Ontario (Human Rights Comm.) v. North American Life Assurance Co. (No. 5)

1992-10-16

Ontario Board of Inquiry

Gary Thornton Complainant

v.

North American Life Assurance Company, First North American Life Insurance Company and Clarendon Foundation Respondents

Date of Complaint: February 15, 1990

Date of Decision: October 16, 1992

Before: Ontario Board of Inquiry, W. Gunther Plaut

Comm. Decision No.: 441B

Appearances by: Anne M. Molloy and Gerry Heddema, Counsel for the Complainant Naomi Overend, Counsel for the Commission Mary Eberts and Jenifer Aitken, Counsel for the Respondents North American Life Assurance Co. and First North American Life Insurance Co. Stephen Bernofsky, Counsel for the Respondent Clarendon Foundation

INSURANCE — DISABILITY — PUBLIC SERVICES AND FACILITIES — disability insurance benefits refused on basis of medical history of AIDS — definition of public services and facilities — DISCRIMINATION — unacceptable risk to insurance company — REMEDIES — order to review contracts

HUMAN RIGHTS — nature and purpose of human rights legislation — INTERPRETATION OF STATUTES — definition of "handicap," "pre-existing," "reasonable and bona fide" and "risk" — EVIDENCE — statistical evidence — BURDEN OF PROOF — point at which onus shifts

Summary: The Board of Inquiry dismisses the complaint of Gary Thornton who alleged that he was discriminated against when he was refused employment-related long-term disability benefits.

Mr. Thornton was employed by the Clarendon Foundation on January 16, 1989. As an employee of the Foundation his benefit package included a number of health-related benefits including a short-term and a long-term disability plan. The insurer for these benefits was the North American Life Assurance Company.

During the first ninety days of his employment, Mr. Thornton visited a doctor who diagnosed him as HIV-positive, although he was not ill and required no treatment. When Mr. Thornton subsequently needed to use his long-term disability benefits they were refused for a certain period based on an exclusion clause in the policy with North American Life Assurance Company. This clause provided that if an employee had received treatment from a physician during the ninety days prior to the insurance being effective, no income benefit would be payable for any disability arising from the same or a related cause until the employee has not incurred medical expenses or received medical care or treatment for a period of ninety days.

The issue before the Board of Inquiry is whether this clause offends the Human Rights Code, or is allowed by it. In particular the Board must determine whether the clause is saved by s. 25(3)(a) of the Code which provides that the right to equal treatment in employment is not infringed if a reasonable and bona fide distinction is made in an employee disability benefit plan because of a pre-existing handicap that substantially increases the risk.

The Board of Inquiry applies the Supreme Court of Canada's test set out in Zurich Insurance Co. v. Ontario (Human Rights Comm.). In that case, the majority found that a discriminatory practice in the insurance industry is reasonable if it is based on sound and accepted insurance practice and there is no reasonable alternative.

The Board of Inquiry accepts that the practice of including exclusionary clauses in insurance contracts where there are fewer than 100 employees in the insured group is reasonable. Where there are larger numbers of employees such clauses are not necessary because the risk is spread over a greater number of lives, and the cost of claims can be absorbed.

The Board of Inquiry also finds that there are no practical alternatives to this practice offered by the parties which would not also prejudice some persons with disabilities.

The Board dismisses the complaint. However, it requests the North American Life Assurance Company to institute a review of its contracts to make sure that the spirit of human rights legislation is being adhered to, and in particular it requests that exclusionary clauses be reviewed. The Board requests further that North American Life Assurance report to the Superintendent of Insurance within eighteen months on the results of its review.

[Ed. Note: See also preliminary decisions at 1991 CanLII 13125 (ON HRT), 16 C.H.R.R. D/162, 1992 CanLII 14243 (ON HRT), 17 C.H.R.R. D/472, 1992 CanLII 14226 (ON HRT), 17 C.H.R.R. D/476 and 1992 CanLII 14235 (ON HRT), 17 C.H.R.R. D/477.]

Cases Cited

Brooks v. Canada Safeway Ltd., 1989 CanLII 96 (SCC), [1989] 1 S.C.R. 1219, 10 C.H.R.R. D/6183: 13

Brossard (Ville) c. Québec (Comm. des droits de la personne), 1988 CanLII 7 (SCC), [1988] 2 S.C.R. 279, 10 C.H.R.R. D/5515: 14

Ontario (Human Rights Comm.) v. Etobicoke (Borough), 1982 CanLII 15 (SCC), [1982] 1 S.C.R. 202, 3 C.H.R.R. D/781: 15, 36

Ontario (Human Rights Comm.) v. London Monenco Consultants Ltd. (March 2, 1992) (Ont. C.A.) [unreported]: 15

R. v. Bushnell Communications (1974), 1974 CanLII 559 (ON CA), 4 O.R. (2d) 288 (C.A.): 13

Zurich Insurance Co. v. Ontario (Human Rights Comm.) (1992), 1992 CanLII 67 (SCC), 16 C.H.R.R. D/255 (S.C.C.): 14, 37, 63, 78

Legislation Cited

Ontario

Human Rights Code, R.S.O. 1990, c. H.19

s. 5(1): 12

s. 10(1)(b): 31

s. 15(3)(a): 111

s. 22: 27

s. 24: 79

s. 25: 90

s. 25(2): 27

s. 25(3)(a): 17, 26, 82

s. 25(3)(b): 27

Authorities Cited

Colinvaux's Law of Insurance (London: Sweet and Maxwell, 1990): 105

FINAL DECISION AND ORDER

1On September 9, 1991, the Hon. Elaine Ziemba, Minister of Citizenship, appointed me as a board of inquiry to hear the above matter. The complaint was dated February 15, 1990, and amended on October 10, 1991 (Exhibits 1 and 3). Hearings began via teleconference on October 3 and 9, 1991, and continued in persona thereafter.

2Mr. Thornton was employed by Clarendon Foundation ("CF") and had signed forms for eligibility in group benefits with the First North American Insurance Company ("FNAI"), a wholly owned subsidiary [of] North American Life Assurance Company ("NAL"). The group policy number is H-01-041759, and the master application was dated August 24, 1988. A long-term disability claim made under this policy by the complainant was denied by the insurer, and the clause under which he was denied the benefits is at issue in this case.

3Partway through the proceedings I issued an order adding Clarendon Foundation as a respondent. The interim decision (which also deals with certain safeguards for witnesses) was issued December 27, 1991, and is appended to this order (Appendix A* [published at 1991 CanLII 13125 (ON HRT), 16 C.H.R.R. D/162]).

4A further complaint was brought by Mr. Thornton against CF, alleging that his dismissal from employment was contrary to the Ontario Human Rights Code, S.O. 1981, c. 53 (the "Code"). In January 1992 I was appointed to hear that complaint as well, and Mr. Thornton's two complaints were joined and heard together. Subsequently the second complaint was settled, and on March 19, 1992, I issued an order approving the terms of settlement (appended hereto as Appendix B).

5I issued three further interim decisions. On April 21, 1992, I denied a motion to restrict the complainant from adducing certain types of testimony (appended as Appendix C [published at 1992 CanLII 14243 (ON HRT), 17 C.H.R.R. D/472]). On April 27, 1992, I added First North American Life Insurance Company, a wholly owned subsidiary of NAL as a respondent (Appendix D [published at 1992 CanLII 14226 (ON HRT), 17 C.H.R.R. D/476]). On July 28, 1992, I denied a motion which would have asked NAL to produce certain documents (Appendix E [published at 1992 CanLII 14235 (ON HRT), 17 C.H.R.R. D/477]).

6All motions having been made and decided upon, and all witnesses having been heard, final arguments were delivered on August 31 and September 1, 1992. I received the complete transcripts of the proceedings, amounting to a total of twenty-seven volumes, on September 18, which marked the conclusion of the hearings. In accordance with s. 41(7) of the Code this decision is delivered within the thirty [sic] thereafter.¹

Synopsis

7Because of the variety of issues before this Board a brief overview of the contents of the decision is herewith presented:

BACKGROUND BASIC

LEGAL PRINCIPLES

General — Onus — Defence

UNCONTESTED FACTS

ISSUES AND ARGUMENTS

Issue 1: Is the insurance clause contained in an insurance plan which covered the complainant?

Issue 2: Was there a pre-existing handicap?

Issue 3: Is the PEC clause reasonable and bona fide?

