves beyond the vocational aspect to include assessment and counselling:


Rehabilitation is not an entitlement under this provision. If a member qualifies for benefits under this provision, we may consider a rehabilitation program, limited to one or more of:

1. assessment;
2. counselling;
3. vocational retraining or an education program,
4. trial work, part-time work or modified work.

A rehabilitation program must be approved by us and by a physician who has examined the member. The decision to approve a rehabilitation program is based on the duration and nature of rehabilitation required for the earliest possible return to remunerative employment. Expenses related to the approved rehabilitation program must be given prior approval by us.

A member participating in a rehabilitation program approved by us continues to be considered totally disabled.

Aside from the approach of the big three insurers there is the yet more comprehensive concept of rehabilitation found in the policies of two Quebec-based insurers. The following rehabilitation clause from a Desjardin policy and which appears under the heading “Disability Management” may include treatment:

“The insurer may at any time require a totally Disabled participant to participate in a disability management program or to take up rehabilitative employment that is considered appropriate by the insurer.

The insurer will actively co-ordinate all disability management program services listed below and will also facilitate and ensure case follow-up:

1) co-ordination of access to health care services;
2) support program for returning to work;
3) negotiations for a gradual return to work;
4) rehabilitation program, which may include evaluation, treatment, training, placement and job search services….

A Participant who refuses to take part in a disability management program, does not participate in such program in good faith or does not take up rehabilitative employment considered appropriate by the Insurer will no longer be eligible for monthly benefits payable under this benefit.”

Similarly the rehab clause in an SSQ Financial Group Policy permits the insurer to supervise his medical or psychological treatment along with assessment counselling, vocational re-training and etc.,:

“If considered justified by SSQ, you will be required to participate in an SSQ-supervised rehabilitation program designed to favour your return to work.

If SSQ deems it necessary and justified, a rehabilitation program may be modified or interrupted.

SSQ will review your case file to determine what kind of rehabilitation program, if any, would be best for you. If your case file indicates rehabilitation would be beneficial, SSQ will provide the necessary resources and support to help you recover your health and functional autonomy to a level enabling you to return to work.

The rehabilitation program may involve, but is not necessarily limited to, one or more of the following services or measures:

? assessment;
? counselling;
? medical or psychological treatment;
? vocational retraining or education program;
? trial work, part time or modified work….

Failure to participate in the rehabilitation program or vocational assessment will result in suspension or termination of benefit payments.”

Interestingly, the rehabilitation clause in the Great-West Life Policy permits the insurer to undertake an assessment for this purpose and Great-West Life has been known to contract out the conduct of the assessment to Odyssey Health Services. The client is then required to sign a consent to the assessment which involves inter-disciplinary assessment under the supervision of an internist, a psychiatrist, a psychologist, and other professional staff as may be required. A copy of this consent is appended to this paper (Appendix A). In one of my cases ongoing the plaintiff has alleged that her involvement with Odyssey was nightmarish and included demands for physical activity on a repetitive basis which were beyond her capabilities given her disability and which also included verbal harassment and abuse. Needless to say her claims have been vigorously denied and are, as they say in the media, yet to be proven in a court of law.

The Philosophy Behind Rehabilitation Clauses

Obviously insurers need access to medical information in order to determine whether a person meets their definition of disability on an ongoing basis. The premise of rehabilitation clauses is that the client cannot safely be relied upon to seek his or her speedy recovery from sickness to health. The insurer presumes that there is a danger the client will be content never to return to work and instead collect monthly disability payments. Therefore, rehabilitation clauses are a safeguard for the insurer to prod clients back into the workforce.

The Danger and Opportunity Inherent in Rehab Clauses

Insurers fall astray in the eyes of the law when their management, co-ordination and oversight of the client’s rehabilitation becomes a head long rush to get the client off claim in order to save the insurance company money. Plaintiff’s counsel is then provided with the opportunity of ensuring that the decision to terminate benefits is as costly as possible for the insurer, in order that the insurer may be deterred from such conduct in the future.

