Executive Summary: Key Legal and Evidentiary Issues

• Characterization of the dispute turned on whether Mr. Carter’s complaint was really about Manulife’s bad faith management of short-term disability (STD) benefits, rather than entitlement to long-term disability (LTD) payments under the group policy.
• The court had to decide if the “essential character” of the dispute arose from the interpretation, application, or administration of the collective agreement, thereby falling within the exclusive jurisdiction of a labour arbitrator.
• A central issue was whether Manulife’s role in administering STD benefits on Bell’s behalf brought a non-party insurer within the scope of the collective agreement for jurisdictional purposes.
• The evidentiary foundation for the bad faith claim lay in the handling of the STD file (suspension, repeated appeals, delays, and alleged pressure on the employee), and whether those facts could be pursued in court instead of through grievance arbitration.
• The Court of Appeal considered if the grievance and arbitration process could provide “effective redress,” and whether the unavailability of certain judicial remedies (e.g., punitive damages) justified the exercise of residual court jurisdiction.
• Ultimately, the appellate court examined whether a superior court judge who finds no jurisdiction may stay proceedings, or must instead dismiss the civil action entirely once the matter is found to be arbitrable.

Background and employment context
Terrence Joseph Carter had been employed by Bell Aliant/Bell Canada since 1998 as a unionized worker, with the terms and conditions of his employment governed by a collective agreement between Bell and his union. The collective agreement included a short-term disability (STD) benefit scheme, fully funded by Bell, and provided that Bell would pay STD benefits to qualifying employees for specified periods and amounts, using a disability management structure identified within the agreement. Bell also entered into a separate group insurance contract with Manufacturers Life Insurance Company (Manulife) to provide long-term disability (LTD) coverage and group life insurance, with employees contributing toward the premiums for that LTD coverage through payroll deductions. Thus, Mr. Carter’s protection if he became disabled was split: STD benefits were a direct obligation of Bell under the collective agreement, administered by Manulife for Bell, while LTD benefits were governed by a distinct group insurance policy between Bell and Manulife.

Injury, disability claims and benefits trajectory
In March 2018, Mr. Carter suffered a back injury at work that left him unable to resume his regular duties. He first received workers’ compensation benefits and attempted several returns to work, but by September 2021 his ongoing pain forced him to cease work entirely. He then applied for STD benefits. Manulife, acting as Bell’s claims administrator for STD, approved his STD claim in October 2021, effective retroactively to his September departure. In January 2022, at Manulife’s request, he underwent an Independent Medical Assessment. Based on that assessment, Manulife suspended his STD benefits on the basis that there was a lack of “objective medical evidence” that he could not return to work on a part-time basis.
In April 2022, Mr. Carter sought LTD coverage by requesting LTD application forms from Manulife. Initially he was told he could not apply for LTD while he was on STD or if he did not qualify for STD, but within a week Manulife provided the LTD forms, which he completed and submitted. In May 2022 he appealed the suspension of his STD benefits, but Manulife upheld its decision. In June 2022, Manulife denied his LTD claim, relying on the LTD policy’s qualifying period and stating he had not “exhausted the maximum duration” of his STD benefits and therefore did not yet qualify for LTD. This reasoning was tied to the structure of the LTD policy, which required the prior expiration or exhaustion of STD benefits as a condition precedent to LTD eligibility.

Policy terms and clauses at issue
Two different but interlocking benefit schemes drove the legal analysis. First, the collective agreement obliged Bell to provide STD benefits to employees who were off work for eight or more consecutive calendar days, defined how a “Disability Management Group” would receive medical documentation, allowed that group to consult treatment providers to assess ongoing eligibility, and set out calculations for benefit levels based on years of service. Those STD obligations, though administered by Manulife, remained legally anchored in the collective agreement and were ultimately Bell’s financial responsibility.
Second, the separate group LTD policy issued by Manulife to Bell contained a qualifying period or waiting period clause. Under that clause, an employee could not become eligible for LTD benefits until the STD benefit period had been exhausted. Manulife’s denial of LTD benefits in June 2022 rested squarely on this policy term: because Mr. Carter had not been paid through the full STD period (due to suspension), he was said not to satisfy the qualifying period for LTD. In Mr. Carter’s own narrative, this interaction between the qualifying period and the suspension of STD became central to his bad faith theory: he alleged Manulife deliberately terminated STD benefits before the LTD qualifying date to block his transition to LTD coverage on a technicality.

