Failure to submit formal application for Long Term Disability under policy amounts to imperfect compliance rather than non-compliance and thus plaintiff’s was entitled to relief from forfeiture

Insurance law – Life insurance – Imperfect compliance vs. non-compliance with policy – Relief against forfeiture – Practice – Summary judgments

Smith v. Sun Life Assurance Co. of Canada, [2021] O.J. No. 6137, 2021 ONSC 7109, Ontario Superior Court of Justice, November 1, 2021, J.F. Diamond J.

The insured alleged he was disabled due to depression and brought a claim for all Long Term Disability (“LTD”) benefits due and owing under an insurance policy. There was no dispute that the insured had not submitted a formal application for LTD benefits.

The insurer brought a motion seeking summary judgment dismissing the insured’s claim on the basis that the insured’s failure to submit a formal application for LTD benefits amounted to non-compliance under the policy. The insured argued that his failure to submit a formal claim for LTD benefits was imperfect compliance with the terms of the policy and relief from forfeiture was both available and warranted. The insurer argued that, even if relief from forfeiture was available to the insured, it should not be granted on the facts of the case.

The insurer’s position was that the insured had no cause of action due to his failure to file a claim for LTD benefits as required by the terms of the policy; however, the Court held that the law has generally treated failure to give notice of a claim in a timely fashion as imperfect compliance. The Court found that, on the record before it, there had not been non-compliance, but rather imperfect compliance. The factors weighing in favour of that finding were that the insurer was already well aware of the nature of the insured’s alleged disability, having previously received, reviewed and adjudicated upon two prior claims brought by the insured for short term disability benefits due to depression (one of which was approved and one which wasn’t), and second, and more importantly, the insurer had provided the insured with a pre-printed questionnaire to be completed by the insured’s doctor, which form specifically provides that the claim was for LTD benefits. The Court found that, while the claim itself was never completed and/or submitted, the questionnaire for LTD benefits was completed by the insured’s physician and thus the insurer had (albeit imperfect) notice that the insured was pursuing a claim for LTD benefits.

The Court considered whether relief from forfeiture was appropriate in the circumstances and found that the three factors to be considered – namely, conduct of the insured, the gravity of the insured’s breach and the disparity between the value of the property forfeited and the damages caused by the insured’s breach all favoured the insured. The Court appreciated the insured’s position that, having been denied short term disability benefits, it was reasonable to conclude that any formal claim for LTD benefits would have been denied by the insurer in any event. With respect to the second factor, the court held that the insured’s non-compliance did not have a significant impact on the insurer as it had already conducted its own investigation into the merits of the insured’s alleged disability. With respect to the last factor, the Court found that any alleged prejudice suffered by the insurer was outweighed by the harm to the insured if he was precluded from pursuing his claim to LTD benefits.

The Court dismissed the insurer’s motion for summary judgment and granted the insured relief from forfeiture.

This case was digested by Tricia M. Milne, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Tricia M. Milne at tmilne@harpergrey.com.

To stay current with the new case law and emerging legal issues in this area, subscribe here.