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Normandin Beaudry

The continuation of disability insurance coverage when an employee is terminated

LinkedIn

There, in black and white

Bulletin NB Vol. 9 N. 5, June 2006

A recent decision by the Ontario Court of Appeal has drawn attention to the possible risks associated with disability insurance coverage for an employer when he terminates an employee. The case involved the company Alcatel and a former employee (Egan) who was dismissed in July 2002.

The key issues raised by this case are as follows:

  • The decision of the Ontario Court of Appeal confirmed that an employee’s total compensation, including all employee benefits, must be continued beyond the statutory notice period following a termination and therefore throughout the common law notice period1. This position was already taken in other court decisions in Quebec and elsewhere in Canada.
  • For several reasons, disability insurance coverage is rarely continued beyond the statutory notice period:
    • Coverage continuation is not required by the employment standards;
    • Insurance contracts generally do not provide for this possibility;
    • Insurers who agree to offer coverage continuation often do so for a risk premium.
  • The employer is exposed to risk if it fails to make arrangements with its insurer to continue insurance coverage during the common law notice period or fails to reach an agreement with its employee to limit coverage continuation (for instance, to the end of the statutory notice period if this is what was agreed with the insurer). If the dismissed employee becomes disabled during a period when he/she should have been covered but was not, the employee can file suit against the employer and the employer may be liable to pay disability benefits in accordance with normal coverage provisions (for example, up to age 65 if the employee is disabled up to this age).
  • A written agreement with the employee to limit the continuation period or continuation of coverage throughout the common law notice period are examples of solutions to explore to minimize risk for the employer.
 

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