Reducing ltd by after tax cpp payments

Disability Insurance
1

Hi

I have been on LTD for years and recently applied for CPP and got approved.

My goal is to have the insurance company reduce my monthly benefits ONLY by the after tax CPP benefit and not by the gross CPP benefit.

I would like you feedback on whether what I have so far is promising.

The way that my contract calculates the disability income is, quote:
“After disability benefits are payable for 24 months, the monthly benefit PAYABLE is the GROSS Disability Benefit REDUCED by Other Income Benefits…”

Where, quote: " Other Income Benefits include:

  1. any amounts received (or assumed to be received*) by you under:
  • the Canada and Quebec Pension Plans;
    …
    "

Based on the context above, it is not clear that the deducted Other Income is gross.
In fact, it could be CONSTRUED that the other income benefit will not be deducted as GROSS, since they mention GROSS Disability Benefit but not GROSS Other Income Benefits.

Is this one of those cases where THE AMBIGUITY IN THE CONTRACT has to be resolved in favor of the insured AS THE CONTRA PROFERENTEM DOCTRINE says?
IE: the deduction scheme is NOT ABSOLUTELY clear, and as such, the ambiguity should be resolved in the favor of the insured.

Any feedback is greatly appreciated.

Note: my LTD benefits are non taxable

2

This is worth a try. My spouses contract is similar. Except in his case it is 66% of his income but capped at only a max. of 1980 per month. He is suing based on his Insurer misrepresenting that he had to apply, when he did not have too. Also that any offset should be net of taxes as he is not to receive less than 1980 as a non taxable amount.

You should always argue that it means net of taxes if there is ambiguity.

Even more importantly, there is a strong argument that, because CPP benefits are
fully taxed, whereas privateLTD benefits are not, insurers must be under a duty to specifically warn insureds that,should they become disabled and qualify for CPP as well as private LTD benefits,
they will be unable even in theory to collect the full amount for which they have
contracted. It might be argued that, should an insurer fail to disclose the fact that the
taxation of CPP benefits will deprive the insured of the stated level of benefit for
which that person has paid premiums, the insurer is obligated to pay the amount by
which taxation reduces the benefits that reach the insured’s pocket

3

This would come down to a interpretation of the offset clauses in your policy. This issue has been before the courts, but the name of the case escapes me at the moment and I am away from the office. The Doctorine of Contra Proferentum very much applies in a situation like this. I agree with you if they wanted it to be gross payment, then they should have included the word gross payment.

One issue you need to consider is… are you really receiving a net CPP disability payment at the end of the day. Its not always as simple as the “net” amount you receive as monthly payments. For example, you would need to show that you are not getting a tax refund equal to the amounts being withheld for income tax. If that happens then you are really receiving the full gross payment – just that some of it is deferred until you get the tax refund.

David Brannen

Disability Lawyer with Resolute Legal

The response posted above is based on the limited factual information made available and is not intended as a full and complete response to the question. The only reliable manner to obtain complete and adequate legal advice is to consult with a lawyer, fully explain your situation, and allow the lawyer enough time to research the applicable law and facts required to give an adequate opinion. The basic information provided above is intended as a public service only, a full one-on-one discussion with a lawyer should be done before taking any any action. The information posted on this forum is available to the viewing public and is not intended to create a lawyer client relationship with any person. If you want one-on-one advice, please click here to request a free consultation or call toll free 1-877-282-5188 to speak with a member with our disability claim support team.

4

Thank you for the replies,

5

Thank you David for your reply:

Below I am going to try to lay out my thoughts about the last paragraph of your reply, wrt “really receiving a net disability”.
My situation is such that have not opted for the reduction at source of my CPP benefit. In other words, your comments can be recast as: “if due to you specific tax situation you end up not paying the full 20% (or whatever tax is applicable in BC) then you are not truly affected”

(I am not sure if I make sense 100% so let me know of any flaws in my reasoning)

From your feedback, I think I grasp that I should be focusing more on the CONTRA PROFERENTEM line of pursuit RATHER than alternative lines of attack where I state that if the insurance company offsets the GROSS CPP payments from my LTD payment, then my total income will take a hit due to being taxed on the CPP part of my income.

