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By: Steven Rastin
Lawyers that focus on motor vehicle litigation in Ontario will be accustomed to our current no fault system where the accident victim is subjected to an endless stream of medical assessments from the treating doctors, the tort defendant, the accident benefits insurer, and their own lawyer’s medical legal assessments. Any significant case will generate dozens of medical reports. On top of medicals, the parties will also obtain competing reports in the area of economic loss, future care needs, handyman and homemaking residual capacities, attendant care needs, and others.
The LTD process, however, is often completely different. LTD insurers usually take the position that it is the responsibility of the claimant to prove entitlement both at the initial application stage and during the change of definition stage and the “any occupation” test. LTD insurers will typically write to the treating physicians for their clinical notes & records and sometimes even brief medical reports, but they rarely schedule Independent Medical Examinations when determining entitlement. Initial determinations are therefore usually based solely on the insurer’s evaluation of the medical documentation generated form the treating physicians.
The process realted to the termination of benefits is often similar. Insurers will send consultants to meet with the claimant to assess level of function and transferable skills, but our experience is that they seldom arrange for their own medical assessments. It is common to have consultants who never meet the claimant conduct paper review Transferable Skills Assessments. It is also common to have in-house medical consultants (often general practitioners) provide opinions concerning level of disability and transferable skills. Our experience is that where these opinions conflict with the opinions of the treating doctors, the in-house medical consultants’ opinions will often be preferred. We have also come across numerous cases where benefits were terminated based on surveillance that was never even vetted through any medical consultant.
Generally-speaking the volume of medical reports generated by a disability case is significantly less than a standard motor vehicle action. Since the policy usually provides for a fixed benefit and no rehabilitation obligations, it is also relatively uncommon for the insurer to generate economic loss reports, future care reports, or handyman/homemaking needs reports. This is not to say, however, that there is not an important role for the expert to play in LTD litigation.
Litigators seeking to provide the best possible representation for clients battling for wrongfully denied long term disability benefits may want to consider the use of various types of experts including underwriting experts, medical-legal experts, vocational experts, accountants, psychologists, and the often-overlooked treating doctors and therapy providers.
Long term disability (and life) insurers do not resist claims on the basis of liability, but they sometimes challenge entitlement due to alleged pre-existing conditions and/or alleged misrepresentations on the application for insurance. The argument advanced is that the claimant failed to make full and accurate disclosure to the insurer, and had the claimant done so, the insurer would not have issued the policy of insurance (either at all or for the premium provided).
Consider the leading Court of Appeal decision in Gregory v. Jolley, Aetna Life Insurance et al.1 Gregory initially won a claim for disability benefits even though the judge found he had misrepresented material facts relating to his medical condition and income. The trial judge found no evidence of fraud, and therefore applied the incontestability clause which says an insurer cannot void a policy for misrepresentation after two years from the application for insurance in the absence of fraud. The Ontario Court of Appeal overturned the decision finding that Gregory had misled the insurer with respect to his medical conditions and had grossly overstated his income. The court found that the misrepresentations were sufficiently reckless as to be considered fraudulent in the civil sense. The result of the insured’s failure to disclose material facts or act in good faith, therefore, made the policy voidable and Aetna was not obliged to pay any benefits even though Gregory was profoundly disabled.
This case highlights the need to retain the services of an accounting expert in cases involving self-employed individuals to protect your clients from allegations of misrepresentation. Accountants might also be necessary to assist in maximizing the claim generally, and in dealing with tricky issues such as residual earning capacity and the proper tax treatment of income.
The Gregory decision also highlights the need to consider the use of another type of expert in misrepresentation situations: the underwriting expert. Material misrepresentation is routinely pleaded by insurers. The increase in disputes involving misrepresentation and non-disclosure of pre-existing conditions has arisen due to the increasingly prevalent practice in the disability and life insurance industry of engaging is what is called “post-claims underwriting”.
Post claims underwriting is a process whereby insurers simply accept the information provided by their insured’s without verifying the accuracy of that information through review of doctor’s clinical notes and records, medical examinations, or independents investigation. Based on the self-reported information from the insured, the insurance company establishes a premium and provides the policy of insurance. Under this system, the underwriting process is not engaged until after the insured makes a disability claim. At that time, the company then demands production of historic medical files and clinical notes and records. It is now that the company compares the medical records to the application for insurance, and in some cases insurance is denied on the basis that the claimant has either failed to disclose, or has misrepresented, some key piece of information.
