All long-term disability insurance policies indicate how much the insured will receive in the event that he or she becomes unable to work due to a medical condition. However, most policies will also include a statement regarding what kind of income can be used to adjust your LTD benefits. LTD policies vary regarding the types of income that may be deducted from your benefits – some of the most common are CPP-Disability benefits, WSIB, and self-employment income. For example, where your LTD policy indicates that you will receive benefits up to 70% of your income prior to becoming unable to work, and you earn other income from a source indicated in your policy, your insurer will reduce your benefit in an amount equal to what you earned in excess of 70% of your previous income. In such case, where 70% of your previous income equals $3,000 dollars a month, and you receive $1,000 from another source, which was outlined in your policy, your insurer will reduce your benefit to $2,000, as this ensures that you continue to a total of 70% of your previous income.
Depending on the language of your LTD Policy and/or employment contract, payments for LTD benefits, severance pay and termination pay in lieu of notice may overlap and limit what you may be entitled to receive overall for all three.
Insurance companies will often attempt to reduce your benefits when you receive severance or termination pay as a result of being terminated from your job. They will often argue that these payments represent “income from employment” or “income earned” and should therefore be offset against your LTD benefits. However, the Courts have consistently ruled that insurance companies cannot do this unless there is clear and unambiguous language in your LTD policy indicating that these types of payments will be offset against your benefits.
Similarly, where an employee, who is receiving or could receive LTD benefits has been terminated, the Courts have been reluctant to permit employers to avoid damages for wrongful dismissal on the basis that LTD benefits were available. Where an employer wishes to argue that it is not obligated to pay damages for wrongful dismissal by virtue of the existence of a disability plan, the Courts have focused on whether the benefit was paid for by the employer or the employee, fully or in part, and whether it is clear that the parties did not intend for the employee to receive both payments. The intention of the parties will most often be derived from the language in the employment contract.
Every LTD Policy and employment contract can vary greatly in terms of rights and obligations, and enforceability. Because of this, it is difficult to determine how severance and termination pay, and LTD benefits may affect each other when an employee makes a claim for all. Depending on each contract’s language, the employee may be able to claim both fully or there could be an offset. It is important to consult a lawyer with expertise in employment and/or LTD litigation in order to determine how your specific policy or contract may affect your rights to recovery for wrongful dismissal damages and claiming LTD benefits.
