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Normandin Beaudry

The integration of long-term disability insurance benefits

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There, in black and white

Bulletin NB Vol. 7 N. 2, March 2004

Following a decision rendered by the Alberta Court of Appeal in the spring of 2003, in the case of Hennig v. Clarica, some insurers have issued bulletins over the past months concerning the integration of long-term disability insurance benefits.

Integration clauses are used to reduce the benefits paid to disabled employees who receive income from other sources, in order that the employee is not put into a better financial situation than prior to the start of his disability. As a result, integration clauses increase the incentive for returning to work. There are two types of integration: direct and indirect.

Direct integration consists of reducing the amount of the member’s disability benefits by any other disability or retirement benefit payable to the member under government programs such as the Quebec Pension Plan (QPP), the Canada Pension Plan (CPP), and occupational injury or automobile insurance statutes.

Indirect integration clauses are contained in most group insurance contracts. They generally stipulate that the disability benefit calculated by the insurer will be reduced so that the total of this benefit and any income from other sources does not exceed a certain percentage of the salary. Other income sources that are taken into account for the purpose of indirect integration include any salaries payable under salary continuance or sick leave policies, as well as any disability benefits payable by a government plan or body.

In the case of Hennig v. Clarica, the court ruled that the children’s benefits provided for by the CPP should not be included in the income from all sources that are taken into account in calculating Ms. Hennig’s long-term disability benefits under the indirect integration clause of her group insurance plan. Her group plan was taken out with the Clarica Insurance Company. The judgment does not deal with the legality of including or not including the CPP children’s benefits, but rather the ambiguity of an insurance contract.

Following this judgment, we surveyed the major insurance companies in order to find out what their practice is with respect to the integration of the children’s benefits paid in connection with the C/QPP disability benefits when calculating long-term disability benefits. Note that for the year 2004, the monthly children’s benefits paid in connection with QPP disability benefit is $61.18, while for CPP disability benefit is $192.68. The following outlines the results of our survey: 


 Children’s Benefits Paid in Connection with C/QPP are:
Insurance Companies
 considered to be part of the
income from other sources
not considered to be part of the
income from other sources

Blue Cross   x
Desjardins Financial Security   x
Great-West (includes Canada Life) x      
Industrial Alliance   x
Manulife Financial x(1)  
Maritime Life x      
SSQ   x
Standard Life   x
Sun Life Financial x(2)  

(1) However, C/QPP children’s benefits are not considered to be part of income from other sources for members in Alberta.
(2) However, for contracts whose wording is the same as that involved in the Hennig case, the C/QPP children’s benefits will no longer be considered to be part of income from other sources.  

However, insurers that consider C/QPP children’s benefits to be part of income from other sources would be prepared to change their integration clauses to exclude the C/QPP children’s benefits when calculating long-term disability benefits, but each reserves the right to review their pricing as needed.

Although each insurer disclosed their standard practice to us, it is possible that some contracts issued by these insurance companies do not reflect this practice. Each plan sponsor should check the clauses of their insurance contract in order to verify the practice of their current insurer.

Note also that the federal government is currently reviewing the provisions of the CPP. The parliamentary sub-committee in charge of considering the future of the CPP disability benefits program published its first report in the summer of 2003. One of the sub-committee’s recommendations is that the amount of the benefits payable under the CPP for dependent children should no longer be taken into account by private insurance plans in the calculation of disability benefits. In November 2003, the federal government published a report that responded to the sub-committee’s recommendations. With respect to the integration of children’s benefits under the CPP, the federal government indicated that it does not regulate the private insurance industry, which falls under provincial jurisdiction. Therefore, the federal government does not have the authority to make the integration of the children’s benefits under the CPP illegal.

 

Please feel free to contact us for additional information.

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