The Supreme Court of Canada

Fidler v. Sun Life Assurance Co of Canada, 2006 SCC 30, is a landmark case which originated in British Columbia and is famous for placing on a firm foundation the entitlement of plaintiffs in LTD and other cases to mental distress damages on the basis that insurance policies are intended to provide peace of mind and that the damages flowing from breaches of these contracts are reasonably foreseeable by the parties based on the principles in Hadley v. Baxendale, without the necessity of having to establish independent actionable wrongs.

What is germane about Fidler for our consideration here are the facts which led to Sun Life’s downfall. Ms. Fidler received LTD benefits for over six years, well into the “any occupation” period before Sun Life terminated her benefits. Sun Life terminated her benefits on the basis of non-medical evidence which consisted of video surveillance and a lifestyle questionnaire which it had Ms. Fidler complete.

Aside from all of the medical evidence of the treating doctors supporting the existence of Ms. Fidler’s total disability from chronic fatigue syndrome and fibromyalgia, an independent examination was conducted by Sun Life which suggested that Ms. Fidler was increasingly able to reconsider returning to work on a graduated basis but stipulated that prior to this being successful, she should embark upon a graduated training program to improve her level of physical fitness. In other words: rehabilitation.

As Chief Justice McLachlin stated beginning at paragraph 16:

“Sun Life did not pursue Dr. Wade’s suggestion that Ms. Fidler ‘embark upon a graduated training program’. Sun Life’s internal medical consultant, who did not see or communicate with Ms. Fidler, did not share Dr. Wade’s hesitation. Based on a review of the video surveillance and Dr. Wade’s assessment, on November 13, 1998, the medical consultant reached a conclusion notwithstanding the opinions of both Dr. Wade and Dr. Wilkinson:

All in all there is no medical and non-medical evidence to support that this lady cannot perform at a light physical, clerical, or sedentary job on a regular basis since, at least, Sept. 96 [Emphasis added.]

17. This contradicted the medical evidence Sun Life had in its possession to the effect that Ms. Fidler was not yet capable of doing any work. Nonetheless, in a letter dated December 14, 1998 to Ms. Fidler, Sun Life confirmed its decision to terminate benefits.”

So Sun Life requested and obtained an independent medical exam and then Sun Life’s internal medical consultant ignored the IME’s recommendations and came to a contradictory conclusion in order to terminate benefits. The Supreme Court held that this conduct rightly exposed Sun Life to damages for mental distress given the stress and anxiety the plaintiff endured for the five years she was without benefits as a result.

I finished a case recently in which Manulife’s internal medical consultants similarly concluded that the client was no longer disabled even though all of the treating physicians including specialists were of the opinion that her disability was ongoing. Manulife got the family doctor to agree that an “activation program” would be good for the client (which any general practitioner would usually agree with). However, Manulife then imposed a deadline and deemed the client ready to work without seeking prior medical approval from the family doctor or any other treating doctor. The evidence in that case was that the client’s anxiety symptoms were aggravated by the activation program and that the activation program caused an increase in her medications.

Accordingly, where the insurer initiates a rehabilitation program which is contra-indicated by the medical evidence, the insurer is vulnerable. And as Fidler amply demonstrates, where the insurer fails to initiate a rehabilitation program when one is recommended by its own medical examiner, the insurer will also be vulnerable.

Violation of a Rehabilitation Agreement can Result in Punitive Damages

The trial decision in Fidler is very ably written and was upheld by the Supreme Court (it was only the British Columbia Court of Appeal’s decision to penalize Sun Life with $100,000.00 in punitive damages for bad faith which was overturned by the Supreme Court, 2002 BCSC 1336). In explaining why he declined to award punitive damages the trial judge, Justice Ralph, distinguished in paragraph 39 of his decision Adams v. Confederation Life Insurance Co., a decision of the Alberta Court of Queen’s Bench, 1994 CanLII 9244.

Ralph J. noted that in Adams the denial of coverage was found to violate a rehabilitation agreement which had been worked out between the parties. For this reason, the court in Adams had awarded punitive damages albeit in the modest sum of $7,500.00.

The rehab clause in the group policy in Adams provided as follows:

“A totally disabled employee who is involved in rehabilitative employment or in a rehabilitation programme where such employment or programme is considered appropriate for rehabilitation purposes by CONFED, will not have his monthly benefits terminated ….”

