Compliance isn’t Optional
There are always a lot of questions when it comes to implementing or sustaining a benefit plan, not least of which are employees wanting to ‘opt’ off the entire coverage. This is often a bone of contention when the question of liability comes into play. The role of the broker is to ensure the corporation is informed and the purpose of insurance is to mitigate risk. Just because something hasn’t happened ‘so far’ doesn’t mean it won’t. Put another way, compliance and liability risks are never a risk, until they are.
Claims are increasing as a result of negligence on benefit issues. Here is a brief highlight of some of the most common liability issues:
Extending Coverage Upon Termination of Employment
The minimum notice period applicable to all employees is found within the Employment Standards Act, 2000. The length of these periods is based upon the employee’s years of service with the employer. Under the Act, employers are required to provide a minimum period of salary continuance and benefit coverage as the employee is ‘deemed’ to be actively at work.
Most employee benefit plans are set so the coverage terminates the date of termination. Some employers negotiate continuation of benefits after the termination as part of the severance agreement; however, some benefits, like long-term disability are not eligible to be continued after termination because the employee would not be ‘deemed’ to be actively at work in the event of a disability claim.
Accurate description of Employee Benefits
Employers have an obligation to describe the extent of employee benefit coverage accurately. Liability issues come up when the booklet inaccurately describes the terms of the policy from the insurance company, and, where an employer misrepresents the nature of benefits in an offer of employment or a contract of employment. An employee has a claim for the benefit coverage stated in the contract regardless of the terms of the actual benefits policy. If the terms of the policy are not the same as those represented by the employer, the employer may face liability for the coverage described in the contract of employment
An employer’s failure to pay premiums for benefit coverage may lead to liability far in excess of the value of those premiums. Once an employer has represented to its employees that it is providing certain benefit programs, those programs must be provided. If they are canceled because of the employer’s failure to pay premiums, an employee may have a claim against the employer for all of the benefits it would have received had that premium been paid.
Negligence in Administering Benefit Policies
The benefit policy is placed under corporation’s name for the benefit of the employees. The employee’s do not ‘own’ this policy. Employers administer the benefit plan on behalf of insurer. As such, they deliver policy booklets to employees, assist in completion of application, and claim forms and collect premiums via payroll deductions.
Insurers and employees may be jointly and severally liable for any errors or omissions that occur in the administration of benefit plans. Traditionally, insurers could only recover a small amount from employers who were negligent in the administration of benefit plans. Recovery in such cases was limited to the premiums that the insurer had not been paid. However, the law now allows insurers to claim indemnification from employers. It is also possible that employees administering benefit plans on behalf of their employer may find themselves personally liable for errors in administering benefit plans where they fail to obtain appropriate insurance coverage or fail to properly report a claim.
Even the cancellation of benefit plans can raise a number of liability issues when it pertains to the expectation of benefits by the employees. Take for example if an employee made appointments with the expectation of coverage only to learn the coverage was terminated without notice and they are now responsible for those expenses.
Human Rights Code
The Human Rights Code prohibits discrimination in employment based upon race, ancestry, place of origin, colour, ethnic origin, citizenship, creed, sex, sexual orientation, gender identity, gender expression, age, record of offenses, marital status, same-sex partnership status, family status and disability.
As the cost of benefit coverage increases, many insurance companies and employers are looking at ways of controlling costs by limiting the type of benefit coverage provided. This is especially true in the case of drug plans. Increasingly these plans are limiting the types of drugs that will be paid for by the plan. These limitations have not yet been challenged in Canada, but they have been in the United States. One can see that it is only a matter of time before employees challenge their insurer (and their employer) because a policy does not cover certain treatments for these disabilities.
Employers have also been found liable for failure to bring the terms of benefit policies to the attention of their employees. An example is when an employee is terminated and not told they have 31-days to convert their life insurance and/or disability coverage into an individual policy.
Court proceedings have found that as a result the death of a former employee, the employer was liable to the employee’s estate when he died during the notice period. In an other situation, the employer was liable—breach of duty—to the employee in negligence on the basis that it owed a duty to the employee to assist him in completing forms for LTD benefits.
As the relationship between employers and employees become more complex we can expect to see increasing obligations being placed upon employers towards their employees. Compliance is not an option. In the field of employee benefits, employers are expected to administer the benefit plans fairly, accurately and efficiently. A failure to do so may lead to liability far in excess of the cost of providing the appropriate benefit coverage.
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