It is a common, if unexpected, scenario. You run a business. For good business reasons, you dismiss an employee. He or she is paid what is owed under their contract of employment and the Employment Standards Act 2000. Next, you get a letter from a lawyer demanding more, or else. You are advised by your Insurer that your Commercial General Liability insurance policy does not cover these sorts of claims. You are responsible for the costs of defending the action. If you are a smaller employer without in-house counsel, these costs could be significant.
Due to situations like this, Employment Practices Liability Policies, often called “HR Malpractice Insurance” has become increasing popular. This line of insurance, although common in the United States, has only recently gained traction in Canada with several large Insurer’s presently carrying some variation of this product. Traditional Commercial General Liability policies often walled off coverage relating to any negligence or errors in terminating employees unless specific optional coverage was obtained. In contrast, EPL policies have been designed specifically to cover and indemnify employers from claims brought by their former (or current) employees for actions arising from the conduct of employers, and its employees, during the course of an employment relationship. The most common claims are wrongful dismissal, harassment, and discrimination by an employer. Although the specific coverage varies from policy to policy, most EPL policies will cover the legal fees associated with defending a claim as well as any damages stemming from the manner in which an employee was dismissed. Notably, EPL policies will usually not cover damages attributed to insufficient notice of termination.
Recent legislative changes and jurisprudence make the purchase of EPL insurance particularly attractive to employers. A recent Court of Appeal decision, Wood v. Fred Deeley Imports, 2017 ONCA 158, found a longstanding termination clause to be invalid for failure to mention entitlement to severance pay, despite the employer having paid the required amounts under the Employment Standards Act 2000. In early 2018, the Court of Appeal released the decision, Nemeth v. Hatch LTD, 2018 ONCA 7, which suggested that unlike in Wood, silence on issues of severance and benefits continuation would not necessarily render the clause invalid where it did not explicitly limit these entitlements. These two decisions are not necessarily incompatible with each other due to the specific facts in each case. However, they have continued to muddy the waters around the validity of termination clauses.
With the Supreme Court of Canada’s explicit endorsement in Hryniak v Mauldin, 2014 SCC 7, that summary judgment motions should be utilized in the employment context, claims can be resolved by a judge within months of the claim being issued. While these motions are an effective way of resolving a dispute, they are resource intensive and add increased upfront costs to the employer. A recent decision on costs by Perell J., in Cosolo v. Geo. A. Kelson Limited, 2017 ONCS 4928 found an employer liable for $96,013.32 in legal fees in addition to its own counsel’s fees, after the employee’s successful summary judgment motion.
While administrative tribunals usually do not provide for an order of costs against an employer, Ontario has removed the monetary limits on claims at the Human Rights Tribunal and Labour Relations Board. Employers are now faced with greater exposure to large awards. A prime example is the Ontario Human Rights Tribunal decision of Fair v. Hamilton-Wentworth District School Board,2013 HRTO 440, which was upheld by the Ontario Court of Appeal in 2016. In that decision, the employer’s failure to accommodate a teacher resulted in an Order for reinstatement, with back pay, after 10 years, in addition to $30,000.00 for injury to dignity, feelings, and self-respect.
With the proliferation of increasingly accessible judicial and administrative forums, litigation arising out of the employment relationship is on the rise. While the best offence is a timely consultation with an employment lawyer prior to a dispute, recourse to an EPL policy will be a welcome advantage the next time your business receives a demand letter.
Devan Marr’s practice has focused on bodily injury, long term disability, statutory accident benefits, and employment claims.
S.T. v. Economical, LAT 16-003034/AABS, LAT Reconsideration, Executive Chair Linda P. Lamoureux
The Applicant submitted a Request for Reconsideration 42 days after receipt of the Tribunal’s decision instead of submitting it within 21 days as required by the LAT Rules. The Request was filed contemporaneously with an Application for Judicial Review. The Applicant explained the delay by arguing that none of the applicable legislation requires a party to seek reconsideration before applying for judicial review.
The Executive Chair disagreed, stating that it is a well-established principle of administrative law that parties exhaust all available remedies before seeking judicial review.
The explanation offered by the Applicant was insufficient to excuse the late filing. The Executive Chair also considered the substance of the reconsideration request and found that, in any event, there was no error in the Tribunal’s decision.
