This article, the third 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.
There is a little-known secret about insurance clawbacks in a long term disability claim. Are you ready for it? The type of clawbacks is governed by convention. That is Insurance Acts of the Provinces allow for reduction of benefits but there is nothing in the legislation saying what the clawbacks should be. Over the years insurers have aggressively added to the list of clawbacks in policies. Employers you can decide what if any clawbacks your employees should have in your employee insurance policies. Insurance brokers you can advise plan holders on archaic clawbacks and governments you can protect your money so that beneficiaries of the government funds receive the benefit and not insurance companies.
Life and Health insurers have increasingly added clawback language to their long term disability policies. The result has been that many policies have a laundry list of public benefit schemes that are clawed back by the insurers. Aside from shifting the insurers exposure to the public benefit scheme and ultimately to taxpayers, insurers have treated these public benefit schemes as first payor without any thought as to the nature and characteristics of these programs. While the Canada Life and Health Insurance Association has called the income replacement landscape in Canada as complicated, its members do nothing to consider the purpose of public benefits schemes that they notoriously take advantage of. For the most part all public benefit schemes are treated the same. If they are on the list of clawbacks the insurer gets the benefit. Some programs like Canada Pension Plan disability have characteristics of a group insurance policy but they are not treated as a group policy when they are clawed back.
Other programs are poverty reduction welfare-based programs that have repayment obligations that are often ignored by insurers. We have programs such as the Canada Disability Benefit and AISH that provide a supplement income to impoverished disabled in addition to existing provincial and territorial income supports and other forms of income. They are not replacement income programs. Rather, they are meant to be a poverty reduction measure. Insurers notoriously treat Workers Compensation programs as all the same. Again, some payments from Workers Compensation programs are non-economic loss payments clawed back by insurers because Workers Compensation programs are on the list of clawbacks. It is time for a more thoughtful approach and honest dialogue about insurers’ clawbacks of our public benefit schemes.
To ignore the underlying policy considerations of the public benefit scheme and the interplay gives Life and Health insurers a free ride without regulatory oversight. It is time for these insurers to keep their unfettered hands out of the public scheme cookie jar. We need to rethink our archaic approach to clawbacks in a group long term disability scenario.
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