Employer as Agent of the Insurer

An employer administering a group policy may, in certain circumstances, be seen as the agent of the insurer. If so, its conduct will bind the insurer. The authority for this proposition starts with a Nova Scotia Court of Appeal decision. ¹

In this case, the employee, on termination, was told that his insurance would continue as long as he paid the premiums. The employee did just that. In fact, the coverage by the terms of the policy had terminated 31 days after his employment ended. The employee became disabled beyond the 31 day period.

Both the trial judge and the Court of Appeal found the employer to be the agent for the insurer. It was noted in the Court of Appeal that the finding of agency will depend on “all of the facts and the relevant documents including the group insurance certificate where applicable, and the relevant responsibilities thereunder”.

A similar finding was made in the 1980 decision of the Supreme Court of B.C. ²

The employer in this case was given the insurance application forms to be completed by eligible employees. The employer was found to be the agent of the insurer for this purpose, even though the employer had no contractual obligation to the insurer to do as it had undertaken.

The fact that no premium had been paid was not a factor in determining liability in favour of the plaintiff against the insurer.

The court relied upon two American authorities,³ and a Saskatchewan Court of Appeal decision ⁴ which spoke to the rationale of the finding of agency due to the fact that the employee had no knowledge or control over the employer’s conduct in dealing with the policy or the administration of it.

Substantive vs Administrative Duties

A later decision noted the difference between the delegation of administrative functions of the employer, as opposed to substantive ones, which was an important distinction in favour of the finding of an agency relationship.

A similar finding was made in the Ontario Supreme Court decision, ⁵ in which the plaintiff suffered from a serious mental illness. Following a series of events by which the employer concluded that the plaintiff  was not performing, he was terminated. On the same date, the employee submitted his resignation which was accepted. Three years later, he sued claiming an entitlement to disability benefits. The claim by the terms of the policy was due within 12 months and 90 days from the date benefits became payable.

The claim for wrongful dismissal was denied by the trial judge, who yet found in favour of the plaintiff on the disability claim, on the basis that the employer was an agent of the insurer and responsible with the insurer for the claim and further that the employer was aware of the disability. ⁶

This decision was followed in a 2018 Ontario decision. ⁷ On a summary judgment motion to dismiss the action, the court determined that the employer had a duty upon it to assist the plaintiff in his LTD application:

 As his employer, Halton owed a duty to Mr. Ferguson to assist him in applying for LTD benefits: Tarailo v. Allied Chemicals Canada Ltd., 1989 CanLII 4048 (ON SC), [1989] 68 OR (2d) 288 and Herbert v. Manulife Financial, 2002 ABQB 891, 326 A.R. 128, at para. 64. During her cross-examination, Ms. Killeavy acknowledged Halton’s duty to treat employees with disabilities fairly and reasonably. She agreed that part of Halton’s duty is to ensure that employees with disabilities know what they need to do to obtain disability benefits. She testified that Halton’s usual practice was to send the Sun Life proof of claim forms to employees on extended sick leave so that they could apply for LTD benefits before their elimination period was completed. This practice promoted a smooth transition from STD to LTD benefits without interruption.

Such a conclusion was also made in a 1990 decision of the Newfoundland Court of Appeal. ⁸ The Court of Appeal amended the trial decision by holding both the employer and the insurer jointly and severally liable.

In the above case, the plaintiff sued the employer and the insurer to recover the proceeds of a group life insurance policy. The insurer’s defence was that it had not received the application.

The plaintiff delivered the application form which was not properly recorded. Following his wife’s death one year later, he was then advised that the insurer had no record of his wife’s application.

The court found as a fact that the plaintiff had submitted the application to the employer, which was found to be the agent for the insurer. The Court of Appeal upheld the trial judgment on the issue of the agency relationship.

It is to be noted that a later decision of the court ⁹drew a distinction between the employer conducting administrative tasks which had been delegated from the insurer to the employer and alternatively a substantive issue over which the employer had no control, such as cancellation and notice, which could not be the subject of an agency submission.

In this case, ¹⁰ Otto Reincke claimed, amongst other allegations, that Hart Property Management, the employer, had failed to advise the plaintiff in a timely manner of the cancellation of the policy. The argument was made unsuccessfully that Hart Property Management was the agent of the insurer, Sun Life.

The court noted that in this instance, neither the employer nor the plaintiff could have any input into the cancellation or termination of the entire policy and that this decision could only come from the policyholder. ¹¹

This created, the court decided, a demarcation between an administrative and a substantive function which was held to distinguish these facts from prior decisions supporting an agency finding.

The court in Reincke also referenced, to support this reasoning a decision of the Ontario Supreme Court.¹²In the latter case, the employer had been delegated many administrative tasks by the insurer. As the employer ceased active business, it wrote to the plaintiff incorrectly advising him and others that the coverage would continue. In fact, the policy has been cancelled due to non-payment of premiums.

This distinction was hence drawn between an administrative and a substantive function to determine the existence of an agency relationship.

A similar issue arose in an October 2002 decision of the Alberta Queen’s Bench case. ¹³ The defendant argued that the plaintiff failed to submit timely evidence of her disability under the terms of the policy.

The Court found as a fact that the reason for this delay was that the employer, T.N.T., had refused to provide her with the necessary forms to complete her LTD application. The Court concluded that the employer was the agent of the insurer for this purpose as the obligation to provide such forms to the employee had been delegated by Manulife to the employer. The judge in Herbert relied upon a case which had come to same conclusion ¹⁴ which referenced the “minor administration function” that led to the liability finding.

This argument was raised again in the 2010 decision of the Manitoba Queen’s Bench case. ¹⁵ The plaintiff alleged that his “employer” had acted as agent for the insurer, Unum, and the insurance broker W.R. Carey Corporation.

The master dismissed this action on a summary judgment motion, which had also involved other issues not material to the agency argument, save that it was held that there was not an employment relationship. The plaintiff appealed this dismissal of the action to the Court of Queen’s Bench.

The plaintiff showed sufficient evidence to establish an apparent factual connection which allowed the conclusion that this claim should not be summarily dismissed and warranted a trial to conclude these factual issues. ¹⁶

A claim made by an employee for negligence is not as straightforward as one might expect. There have been successful claims in this context but the law is divided on this issue, as is reviewed here.

Statutory Term

In any submission that the employer acts as agent for the insured, regard should be had to the statutory condition relating to an “accident and sickness” policy as contained in the Ontario Insurance Act, typical of all jurisdictions, which does not apply to group policies, which states as follows:

The Contract

1. (1) The application, this policy, any document attached to this policy when issued, and any amendment to the contract agreed upon in writing after the policy is issued, constitute the entire contract, and no agent has authority to change the contract or waive any of its provisions.