Overpayments commonly occur when an insured is paid an income replacement benefit (IRB) and subsequently receives retroactive Long Term Disability benefits (LTD) or Canada Pension Plan (CPP) benefits. Each are deductible from IRB, and their retroactive nature may require an insurer to claw back an overpayment made to an insured.
Recovering an overpayment is governed by section 47 of the SABS-1996 (section 52 of the SABS-2010) which requires the insurer to notify the insured of the monetary amount to be repaid. The Superior Court provided much-needed guidance on the factors required to necessitate proper notice in Intact Insurance Company v. Marianayam. In that case, Justice Perell reaffirmed that proper notice must contain: (a) identification of the type of benefit that was overpaid; (b) the payment period for which repayment is sought; and (c) the amount of repayment sought.[1]
Perell J. further opined that the proper amount to be recovered may be unclear and while the insurer is not required to be perfect, the recovery amount outlined in the notice must be “substantially correct”. Determining what a “substantially correct” amount is a two stage process. First, the insurer must correctly calculate the overpayment: the difference between the weekly amounts that were paid and the weekly amounts that ought to have been paid. Second, the insurer may only recover those amounts paid in the 12-months preceding the notice date. If at either stage the insurer makes and error, the notice may be invalidated.[2]
Additional clarity was provided most recently in State Farm Mutual Insurance Company v. Kulaveerasingam. In this case, the insurer sought judicial review of the Director Delegate’s decision to invalidate three separate notices provided to the insurer in January, February and March of 2016.
In Kulaveerasingam, the insurer began deducting amounts, as re-payments, from future IRB payments even though it was restricted from doing so absent the respondent’s consent or a variation order from the FSCO – neither of which it had received. The insurer applied for a variation order, but the Director’s Delegate found all three notices to be invalid and ordered the insurer to repay those amounts deducted plus interest.
Both the January and February notice letters sough repayment for an 18-month period, six months more than the acceptable 12-month period. The March notice letter sough repayment for a 13.25-month period – upon review by the Director’s Delegate, it was determined that this was not such a “minor mis-step” as to allow the notice to be considered “substantially correct”.
The court dismissed the insurer’s application to set aside the Director Delegate’s decision. The court found that his decision was reasonable, especially when considering the feedback provided by the insured’s council after each invalid notice. Given the circumstances, the March notice should have been void of all substantial errors. The fact that the errors in this notice were less egregious than those in the preceding letters, did not render those remaining errors “substantially correct”.
The decision confirms the 12-month limitation on recovery and insurers should be eager to conform, as any deviation may result in an invalid notice.
[1] Citing Knechtel v Royal & SunAlliance Company of Canada, FSCO, Arbitrator Sampliner, June 15, 2009
[2] Marianayam, surpa note 1 at 48.