Based on an examining doctor’s report and recommendations the parties negotiated an agreement under the rehabilitation provisions of the policy which among other things permitted the insurer to request an IME.

Confederation Life then fell into the same pattern of behaviour which got Sun Life into trouble in Fidler. As Justice Mason stated at paragraph 16 of the Adams decision:

“The Defendant did not request an independent medical examination in July 1992 in accordance with the terms of the rehabilitation agreement. Instead, it chose to pursue a course of covert, surveillance of the Plaintiff. Based upon the results of this surveillance the Defendant, without any inquiry of the Plaintiff and without any further medical inquiry, wrote to the Plaintiff on August 25, 1992, terminating her benefits.”

In the typical LTD policy the insured person always bears the onus of proving that he or she comes within the definition of total disability which explains why benefits are always payable in arrears at the end of each month. However, Justice Mason found that by entering into a rehabilitation agreement with the plaintiff Confederation Life had reversed the onus. He states the following beginning at paragraph 40:

“On analysis of the policy provisions and the rehabilitation agreement, I am satisfied that the Plaintiff insured established a prima facie case of total disability under the “any occupation” portion of the policy definition. The Defendant, by entering into the rehabilitation agreement, confirmed that status. In doing so, I find the Defendant accepted a continuing state of total disability under the policy provisions governing rehabilitation as amended by the rehabilitation agreement. By so doing, the Defendant limited its right to require proof of the continuation of the total disability of the Plaintiff or to prove the Plaintiff breached the rehabilitation agreement.

Therefore, I find there is an onus upon the Defendant in these circumstances to establish that the Plaintiff is in breach of the rehabilitation agreement before it can justify termination of the benefits.”

Justice Mason then explained the reasons for his finding that Confederation Life had breached its duty of good faith to the plaintiff which included the decision to embark on surveillance without reason or cause as well as entering into a rehabilitation agreement with the plaintiff and then violating it:

“[69] Did the actions of the insurer in this case amount to a breach of its duty of good faith under the principle of uberrima fides? My answer is ‘Yes’. The decision to embark on covert surveillance without reason or cause is obvious on the facts. By this, I do not mean to be taken as saying that surveillance is an improper investigative technique for insurers to prove an unmeritorious claim. But in this case, and in these circumstances, the Defendant had accepted the claim and had committed to a course of dealing under the policy which required it to deal fairly with the Plaintiff. It did not. Medical certificates were provided as required under the rehabilitation agreement. The Defendant had requested and received additional medical information from the attending physician. It did not exercise its right to an independent medical examination in July of 1992 as provided by this agreement. No inquiry or request was made of the Plaintiff to provide any certification of hours worked. It simply launched an unwarranted and unmerited investigation without reason by its own admission. It acted solely on the basis of two inadequate investigative reports. That is illustrated by the medical assessment of her condition, her limitations and the medical recommendations that the tasks at her bookstore were appropriate rehabilitative work. Recognizing the effects and physical and emotional limitations of her condition, hours in attendance in the bookstore do not automatically equate to hours worked.”

Rehabilitation as Mitigation

In the recent case of Bain v. Great West Life Assurance Co., 2012 BCSC 1335, Justice Burnyeat found the plaintiff to be un-credible and stated at paragraph 82 that there were two aspects to mitigation in the case before him, namely, the plaintiff’s obligation to seek reasonable and customary treatment pursuant to the policy; and the plaintiff’s obligation to look for employment, which he stated arises at common law. While Great West Life had offered the plaintiff vocational assistance the court found that he was uncooperative (see paragraph 86 and 87).

Whether a party has been reasonable in refusing to accept medical treatment is a question of fact: Janiak v. Ippolito, [1985] 1 S.C.R. 146 at 7 and Engel v. Cam-Ppelle Holdings Ltd., [1993] 1 S.C.R. 306 at 316, as cited in Byron v. Larson, 2004 Carswell Alta 1653 at 16.

