Employer’s Inaccurate Statement About Benefits Eligibility Results in Over $90,000 in Damages

Previously printed in the LexisNexis Labour Notes Newsletter

In Feldstein v. 364 Northern Development Corp., [2016] B.C.J. No. 128 (S.C.), a misstatement by a manager regarding eligibility requirements for long-term disability (LTD) benefits was found to be negligent and the employer (“364”) was required to pay an employee who relied on that misstatement over $90,000 in damages.

Facts

Cary Feldstein was a 37-year old software engineer with cystic fibrosis. He accepted a position with 364 in 2012. At his previous place of employment, the plaintiff had only been required to successfully complete six months of continuous employment in order to qualify for the LTD plan. No medical examination or health questionnaire was required.

When his previous position was terminated, Feldstein applied for a number of jobs. He said that given his condition, he would not accept new employment unless it offered him sufficient LTD benefits. To him, that meant benefit payments equivalent to a significant portion of his monthly salary and, given his diagnosis, eligibility could not be contingent on the absence of any pre-existing health condition because such a requirement would preclude him from accessing such benefits.

At a second interview with 364, Feldstein requested a copy of the benefits booklet, which included a summary of the LTD plan. The LTD plan provided for coverage of 66.67 percent of monthly earnings to a maximum of $5,000, which for Feldstein would have amounted to $4,669 per month. The booklet also stated under the heading “Proof of Good Health” that “approval [was] required for coverage in excess of $1,000, and any increase in that coverage …”

After reviewing the booklet, Feldstein asked three questions of 364’s Chief Information Officer, Eugene Nizker, including what constituted “Proof of Good Health” for the purposes of LTD benefits. Feldstein testified that Nizker advised him that “Proof of Good Health” was “related to the three-month waiting period needed in order to have the plan in effect”. Feldstein understood that to mean that he would only need to complete a three-month probationary period in order to be eligible to participate in the plan.

Feldstein accepted the job with 364 and, around six months later, his health deteriorated. He eventually applied for LTD benefits and his benefits claim was approved. However, he soon learned that he was only entitled to the “non-evidence maximum” of $1,000 per month because he had failed to complete a health questionnaire when he initially enrolled in the plan.

Feldstein filed an action against 364. His claims included negligent misstatement on the part of Nizker. He argued that the statement made by Nizker regarding the meaning of “Proof of Good Health” was misleading and caused him to erroneously believe that he would be eligible for $4,669 per month in LTD benefits without having to complete a health questionnaire or medical examination. He asserted that he specifically accepted employment with 364 on the strength of Nizker’s statement.

Decision of B.C. Supreme Court

Given that Nizker was in charge of 364’s hiring process and the central point of contact between Feldstein and 364, the B.C. Supreme Court found that he was required to take reasonable care to ensure that his representations to Feldstein were accurate and not misleading. He knew or ought to have known that access to LTD benefits was an important part of Feldstein’s decision-making process.

By making an incorrect statement to Feldstein regarding the eligibility requirements for the LTD plan, Nizker acted negligently. He knew Feldstein would likely rely on his description of 364’s benefits plan but took no steps to verify the accuracy of the information he was providing. Feldstein accepted a position with 364 on the strength of Nizker’s statement and, as a result, incurred a loss of LTD benefits which he otherwise would have had when his health deteriorated.

364 argued that because Nizker was not a human resources professional or expert in benefits matters, Feldstein’s reliance on his statement about benefits (which appeared to be at odds with the language in the booklet) was unreasonable. 364 maintained that the plaintiff should have inquired further. The Court rejected this argument and found that Feldstein had no reason to doubt Nizker’s statement or make further inquiries, particularly in light of the fact that he had been part of a LTD plan with a similar eligibility requirement with his previous employer. Under the circumstances, the statement was plausible and he was entitled to rely on it.

The Court awarded Feldstein 40 months of the LTD benefits to which he had thought he was entitled. These benefits had a value of approximately $83,000. The Court also awarded $10,000 in aggravated damages.

Takeaway

This case serves as a reminder that employers may be liable for the negligent misstatements of their managers and other employees acting as their representatives.

Employers should ensure that individuals who advise their employees are well-informed, particularly in the complex area of benefits eligibility and entitlement, and also that employees are advised to verify with the benefits provider any information provided to them before acting on it.