In other words, (and let me know IF I MAKE SENSE) if my ARGUMENT against the GROSS CPP being deducted/offset from my LTD income is the CONTRA PROFERENTEM one, then who cares whether I get to pay less taxes or not? That bit of potential extra income is due to TAX RELIEF (ie due to non refundable credits I may have) and not due in a direct manner to GOVERNMENT BENEFITS.

I looked at the calculation for the “monthly benefit PAYABLE” and it does not include tax refunds.
By this I mean that in the contract I could not find any mention of having my TOTAL ABSOLUTE INCOME FROM ALL SOURCES NEVER TO SURPASS THE 50% OF MY PRE DISABILITY INCOME THAT I AM INSURED FOR.
There are however, clauses to limit the income from multiple insurance/ benefit sources, including government benefits, such as CPP.
However, tax refunds were not included.
In other words, I do indeed HOPE that I can use my non refundable credits to actually avoid paying part of those CPP income taxes, but that is not a government benefit, it is just a tax situation, that could easily be different (ie I
could end up owing).

To conclude, does my reasoning make sense? Can I just make my argument against GROSS deduction based on case law supporting an interpretation of the ambiguity in my favor? Would you be able to point me to that case?

Thank you for your feedback.

PS: below I have the exact quotes wrt monthly benefits payable:

"
After disability benefits are payable for 24 months, the monthly benefit PAYABLE is the Gross
Disability Benefit REDUCED by Other Income Benefits, the calculation for Optimum Ability and
50% of Disability Earnings."

"
Disability Earnings
Any wage or salary for any work performed for any employer during your Disability, including
commissions, bonus, overtime pay or other extra compensation."

6

If your LTD benefits are non-taxable you should ensure that the insurer deducts only the net amount you receive from CPP. Most policies are silent on the issue of whether the LTD insurer is entitled to deduct the net or gross amount of the CPP disability benefit. There is an Ontario Court of Appeal decision, however, which strongly suggests that the LTD insurer is entitled to deduct only the net amount received by the disabled person.
Good case reasoning is Bapoo v. Co-Operators (1997) CanLii 6320 (ONCA) https://www.canlii.org/en/on/onca/doc/1997/1997canlii6320/1997canlii6320.html?searchUrlHash=AAAAAQAdQmFwb28gdi4gQ28tT3BlcmF0b3JzICgxOTk3KSAAAAAAAQ&resultIndex=1

7

Interesting automobile insurance case falling under Ontario legislation. All the judges didn’t agree, and the third one had some interesting points to think about that are general enough to think about in the context of an LTD insurance situation. David touched on one of them above, but there are a number of others in the judges argument.

Allyoops, sorry I don’t agree with your conclusion that this case strongly suggests what an LTD insurer is entitled to do with CPP disability payments. I’m not a lawyer, but I think its a stretch to apply this case to an LTD case. Should there be a matching LTD insurance case, everything will change!

8

It was a lawyer who told me this was the case to use. If an Insurance policy is silent to gross or net taxes then there is ambiguity. An Insurer has an obligation to clearly explain or put in the policy any amount that would reduce the amount payable.

Insurers would argue that calculating taxes would be an administrative burden–but if they want the deduction to be net it has to be clear in the policy.

Likely not made it into court as the amount might not be worth it to litigate-thats why trying small claims would be a reasonable path.

9

Bapoo is a case often cited, but it is not a definitive ruling on the issue. I can be easily distinguished because it was decided in context of Ontario’s auto insurance system which is an extremely complex legislative and regulatory regime. For an LTD Insurance case the starting point is always the policy in question, and whether you are actually receiving the gross CPP payment, at the end of the day.

David Brannen

Disability Lawyer with Resolute Legal

The response posted above is based on the limited factual information made available and is not intended as a full and complete response to the question. The only reliable manner to obtain complete and adequate legal advice is to consult with a lawyer, fully explain your situation, and allow the lawyer enough time to research the applicable law and facts required to give an adequate opinion. The basic information provided above is intended as a public service only, a full one-on-one discussion with a lawyer should be done before taking any any action. The information posted on this forum is available to the viewing public and is not intended to create a lawyer client relationship with any person. If you want one-on-one advice, please click here to request a free consultation or call toll free 1-877-282-5188 to speak with a member with our disability claim support team.

