Failed Third Party Claim Against Disability Insurer

OVERVIEW

Third party claims are intricately connected to allegations pleaded in the statement of claim. When a plaintiff does not claim damages from anyone other than the defendant, the defendant cannot pursue a claim for contribution and indemnity from anyone else. As is evident in the decision Mitchell v. Enertech Sheet Metal Inc. [2023] O.J. No. 5137 (“Mitchell”), contribution rights only arise where a defendant is compelled to pay more than its proportionate share of the plaintiff's damages. Recovery for disability benefits can become a critical issue for employers when the plaintiff alleges wrongful termination, and claims damages for the premature termination of group benefits coverage.  In such cases, an employer may find themselves unable to pursue a third party claim for contribution and indemnity from the disability benefits provider.

In Mitchell, the plaintiff commenced an action for wrongful dismissal against her employers, Enertech Sheet Metal Inc. and Enertech Maintenance Contractor Inc. (“Enertech”). Among other things, the plaintiff alleged that she was wrongfully terminated on June 15, 2020 and sought damages for the loss of group benefits which she had access to while employed by Enertech.  Group benefits were provided by Sun Life Financial Inc. and Sun Life Assurance Company of Canada (“Sun Life”).  

In her amended statement of claim, the plaintiff pleaded, among other things, that she became disabled and was unable to work and that Enertech wrongfully terminated her group benefits coverage, which included disability benefits.  She consequently sought entitlement to damages in the amount of the value of those group benefits from Enertech. 

The plaintiff did not commence an action against Sun Life for disability benefits and, at no point in her pleadings did she make any claim against Sun Life.  She also did not plead when she became disabled.  However, the court in Mitchell did point out (in a footnote to the decision) that Sun Life pleaded in its third party defence that the plaintiff did submit a claim to Sun Life for disability benefits in February 2022, claiming that she was totally disabled and unable to work as of December 9, 2021, well after the coverage period had lapsed. 

In its statement of defence, Enertech denied that the plaintiff was wrongfully terminated or disabled.  Entertech subsequently issued a third party claim against Sun Life. In its third party claim, Enertech adopted an alternative position: if the plaintiff became totally disabled within the meaning of the policy, and she was entitled to disability benefits, then Sun Life was liable to the plaintiff.^[1]  When Enertech framed its third party claim against Sun Life as one of contribution and indemnity under the Negligence Act, Sun Life brought a motion to strike the third party claim on the basis that it disclosed no reasonable cause of action.