3(a) Is the clause 2.5 sound and accepted business practice?

(1) Insurance for small groups.

(2) Adverse selection.

(3) Small and large groups.

3(b) Is there no practical alternative to the PEC clause?

Issue 4: Was there a substantial increase in risk?

SUMMARY

ORDER

BACKGROUND

8Mr. Thornton claims that the respondent discriminated against him by denying him long-term disability payments to which he believes he was entitled. His amended complaint, filed with the Ontario Human Rights Commission ("OHRC" or "Commission") and signed October 10, 1991, reads in part:

1. I commenced my employment with CF on Jan. 16, 1989, as a Project Manager. On April 1, 1989, I was promoted to Operations Manager.

2. On Jan. 17, 1989 I signed forms for eligibility in group benefits with NAL. The group benefits included OHIP, Life insurance, Drug and eye glass coverage, Hospital insurance, Short-Term and Long-Term Disability ["STD" and "LTD"].

3. On April 16, 1989, after the three-month probation period, I became eligible for all the benefits mentioned above.

4. On July 30, 1989, I had to take STD due to fatigue, headaches and depression. At this point I became aware that I had contracted an AIDS related illness.

5. In October 1989, I started to take the drug Retrovir (AZT) which [was] supposed to assist in my recovery. Unfortunately it also increased my headaches, fatigue and depression.

6. On Dec. 4, 1989 my STD ended and I became automatically eligible for LTD.

7. On Dec. 6, 1989 [I was told] that my claim for LTD had been denied because 90 days prior to my effective date for benefits I had received care or treatment for my present disability.

8. On January 3, 1990 I received a copy of a letter sent to my employer from NAL which indicated that according to section 2.5 of the policy I was not entitled to LTD benefits.

9. I did not receive care or treatment for my disability prior to my effective date for benefits. I was diagnosed HIV+ in Jan. 1989, but I did not have any symptoms or illnesses related to my present condition.

10. I am a man with AIDS and have reason to believe that my right to equal treatment with respect to services has been infringed because of my handicap in contravention of sections 1 and 8[9] of the Code.²

11. I also believe that my right to equal treatment with respect to employment without discrimination because of handicap has been infringed in contravention to section 45 and 8[9] of the Code.

9Undisputed evidence showed that Mr. Thornton saw his doctor on January 19, after he had a second test which show [sic] him to be HIV+, and they discussed possible treatments. He then saw him again for blood tests to monitor his T-4 count. He had no symptoms of the disease and the first medication he received was after the 90-day period had run out (evidence of Gary Thornton, Transcript vol. III, pp. 33 ff.). Later that year he went on STD benefits and when they ran out applied for LTD but was refused. He testified that he did not know of the exclusion clause that triggered his refusal. He became depressed and tried to commit suicide, but recovered sufficiently so that he attempted to return to work on February 5, 1990, after his doctor had certified on February 2 that he was able to work again. However, he was sent home and later dismissed, which caused him to launch a complaint with the Commission against CF, his employer (No. 11, supra; Evidence of Gary Thornton, Transcript vol. III, pp. 122 ff.). That complaint was ultimately settled and he was reinstated effective February 2 (see Appendix B, attached [not published here]).

10The complaint against NAL (No. 10, supra) was therefore for LTD benefits from Dec. 4, 1989 (the date of the refusal), to February 2, 1990 (the date of his reinstatement to employment with CF).

11The respondent disputes the latter claim, holding that the complainant was treated fairly, that he was not discriminated against in any fashion, and that his affliction with AIDS played no role in denying him long-term benefits. This denial was based solely on an exclusion clause in the insurance contract which operates for all who are members of the group plan. The clause in the policy reads in part as follows (italicized for the sake of emphasis):

Long Term Disability

Benefit Provisions.

2.5 Exclusions

If an employee has incurred medical expenses, or received care or treatment by a Physician during the 90 day period prior to the date his insurance becomes effective, no Income Benefit shall be payable for any disability resulting from the same or related cause until:

a) the Employee has not incurred medical expenses, or received care or treatment by a Physician for a period of 90 days; or

b) the Employee has been insured for 12 consecutive months and the disability commences after this period . . .

12As a result of this clause — which the complainant believes to be discriminatory and therefore illegal — any employee who receives care or treatment for a medical condition during the first ninety days after employment has begun (but before the policy becomes effective, which occurs at the end of the ninety days) enjoys only restricted rights to receive disability benefits. Thus, employees who fall ill during the first ninety days of work and see a doctor are singled out for possibly differential treatment and are targeted as persons who may be denied benefits granted to others. This constitutes a prima facie case of discrimination under s. 45 of the Code.

4(1) Every person has a right to equal treatment with the respect to employment without discrimination because of race, ancestry, place of origin, colour, ethnic origin, citizenship, creed, sex, sexual orientation, age, record of offences, marital status, family status or handicap.

BASIC LEGAL PRINCIPLES

General

13According to accepted human rights law, if any portion of the clause offends the Code, discrimination is established (Brooks v. Canada Safeway Ltd., 1989 CanLII 96 (SCC), [1989] 1 S.C.R. 1219 [10 C.H.R.R. D/6183]; R. v. Bushnell Communications (1974), 1974 CanLII 559 (ON CA), 4 O.R. (2d) 288 (C.A.)). However, this rule cannot be applied without qualification. The clause has to be looked at in its context and totality in order to establish that discrimination has occurred.

14Furthermore, human rights law is to be interpreted broadly, and limitations permitted by statute should be given a narrow interpretation. Thus, the Supreme Court of Canada ruled that such provisions as "reasonable and bona fide" should keep in mind the general vision of human rights which attempts to right the wrongs of discrimination (Commission des droits de la personne du Québec v. Town of Brossard, 1988 CanLII 7 (SCC), [1988] 2 S.C.R. 279 at 307 [10 C.H.R.R. D/5515]). More recently, Sopinka J., speaking for the Court, wrote (in Ontario Human Rights Commission v. Zurich Insurance Company (25 June 1992) (S.C.C.) [unreported] [now reported 1992 CanLII 67 (SCC), 16 C.H.R.R. D/255 at D/263, para. 18]):

One of the reasons such [human rights] legislation has been so described is that it is often the final refuge of the disadvantaged and the disenfranchised.

Onus

15It is another established practice of human rights law that, when a prima facie act of discrimination is seen to have occurred, the burden of proof shifts to the respondent (Ontario Human Rights Commission v. Borough of Etobicoke, 1982 CanLII 15 (SCC), [1982] 1 S.C.R. 202 at 208 [3 C.H.R.R. D/781 at D/783]; Ontario Human Rights Commission v. London Monenco Consultants Ltd. (2 March 1992) (Ont. C.A.) [unreported] at pp. 19–20).

16It was therefore up [to] the respondent to show that the exclusion clause is defensible in the eyes of the Code and that it was properly applied in the complainant's case. By agreement of the parties, the respondent therefore presented its defence first, both in testimony and argument.

Defence

17Respondent justifies the allegedly discriminatory clause by referring to and relying on s. 2425(a) of the Code, which states that the right to equal treatment with respect to employment is not infringed if

. . . a reasonable and bona fide distinction, exclusion or preference is made in an employee disability or life insurance plan or benefit because of a pre-existing handicap that substantially increases the risk. [Italicized for emphasis.]

The interpretation and application of this clause are at the heart of the instant case.

18The respondent has tried to prove that clause 2.5, cited above, which deals with a pre-existing medical condition ("PEC"), meets the conditions of the Code, in that it is

a. "reasonable and bona fide," and that

b. Mr. Thornton's handicap was one of which it can be said that it "substantially increases the risk."

19The complainant denies this and holds that clause 2.5 of the contract does not meet the requirements of said section of the Code and hence, because it unlawfully discriminates, should be declared to have no effect and that, therefore, the complainant is entitled to his LTD benefits.

UNCONTESTED FACTS

20Mr. Thornton started his employment with CF on January 16, 1989, and therewith began his ninety days period listed in PEC clause 2.5, a time span that may be termed probationary.

21Somewhat earlier, in November 1988, the complainant, who defines himself as gay, learned that his intimate friend had been diagnosed to be HIV+, that is, infected with the virus which is likely to lead to AIDS. Mr. Thornton had himself tested as well and he too was found to be sero-positive. Although he had no hint of infection or disease he wanted to know his prospects and visited his physician on January 19, 1989 (evidence of Gary Thornton, Transcript vol. III, pp. 29 ff.).