Plaintiff’s lawyers may want to respond by retaining an underwriting expert. Underwriting experts usually have extensive experience within the insurance industry. Their primary function is to provide the plaintiff with an objective second opinion of how the insurer had underwritten/adjusted the claim. Underwriting experts offer an insider’s ability to separate fact from fiction – especially regarding the letter of denial.
A key consideration when facing the pre-existing and exclusion is to consider whether the problem being raised by the insurer is material in any event; in other words, even if the insurer had known about this problem, would that have caused it to deny insurance or to require a preioum for insuring the prospective client. Hindsight is “20/20”, and clearly an insurer being asked to cover someone who has contracted a life threatening illness or condition is going to regret providing the coverage and look for an out. However, is failing to disclose a skin rash valid grounds for refusing to pay a death benefit for someone who died of Creutzfeld-Jakob’s (mad cow) disease? Is failure to disclose chronic irritable bowel syndrome grounds for failing to pay disability benefits for someone permanently unable to work due to a massive heart attack?
This answer will depend on several factors including the nature of the problems, the type of questionnaire used to collect the information, the industry standard used to evaluate these thypes of problems, and a whole host of other considerations. This is where an underwriting expert can help. He or she can examine the plaintiff’s documents and advise as to whether the “non-disclosures” are significant when looking at important underwriting benchmarks such as the materiality test, rating class, and mortality/morbidity acceptance rating allowed at standard rates by insurers. He or she can provide assistance in determining what key documentation is missing, what questions to ask, and whether the insurer is following accepted codes of ethics and standard industry practices, and whether there is a possible bad faith argument flowing from the denial. Of course the underwriting expert can also advise whether the denial is appropriate in the circumstances, which may save you and your client from expending significant resources on a questionable case.
Another area where plaintiffs would be well-advised to seek expert support in LTD claims lies in proving the entitlement issue. Most policies stipulate that claimants are entitled to benefits fro two years if they are unable to do their regular occupation, and beyond that, they are entitled to benefits if they are unable to do any occupation for which they are reasonably suited by education, training or experience. One of the best ways to prove entitlement is through the use of medical-legal and vocational experts. Remember that in many cases the insurer will have terminated benefits without having first obtained an independent medical examination, and this may place the insurer in a decided disadvantage in the litigation. There are some important differences to remember in retaining experts in the LTD (as opposed to motor vehicle) litigation.
It is crucial to make your medical experts aware of the relevant test(s) for entitlement. An expert report confirming that the plaintiff suffers from a “serious and permanent” condition is of little value because it is answering the wrong question. The key questions is whether the plaintiff can return to his or her own job in the initial two years, and then after that, can he or she return to any occupation? A good practical suggestion to make the medical expert’s opinion more relevant is to provide a copy of your client’s job description to the expert.
Another practical suggestion is to produce the entire insurer’s medical file to your expert for use as part of the analysis. Remember to specifically ask for the medical subfile when you make your request for documentation. LTD often have in-house medical advisors who may, or may not, have any particular expertise in your client’s area of disability. It is not uncommon to see an internal report from a general practitioner who has never seen the plaintiff, providing an internal memo overriding a treatment specialist’s conclusions. Our practice is to attempt to obtain the C.V.’s of all doctors who have provided opinions to the insurer, together with all their notes and analysis, and to provide this material to our doctors for comment.
One key consideration to keep in mind when asking an expert doctor for a report is the concept of the qualifying period. In situations where the client has either improved or worsened over time, a medical legal assessment may not help you. In order for a client o qualify for benefits, it is necessary to prove that he or she was disabled during what is commonly referred to in policies as “the qualifying period.” It is not enough to prove that your client is disabled as of the date of trial. You must also prove that he or she was disabled as of the end of the qualifying period. Consider for example, Lyons v. Canada Life Assurance Company2 where the jury awarded the plaintiff six months worth of disability benefits covering a six month period in 1995 even though the claim was not commenced until 1998. The Court of Appeal overturned the award, primarily on the basis that an award for benefits for this time period was barred by the limitation period in the policy.3 Plaintiff’s counsel attempted to defend the decision using the discoverability principle, but that argument was doomed to failure because the trial judge did not reference discoverability in his charge to the jury.
