Clawbacks Series Part 1 - Rethinking Long Term Disability Clawbacks
This article, the first 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.
In January 2020, I was contacted by some colleagues in the U.S. trying to understand mental health claims in Canada. I learned that while most long term disability (LTD) policies in the U.S. will pay benefits for mental health/substance use disorder claims, those claims are almost always limited to 24 months, while almost every other type of (physical) disability will be covered until retirement age. I educated our colleagues that Canada did away with this archaic thinking in the late 80s and early 90s by decisions of our Supreme Court. Mental Health parity in disability insurance is still a hot topic in the U.S. While both federal and state laws in the U.S. mandate parity in health insurance, there are no laws that mandate equal benefits for physical and mental health conditions in disability insurance. Unlike Canada, where human rights laws have imposed insurance parity for mental health conditions, court rulings in the U.S. determined that the Americans with Disabilities Act does not regulate the content of insurance policies.
In the context of group long term disability claims in Canada in the last 20 to 30 years we have seen an increase in clawback language in these policies. At the same time, insurers have decreased the percentage of coverage from 70% of pre-disability earning to less than 50% of pre disability earnings. The continuation of this trend allows insurers to have exposure of 25% or less of pre disability earnings on a valid claim. As I had explained to the Senate Social Affairs Committee early this year and as I wrote afterwards to the Canada Life and Health Insurance Association (CLHIA), long term disability benefits are on a path of getting eroded in this country with the ever-increasing emphasis on clawbacks in programs such as Canada Disability Benefit, Canada Pension Plan Disability, Canada Pension Plan Dependent Disability, Old Age Security, government sponsored plans and programs etc. When the federal government thru the clawback provisions becomes the primary payor, the concern here is that insurers end up ignoring assessment of risk and focusing their efforts on having claimants collect monies from federal sources. Inevitably, policyholders’ will come to conclude that there is really no reason to purchase group policies when government programs are effectively paying most of the long term disability benefits. It is a self-destruction scenario for the industry and a consumer protection issue for claimants. It is time for us in Canada to rethink our archaic approach to clawbacks in a long term disability scenario.
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