22He and his doctor at the time, Dr. Tilley, discussed possible therapies, but no drugs or treatments were prescribed at this time. A while later, and still within the ninety-day probationary period, the complainant visited his physician again, this time for tests to monitor his T-4 count. No medications or treatments were prescribed (Ibid., pp. 33–38).

23Signs of illness appeared after his probationary period had ended and his insurance contract came into effect. Later that year, in August 1989, he went on temporary leave, his STD benefits being paid by the respondent insurer. When at the end of that period he was still unable to return to work he applied for LTD benefits but was turned down because insurer held that his visit to his doctor during the probationary period justified the application of clause 2.5 of the contract,³ the exclusion being applicable to LTD but not to STD claims.

24Mr. Thornton, unaware of the exclusion clause, had his employer contact NAL to have his case reviewed, which was done, but the result was the same. On January 9, 1990, CF received a letter from NAL confirming the earlier rejection on the basis of Mr. Thornton's visits to Dr. Tilley, which constituted "care" during the ninety-day period prior to his insurance coming into effect (letter from Susan Koubek, Claims Examiner for NAL, Exhibit 10). Thus, from December 1989 to February 1990 the complainant did not receive LTD benefits and his complaint now focusses on this period.⁴

25But more important, it is clause 2.5 which is the centre of this proceeding. In the eyes of the complainant it constitutes an infringement of the Code, while in the eyes of the respondent it is a legitimate insurance practice. As will be discussed later on, testimony showed that this kind of clause, in identical or similar phrasing, is a standard feature in contracts with companies that have relatively few employees (usually fewer than 100), but that it is generally absent from companies with more than 100 "lives."⁵

ISSUES AND ARGUMENTS

26The result of the complaint depends on whether the respondent can show that the conditions of s. 2425(a) are met. If they are, the complaint fails; if they are not, it succeeds.

27Counsel for the complainant (Final Submissions, No. 66) has properly set out the Code's own legislative hierarchy with regard to defences dealing with insurance matters:

a. Section 2425 provides that employee pension or group insurance plans based on age, sex, marital status or family status do not offend the Code if they comply with regulations under the Employment Standards Act.

b. Section 21[22] provides that individual life and group insurance policies not part of an employment situation may make distinctions based on age, sex, marital and family status, or handicap, but these distinctions must be made on reasonable and bona fide grounds.

c. Section 2425(b) provides that group insurance plans for employee groups with fewer than 25 members may make distinctions based on disability, provided that the distinction is reasonable and bona fide and made on the ground of a pre-existing handicap.

d. Section 2425(a) provides that other employee disability or life insurance contracts may make distinctions based on disability provided the distinction is reasonable and bona fide and based on a pre-existing handicap that substantially increases the risk.

28It will be readily seen that the defences needed under (a), (b) and (c) are fewer than those listed under (d), which lists more conditions. In addition to reasonableness and bona fides, s. 2425(a) it [sic] has the proviso dealing with risk. Thus, in the instant case the defence is narrowed, and it is this section which is operative here, CF having employed some thirty-five persons at the time of Mr. Thornton's first troubles with his health.

29This hierarchy of circumstances and defences thus forces the respondent to show that the conditions of s. 2425(a) are properly met.

I will, therefore, examine whether the contended clause 2.5

1. is contained "in an employee disability plan or benefit";

2. properly addresses a "pre-existing handicap";

3. is "reasonable and bona fide"; and

4. the handicap which is excluded is one "that substantially increases the risk."

Issue 1. Is the Exclusion Contained in an Insurance Plan Which Covered the Complainant?

30The answer to this is uncontested. Clause 2.5 is part of the LTD provisions in the insurance contract between NAL (more precisely, FNAI, a wholly owned subsidiary of NAL) and CF, Mr. Thornton's employer. The contract was drawn in August 1988 (Exhibit 2).

Issue 2. Was There a Pre-existing Handicap?

31"Handicap" is defined in s. 910(b) of the Code as

any degree of physical disability, infirmity, malformation or disfigurement that is caused by bodily injury, birth defect or illness . . .

32It was not contested that Mr. Thornton had a handicap in the meaning of the Code, but there was a dispute over the meaning of the term "pre-existing" which the Code uses in s. 2425(a) but does not define.

33Clause 2.5 provides for a ninety-day period, during which visits to a doctor flag the existence of an illness which gives rise to an LTD denial. The clause sets the probationary period at ninety days "prior to the date his insurance becomes effective." Complainant argues that the defence of s. 25(3) relates to employment discrimination only, and that therefore coverage should be tied to the effective date of employment and not of insurance. Employees expect to be insured on the day they start work.

34In the respondent's view the timing of the ninety-day period is a matter of choice, but it is preferable to start it after employment begins. When an LTD claim is made and assessed, little information about the insured employee is available for the time prior to his/her commencement of employment; more often than not his/her word would have to be taken for what is claimed to have happened or not to have happened. But a period after employment begins (here referred to as probationary) gives the insurer some hint of medical problems an employee might have — either at work or because of absence from work due to health reasons. Tying the exclusion to the commencement of insurance which begins ninety days after the employee has started to work affords the insurer some (though of course not complete) protection against persons who bring pre-existing conditions to the insurance contract and expect it to cover them. (This planned selection of an insurance plan for hidden personal advantage is referred to as "adverse selection" and is treated in detail in a later part of this decision. Counsel for the respondent suggests that the insurer's institution of the ninety-day waiting period is motivated primarily by its fear of adverse selection (Final Submissions Nos. 71, 72). The amount of testimony on both sides seems to lend some credence to that suggestion, but it is not necessarily persuasive. The ninety-day period is also based on other elements as will be discussed infra.)

35Since the Code does not say to what point in time "pre-existing" refers, a case can be made for either the respondent's or the complainant's argument. Either one can be said to have a valid rationale, but I found the issue itself ultimately unrelated to human rights concerns. In my opinion, the arguments reflect judgment calls which could go either way without infringing the intent of s. 25(3)(a) of the Code, and therefore I cannot fault the respondent in that respect.

Issue 3. Is the Clause Reasonable and Bona Fide?

36The Supreme Court of Canada has addressed the meaning of these terms. It has held, for instance, that mandatory retirement must be a bona fide occupational qualification and the proof of bona fides (the burden of which rests upon the respondent) (Etobicoke, supra, at 208 [D/783, para. 6893])

. . . must be made according to the ordinary civil standard of proof, that is upon a balance of probabilities.

37The most immediately applicable precedent is the Court's ruling in Zurich, supra. The Commission had alleged that the company's practice to charge unmarried, young, male drivers higher automobile insurance rates than others was discriminatory. Here too the respondent conceded that there was prima facie discrimination, but held that the distinction between various classes of drivers was based on reasonable and bona fide grounds and therefore fell within the exception provided by s. 21 [as it then was; now 22] of the Code.

38It should be noted that in the instant case we deal with insurance arising out of an employment context, while in Zurich, supra, the Court dealt with an insurance context — hence the section at issue was s. 21[22]. In such a context premium rates can be set according to actuarial experience with the characteristics of the group, even though a particular individual may not share those characteristics. The young, male, single driver may have a spotless record which may be much better than the averages of his group; still, he has to pay the going rate, which is much higher than that for older, married, or female persons. The Court found this to be an acceptable practice of the insurance industry. The importance of the case for the matter before this Board consists of the Court's definition of "reasonable and bona fide."

Sopinka J., writing for the majority, defined these terms as follows [at D/265, para. 23]:

. . . a discriminatory practice is "reasonable" within the meaning of s. 21 (now s. 22) of the Code if (a) it is based on a sound and accepted insurance practice; and (b) there is no practical alternative.

39The Court thus stipulated several tests for an insurance practice: it had to be an accepted practice, it had to be sound, and no practical alternative must be available. I consider these requirements to be applicable to the same terms in s. 2425(3) as well.

40Sopinka J. found that Zurich policy was in fact based on credible actuarial evidence, and at the same time he warned that [at p. D/270, para. 36]

. . . statistical analysis does not, however, fully satisfy the reasonableness test required by s. 21 [22]. Human rights values cannot be overridden by business expediency alone . . . To allow discrimination simply on the basis of statistical averages would only serve to perpetuate traditional stereotypes with all of their invidious prejudices.