A better example of the “qualifying period” pitfall at work is Martin v. Manufacturer’s Life Insurance Company.4 Martin injured herself in a skiing accident in April 1998. She did not submit a claim until October 2001, and it was denied in January 2002 due to “late filing.” In June 2003, she commenced an action. Justice Bouck conducted a detailed analysis of the policy and concluded that Martin was obliged to file a claim within a specified period of time after the injury. Further, to succeed she needed to prove that she was totally disabled from working within the qualifying period. In Martin’s case, the evidence showed that she was not disabled during the qualifying period, but only became disabled later when she ceased working in order to undergo surgical treatment. However this later period of disability was found irrelevant, and because there was insufficient proof that Martin was disabled during the qualifying period, the claim was dismissed.
The risk of being found to have become disabled after the end of a qualifying period is significant especially in cases where individuals are suffering from degenerative problems, have been terminated from their employment, and do not seek legal advice for an extended period of time after benefits are denied.
It is crucial, therefore, to have your medical expert provide an opinion, not only on the state of the plaintiff of the day of examination, but also as to whether the plaintiff’s condition would have been the same, better or worse within the qualifying period.
It is also important to remember that the test for entitlement in LTD actions is functional rather than medical. In practical terms, it does not matter so much what is wrong with the plaintiff; rather, the focus needs to be whether that problem prevents the plaintiff from working. For this reason, vocational assessments are critical. It is common practice for LTD insurers to obtain Transferable Skills Analysis’ (TSA’s) before making the decision to terminate benefits at the two year “any occupation” mark. The experts authoring those reports may never have met with the claimant. Ensure that all of their raw data is contained in the insurer’s Affidavit of Documents. It is important to review the assumptions made by the vocational expert critically. Job skills, educational levels and abilities are often input into a computer program to generate a list of possible occupations. Are the assumptions make by the expert reasonable and accurate? We have seen cases where clients with grade 8 education were input as “equivalent to high school”. Why? Like the medical assessments, the TSA data should be forwarded to a vocation expert. Either an occupational therapist or a vocational expert should be retained to do an analysis of what realistic transferable skills that plaintiff has. In some cases, we have asked occupational therapist to conduct rturn-to-work trials to test the position being asserted by the insurer.
Another area in LTD litigation where counsel may want to consider retaining an expert is in the area of proving claims for aggravated damages and mental distress for breach of contract. Much has been made about the Supreme Court of Canada’s discussion of punitive damages in the relatively recent decision in Fidler v. Sun Life Assurance Company of Canada5. However, the court actually spends the majority of its time dealing with aggravated damages and damages for mental distress for breach of contract. In its attempt to provide some clarity to this area of the law, the Sumpreme Court appears to have streamlined the process of obtaining damages for intangible losses resulting from the breach of peace of mind contracts.
The court affirms the basic principle that damages for breach of contract should be that the plaintiff be placed in the same position, as far as money can, as if the contract had been performed.6 Relying on the seminal case of Hadley v. Baxendale,7 the court reaffirms that contract damages should be “such as may fairly and reasonable be considered either arising naturally…form such breach of contract itself, or such as may reasonable be supposed to have been in the contemplation of both parties,” but observes that,
“Until now, damages for mental distress have not been welcome in the family of remedies spawned by this principle. The issue in this appeal is whether that remedial ostracization continues to be warrented.”8
The chief Justice notes that Hadley makes no distinction between the types of losses that are recoverable for breach of contract. After a lengthy analysis, she suggests that the courts should no loner follow the policy-based practice which has led them to “shy away from awarding damages for mental suffering caused by the contractual breach.”9 The court suggested that judges should move past the “peace of mind” exception and view mental distress damages as reasonable expectation damages. This evolution effectively removes the requirement that claimants prove a separate actionable wrong or risk having the damages not awarded at all.10
Expectation damages are a much more ordinary remedy than aggravated damages, and much easier to obtain. Expert evidence can provide valuable assistance to the court in proving mental distress damages. In our view, it is appropriate to retain a psychologist and or psychiatrist to provide the proper basis to support claims of this nature. Note that mental distress alone will not always give rise to damages. According to the court in Fidler, damages for mental distress should flow as long as they were in the reasonable contemplation of the parties, but,
“It does not follow, however, that all mental distress associated with a breach of contract is compensable. In normal commercial contracts the likelihood of a breach of contract causing mental distress is not ordinarily within the reasonable contemplation of the parties. It is not unusual that a breach of contract will leave the wronged party feeling frustrated or angry. The law does not award damages from such incidental frustration. The matter is otherwise, however, when the parties enter into a contract, an object of which is to secure a specific psychological benefit. In such a case, damages arising from such mental distress should in principle be recoverable where they are established on the evidence and shown to have been within a reasonable contemplation of the parties at the time when the contract was made. The basic principles of contract damages do not cease to operate merely because what is promised is intangible, like mental security.”11
The court goes on to note that in order to advance a case of this nature, any plaintiff will have to prove that:
“a. an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and
b. that the degree of mental suffering cause by the breach was of a degree sufficient to warrant compensation.”
