Never let an insurer tell you that severance and vacation payout are deductable from your LTD payments without contractual proof.
Last week I spent 45 minutes talking to a LTD insurer on behalf of a fellow LTD recipient.
Their employment was considered frustrated after 5 years on LTD and this major insurer was going to deduct his meager severance and vacation accrual payout from his LTD payments.
I looked at the master LTD contract under the section on what the insurer is allowed to deduct from LTD payments and it did not mention severance or vacation payout. For an insurer to deduct either of these things it has to specifically mention severance and/or vacation accrual payout are allowed offsets. Same goes for passive income which includes rental income, RRSP withdrawals, capital gains, interest, and dividends.
After some words, and then speaking to the case managers supervisor I strongly told them that if they proceed with the offset they are in breach of contract, and they eventually backed down and then sent a letter basically stating they were wrong.
I literally repeated myself about 5 times asking “show me where in the LTD policy/contract it allows you to offset severance and vacation payout”. They waffled and were vague each time they tried to answer. My response was always “No, that is not in the contract and would be breach of contract please answer again”.
Bravo! Great work and I agree. The only thing I would add is some polices can use broad language that can cover many things – like saying “any payment from an employer”. That would be broad enough to cover severance pay, vacation pay etc.
Another point, is that sometimes polices have two formulas for offsetting payments. Direct and Indirect. So do as Buckets says and look at both of these clauses to make sure they include or don’t include deduction for the specific type of employment income that applies to you.
David Brannen
Disability Lawyer with Resolute Legal
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