Federal employees spent months chasing denied claims, piling up medical debt as vendors went quiet
After federal employees posted abroad spent months chasing denied claims, piling up medical debt as vendors went quiet on a botched benefits transition, a federal court agreed the government owed them a fix.
However, it stopped short of ordering one, finding the worst of the damage had already been repaired.
In a decision released Sept. 10, 2026, Federal Court Justice Azmudeh dismissed an application by the Professional Association of Foreign Service Officers seeking a court order compelling the Treasury Board to overhaul administration of the Public Service Health Care Plan for foreign service employees working outside Canada.
Employee benefits switch in 2022
About 1,100 of PAFSO's roughly 2,115 members work abroad, relying entirely on the plan's comprehensive coverage for routine and emergency medical care since no provincial health insurance applies to them overseas. Treasury Board replaced Sun Life with Canada Life as plan administrator starting October 2022, and Canada Life subcontracted comprehensive coverage and out-of-province benefits to MSH International.
Plan members described interrupted benefits, arbitrary claim denials and reversals, and approved claims that went unpaid, triggering collection actions against some employees, according to PAFSO's submissions. A petition signed by 3,000 plan members and submitted to the House of Commons in March 2024 said the ongoing dysfunction was harming members’ physical and mental health.
By late 2023, the backlog reached roughly 3,300 comprehensive coverage claims and 2,100 out-of-province claims. Canada Life told a House of Commons committee it processed 90 per cent of claims within five days, but the Treasury Board’s own figures put average processing time at 21.29 days, with about 100,000 claims still in the queue.
Court says Ottawa had duty to act
The Treasury Board maintained the dispute was really a private contract issue for the grievance process, arguing the law gave it only discretion to act and created no fixed duty owed to any particular group. PAFSO said the Treasury Board had an obligation to provide a working plan to employees posted abroad.
Azmudeh found the Treasury Board must deliver the plan once it is created, a duty the law does not leave optional even though the Treasury Board can still choose how to modify the plan later on. The judge ruled the transition delays, which stretched to roughly 22 months against an estimated six, were unreasonable and never adequately explained.
PAFSO pressed the Treasury Board for a resolution through several formal demands beginning in November 2023. In one letter, PAFSO told the department its response “does not address any of the substantive elements of PAFSO’s request.”
Can’t remedy past problem
Despite finding the delay unreasonable, Azmudeh stopped short of ordering a fix, citing a lack of ongoing, credible evidence that the problems persisted. The judge noted theTreasury Board’s evidence showed the claims backlog was largely cleared by August 2024 and that outstanding escalated claims had fallen to fewer than 50 by January 2025.
PAFSO’s own evidence rested largely on secondhand accounts relayed by its key witness, who could not name any member with an unresolved claim when questioned, citing privacy concerns. Azmudeh wrote that a court order compels present performance rather than punishing past failures, noting, “The court cannot issue an extraordinary, supervisory public law order to remedy a past problem.”
The application was dismissed, and the parties have 30 days to file written submissions on costs. The Treasury Board’s figures on resolved claims came largely from Canada Life and were not independently verified by the Treasury Board itself.