41The Court ruled that higher rates for the higher risk category of young male drivers was reasonable. It might be noted that the Court's decision was not unanimous; two justices dissented.

42Complainant counsel have cautioned this Board of Inquiry not to rely on Zurich, supra, alone, since it was an insurance and not an employment case. It dealt with services and therefore dealt with the meaning of s. 21[22]. This Board, however, has to deal with an insurance issue arising from the employment of the complainant, and hence the defence is based on s. 24[25] where the requirements are higher, in that the element of risk is also to be considered. Still, this Board finds that the Supreme Court's above cited definition of what is reasonable is a general principle applicable to s. 24[25] as well.

43Therefore, we must ask regarding the inclusion of clause 2.5 in the insurance contract, which covered the complainant through his employment with CF,

a. whether it can be said to be sound and accepted insurance practice, and

b. whether there was no practical alternative to it.

44The answer to either question is not easily arrived at. Certainly, as in Etobicoke, supra, scientific research and statistics, if soundly based, are important, and preferable to impressionistic or anecdotal evidence (Etobicoke, pp. 212–13 [D/784]).

45Since in the instant case, the bona fides of the respondent has not been doubted, the reasonableness of the exclusion clause 2.5 is to be examined in the light of the stipulations set out by Sopinka J. in the Zurich decision, supra.

Sub-issue (3)(a): Is Clause 2.5 Sound and Accepted Insurance Practice?

(I) IS IT ACCEPTED INSURANCE PRACTICE?

46If it is, one part of the requirement of reasonableness is fulfilled; if it is not, the defence falls, for if only one portion of the respondent's practice is tainted, the respondent must be seen to have breached the Code (see supra).

47Testimony showed that clauses like 2.5 are a standard part of group insurance, and that some companies use stricter clauses than NAL, and no one suggested that insurance companies have colluded in framing such exclusion clauses in order to circumvent human rights law or any other law (see evidence of John Woolsey, actuary and Vice President of Towers Perrin, curriculum vitae, Exhibit 72, Transcript vol. XIX, p. 19).

(II) IS THE PEC CLAUSE SOUND INSURANCE PRACTICE?

48If it is uncontested that PEC clauses are "accepted" practice, do they also meet the requirement of being "sound"? To my knowledge, the term has not received special juridical interpretation, and so I am left with the common understanding of the word. I take it to mean that the practice has to be both rational and appropriate for ordinary business purposes. It must, in other words, make sense in an insurance context, which is by definition engaged in dealing with risks.

49To the average person it makes sense that insurance companies cannot take it upon themselves to be substitutes for health and welfare agencies. They are not expected to pay LTD benefits to everyone that comes their way. They must be fair to all and on an equal basis, but in return their customers too must be fair to them. They cannot demand ab initio that the company sustain them through whatever illness they may bring to the contract. An exclusion clause may therefore be considered sound in principle if it protects the insurer against losses which are by general consent and practice considered unfair. In the course of their business insurers will have to bear some unusual and sometimes even catastrophic claims, but they do not have to expose themselves to such an extent that they cannot stay in business, for in that case there will be protection for no one. The public knows that a private company expects to show a profit at the end of the year and therefore accepts that not every one can be insured for LTD claims under any and all circumstances. The Code and the jurisprudence arising from it implicitly recognize this as well, but want to make sure that profitability is not achieved through discrimination.

50According to testimony by John Woolsey, the PEC clause is designed to screen out those medical conditions which existed prior to the commencement of coverage and which will lead to morbidity experience beyond the level anticipated in the premium rate. The function of the exclusion is to identify those people who have a significant above average probability of submitting claims and to limit the uncertainty of what might happen in that kind of situation (Evidence Transcript vol. XIX, pp. 91 f.).

51Complainant has argued at length, and NAL has denied, that clause 2.5 of the contract does not meet the test of fairness and, in fact, is altogether unnecessary. And if its [sic] unnecessary it cannot be a sound requirement for carrying it on the books. Therefore complainant has tried to show that not only does 2.5 infringe the Code, it serves no useful insurance purpose, is poorly targeted, and is absent from group contracts for over 100 lives. This being so, the practice is not sound in the meaning of the Supreme Court's Zurich decision, supra.

52In defence, the respondent has advanced three arguments:

Argument 1: Small groups are more exposed than large groups, because the risk is not spread as widely and losses cannot be easily recouped.

Argument 2: Small groups are prone to adverse selection.

Argument 3: Group LTD business is a losing proposition for NAL, and any further increase of its losses would result in either a sharp increase in premiums or a withdrawal from that line of business.

Argument 1. Insurance for Small Groups

53Evidence was brought to show that virtually all large employers have employee benefit plans which include LTD coverage without PEC clauses, while smaller companies — usually with fewer than 100 lives — do not have the same arrangements (evidence of J. Woolsey, Transcript vol. XIX, p. 21). In the latter case the spread of risk is not sufficient to meet actuarial standards and is therefore harder to figure and more volatile. For this reason PEC clauses are created as a safety valve.

54The presence of such clauses is apparently industry-wide, and has been standard for quite some time; it was already used by NAL's predecessor, Monarch Insurance Co. (evidence of J. Woolsey, Transcript vol. XIX, p. 106; Michael Byrne, Senior Vice President, Group Pension Division with NAL, XIV, p. 2; Robert Derrah, Vice President of Canadian Operations for the Unum Life Insurance Company, said to be North America's leader in LTD insurance, XVIII, p. 32).

55Complainant has suggested that the legislative history of the Code (leading up to the 1981 revision and the inclusion of handicap as a ground of infringement) shows that the insurance industry targeted handicapped persons with the PEC clause (see, e.g., Exhibit 55; Memo to File, Exhibit 56, p. 3; evidence of Charles Black, Vice President of the Canadian Life and Health Insurance Association, Transcript vol. XV, p. 20 f.). It is this policy which has created clause 2.5 and therewith, Mr. Thornton's complaint. He holds that clause 2.5 is unnecessary altogether and, if so, not a fit exemption in the meaning of the Code.

56Testimony showed that there are a variety of ways by which the insurer tries to minimize abnormal insurance claims. Among them are:

The actively-at-work rule, which stipulates that the claimant employee must be at work when the group contract begins. If he/she is not, then benefits are deferred until the claimant is able to return to work and he/she becomes eligible for potential benefits.

Individual underwriting in special cases. For instance, an employee did not apply for insurance when he/she started work and now wants to do so. The suspicion is that perhaps there has been a change in the employee's state of health. The same rule and the same suspicion would apply when the employee wants to take out additional coverage (evidence of Michael Byrne, Transcript, vol. XIII, pp. 92–98; J. Woolsey vol. XIX, pp. 187–89).

PEC clauses are still another way of minimizing a distortion of the small group. Much evidence was concentrated on the purpose of such clauses, of which 2.5 is a standard example. There was repeated reference to the prevention of adverse selection as a major focus of the clause (statement of M. Byrne, Exhibit 48, p. 7, para. 16; Evidence of R. Derrah, Transcript vol. XVIII, p. 17; J. Woolsey, vol. XX, p. 198). It therefore needs special attention.

Argument 2: The Impact of Adverse Selection⁶

57The respondent argues as follows: The PEC clause is necessary because without it the actuarial risk in groups of fewer than 100 becomes substantial, especially since a small group makes "adverse selection" possible. This term denotes the possibility that someone aware of an illness that he/she had, selects the insurance contract in order to garner its benefits, particularly LTD (evidence of R. Derrah, Transcript vol. XVIII, p. 15). Groups of more than 100 employees usually don't have a PEC clause, but smaller companies where the possibility of selection — notably by the employer or someone close to him/her — is potentially great must include the clause. The insurer cannot afford to be taken advantage of, else the premiums would have to go up for everyone in the group, which might lead the employer to cancel participation in the plan and would leave the employees without adequate coverage. If the insurer itself is compelled to absorb the increased cost but does not feel that the market bears the premium increase, it might have to abandon that line of business which is, in any case, usually unprofitable anyway and is maintained only because employers look for an "insurance package," which includes STD and LTD benefits for their employees (Respondent's Written Argument, No. 86 ff.).

58As indicated, adverse selection was often referred to and debated during the proceedings. Witnesses and arguments addressed its possible impact if the PEC clause were not present, and the respondent took the position that, though hard figures were impossible to come by, the possibility of adverse selection certainly existed and that therefore closing it off to some extent was justified (evidence of M. Byrne, Transcript vol. XIII, p. 101; J. Woolsey, vol. XIX, pp. 89–92).

