Discovering a Denial: Recent Ontario decision sheds light on discoverability of claims against LTD insurers

Michelle Chai & Jennifer Taylor¹

A recent Ontario case offers insight on when the limitation period starts to run for an action against a disability insurer. In Kumarasamy v Western Life Assurance Company, the Court of Appeal for Ontario (ONCA) dismissed an action against Western Life, the plaintiff’s long-term disability (LTD) insurer, for being out of time.

The Supreme Court of Canada has just denied leave to appeal, presenting an opportunity to review the ONCA decision and consider its potential implications for Nova Scotia insurers.

Background facts

The plaintiff was injured in a car accident on August 25, 2014 and unable to return to work as a truck driver. He was aware he had disability insurance coverage under his employer’s LTD policy with Western Life.

The day after the accident, the plaintiff retained counsel to represent him in bringing a tort claim and seeking statutory accident benefits.

In March 2015, the plaintiff submitted a partially completed form to Western Life claiming LTD benefits. Western Life sent a letter — which the plaintiff alleged he did not receive — asking the plaintiff to fill out the full LTD application forms. Although Western Life sent three follow-up letters over the next few months, the plaintiff only received one of them, dated June 2, 2015, which advised that his LTD file had been closed because he had not filled out the forms.

In October 2016, the plaintiff’s lawyers requested, and subsequently received, the LTD claim file from Western Life. Despite this, they were not retained to represent him on the LTD claim until February 2017. The lawyers then submitted the plaintiff’s LTD application forms on March 30, 2017 — about 2.5 years after the accident.

On June 28, 2017, Western Life advised the plaintiff that his claim was denied due to unreasonable delay. The plaintiff’s statement of claim was issued exactly two years later, on June 28, 2019.

Relying on the two-year limitation period in the Ontario Limitations Act, 2002, Western Life brought a motion for summary judgment, which was initially unsuccessful. Western Life then appealed to the ONCA.

Key issue on appeal: when did the limitation period start to run?

The main issue on appeal was whether the motion judge erred in her analysis of when the plaintiff’s claim was discovered, pursuant to section 5 of the Ontario Limitations Act, 2002.²

Western Life argued that the discoverability date was June 7, 2015, by which point the plaintiff would have received the letter advising that his file was closed. However, the motion judge agreed with the plaintiff that the clock did not start ticking until June 28, 2017, when his application was denied.

The ONCA held the motions judge had wrongly concluded that a “clear and unequivocal denial” from Western Life was required for the plaintiff to know that “a proceeding would be an appropriate means to seek to remedy” his loss (see para 28).

As Justice Nordheimer pointed out (at para 25):

In this case, the respondent knew of his injuries at the time of the accident. At the same time, he knew that he was covered by his employer’s long-term disability insurance provided by the appellant. Indeed, he knew enough, with the help of his sister, to ask for an LTD claim form from the appellant, which the appellant provided. By June 7, 2015, the respondent knew that the appellant had closed its file. The respondent had to know, from that fact alone, that his claim for coverage was in jeopardy. Further, from this time forward, the respondent had lawyers representing him…

The ONCA considered the possible start dates for the limitation period, including:

• June 7, 2015, which is when the plaintiff was notified that Western Life had closed his LTD claim file; or
• November 8, 2016, when the plaintiff’s lawyers got copies of the June 2015 correspondence.

Both of these dates were more than two years before the statement of claim was filed, so the action was statute-barred regardless (see para 37).³

Importantly, the ONCA held that a “clear and unequivocal denial” was not required in order to start the limitations clock (see para 31):

There is no authority for the proposition that a clear and unequivocal denial is required. It may be that there will be some cases where an insurer may, by its conduct, lead an insured person to believe that their claim has not been denied (and thus litigation is not required). Those cases will likely be rare, and, in any event, this case is not one of them. The appellant did not do anything to lead the respondent into the belief that his claim was still alive and well. In fact, the appellant did the opposite. First, the appellant had told the respondent that his file had been closed. Second, when the issue was raised again, almost two years later, the appellant expressly told the respondent’s lawyers that, in undertaking its re-examination of the claim, the appellant was not waiving any applicable time limits.

Requiring a “clear and unequivocal denial” could, the Court found, actually “discourage insurers from undertaking a fair evaluation of the claim before making a decision” — and end up encouraging pre-emptive litigation, which the Limitations Act is designed to avoid (para 33).

Application in Nova Scotia

In Nova Scotia, the governing limitation period is usually found in the policy itself or in the Insurance Act. In Cameron v Nova Scotia Association of Health Organizations Long Term Disability Plan (affirmed on appeal), the one-year limitation in the LTD Plan was found to apply. And in Richards Estate v Industrial Alliance Insurance and Financial Services (reversed on other grounds), the Court applied the one-year limitation period in section 209 of the Insurance Act, although there has been some debate as to whether that provision necessarily extends to disability insurance that does not form part of a life insurance contract.

The discoverability provision in section 8(2) of the Nova Scotia Limitations of Actions Act — the rough equivalent to the provision at issue in Kumarasamy — has not been directly considered in the LTD context.⁴ Accordingly, a Nova Scotia court may look to the ONCA decision in the event it needs to interpret this provision in a claim against a disability insurer.

These issues of policy and statutory interpretation will have to be worked out on the facts of particular cases. But whatever the limitation period may be, similar considerations will likely apply in determining when the clock started to run. Relevant questions may include:

• On what date did the insured’s injuries become disabling, and was the insured aware of their disability as of that date?
• Did the insurer clearly communicate with the insured regarding what documentation had to be submitted, and when?
• If the insured missed a deadline, did the insurer clearly communicate with the insured regarding the impact of the missed deadline?
• Has the insurer been clear about when and why it has closed a file?
• Has the insurer been clear and unequivocal in any decision denying benefits, and informed the insured about any right of appeal pursuant to the policy?

If you would like to discuss limitation periods in the context of life and disability insurance in greater detail please contact Shelley Wood, Michelle Chai, or other members of the Stewart McKelvey Life & Disability Insurance Practice Group.

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¹ With thanks to Halifax summer student Rackelle Awad for her assistance.
² As summarized at para 23: “Section 5(1) of the Limitations Act, 2002 requires consideration of when the plaintiff ought to have known four things: (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it. The subsection then requires a determination of the day when a ‘reasonable person’ first ought to have known of these matters. A claim is discovered, within the meaning of the Limitations Act, 2002, on the earlier of these two dates.”
³ Justice Nordheimer briefly addressed the statutory presumption in section 5(2) of the Limitations Act, which provides that knowledge of a claim will be presumed to have arisen on the day of the incident, unless proven otherwise. The motion judge did not explicitly apply this presumption, but was obviously (if mistakenly) convinced that a later discoverability date applied.
⁴ In Thorburn v Sun Life Assurance Company of Canada, the Court considered section 8 in the context of the LTD insurer’s proposed counterclaim against the insured.