A former federal government employee is launching a proposed $10-million class action lawsuit against Sun Life over how the insurer calculated cost-of-living increases on long-term disability benefits payments.

The claim, filed in the Ontario Superior Court of Justice by Ottawa law firm Connolly Obagi LLP, alleges Sun Life willfully miscalculated the cost-of-living increases incorrectly for Giulia Belec, the lead plaintiff and a former administrator for the federal government.

It alleges that Sun Life applied the cost-of-living increase to Belec’s net monthly disability benefit payment after specified deductions were applied, in violation of its policy to apply the increase to members’ gross monthly benefits before deductions are applied. The lawsuit is seeking an additional $10 million in punitive damages.

Read: Class action lawsuit alleges miscalculation of veterans’ disability pensions

The proposed class is all federal government employees who received LTD benefits between April 30, 1997 and the present day under policy number 12500-G.

“You’re dealing with the most vulnerable individuals when you’re dealing with persons applying for LTD benefits,” says Joseph Obagi, lawyer for the class. “The fact that they’re on LTD benefits for an extended time is because they’ve lost the ability to continue to work. To then apply a formula that is not in accordance with the terms and conditions of the policy — it’s all done intentionally or with knowledge that it’s being done contrary to the terms of the policy — then there’s a potential exposure of punitive damages if that claim is proven.”

In an emailed statement to Benefits Canada, Sun Life said it was aware of the class action. “We care deeply about our clients — they are at the heart of everything we do. We are aware of the allegations brought forward by Ms. Belec through the law firm of Connolly Obagi LLP, regarding long-term disability benefits offered through Sun Life. We are continuing to review this case and will be responding through the Ontario court process.”

Read: Ontario court grants appeal for employee in long-term disability case

Belec worked for the federal government for 37 years before taking medical retirement in 2011. Belec, who still receives LTD benefits from Sun Life under the policy, also qualified for the Canada Pension Plan disability benefit.

In January 2012, the claim alleges, Sun Life recalculated Belec’s cost-of-living increase to first reduce her monthly LTD benefit by the two pension amounts she received from CPP and her employer, and then apply the cost-of-living increase to her net benefit.

“The issue then becomes, if I’m receiving a retirement pension and that’s going to be deducted from the LTD benefit, that’s going to have a significant impact on the cost-of-living increase,” says Obagi. “If you apply the cost-of-living increase before you deduct the retirement pension, then the cost-of-living increase, of course, is going to be higher than if you applied the deduction afterwards.”

Obagi says Belec first approached the law firm after reading about a similar class action against iA Financial Group, which alleges the insurer knowingly calculated the cost-of-living increase incorrectly. That case, initially filed in November 2018, was just certified as a class action by the Ontario Superior Court this month.

Read: Insurers advised to change LTD practices affecting small employers

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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Given plaintiff counsel — only doing his jib as an advocate — wanting to portray Sun as having malice aforethought, and wilfully deviating from clear policy language to the detriment of this named client — and by extension, the class — it would have been helpful if the writer had paraphrased the actual indexation policy provision.

Net benefit indexation, depending on how one calculates the “net,” can actually be a highly efficient CPI-neutral LTD benefit management strategy, not to mention, efficient premium strategy, since it negates the distortions of our progressive income tax scales on income continuance benefits … if it’s done right.

I would not doubt that Sun’s LTD contract writer (typically not a lawyer) would not have anticipated that claimants might qualify for other disability income benefits when he/she wrote the contract, and did explicitly include such benefits in ones that Sun could deduct, i.e., in its definition of net, either at payment commencement or post-commencement. If that is the case, this is less an issue of a devious insurer wanting to minimize reserve strain than of how one that goes about assigning resources to complex contract drafting and issue as a group (whether insured,”retention” or ASO) contract.

Friday, February 21 at 12:05 pm | Reply

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