59The complainant denied the validity of this conclusion, raising the following objections:

To begin with, NAL had not established the reality of adverse selection, but had only raised it as a possibility against which the industry tried to protect itself. No one proved that such selection actually has taken place or that pre-existing handicap claims increase when the PEC clause is dropped from the contract. According to one actuary witness, fraudulent anti-selection is in fact "far-fetched" (evidence of Donald Anderson, Transcript, vol. XIII, p. 122).

60The independence of this witness, though not his general expertise in insurance matters, was doubted by the respondent who noted that he was a "professional witness," an ascription with which he himself agreed (Written Argument, para. 169; Oral Argument, Transcript vol. XXVII, p. 64). This, however, in and of itself does not disqualify a witness, who usually is an expert in the field and is often called upon by one side or another to support their views. Thus, the fact that Mr. Anderson was called by the complainant's side is no different from the reliability of a witness called by the respondent. Such testimony has to stand on its own and must be evaluated for its intrinsic worth and also for the experience which the witness brings to it. Witnesses are expected to testify to the truth as they see it, and therefore I have approached Mr. Anderson's evidence, or for that matter anyone else's, without any prejudice that would ipso facto doubt the witness's sworn testimony.

61There is at present no statistical analysis of the impact of PEC clauses in large versus small companies. Such a study was undertaken by the Society of Actuaries between 1972 and 1977 and was abandoned when it turned out to be inconclusive (Transactions of the Society of Actuaries Reports 1972–1981, Table 8; evidence of J. Woolsey, Transcript vol. XIX, p. 123 f.). According to Mr. Anderson, however, the figures did not show that smaller companies needed the clause more than larger companies (Transcript vol. XIII, pp. 77 ff.).

62It was clear that the complainant himself was not an anti-selector. He did not know of his illness when he quit his job at Three Trilliums and accepted employment at CF. In Mr. Anderson's view he was therefore an innocent who was caught by a clause meant for someone else (see the witness's Actuarial Report, Exhibit 79, p. 114). So far the arguments on both sides [sic].

63It appears to me that, if in fact the prevention of adverse selection is the main target of clause 2.5, the respondent has not made a statistically viable case for its necessity. Certainly the kinds of statistics submitted in Zurich, supra, which were held to be decisive there, are absent here.

64However, when it comes to adverse selection there is an inherent problem with such statistical evidence. Clause 2.5 sets out objectively verifiable conditions. But adverse selection is by definition a matter of intent. The very term "selection" indicates that fact. Intent is difficult to establish; it will rarely be proven with certainty, and for that reason conclusive statistics would be hard to obtain. If intent were the bench mark, many if not most rejections on the basis of a PEC clause would likely result in litigation.

65Therefore, the lack of statistics for adverse selection is not in itself decisive, for the Zurich test, supra, does not apply when statistics are impossible or difficult to come by. In such a case we have to ask whether there is other evidence which would justify the need for the PEC clause.

Argument 3: Small and Large Groups

66Seeing that adverse selection did occupy a significant portion of the testimony, the complainant's counsel stated that thereby NAL "had failed to establish any legitimate business concern requiring it to use a discriminatory exclusion clause" (Submissions, para. 95).

67But the respondent denied this, stating that while adverse selection was a serious concern in the industry, it was not its only concern. There is, so it argued, a particular vulnerability of smaller companies. Groups with large numbers of employees can absorb the absence of a 2.5 clause more easily than small ones; hence it must be included in contracts with the latter for general actuarial reasons, and these have to do with business judgment as much as with statistical figures and their meaning. These actuarial reasons address the smallness of the group which must bear the risk involved in the underwriting business.

Mr. Woolsey described one company that tried offering small group insurance without the PEC clause. Their loss ratio increased so rapidly that it became necessary either to pull out of the business or to take some other steps. One of the things they did was to reintroduce the PEC clause to bring the loss ratio within acceptable limits (Respondent's Written Argument, para. 130).

68Thus, while in large companies with more than 100 lives⁷ the risk of abnormally high claims is reasonably spread, this is not the case with smaller companies. Premiums reflect the amount of risk which is deemed to exist actuarily: they are usually smaller when the risk is spread more widely, and larger when it is spread more narrowly. Therefore, in small companies, when abnormally high losses occur, premiums would have to go up relatively steeply. The cited projections were in the 10 to 15 percent range (statement of J. Woolsey, Exhibit 73, para. 40; Evidence Transcript vol. XIX, pp. 126 ff.) and the chances are that the small employer would not be able to bear the cost, nor would the employees. The additional safeguard of a PEC clause meliorates the risk further, but even so, LTD insurance is frequently, though not always, a losing proposition and is carried on by the insurer because it is part of a larger insurer package which the employer buys. The rest of the package bails out the LTD claims, but these must be held in reasonable bounds, else the insurer might have to withdraw from that line of business.

69Further, this observation must be seen in the context of LTD benefits and their experience in general. Charles Black, an actuary and Vice President of Insurance Operations with the Canadian Life and Health Association, provided industry-wide tables showing a survey of health benefits paid in Canada between 1985 and 1990. Even in large companies LTD was a losing business. The testimony was not contested. (Survey, Exhibit 63; Evidence in Transcript vol. XV, pp. 109 ff.)

70It was suggested to this Board that, while at first sight small groups could not bear such losses individually, they could be combined with other, similarly situated groups to form larger actuarial units. While this is obviously a possibility, and is in fact done in order to reach statistical projections, it does not address the practical problem of loss ratios and subsequent recovery therefrom. Small companies may be grouped together to reach an informed projection, but if losses occur they cannot be recovered from such artificial groupings and must be borne in the contract structure of each company. In small companies like CF a reasonable recovery by premium increases is highly problematic, so that the LTD business, already volatile, becomes a focal point of business concerns (evidence of Sarah Kravetz, executive director of CF, Transcript vol. XXI, p. 3 f.).

71But was NAL's experience with LTD as bad as it was apparently in the industry as a whole? The answer to this question could not be clearly garnered.

72Testimonies of Michael Byrne and Peter Hutchison (the latter a Senior Vice President and Chief Actuary of NAL) introduced figures which showed that the over-all experience with LTD claims was negative and produced a loss for most years (evidence of P. Hutchison, Transcript vol. XVIII, p. 38; statement of M. Byrne, Exhibit 48, para. 28; Evidence vol. XIII, p. 118). He himself had extrapolated the figures from internal records of the company. This extrapolation was vigorously questioned by complainant's counsel, who requested access to the company's financial records to verify these claims. NAL refused this access, claiming it was private and privileged. Complainant's counsel thereupon requested me to order that a significant amount of NAL records be produced, in accordance with my powers under s. 39(4) of the Code. Since this request came very late in the proceedings and was sufficiently particularized I rejected the motion, which is attached to decision and order (Appendix E [published at 1992 CanLII 14235 (ON HRT), 17 C.H.R.R. D/477].

73However, in it I also stated that, to the degree that testimony was not backed by full documentation, I would take that fact into account when I came to evaluating the impact of the evidence.

I have come to the conclusion that there was no definite proof before me to show that NAL sustained a loss in the LTD business, as claimed by Mr. Hutchison. On the other hand, I believe there is a strong likelihood that it in fact occurred like in the rest of the industry, that is to say, that in the balance of probabilities it appears to me that NAL has been impacted negatively in its group LTD business.

74To be sure, all business is ultimately an exercise in risk taking, and the insurance business is distinguished primarily in that it employs quasi-scientific means of assessing its prospects. I say "quasi-scientific" for the actuaries are not just pure mathematicians, they are also making personal judgments as, for instance, to the marketability of the product (evidence of J. Woolsey, Transcript XIX, p. 125).

75Just what is the margin of reasonable safety for the insurer? Each firm has its own standards of risk taking. Its main income derives usually from premiums, and rate increases are therefore feared by the insurer. The objective of PEC clauses aims therefore at unacceptably high risks which, if multiplied, illnesses which might result in LTD are the cutting edge of the industry's high risks.

76These are controllable only to some degree, and PEC clauses are obviously designed to that end. Other LTD claims, and by far the majority, result from causes that develop later one, such as accidents or contagious diseases. Here the actuarial averages come into play, and the larger the contracting group the better the spread of the risks.

