Employer as the Negligent Administrator

The employer clearly has a responsibility to ensure the proper administration of the disability plan and will face serious damage claims for its failure to do so.

Such a finding was made by the Ontario court in July of 1989 ¹ in which the employer failed to advise the employee that he had insurance coverage, let alone the right of conversion. The plaintiff was successful in the claim.

A similar issue arose a decision of the Queen’s Bench of Alberta in February of 2006. ²The estate of the employee sued the employer, alleging that the details of the deadline dates had not been properly explained. The court found in negligence against the employer and found against the deceased employee to apportion liability equally because of the failure to mitigate or in negligence language, was contributorily negligent.

The court found a duty of care upon the employer to show reasonable care with respect to the administration of the plan which included the duty to provide information to the employee of applicable dates for applying and the consequences of not doing so.

The same analysis was used to determine the alternative claim in contract on the same basis. This claim was based on life insurance conversion. The theory of liability will not be limited to this particular benefit.

The B.C. Supreme Court came to a similar conclusion ³ holding the employer responsible in negligence for its manner of administering the benefits plan.

The company had a group employee disability benefit plan, by which the plaintiff was designated a beneficiary under the life insurance component.

For reasons unknown to the plaintiff, the employer advised the insurance carrier that as of May 8, 1995, that the employee was no longer employed with it as of February 3 1995. This was later found to be actionable negligence which allowed the plaintiff’s claim for the insurance proceeds in the sum of $42,000.

The mistake was apparently due to an administrative error, as the plaintiff had received a Record of Employment due to illness. The court found the employer was negligent.

A similar fact situation arose before the Ontario Superior Court of Justice in June of 2000. ⁴

The employer was aware of the plaintiff’s personal issues which led to her resignation letter referencing her inability to cope, which duplicated earlier conduct which had led to a period of sick leave. There was no contact between the employer and the plaintiff following its receipt of the letter of October 2 and its reply to her two days later.

The employer representative was aware of the plaintiff’s past personal issues when he had met with her for an exit interview on October 19. He observed she was tearful and under stress. There was no reference made by him to the disability plan, even though he had taken the initiative to suggest this to her on a prior occasion when she displayed similar symptoms. The termination checklist noted the supervisor’s responsibility to advise the employee of group life and staff insurance. There was no note that this had been done.

The Court found that the plaintiff was medically disabled when she wrote the letter of October 2. The trial judge referenced the passage from Wallace setting out the vulnerability of employees at the time of termination and held the company to a duty of good faith.

The court also quoted from the Tarailo decision to show that the employer had a duty to provide benefits at the time of termination. In the case at bar, the employer was self-insured. The court concluded that the employer-insurer had an obligation to help the plaintiff to make a claim for disability benefits.

An award was made for lost disability benefits from October 19 1990 to the date of trial in June of 2000.

Such a duty today may, arguably dependent upon the context, no longer be limited to the time of termination, given the Supreme Court decision in Bhasin.

The Ontario Court of Appeal considered the claim made by the estate of the employee against his past employer based on an allegation that the employer owed a duty to its employees to advise them with respect to the group insurance coverages and also to administer the plan in a competent manner in its 2005 decision. ⁵

The group life insurance plan provided for two types of benefits, one being basic life insurance and the second an enhanced benefit plan allowing for benefits equal to double the annual earnings of the insured. Three months after her employment commenced, as she then became eligible for coverage, the employee signed an enrollment card electing only the basic life insurance coverage.

The estate alleged against the employer that it was negligent in administering the group policy with the result that the estate was entitled to only the basic coverage.

At trial, Pierce J. held that the employer did owe such a duty to advise its employees with respect to the group insurance coverage options and to administer the plan in a competent manner. The trial judge accepted that the deceased employee would have elected the enhanced benefits, had she been so advised of her option to do so. No appeal was made by the employer as to its liability in tort. Judgment was given to the estate in the sum of $206,840.

The Supreme Court of Nova Scotia ⁶ considered a claim made by the plaintiff resulting from the employer’s failure to enroll the plaintiff in the LTD plan. In obiter, it was found that the employer had an obligation to ensure the plaintiff was properly enrolled in the LTD plan. ⁷

The question of a policy decision denying an employee a claim in negligence has never been raised in this context as it has been successfully argued in the Ontario and Nova Scotia Court of Appeal cases. ⁸

Common Law Claim

As noted in the common law section below and as summarized above, an employer may also be liable to the full extent of LTD benefits, given a termination without cause and a disability which commenced within the common law notice period. Such a claim is not limited to the notice period, but rather for the full extent of LTD benefits to which the employee would normally be entitled, had working notice been provided.

Negligent Misrepresentation

There may also be a claim for the above tort where the employer has improperly described the disability plan requirements to a potential hire. The issue of this tort, in general terms, is reviewed in more detail here.

The B.C. Court of Appeal in 2017 upheld the trial decision which awarded damages based upon representations made by the employer with respect to the plan of disability benefits. The plaintiff was suffering from a chronic medical issue, cystic fibrosis, when he applied for a new position with the defendant, due to the termination of his prior employment. ⁹ He was advised that the test of qualifying for benefits coverage was the requirement of an initial three month working period without suffering a disability. The actual mandate was to complete a medical questionnaire and pass the underwriting.

The plaintiff's evidence was accepted. Liability was found and the damages were assessed at $83,000. The initial trial award allowed for $10,000 for aggravated damages, which was reversed on appeal.

Questions on a Larger Scale

The issue of a claim in negligence against the employer, as noted in the above post, is controversial. It is reviewed in detail here.