Client Update: Recent Developments: Disability Insurance Policies
RECENT DEVELOPMENTS: DISABILITY INSURANCE POLICIES & LIMITATION PERIODS IN NOVA SCOTIA
Two recent Nova Scotia decisions have clarified the issue of limitation periods in disability insurance policies and “rolling” limitation periods.
In 1998, Unum denied Thornton’s application for disability benefits under a group policy issued by Unum (which RBC later assumed responsibility for). In January, 2008, Thornton started an action against Unum as the disability insurer who provided benefits to employees of Volvo Canada. However, the pleadings were never served.
Fast forward to 2012; Thornton filed an amended pleading, replacing Unum with RBC because RBC had assumed Unum’s liability for the disability benefits. RBC filed a motion for summary judgment, arguing (in part) that the applicable limitation period had expired.
Justice Michael Wood referred to cases from Ontario and New Brunswick considering insurance policies for which the limitation period was said to run from the date on which the cause of action arose. In interpreting such policies, some cases had found that there was a “rolling” limitation period, which started afresh each time a monthly payment was not made as the cause of action arose each time a payment was not made.
The policy before Justice Wood provided that an insured could not start a legal action more than three years after the time proof of claim was required, which was stated to be no more than 90 days after the end of the elimination period. The elimination period was defined in the policy as 180 days following the first day of disability.
The language of the policy, therefore, did not create a rolling limitation period. Justice Wood held that policies that trigger the beginning of the limitation period with a defined date which does not recur every month do not create a rolling limitation period. In order to trigger the beginning of the limitation period for such policies, it is necessary to have a clear and unequivocal denial of benefits.
Justice Wood found there was a clear and unambiguous denial of Thornton’s request for disability benefits in June 1998, which commenced the three year limitation period and, therefore, the proceedings had to be started no later than 2002.
Finally, the Nova Scotia Limitation of Actions Act gives the Court discretion to extend a limitation period for up to four years. However, even if granted, the four-year extension up to 2006 would not be sufficient to save the action which had been commenced in 2008. Justice Wood found that Thornton’s claim was barred by the expiry of the limitation period eight years prior and dismissed Thornton’s action.
Following Thornton, RBC brought a motion for summary judgment in Thompson v. RBC Life Insurance Company, 2014 NSSC 434. RBC sought to dismiss Thompson’s claims under a group disability insurance policy on the basis the limitation period in the policy had expired. The policy stated that a claimant could start a legal action “up to 1 year from the time the proof of claim is required”. Proof of claim had to be provided at the latest 1 year and 90 days after the beginning of disability. In Thompson’s case, proof of claim was absolutely required by December 8, 2004, and therefore the latest her claim could be started was December 8, 2005.
The first issue before Justice Jamie Campbell was when benefits had been clearly denied. Thompson’s claim was initially denied in January 2004. She appealed and RBC again denied her claim in June 2004. In November 2004, Thompson provided new medical information to RBC and her claim was reopened. Finally, on November 17, 2005, RBC wrote to Thompson denying her claim yet again.
Each time RBC had denied Thompson’s claim they had informed her that their determination was “final” – although she had a right to appeal each time. Despite this, Justice Campbell held that the word “final” had “not been used and disregarded with such frequency that it can reasonably be said to have lost its meaning”.
Thompson had understood the denial was “final” in 2005 but was unaware she could bring a claim against RBC without having to pay a lawyer upfront (she didn’t know about contingency fee arrangements until 2008). She retained a lawyer in 2008, and then retained a different lawyer in April 2011, and the action against RBC was finally commenced on May 22, 2011 – nearly six years after the denial. Justice Campbell commented that Thompson had known full well she had a legal right to bring a claim against RBC and a person cannot avoid a limitation period by ignoring it or not noticing it.
Following Justice Wood’s decision in Thornton, Justice Campbell held that a clear denial had occurred on November 17, 2005 and Thompson’s claim had been filed well beyond the one year from November 17, 2005 and well beyond the four-year extension period (see above).
The second issue before Justice Campbell was Thompson’s argument that the limitations language in the policy was “unintelligible” and therefore the limitation period should be 6 years as set out in the Limitations of Actions Act. The policy read:
WHAT ARE THE TIME LIMITS FOR LEGAL PROCEEDINGS?
You can start legal action regarding your claim 60 days after proof of claim has been given and up to 1 year from the time proof of claim is required.
Thompson argued that the time limitation in the policy was “permissive not mandatory” because of the word “can”. Thompson attempted to distinguish Thornton by arguing the policy in Thornton had read “cannot start any legal action…more than 3 years after the time proof of claim is required”.
Justice Campbell held that accepting Thompson’s interpretation would render the provision meaningless, and her argument ignored the words “TIME LIMITS” and “up to”. He concluded the policy’s limitation period was clear, it had been missed, and dismissed Thompson’s claim.
The limitation period will depend on the specific language of the policy. The case does not decide whether there is a rolling limitation for Section B claims or whether in fact a Nova Scotia Court will accept the concept of rolling limitation periods in disability policies but does clarify when there will not be a rolling limitation.
Some policies which provide for periodic payments may be interpreted to create a rolling limitation period, which starts anew each month that the benefit allegedly payable is not paid. Other policies define the limitation period with reference to a defined date, which does not recur every month, and, therefore, do not create a rolling limitation period.
In order to trigger the limitation period for such policies, the insurer must clearly and unequivocally deny benefits to the insured. Finally, a review of the limitations language in your policies may be necessary to ensure it is understandable and a defined date is calculable.
If you have any questions about limitation periods in Nova Scotia contact Patricia Mitchell, Tyana Caplan, or Michelle Chai. In other Atlantic provinces contact any member of the Life & Disability Insurance Practice Group for assistance.
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