Plaintiffs’ counsel hoping to advance a case for this type of loss would be well advised to lead evidence on both the plaintiff’s reasons for entering into the contract and the impact the breach of the contract has had upon the mental well-being of that individual. In my office, our practice has been to use a psychologist to prove those losses. Similarly, in some circumstances, we have used accountants to quantify our clients’ tanglible losses from wrongful termination of benefits arising from such causes as early cashing-in of RRSPs, being forced to sell their homes and assets for losses, being forced to move, borrowing money, etc.
A final type of expert that plaintiff’s counsel should consider in litigating LTD cases is the treating doctor. We commonly face the objection that the treating doctors knew the patients for too long, and too well, to be objective in providing opinions concerning disability. With respect, such positions ignore the professionalism that anchors our medical profession. In our view, the resistance many insurers encounter from the medical profession stems from the conclusion of doctors that the insurance company has already made its mind up anyway and considers the treating doctors opinion as having little relevance. In fact, in one recent case, before we were involved, the doctor became so frustrated with the insurance company that she wrote,
“I believe that I have written quite plainly that this man is unable to operate motorized vehicles in the pursuit of employment. I therefore see that probably fixing small engines if they were going would be equeally unsafe. I believe that you will keep on looking for your answer with different doctors until you get the answer you want. I suggest that I am not a specialist in the area of cardiology and you should ask his cardiologist these questions.
As for my past experience with [the LTD insurer], a GP’s opinion is not good enough. I feel like you are leading this patient on a wild goose chase. Start off with the person you want the answer from in the first place, which would be the cardiologist.”
The LTD insurer’s conclusion was that the doctor was admitting that she was not qualified to comment on the disability question, however, it remains our view that a judge and jury will have great interest in this very medical doctor who has been providing ongoing medical treatment to the claimant for longer than anyone.
The use of opinions from treating doctors and therpists, especially in the LTD context where the insurer’s experts may very well never have even met the claimant, is a powerful piece of expert evidence that plaintiffs ought to develop fully. Of course, plaintiffs ought to listen carefully if those same doctors an therapists express misgivings over whether the plaintiff is disabled enough to qualify for the benefit.
In our view, the key consideration in any LTD case is a determination of whether the decision to terminate/never pay benefits was made in good faith and was based on good and sufficient information. Especially in cases where benefits were paid for some period of time, the decision to terminate those benefits without the benefit of ANY treating physician’s opinion that the claimant can work, should be viewed with suspicion. Paper reviews conducted by in-house employees or consultants also merit serious scrutiny. Properly used experts are in a position to provide invaluable assistance to plaintiffs in dealing with arguments advanced by insurers, in building the case for damages, and in ensuring that a fully developed picture of the plaintiff’s case is put before the judge and jury.
1 (2001), 54 O.R. (3d) 481, 201 D.L.R. (4th) 729, 147 O.A.C. 336 (Ont. C.A.) [Gregory]
2 (2002), 22 C.C.E.L. (3d) 217, (2002) 166 O.A.C. 299, CanLII 18089
3 The court also overturned the award of $235,000 aggravated and $25,000 punitive damages.
4 (August 2004, Bouck, J., 2005BCSC 528 (CANLII))
5  2 S.C.R. 3 [Fidler]. The discussion concerning punitive damages, although interesting is beyond the scope of this paper.
6 Ibid., at para 27
7 (1854), 9 Ex. 341, 156 E.R. 145 at 151 [Hadley]
8 Ibid., at para 28
9 Ibid., at para 31
10 Fidler, supra, note 5, para 32-37; especially see Addis v. Gramophone Co.,  A.C. 488 (H.L.)
11 Fidler, supra, note 5 para 45