10

My benefits booklet says all numbers are gross.

11

I would be interested to know if @alecs got a satisfactory resolution.

My husband is receiving TAX FREE LTD payments. Blue Cross is offsetting the full amount of the eligible CPP (a taxable benefit) from his LTD payment. My husband is in a 46% tax bracket, and the result is he is paying the CRA (at source - CPP is withholding 46% tax monthly) directly while Blue Cross is offsetting the full amount of the CPP he is eligible for.

The LTD contract wording is ambiguous as it says “when other benefits are available to the Employee, deduct the following direct offsets i) any disability or retirement benefit under the CPP”

It is our argument that the CPP available to my husband is only the net amount he recieves monthly from CPP (after they take off the tax). Blue Cross disagrees and says it is “industry practice” to take the full amount of the CPP, regardless of the amount of tax that has to be paid on it.

I’m having a hard time accepting Blue Cross’s position. They benefit from a high income employee paying higher premiums to receive a tax free benefit. They benefit from a high income employee being eligible for a higher amount of CPP entitlement, then the employee is left to pay a large chunk of the CPP entitlement to the CRA, while the insurance company benefits.

We have reached out to one lawyer, who says the law isn’t on our side, citing the Ruffolo case. We found the Bapoo case that suggests the insurance company is only entitled to the net amount.

We are not sure what to do next, and feel the full offset is unfair.

12

I am normally sympathetic but I am finding it hard to be sympathetic with someone making that much money.
This topic has been brought up by a lot of people.

If he doesn’t have the DTC, apply for it.
That should lower his taxes payable a lot.

1 Like
13

I am not looking for sympathy on this issue but for confirmation if anyone has been able to successfully resolve it/litigate it (I have found no legal cases dealing with this exact issue). It seems wrong to me that an employee pays premiums for a TAX FREE benefit, only to have a taxable benefit offset against it. In my mind, this “industry practice” is wrong.

My suspicion is that people who have had this issue in the past have been “paid off” by their insurance companies who have offered a slightly lower offset in exchange for a confidentiality agreement. This would explain why I see no comments as to how people resolved their issue.

“That much money” is the fortunate result of having an Income Replacement Plan (provided by the employer) that will go a long way to help offset the huge cost (both home modification and home care) of caring for an ALS patient. I wouldn’t wish ALS on anyone, and that deserves some sympathy, irrespective of my husband’s income level.

14

He is already a DTC recipient and I work at a tax accounting office, so know how to calculate marginal tax rates.

15

If you do manage to get any relief I’d love to hear about it. Good luck!

16

Thank you Caro for your support

17

I suspect a lawsuit will fail so it is not worth it for a lawyer to try.
It is weird that there are no comments about this.
I would probably sign an NDA for a lower offset.
Maybe @David_Brannen will comment. :slight_smile:

18

You can reach out to us for a free case evaluation. The practical thing is that these cases don’t get litigated – when someone is on an approved claim – because the cost of litigation would be more than the potential benefit received. The potential extra benefit needs to be substantial for a lawyer to get involved on a no-win, no-fee basis. This issue comes all the time in litigated cases involving denied claims and is resolved with confidential settlements. So few cases actually go to court so that is why there are so few cases on this issue.

David Brannen

Disability Lawyer with Resolute Legal

The response posted above is based on the limited factual information made available and is not intended as a full and complete response to the question. The only reliable manner to obtain complete and adequate legal advice is to consult with a lawyer, fully explain your situation, and allow the lawyer enough time to research the applicable law and facts required to give an adequate opinion. The basic information provided above is intended as a public service only, a full one-on-one discussion with a lawyer should be done before taking any any action. The information posted on this forum is available to the viewing public and is not intended to create a lawyer client relationship with any person. If you want one-on-one advice, please click here to request a free consultation or call toll free 1-877-282-5188 to speak with a member with our disability claim support team.

19

What is the range of usual resolutions?

20

I’m interested in this too, and will try to find out from David. My husband has been offered a very low (almost insulting) amount with the insurance company citing “Industry Practice”. Such a shame that this can’t be settled via the courts. I’m wondering if a Class Action would be more appealing to a lawyer to take on.