What to expect from a long-term disability settlement

What to expect from a long-term disability settlement

By Nainesh Kotak

A lump-sum settlement can provide the clean break many disabled employees are looking for from their long-term disability lawsuits.

Although many insured people start out hoping a full recovery will enable a return to work, by the time they have been forced to sue their insurance company in court for an unfair denial or termination of benefits, the relationship has often moved beyond the point where it can be repaired.

That’s part of the reason why so few cases end up with a trial, with many disabled workers accepting a lump-sum payment somewhere along the way that severs the relationship with their long-term disability (LTD) insurer for good.

Even if your claim goes the distance in court, judges are relatively limited in what they can order following a full hearing of the evidence. When the decision goes the way of the insured person, the result is typically a reinstatement of benefits, plus payment of arrears owing.

Damage awards in LTD cases

A successful claimant could also be granted an award of aggravated damages to compensate for harm arising out of the insurer’s failure to pay benefits, such as mental distress or financial hardship, although these damages rarely amount to much more than $10,000.

In extreme cases, a judge may even award punitive damages, which are designed to punish bad faith conduct by an insurance company. And while the record award against an insurer came in at $1 million, most are considerably smaller. In addition, punitive damages are notoriously difficult to prove, since plaintiffs must demonstrate an “independent actionable wrong” committed by the insurer, often involving deliberate or malicious conduct.

Critically, judges have no say over future benefits since they have no way of knowing whether the person will continue to meet the test for disability under the policy in the coming months and years. That’s especially true if the decision comes within the first two years of benefits, after which injured workers must meet a more stringent test for continued coverage. Rather than showing that they are totally disabled from performing the essential tasks of their “own occupation” workers typically need to be totally disabled from employment in “any occupation” to continue receiving benefits after two years.

Indeed, there is nothing to stop an insurer from subjecting injured or ill workers to inappropriate rehabilitation or work hardening programs after they have been successful in court, or even terminating benefits again after some passage of time.

Pros and cons of lump-sum settlements

By contrast, lump-sum settlements offer injured workers a way to ensure some measure of financial security into the future, without the frustration and humiliation that often characterizes the relationship with a hostile insurer.

In addition, clients who opt for a lump sum are able to take control of their funds, investing as they wish in their retirement, family expenses or to pay off debts. The money can also be passed on to family and friends as part of the person’s estate should they die, rather than remaining with the insurer as it would if the person had passed away while receiving benefits.

On the downside, the finality of a lump-sum settlement can be a wrench for some clients. Part of the deal is that the insured person must sign a full and final release that relieves the insurer of any further obligation to them, which means that there is no going back on the agreement.

The timing of a settlement differs from case to case, but from the moment we file a lawsuit, we remain open to the possibility of a settlement that will work for our clients.

Our firm favours early mediation with insurers, which often results in serious settlement talks between the parties. Negotiations tend to intensify around major steps in the litigation process, such as in the aftermath of examinations for discovery or in the lead up to trial.

The size of a lump-sum settlement will also differ in every case, depending on many individual factors, including the value of the policy’s monthly benefit, the strength of their medical evidence, the length of time left in the policy, and its type: a private policy or a group plan offered by an employer.

Private LTD policyholders can often expect a larger settlement thanks to their generally more attractive terms, which may include more generous benefits, coverage beyond the age of 65 and continued application of the “own occupation” test beyond two years of benefits.


We understand that being denied short-term disability or long-term disability benefits can be devastating. Your time to fight your disability insurance company is limited. Please do not delay in calling a short- and long-term disability claim lawyer at Kotak Personal Injury Law. We have successfully sued numerous disability insurance companies including Manulife, Sunlife, Desjardins, Cigna, Great-West Life, Equitable Life, Empire Life, London Life, Blue Cross, AIG, SSQ, RBC, Industrial Alliance, Canada Life, Fenchurch, OTIP, Teachers Life and more.

Call your trusted long-term disability lawyers at 1-888-GOKOTAK (Toll Free for all of Canada), or (416) 816-1500 (Local Number for Ontario Residents), (403) 319-0071, (587) 414-1010 (Local Numbers for Alberta Residents). Our consultation is free, and we don’t get paid until you do. We represent disabled people throughout Ontario and Alberta, including Toronto, Mississauga, Brampton, Milton, Georgetown, Orangeville, Oakville, Burlington, Hamilton, St.Catharines, Niagara Falls, Stoney Creek, Kitchener/Waterloo, Cambridge, London, Windsor, Markham, Pickering, Oshawa, Peterborough, Keswick, Kingston, Ottawa, Banff, Brooks, Calgary, Edmonton, Fort McMurray, Grande Prairie, Jasper, Lake Louise, Lethbridge, Medicine Hat, Red Deer, Saint Albert and other locations.