Allegations of bad faith and procedural history
In September 2022, Mr. Carter, represented by counsel, commenced a civil action in the Supreme Court of Nova Scotia against both Bell and Manulife, seeking payment of STD and LTD benefits. He later discontinued against Bell and proceeded solely against Manulife. The litigation then evolved: in December 2022 he filed a second appeal internally to Manulife in respect of his STD termination, asserting that because he had sued Manulife, the insurer had a conflict of interest in adjudicating his appeal. He deposed that his STD appeal was stalled for months and that, after pressure and advice from his union, he agreed to waive the conflict concern to get his appeal heard, describing feeling “pressured beyond belief.”
In June 2023 Manulife dismissed his second STD appeal; on June 28, 2023 he filed a third STD appeal, supporting it with updated medical evidence. On July 21, 2023 Manulife reversed course, reinstating his STD benefits and paying them retroactively through the full STD maximum period. His file was then transferred to the LTD unit. On August 25, 2023 Manulife approved his LTD claim retroactive to October 19, 2022, and he remained on LTD thereafter.
Despite the eventual payment of both full STD and ongoing LTD benefits, Mr. Carter amended his pleading again in November 2023 to focus on Manulife’s alleged bad faith in handling his claims. He sought aggravated and punitive damages as well as damages for mental distress, grounded in his experience during the 15-month STD suspension window: selling belongings to stay afloat, severe financial and emotional strain, the breakdown of his marriage, and what he viewed as egregious and self-interested conduct by Manulife.
Manulife responded with a preliminary motion challenging the court’s jurisdiction. It argued that the dispute arose from the collective agreement’s STD regime, and that under the Supreme Court of Canada’s decision in Weber v. Ontario Hydro and related authorities, only a labour arbitrator, not the civil courts, could hear such a dispute. The motion judge in 2024 NSSC 245 accepted that the claim was governed by the collective agreement, but entered a stay of the action pending a labour arbitrator’s determination on arbitrability, leaving open a possibility of residual court jurisdiction if the matter were found non-arbitrable. Mr. Carter appealed, arguing his bad faith insurance claim fell outside the collective agreement and should proceed in court. Manulife cross-appealed, contending the judge lacked jurisdiction to stay the proceedings and should have dismissed the action outright.

Jurisdictional framework and appellate analysis
On appeal, the Nova Scotia Court of Appeal applied the Weber and Cherubini Metal Works framework. The key questions were: (1) how to properly identify the “essential character” of the dispute; (2) whether that dispute, so characterized, fell within the ambit of the collective agreement; and (3) whether the court should exceptionally exercise residual jurisdiction even if a labour arbitrator otherwise had exclusive authority.
The Court of Appeal held that the motion judge misidentified the nature of the dispute. While the motion judge had characterized it as concerning the management of LTD benefits, the appellate court re-examined the record, particularly Mr. Carter’s own affidavit. It concluded that the factual core of his bad faith allegation related to the handling of the STD file: the suspension of STD benefits after an independent medical assessment, repeated appeals, delays, alleged pressure surrounding the conflict-of-interest issue, and the substantial financial and emotional fallout during the period when STD benefits were not being paid. Even his theory about strategic use of the LTD qualifying period was premised on how Manulife had managed, suspended and later reinstated STD, which was a benefit Bell was required to provide under the collective agreement.
Once so framed, the court found that the dispute related to the “administration” and “application” of the collective agreement’s STD provisions. The fact that Manulife was not itself a party to the collective agreement did not change the analysis: its role as Bell’s appointed administrator of a contractual benefit created under the agreement meant that a dispute over that benefit’s management still arose “under” the collective agreement. In line with Cherubini and similar authorities, the identity of the defendant (a non-party insurer) could not be used to circumvent the exclusive arbitration regime.
The Court of Appeal then considered whether residual jurisdiction should be exercised. It reaffirmed that this is a narrow and exceptional power, available only where an arbitrator cannot provide an “effective remedy” and where, without court intervention, there would be a real deprivation of ultimate redress. The inability to claim punitive damages, or the mere expiration of time limits to file a grievance, does not in itself create a basis for residual jurisdiction. In Mr. Carter’s case, his union had been aware of his STD difficulties, had advised him, and had indicated that a grievance could be filed after his final appeal outcome. He elected to pursue a civil action instead of invoking the grievance process. Even if limitation issues might now arise within the grievance process, the appellate court held that this is not a sufficient ground to displace the arbitration scheme or to justify court intervention.

Outcome and implications for the parties
The Court of Appeal ultimately agreed that the essential character of the dispute lay in the management of STD benefits, a subject squarely derived from and regulated by the collective agreement’s disability provisions. Because those issues must be resolved within the labour relations framework through grievance and arbitration, the court concluded that a labour arbitrator has exclusive jurisdiction and that the Supreme Court of Nova Scotia has none. Given that absence of jurisdiction, the appellate court held that the motion judge could not properly grant a stay of the action; instead, the only lawful disposition was to dismiss the civil claim.
Accordingly, the Court of Appeal dismissed Mr. Carter’s appeal and allowed Manulife’s cross-appeal, set aside the stay, and ordered that the action against Manulife be dismissed. Each party was directed to bear its own costs of the appeal. Manufacturers Life Insurance Company is therefore the successful party in the litigation, and no damages or costs were awarded in its favour or against Mr. Carter; the decision does not grant any monetary award, and the total amount ordered in favour of the successful party cannot be determined because no sums were awarded.