Can an Insurance Company deduct Dependent Children Canada Pension Plan Disability (CPPD) Benefits from Long-Term Disability (LTD) benefits?

Dependent Children benefits resulting from Canada Pension Plan Disability (“CPPD”) benefits may be deducted from the Long Term Disability (“LTD”) benefits.  Some insurance contracts will explicitly exclude CPP Dependent Children benefits from being deducted from LTD benefits while others will state that monthly LTD benefits are reduced by CPP disability benefits including the benefits dependent children. However, insurance contracts are not always as explicit. As such, an ambiguous clause could lead a judge or decision maker to conclude that the CPP Dependent Children benefits should not be deducted from the monthly LTD benefits.

In Hennig v Clarica Life Insurance Co.[1] (“Hennig”) the Court decided that the insurance company was not entitled to deduct any CPP Dependent Children Benefits from the LTD benefits.  Importantly, the Court held that the CPP Dependent Children benefits were found to be beneficially owned by the children under the Canada Pension Plan Act[2]. The double recovery resulting to the family was found to be irrelevant because the disability coverage was bought and paid for privately. Therefore, the plaintiff was entitled to the full benefit provided by the insurance contract without the insurer being entitled to deduct the Dependent Children benefits.

The Court reached this decision by applying the contra proferentem interpretation rule. This Latin maxim means that if the words in a contract are ambiguous the contract should be interpreted against the one who wrote the words. In this context, the contra proferentem rule, favoured the interpretation of “received” as meaning beneficial and legal receipt rather than benefits paid in trust to the insured’s children. The Court concluded that the portions of the insurance company’s policy which purport to allow such a deduction were ambiguous because they did not clearly indicate whether monies received by the plaintiff fell within the types of payments the insurance company was entitled to deduct from any disability payments.

The case of Dubasoff v Mutual Life Assurance Company of Canada[3] is another illustration of the courts reluctance to deduct child benefit amounts from Long Term Disability payments.

For unionized employees, arbitrators will look at the collective agreement to determine whether the benefits for dependent children will be deducted.  See our article: “Where should unionized employees appeal their Long Term Disability benefits claims”, if you are unsure whether you must file a claim in Superior Court or file a grievance to contest the denial of Long Term Disability benefits.

In London (City) v London Civil Employees Local 107[4], the arbitrator concluded that the CPPD child benefits did not fall within the ambit of “all income sources participated in by the employer and employee” The Arbitrator emphasized that there must be a sufficiently clear expression of intention by the parties to deduct the CPPD child benefits from the LTD benefits.

In Ruffolo v Sun Life Assurance Company of Canada[5], the opposite conclusion was reached.  There, the plaintiffs were receiving Long Term Disability benefits under group insurance policies issued by the defendant insurer. They also received disability benefits for their dependent children under the Canada Pension Plan Act. The insurer deducted the CPPD Dependent Children Benefit from the LTD amounts payable under the insurance policy. The insurance policy provided that “monthly LTD benefits are to be reduced by the disability income to which the disabled member is entitled under a government plan (including benefits under the Canada Pension Plan, including benefits for dependent children)”. The Ontario Court of Appeal upheld the Trial Court’s decision, finding that the CPP Dependent Children benefits were incorporated by contractual consent into the concept “disability income to which the disabled member is entitled”. As such, the insurance company was entitled to deduct the benefits for dependent children from the LTD benefits.

Takeaways:

• There must be a clear intention in the insurance contract to allow the deduction of Dependent Children Benefits from LTD benefits;
• If the insurance contract explicitly provides that Dependent Children Benefits are to be deducted from LTD benefits, it is likely that the Court will enforce this provision;
• If the language in the insurance contract is ambiguous a court will likely conclude that the Dependent Children Benefits should not be deducted from LTD benefits.

It is important to examine the insurance contract, the collective agreement (if applicable), the legislation and the jurisprudence carefully to determine whether the Dependent Children Benefits can be deducted from LTD monthly benefits.

[1] Hennig v Clarica Life Insurance Co. (2001), 33 CCLI (3d) 280; affirmed (2003), 2003 Carswell Alta 269 (Alta CA)

[2] Canada Pension Plan, RSC, 1985, c C-8.

[3] Dubasoff v Mutual Life Assurance Co., [1995] 123 DLR (4^th) 577 (SK CA)

[4] London (City) v London Civil Employees Local 107 [2006] L.V.I. 3602-6.

[5] Ruffolo v Sun Life Assurance Company of Canada, 2009 ONCA 274 (leave to appeal to SCC refused)

[This article is for informational purposes only and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]