77For that reason, the number 100 has been chosen by much of the industry to divide group plans into three categories: those with fewer than 100 insured employees are seen to make actuarial projection more difficult and hence insurers afford themselves some protection by inserting the PEC clause into the contract. Those with more than 100 lives will generally not need that extra protection; and mega-companies will most likely be able to contract for even wider benefits for their employees. The larger the risk spread the better the predictability of LTD occurrences (evidence of R. Derrah, Transcript vol. XVIII, pp. 12 ff.). He testified to three basic types of PEC clauses, the contested 2.5 fitting into one of them.

78Taking all the testimony into consideration, I have concluded that clause 2.5 can be said to be "sound insurance practice" in the sense that Sopinka J. demanded in Zurich, supra. It is in and of itself not targeting handicapped persons in the sense that the Code prohibits, and in Mr. Thornton's case — while initially he was refused LTD benefits because of 2.5 — he received these benefits two months later on the basis of that same clause.

79It must also be borne in mind that the Code itself, in s. 23[24], recognizes that cost plays a role in determining whether discrimination has taken place.

23(2) The Commission, a board of inquiry or a court shall not find that a qualification under clause (1)(b) is reasonable and bona fide unless it is satisfied that the circumstances of the person cannot be accommodated without undue hardship on the person responsible for accommodating those circumstances considering the cost . . .

80The Code speaks of "undue hardship" and "cost," and while that section is not applicable to the instant case, it does provide that not every handicap is protected by the law if certain other factors, among which cost may be one, make it too difficult or impossible. The Code, while aiming at the widest possible protection of those in need of it, allows that in a societal context a right is not necessarily absolute and unlimited.

81In sum, this Board believes that clause 2.5 does not offend the Code. It is introduced into contracts with small companies both because of the higher likelihood (though not provable certainty) of adverse selection, and also because it reduces the risk spread for the insurer to bearable proportions.

Sub-issue (3)(b): Is There a Practical Alternative to the PEC Clause?

82The Supreme Court's final condition for a proof of reasonableness asks that there be no practical alternative to the disputed practice. Otherwise it cannot be sustained in an exemption clause of the Code, of which s. 2425(a) is an instance.

83Now, while the onus in the instant case has all along been on the respondent, it is manifestly difficult to show that something (here, an alternative) does not exist. The majority of the suggestions have therefore come from the complainant's side.

84Nine alternatives were proposed as feasible and practical in the meaning of the Zurich decision, supra.

(i) Increase premiums to pay claims currently excluded by 2.5;

(ii) reduce benefits;

(iii) drop the "drunk driving" or other high risk exemptions from the NAL contract and with the money thus saved cover LTD claims incurred if 2.5 is dropped;

(iv) reduce claims cost by lowering indemnity duration or levels;

(v) drop the clause altogether and absorb the cost caused thereby;

(vi) reduce the incidence or size of claims by requiring some evidence of insurability, such as requiring answers to brief health questionnaires that would list certain discrete disorders;

(vii) institute a system of retroactive assessment of claims;

(viii) Group LTD contracts could list certain specific handicaps that would be excluded from coverage;

(ix) require 100 percent participation of the employees in the plan.

85This Board did not have sufficient information to judge whether suggestions (i), (ii), and (iii) and (ix) could be considered practical alternatives. They were merely noted as examples of "things that might be done." But that does not qualify them as the kind of practical alternatives envisaged by the Supreme Court, and in consequence I have not considered them. I will therefore turn to a discussion of the other alternatives, where the argument in their favour was more substantially demonstrated.

86Re (iv), the Commission and the complainant cited evidence by witnesses Byrne and Woolsey to bolster their alternative (A.M. Byrne, Transcript vol. XIV, pp. 54–60; J. Woolsey, Transcript vol. XIX, p. 33). They argued that NAL could institute, instead of the present LTD "up to 65 options," a shorter time period, say eighteen months, and thus find it practical to do away with 2.5. Respondent replied that, indeed, this would have saved the complainant's initial rejection, but it would certainly have excluded others, and no human rights value would be preserved thereby. I agree with that conclusion.

87Re (v), this Board was informed that during the period of 1987 to 1991, 240 LTD Claims were declined by NAL, but out of these declinations only seventeen were rejected on the basis of clause 2.5 (statement by M. Byrne, Exhibit 48, p. 14). Respondent submitted that in the full context of insurance practice this did not call for an alternative.

88Complainant counsel drew a different conclusion and suggested that seventeen declinations did indeed constitute a relatively small number and that, for that very reason, any losses sustained by the elimination of 2.5 could easily be absorbed by a large company such as NAL. In my view, that argument is problematic on two grounds.

89One, seeing that $120,000 was set aside by NAL for Mr. Thornton's claim (evidence of M. Byrne, Transcript XIII, p. 106 f.), let us assume — precise or even approximate figures not being available to me — that this represents an average LTD cost. Perhaps it is on the low side, since mortality figures for a person suffering from AIDS will likely project a shorter life span for the victim than that for a worker who has been totally disabled by another disease. Is the sum of about two million dollars easily absorbed by the company? I have no answer to that question, for it relates to an overall business assessment which I am in no position to make.

90Two, the argument could be better sustained if s. 2324 were at issue, because there the Code speaks of "undue hardship" to the accommodating party. But s. 24[25], which is the foundation of the instant case, speaks only of reasonableness, bona fides and acceptable risk. The latter has to be related to a particular insurance context and has its own connotations (as will be set forth later on).

91Therefore, since it was not clear to me that proposal (v) would conclusively speak to the avoidance of discrimination against handicapped persons, I did not consider it a viable alternative.

92Re (vi), respondent argues that the moment this proposal is adopted one leaves the realm of group insurance. If the questionnaires are too short they are potentially unfair or misleading and therefore useless; if they are the usual length, going into details of the applicant's medical history, the insurer would find itself in individual underwriting an no longer in group insurance. For group coverage is built precisely on the fact that all members of the group participate without a medical inquiry, and for this reason group premiums are lower than individual underwriting. Exclusionary provisions like 2.5 provide some safeguard against abuse of the process which provides that initially the coverage comes either with employment or (as in NAL's contract) with the probationary period which starts at that time.

93The respondent claims that, with each individual underwriting costing at least $80 to $100 (M. Byrne estimating the cost as high as $200; Evidence Transcript XIV, p. 201), the cost of insurance premiums would have to rise significantly. Estimates were as high as 10 to 15 percent, though some put the figure lower. But as testimony from Sarah Kravetz, executive director of CF, would indicate, with an overburdened budget even relatively small increases would be more than the organization could bear (Transcription vol. XXI, p. 4). The 10 to 15 percent figure was cited by J. Woolsey (Transcript vol. XIX, pp. 126–27, 133).

94There is little doubt in my mind that the increase in labour and time required for individual underwriting would be notable and therefore most likely out of the reach of smaller companies who — often short of funds — would not be able to offer LTD insurance to their employees.

95Further, the moment any kind of individual underwriting occurs there will be persons in the work force who will not qualify or be faced with the alternative of taking out individual insurance at personal and higher cost.

While the exact extent of this dilemma is inconclusive from a strict evidentiary point of view, a plan that is fully or partially individualized would perforce exclude many handicapped persons who, by dint of their then existing health condition or their history, would be excluded and possibly permanently so. I see no human right protected by such an alternative.

96Re (vii), the proposal to replace clause 2.5 with retroactive underwriting, foresees this scenario: When a claim is made for LTD the company reviews the claim (as it does now) and determines whether — had the condition of the applicant been known at the time of the contract coming into force — the coverage would have been confirmed or denied.

97Insurance, as it was understood by all parties during the proceedings, is basically a prospective enterprise. It deals with a mix of known and unknown factors, and the insurer takes a chance on the future by offering coverage to all employees in the group. Actuarial prognoses are used to protect the profitability of the insurer and to save it from a series of catastrophic claims.

98Ex-post or retroactive insurance goes in the opposite direction of the traditional insurance business, and since no solid evidence was provided to me that would allow me to make an informed judgment, I must reject retroactive underwriting as a substantive, practical alternative.