Shalini defends insurance claims covering all aspects of general insurance liability including motor vehicle accidents, occupiers’ liability, slip and falls, as well as accident benefits litigation and arbitration and priority and loss transfer disputes.
In the recent decision of Kerwin v. Manulife Financial, the Ontario Superior Court dismissed a summary judgment motion by Manulife, declining to find that funds received in a retirement package are deductible from long term disability benefit payments.
As a background, the Plaintiff was injured in a motor vehicle accident. He received short term disability benefits and then participated in a gradual return to work. His employment was ultimately terminated by his employer. He reached a settlement with his employer after his termination for a lump sum of $314,843 as part of his retirement package in exchange for giving up his right to sue them for his dismissal.
In the meantime, Manulife agreed to pay long term disability benefits to the plaintiff at the rate of $7,497.76 per month. Manulife made LTD payments for two weeks, and then stopped making payments until 2 years later. It took the position that the plaintiff was not entitled to LTD payments during that two year period because the amount paid in his retirement package was deductible from LTD benefits pursuant to the policy. The wording of the policy stated:
The Amount of Disability Benefits payable is the Benefit Amount shown in the Benefit Schedule, less any amount of benefits the Employee receives, or is entitled to receive, from the following sources for the same or related Disability:
earnings or payments from any employer, including severance payments and vacation pay;
The benefit amount payable will be further reduced so that the Employee’s total income from All Sources does not exceed 85% of the Employee’s pre-disability Earnings if this Benefit is taxable, or 85% of the Employee’s pre-disability Net Earnings if the Benefits is non-taxable.
An action was commenced by the plaintiff for the full amount of LTD benefits being withheld. Manulife brought a summary judgment motion stating that it had grounds to deduct the retirement payment from LTD benefits as it was a form of income replacement, and arguing that the full amount of the retirement package should be deducted from the monthly LTD benefits payable.
Alternatively, the plaintiff took the position that he was paid the lump sum payment in exchange for his agreement not to bring an action against his employer, and this should not be deducted from his LTD benefits. The plaintiff further argued that the onus is on the insurer to prove the amount the plaintiff received as a lump sum fits within one of the specific policy deductions. Finally, the plaintiff argued that a retirement package is not a payment intended to be an income replacement.
In the decision, Justice Emery found that there was insufficient evidence to make a decision on the merits of the claim. He found that the basis upon which the claimant negotiated his retirement package with his employer is a genuine issue requiring trial. As such, the summary judgment motion was dismissed.
Interestingly, it does not appear that this issue has yet arisen in the Ontario courts. As such, it is still unclear whether retirement packages can be included as income that can be deducted from LTD benefit payments. If the courts ultimately find that they can be deducted, it will be incumbent on insurers to ensure that they have the full details of any retirement packages as early into the claim as possible to avoid overpayments.
Gabe Flatt has an insurance law practice that has focused exclusively on insurance defence for the past 8 years. He has developed an expertise in complex priority and loss transfer disputes as well as general coverage issues.
A.R. v. Wawanesa Mutual Insurance Company, LAT AABS 17-000149, Adjudicator Msosa
This matter involved a dispute over medical benefits. The applicant was seeking payment for two orthopedic assessments; one submitted approximately 3 years post-accident and the second submitted on the eve of a FSCO arbitration roughly 4.5 years post-accident. The insurer took the position that neither orthopedic assessment was reasonable and necessary because the claimant sustained uncomplicated soft-tissue injuries as a result of the accident.
Importantly, the applicant included the two incurred orthopedic reports but failed to include the relevant OCF-18s in the materials submitted to the LAT. The adjudicator commented that the Applicant had not connected the evidentiary dots to prove that the assessments were reasonable and necessary.
The adjudicator held that the OCF-18s were not reasonable and necessary as the applicant had not provided the treatment plans setting out the goals and purpose of the assessment. The adjudicator found that the applicant had not provided any evidence of an orthopedic injury.