When the Onus is on the Insurer

Consistent with the case law which establishes that absent any agreement between the parties to the contrary the onus is on the client to demonstrate ongoing total disability, rehabilitation clauses typically require the disabled client to participate in rehabilitation programs including courses of treatment failing which disability benefits will no longer be payable. Accordingly, where an insurer alleges non-compliance with these policy requirements the onus is on the plaintiff on a balance of probabilities to establish that she or he is totally disabled as defined by the policy. Once the plaintiff makes out a case of prima facie disability the burden shifts to the insurer to prove non-compliance. Authority for this statement is found at paragraph 70 of Materi v. Confederation Life Assurance Co., 1999 CarswellAlta 405. In that case it was alleged that the plaintiff had failed to follow the course of treatment recommended by her physician and was not following a course of treatment recommended by a registered specialist. The allegation failed when the only doctor giving the plaintiff regular care could not think of any instance where the plaintiff refused to attend a referral which he had arranged.

If the Best Medical Evidence Recommends Rehabilitation Prior to Re-entry into the Workforce of a Disabled Person Then the Insurer Can be Obligated to Provide Rehabilitation

It will be recalled that in Fidler v. Sun Life the insurer was found to have acted improperly when it failed to pursue the independent medical examiner’s suggestion of a graduated training program. While neither the Supreme Court’s nor the trial judge’s reasons set forth the terms of the rehabilitation clause in the group policy in question, a recent Ontario case provides authority for the proposition that even where the terms of the rehabilitation clause are stated to be at the discretion of the insurer, the insurer will be compelled by a court to pay the cost of rehabilitation assistance where it is warranted by the medical evidence.

In Garriock v. Manufacturers Life Insurance Co., 2009 CarswellOnt 3124, Justice Smith was faced with a rehabilitation clause in a policy containing even stronger wording than the Manulife rehabilitation clause set out near the beginning of this paper. The rehabilitation clause in Garriock stated that, “where appropriate and at Manulife’s financial discretion, the Employee may be offered rehabilitation to assist him in returning to gainful employment…”. I say stronger because of the words, “at Manulife’s financial discretion”.

The issue in Garriock, aside from whether Manulife was wrong to terminate the long term disability benefits, was whether Manulife should be obligated to fund an active rehabilitation program for the applicant’s benefit.

Justice Smith referred to the evidence of Manulife’s own expert doctor who recommended an exercise regime prior to the applicant returning to work. The court concluded that a necessary prerequisite to a successful return to work for the Applicant was a work hardening programme.

Justice Smith then stated as follows:

“45 The group policy specifies that an “Employee will continue to be entitled to Disability benefits while participating in the Vocational Plan.”

46 The words of an insurance contract should be construed broadly; with exclusion clauses interpreted narrowly all the while applying the contra proferentum rule.

47 A reasonable interpretation of the policy in question, employing the above principles, is that a work hardening programme is included in the coverage for rehabilitation and vocational retraining efforts.”

In the result, part of the court’s order was that Manulife must fund the work hardening programme in the amount of $3,950.00. This is a great precedent but one has to question whether it could apply in the face of a policy provision like the Sun Life provision quoted near the outset of this paper and which states: “Rehabilitation is not an entitlement under this provision.” On the other hand the SSQ policy provision quoted near the outset of this paper would likely see SSQ obligated to pay for work hardening because it obligates SSQ to base its decision on a review of the client’s file and a court would have little difficulty in holding that any such review and the conclusions drawn from the review must be reasonable and fair.

The Insurer Cannot Always Insist That the Client be Under Regular Care

I will conclude with a very handy Court of Appeal for Ontario decision which Gordon Good recently referred Steven Polack to on the chatline. It is Kirkness Estate v. Imperial Life [1993] O.J. No. 160, and was successfully defended on appeal by the now retired James Neeb of Kitchener. The policy required the disabled person to be under the regular care and personal attendance of a psychiatrist. The insurer argued the client was not. The facts were that his condition was untreatable and that he was totally disabled. Therefore “regular care” would be futile. In those circumstances the Court of Appeal held that it would be unjust to insist that the regular care clause be complied with: “Where permanent and irremediable disability exists, regular medical care and attendance is futile and ineffective. To insist on it defeats the main purpose of the policy, which is to provide indemnity in case of permanent disability…” (paragraph 30).

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