99This conclusion is not vitiated by the complainant's argument that every LTD claim is at present reviewed individually and retrospectively in order to determine whether the exclusionary provisions of the contract apply. But that procedure, which was provided to his Board through detailed testimony rendered by staff witnesses of NAL as well as by its medical director, does not constitute retroactive insurance. It serves merely to ascertain whether the LTD claimant satisfies the conditions of the contract (Exhibit 65; Evidence of Carole Desrosiers, a staff person of NAL dealing with claims assessments, vol. XVI, pp. 5 ff.; Dr. Robert Handford, medical director, ibid., p. 118).

100(viii) The listing of specific handicaps was not pursued in any detail, and aside from all else, its legality under the Code might be in question. Also, while the 2.5 clause as presently written is not permanently exclusionary, a specific list of handicaps would most likely result in certain permanent exclusions. If AIDS were among the handicaps listed — as it might be in such an eventuality — Mr. Thornton would ultimately not have been able to obtain full LTD coverage.

101Re (ix), I do not consider full participation of all employees, even if possible, to be an alternative to the PEC clause. It is possible that all employees of CF were indeed covered (there was no evidence on this matter), but in my opinion the need for the clause is not materially affected thereby.

102In sum, then, the condition set out by the Supreme Court that no practical alternative may exist if the exemption is to be valid, appears to me to have been fulfilled in the instant case. No alternative which was proposed fully replaced the legitimate intent of the PEC clause. I therefore found clause 2.5 to meet the test of reasonableness.

Issue 4. Was There a Substantial Increase in Risk?

103Section 2425(a) of the Code requires that a defence against discrimination can be made — in addition to the requirements of reasonableness and bona fides — if it can be shown that there is a "pre-existing handicap that substantially increases the risk." Until now, no jurisprudence has addressed the range and meaning of this condition.

(a) Risk

104In this decision so far, the term has been used in the generally understood sense of "the possibility of loss," this being the primary definition of the word in Webster's Third International Dictionary (Springfield, MA: G.&.C. Merriam, 1971).⁸ Further definitions refer to the field of insurance. Thus, risk is defined more narrowly as "the chance of loss or the perils to the subject matter of insurance covered by contract"; "the degree of probability of such loss"; "a person or thing judged as a (specified) hazard to an insurer"; "the product of the amount that may be lost and the probability of losing it." All of these nuances fit the meaning of s. 2425(a).

105Colinvaux's Law of Insurance (London: Sweet and Maxwell, 1990) had this to say (chapter 4-01).

The most important part of insurance is the determination of the risk. The insurer can only adjust his premium profitably if he knows accurately the nature of the risk which he asked to take upon himself . . .

106All definitions speak of risk as a prospective word. Probability and chance are viewed from the perspective of the time when the insurance contract comes into existence. The word is occasionally also used in contexts which appear to give it retrospective meaning, as in, "X turned out to be a poor risk." But a closer look reveals that the meaning of "risk" in such a phrase retains its prospective thrust. For what it says is that we now know that X was wrongly evaluated. The risk, when it was taken, should have been assessed differently. "Risk" is and remains a word referring to an uncertain future.

(b) Reference to Handicap

107The phrasing of the section makes it unmistakable that "handicap" and "risk" belong together. It is the handicap of the insured person that must be at risk.⁹

(c) Reference to Insurer

108However, the words "that substantially increases" connect handicap and risk with the insurance. The phrase must therefore be read as referring to " . . . a pre-existing handicap [of the insured] that substantially increases the risk [to the insurer]."

109In other words, the exemption of s. 2425(a) applies only if there is a demonstrable link between the handicap of the complainant and the risk by NAL. (The substantiality of the risk is an added factor, of which more infra [sic].)

(d) Argument

110In her written submission counsel for the complainant argues as follows:

NAL makes no attempt whatsoever to determine the degree of risk associated with the handicap caught by the LTD exclusion clause. Indeed, the evidence establishes that the nature of the handicap was an irrelevant consideration to NAL once the relationship between the handicap and the care or treatment [by the physician] was established. If care or treatment is received in the first 90 days of work and an LTD claim is made the first twelve months for the same or a related cause, it is simply assumed that there was a substantial risk occurring. No evidence whatsoever was advanced by NAL in support of that proposition nor were witnesses aware of any actuarial or statistical data that demonstrates that the timing when a person sees a doctor as compared to when an LTD claim is made is related in any way to whether there is a substantial increase in risk. (para. 108)

. . . Mr. Byrne acknowledged that the assessment of risk is carried out independently of the eventual outcome for any one individual. Thus, if an actuary determines that the risk of a particular event occurring is low, the validity of that assessment is unaffected by the fact that the event did occur for one particular individual. (Para. 110. The evidence referred to is in Transcript vol. XIV, pp. 149 ff.)

111I understand the argument's thrust to be this: The exclusion clause does not comply with s. 2415(a) of the Code in that the nature of the handicap which is at risk is irrelevant to the insurer. But it should be relevant because it must satisfy the law's demand that the specific handicap substantially increases the risk. Only after the event (and not before, as "risk" would demand) is the specific handicap assessed and the risk is looked at retrospectively. That flies in the face of the Code's intent.

112I cannot agree with this conclusion.

113Since NAL's contract with CF was a group contract it could not and would not address individual circumstances prospectively. That would make the insurance individual and not a group insurance and, were that the case, an exclusionary clause of the type 2.5 represents would not have been part of the contract.

114It is in the nature of group insurance to take on all members of the group, and therefore the assumption of risk must take place in a different context. All members must be treated alike in the setting of risk conditions. The stipulations of 2.5 are admittedly arbitrary as regards specified markers of action and timing, and they could conceivably be (and in some contracts are) different. The risk factor of the PEC clause is, however, entirely prospective; it speaks of an unknown person (a member of the group) who visits the doctor during the probationary period and who is thereby targeted as a potential risk that may lead to large claims. Whether or not the cause for that visit is related to the LTD claim which is subsequently made, cannot be determined prospectively but only retrospectively. The retroactive look at the relationship of the visit to the physician merely establishes whether the claim is valid. The risk was prospectively oriented, only the nature and effect of the handicap are assessed retrospectively.

115Here too, as in every insurance contract, the risk is taken in advance, but whether certain conditions encompassed thereby were fulfilled is examined only when the claim is made. Clause 2.5 says that, while the insurer takes a chance on all members of the group, it targets persons who visit their doctor during the ninety-day period as possibly excluded. Whether in fact they are, cannot be determined until the individual comes forward and makes a claim. If the visit to the physician turns out to be unrelated to the handicap for which the LTD claim is made, LTD benefits are granted; if the visit related to the illness which led to the claim, the benefits are denied.

116There is therefore a rational connection between the handicap as a risk and the insurer's retrospective look whether the contractual clauses were met or whether the exclusion applies.

(e) Substantial

117What is a "substantial" risk? The meaning of the word is clear enough: the increase in risk must be considerable and not negligible. The term being imprecise, its application must be tested case by case.

118Counsel for the complainant averred that there were conditions which, while being caught by clause 2.5, would not represent a statistically substantial increase in risk. In support of this position medical witnesses were called to testify to a variety of illnesses.

119Sciatica was one of them. Dr. Ronald Gitelman testified that 20 percent of persons suffering from the disease have a recurrence of their often severe and disabling pain. It is essential for them to see their doctor as early and as often as possible in order to prevent serious deterioration, but when they are looked after only about 1 percent suffer LTD (Evidence Transcript vol. XXII, pp. 66, 75 f., 83, 92 ff., 101, 108). Yet, while this 1 percent would not present a "substantial" increase in the risk factor of the insurer, clause 2.5 would nonetheless lead to an exclusion, because the employee visited the doctor during the ninety days of exclusion.

120Further, Dr. Sheila Cohen, gynecologist and obstetrician, testified inter alia that some 15 percent of women in their premenopausal years suffer from a uterine inflammation, called endometriosis, and that 20 percent of women have suffered from fibroid tumours by the time they reach the age of 40 (Evidence Transcript vol. XX, pp. 8, 10, 15–21, 29, 31 ff.). Counsel therefore concluded (Complainant's Submissions, para. 115; see also Commission's Written Argument, paras. 62–83):

Thus, expert evidence at this hearing clearly establishes the existence of disabilities which would not represent a substantial increase in risk but which would require regular medical care. The LTD exclusion clause used by NAL cannot and does not distinguish handicaps on the basis of risk and is therefore not within the s. 25(3)(a) defence.

121The argument infers that a claimant who suffers from a long-term disability arising from such handicaps would be excluded from LTD coverage and that because of this, the clause runs counter to the Code.