Co-operators v. Intact and Northbridge, Private Arbitration, Arbitrator Novick
In this priority matter, the claimant was struck as a pedestrian after disembarking his tractor trailer, of which he had regular use. He applied for SABS benefits to his wife’s personal insurer, Co-operators. Co-operators had placed Intact on notice for having insured the claimant on a personal policy. Co-operators had also placed Economical on notice, as preliminary investigation suggested that Economical insured the tractor trailer. However, after the 90-day notice deadline passed, it was discovered that Northbridge actually insured the tractor trailer. Intact then provided notice to Northbridge under Section 10 of O. Reg 283/95.
At the ensuing arbitration, first there was a dispute as to whether the claimant was an “occupant” of the tractor trailer when struck as a pedestrian by a passing car. Arbitrator Novick found that an objective observer would have considered him to be a driver of the tractor trailer at the time of the accident. Although the exact circumstances of the accident were unclear, the claimant was in the process of delivering a load at the time and was expected to return to the vehicle to do so.
Second, Northbridge disputed that it could be brought into the arbitration because it did not receive notice from Co-operators within 90 days of the OCF-1 being received. While Section 10 permits “second insurers” to serve other insurers with notice, Northbridge argued that it should not operate to “save” the first insurer where it failed to serve proper notice on an insurer higher in priority within 90 days. Northbridge argued that Section 10 notices should only be effective if the “second insurer” serving the notice is higher in priority than the “first insurer” which received the OCF-1.
Arbitrator Novick disagreed with Northbridge. She found that the 90-day notice requirement in Section 3 is intended to “get the party started”. Insurers who are later placed on notice under Section 10 may be brought into the arbitration proceeding regardless of how they stack up in comparison in comparison to the other insurers involved. Co-operators was not barred from pursuing Northbridge, which was determined to be the priority insurer.
Aviva v. Pafco, Allstate, MVACF, and Belair, Private Arbitration, Arbitrator Jones
This was a preliminary issue hearing regarding whether the arbitration was limitation barred.
O. Reg 283/95 requires that a priority arbitration be commenced within one year of the firstnotice provided under Section 3. In this matter, Aviva had provided its first notice to Pafco. It later provided a more detailed notice to Pafco and the remaining insurers. Aviva failed to commence the arbitration within one year of its first notice to Pafco. However, the arbitration was commenced before the 1-year anniversary of notices given to the other insurers.
The respondents argued that the entire arbitration was barred because it was not commenced within one year of the firstnotice provided. In support, the respondents relied upon Section 10(3), which states that all priority disputes in relation to a particular SABS claim are to be dealt with in “one arbitration”.
Aviva argued that its first notice to Pafco was not sufficiently detailed to be considered notice under Section 3. Alternatively, Aviva submitted that it should not be precluded from arbitrating against the other insurers, who it commenced arbitration against within one year of putting them on notice under Section 3.
Arbitrator Jones confirmed that notice from one insurer to another under Section 3 does not need to be overly detailed. Most significantly, he ruled that the entire arbitration was barred since it was not commenced within one year of the first notice provided to Pafco. Aviva was not permitted to have separate limitation periods for the other responding insurers, who could potentially bring Pafco back into the dispute.
Pan v Allstate Insurance Company of Canada, FSCO A16-003705, Arbitrator Alan Smith
This matter involved a dispute with respect to the quantum of income replacement benefits (IRBs) payable. The applicant was self-employed at the time of the accident. The insurer had been paying IRBs but took the position that:
(1) the applicant had not proven her pre-accident income; and, (2) it was entitled to deduct CPP benefits to which the applicant may be entitled.
The arbitrator found that the applicant had proven her pre-accident income based entirely upon her self-reporting documentation. While this finding was concerning, the case is most significant because the arbitrator gave effect to Section 4(1)(b) of the SABS. He found that the applicant had CPP benefits “available” and, therefore, the insurer was entitled to deduct her potential entitlement from IRBs. The arbitrator found that, at 18 months post-accident, it was reasonable to consider the applicant’s injuries “severe and prolonged”, which would qualify her for CPP disability benefits.
The arbitrator found that the insurer was entitled to deduct the CPP benefits from IRBs, despite not having requested that the claimant apply for same. This is the only case which stands for this principal.
Lisa has an insurance law practice that has focused exclusively on insurance defence for 15 years. Her practice focuses on complex insurance-related litigation, including accident benefits and bodily injury. Read more ...