Disability Insurance Information

Clawbacks Series Part 9 - Insurance Clawbacks & Double Recovery

This article, the ninth in a series about insurance clawbacks, was written by Steven Muller, Vice President Litigation at Share Lawyers. Click here to read the rest of the series.

Historically, insurance clawback practices by disability insurers are based on a narrative that we should be concerned that a disabled claimant will recover from multiple sources a greater percentage of their loss. The talk is double recovery. With the recovery of all this money, a disabled claimant would have no incentive to return to work. But this talk makes no sense in today’s reality.

Insurers in Canada have decreased the percentage of coverage in group long-term disability policies to 50% or less of pre-disability earnings and then deduct dollar-for-dollar monies from public benefit schemes. But it is not double recovery if the disabled only get 50% of their pre-disability earnings. In some contracts, the insurance provider can deduct an amount that it believes the claimant could receive from the public benefit scheme even if no application has been made.

Recently, I represented a client who paid premiums all her working career into the Canada Pension Plan program. She also paid all her group long-term disability benefit premiums. My client had healthy earnings of $100,000 a year as an accountant. To her misfortunate, she could no longer work due to a combination of Parkinson’s disease and a deterioration of her mental health. The disability insurer paid $4166.00 per month.

At the insistence of my client’s long-term disability insurer, she applied for Canada Pension Plan Disability benefits and was approved for $1500.00 per month from this public benefit scheme. The disability insurer adjusted my client’s disability benefit to $2666.00 per month.

But my client is getting a raw deal. She has contributed to the Canada Pension Plan program for years. Why does the insurer receive all the proceeds from Canada Pension Plan Disability? Should there not be a pro rata approach to the deduction of the clawback?

Most group long-term disability policies also have indirect clawbacks where a formula is used so that monies from all sources listed in the group policy cannot exceed 85% to 100% of the disabled claimant’s gross income. So, if we are so worried that the disabled employee will be disincentivized from returning to work, why are we not applying this formula to all clawbacks equally including all public benefits schemes? It is time for us in Canada to rethink our archaic approach to clawbacks in a long-term disability scenario.

Denied your long term disability claim?

Contact lawyers for long term disability at Share Lawyers today and put our experience to work for you. Our 35+ years of experience can help you win your case against Canada Life, Desjardins, Manulife, RBC Insurance, Sun Life, and other insurance companies. We offer free consultations and there are no fees unless you win your case. Watch our web show, Your Disability Lawyers, on YouTube, or listen to the podcast on Google Podcasts.

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