122That argument too is not sustainable. If claims of this type are rejected it is not because clause 2.5 is deficient but because the insurer has not understood the requirements of the Code.

123Assume that employee X makes an LTD claim because of debilitating sciatic pains. X is refused on the basis of clause 2.5 because he had consulted a doctor for back trouble during the ninety-day period. X subsequently brings a complaint under the Code, claiming discrimination in employment and the insurer relies on s. 2425(a) for a defence. However, sciatica is not generally a handicap that substantially increases the risk. If nonetheless the claim is denied it is due to bad judgment by the claims department and perhaps ignorance of the requirements of the Code, but it is not due to the impropriety of clause 2.5.

124Dr. Robert Handford, Medical Director of NAL, testified that a claim for a back condition would be denied only under special circumstances. Otherwise, there being no substantial increase in risk, the claim would be approved (Evidence vol. XVI, p. 14 f.). He further stated that if a pregnant woman saw her doctor during the ninety-day period before coverage and she later became disabled because of a pregnancy-related condition, of the kind referred to by Dr. Cohen, he would allow the claim. Not only, he inferred, does pregnancy not increase the risk substantially but it is in fact not an illness at all, since it is a normal state of health (Ibid., p. 131 f.).

125These kinds of cases are of course not before the Board. Mr. Thornton suffered from an HIV+ infection leading to AIDS, and for this handicap the percentage of risk is lamentably high and substantial. (The illness of Mr. Thornton has been a continuing concern to all participants in the proceedings.) The exclusion clause is legally operative in the latter case but not apply [sic] to a person suffering from a debilitating case of the diseases discussed above. If the risk is not substantially increased the clause should not be applied in view of the stipulation of the Code. It is applicable if the risk is substantial, as it is in the case at bar.

SUMMARY

126The complaint is based on the charge that clause 2.5 of NAL's contract is of no force, because the defence allowed by s. 2425(a) of the Code is inapplicable. The respondent has held that the clause is a proper application of the intent of the section, that it is reasonable and bona fide, and that it deals properly with handicaps that increase the insurer's risk. This decision, as the above noted and detailed arguments show, leans toward the respondent.

127It does so, even though this Board is fully aware of the enormous importance of human rights legislation and the oft repeated admonition to interpret it expansively and not narrowly.

128This Board recognized further that the complainant's thrust is to target a particular clause of the insurance contract — especially since it is used widely in the industry — as a form of systemic discrimination (even though that term was not used during the proceedings). It excludes certain persons because of their illness, while others who do not so suffer escape the effects of the exclusion.

129This case was not one in which facts of the complaint itself were in question. The balance of probabilities which confronted this Board related primarily to legal interpretations or to the meaning and implication of statements made by witnesses. The issues presented and the decisions they required were rendered more complex because they constituted the first full interpretation of s. 2425(a).

130Having analyzed the provisions of the clause in detail, in the light of the Code and its relevant jurisprudence, and especially that of the Supreme Court of Canada, I have concluded that the exclusion clause which was in contention does not offend the Code.

131There is, admittedly, a certain arbitrariness to the clause, which appears inevitable. I have dealt with this matter in my reasons. But it contains also a degree also [sic] flexibility, and the complainant himself has been the beneficiary of it. Although Mr. Thornton's first LTD claim met with refusal, once the settlement was approved and Mr. Thornton was reinstated in his job he was deemed to have fulfilled the requirement of twelve months' employment. Upon becoming disabled again he was now, under the same clause 2.5, eligible for LTD benefits. The clause is not permanently exclusionary and must be seen in its total and not merely its partial impact, which — in the instant case — awarded the complainant LTD benefits after his return to work.

132However, this fact — which was a welcome effect of the settlement I approved — has had no impact on my decision, which addresses the larger question: Does an exclusion clause like 2.5 stand the test of the Code, since it excludes some employees while others are covered?¹⁰

In addressing this question I have kept the primary objective of the Code in view, but I have also been careful to identify legitimate business concerns, without falling prey to the implications of the shallow phrase, "business is business." The moral irresponsibility that it implies would not be condoned by this Board, which has at all times attempted to keep human rights concern a central part of its perspective. The Code exists in order to empower the weakest elements of society and give them access to opportunities, and thereby dignity, equality and a sense of worth.

133It is the employer's responsibility to see to it that all its employees are treated fairly and that the contract of insurance which it signs is consonant with human rights law, and the insurer's responsibility to see to it that the contracts it devises and signs have that quality.

134The main body of this decision has set forth the reasons which have moved this Board to accept clause 2.5 as legitimate, but that does not mean that the clause is thereby considered perfect. The doubts raised in the area of adverse selection as a dominant factor lead me to believe that it is time for NAL, and in fact by [sic] the industry as a whole, to review the clause. It has remained unchanged for a generation and deserves a second look. Previous statistics have failed to yield useful data, but a new attempt might do better and benefit both the industry and its clients.

135Further, it would assist the proper interpretation of the Code if NAL would see to it that all those entrusted with decisions relating to the acceptance or rejection of claims be instructed in the requirements of the Code. The Commission is asked to co-operate in the arrangements for such instruction and, if possible, expand them to the entire industry.

136There being no guidelines concerning the implications of clause 2.5, such as "treatment or care" or "same or related cause" (evidence of C. Desrosiers, vol. XVI, pp. 51, 57, 88; of Dr. Handford, pp. 127, 133), NAL is asked to institute courses and guidelines to correct these deficiencies.

137As regards respondent CF, it is noted that no proper attempt was made to acquaint the complainant (or, for that matter, other employees) with the terms of the insurance contract. Testimony revealed that Mr. Thornton did not even receive a pamphlet explaining his status as an insured person, nor was there any discussion relating thereto — until he made his first claim (evidence of the complainant, vol. III, pp. 25 f.; vol. IV, p. 2). The handing out of a pamphlet is the minimum required of the employer, though it would be hoped that more can and will be done in this respect.

ORDER

1381. The complaint against the respondent companies is dismissed.

2. The respondent NAL is requested to institute a review of all its contracts to make sure that the spirit of human rights legislation is observed, and especially is it requested to review its PEC clauses. It will file a report of its review with the Superintendent of Insurance within eighteen months. The OHRC in turn is asked to monitor the effectuation of this order.

3. NAL is further asked to institute a course which would strengthen the awareness of human rights law among all personnel responsible for health claims. The Commission is asked to assist in instituting such a program and to monitor it.

4. CF is asked to make sure that all its employees are aware of the insurance coverage contracted for them, and acquaint them with the benefits potentially due to them as well as the exclusions that are part of their contract. The Commission is asked to monitor or spot-check this program.

NOTES

¹ In the following, the singular term "respondent" will generally refer to NAL, FNAI and CF conjointly, while "complainant" will stand for Mr. Thornton as well as the Commission. The various parties are mentioned separately only when there is reason to do so (as, e.g., in Appendix B).

² Since this complaint was launched, the Code has been in part renumbered. New numbers of the Code will appear in brackets after the old numbers (as in the complaint, above) and citations which antedate the renumbering. Otherwise, only the current configuration will be used.

³ Although No. 9 of the complaint states that Mr. Thornton received "no care or treatment," these terms were only briefly examined during the hearings, since "care" can be very broadly construed and since the time of his visit to Dr. Tilley was not contested.

⁴ The fact that he received benefits thereafter, and is still receiving them, is not material to the case before this board.

⁵ This terminology is used by the insurance industry and its actuaries to denote the number of insured persons.

⁶ In the hearings also referred to as "anti-selection" or simply "selection." A distinction was also made between "blatant" and "non-blatant" selection, but it had no impact on the issue as a whole.

⁷ The figure 100 is an admittedly arbitrary figure which has generally been accepted as a bench mark in the industry. Its appropriateness was not contested per se in the proceedings, but the need to treat small groups differently with regard to LTD was.

⁸ No dictionary was introduced in the hearings and admitted as an Exhibit. My references are to one [of] the most generally referred to arbiters of word meanings, as understood in North America (Webster's), as well as to a standard work on law insurance (Colinvaux's). Both of these sources merely reinforce common parlance.

⁹ The Code defines "handicap" in s. 910(b). See supra.

¹⁰ It was not contended that NAL exhibited any prejudice toward the complainant as a gay man, or that his AIDS related handicap was considered differently from any other illness.

• Ed. note: Appendices not published here.