LTD insurer hit with record $1.5-million punitive damages award

Bad behaviour towards a long-term disability (LTD) claimant can come back to bite, as one insurer recently discovered — costing them $1.5 million.

Insurance companies are not required to approve every disability claim they receive, but they do have a duty to treat their insureds in a fair and even-handed manner. In extreme cases, a breach of this duty may result in an award of punitive damages, which are designed to punish bad faith conduct by an insurance company.

In a recent Ontario Court of Appeal decision, the three-judge panel upheld a jury’s decision to award the plaintiff $1.5 million in punitive damages, a sum that is believed to be a new Canadian record for LTD cases. Below, Oakville long-term disability lawyer Jill Edwards offers her commentary on this case.

What happened?

According to the decision, the plaintiff Sara Baker was 38 years old back in 2013, when she suffered the stroke that prompted her claim for benefits from Blue Cross Life Insurance Company of Canada.

Over the course of the next three years, the insurance company terminated both her short-term and long-term disability benefits before subsequently reinstating them. Eventually, the insurer cut her off for good, concluding that the plaintiff had not met the test for further benefits, which required “total disability,” preventing her from working in “any occupation” for which she was qualified or might become so.  

At the end of a 22-day trial, a jury sided with Baker and found that she was totally disabled, awarding her $220,000 in retroactive benefits, plus a further $40,000 in aggravated damages for mental distress, as well as $1.5 million in punitive damages.

Systemic issues

Because the case was originally decided by a jury, who do not deliver reasons for their verdicts, it was difficult to draw too many conclusions from the ruling. Only on appeal did we get a more revealing glimpse into the circumstances of the case. And it reads like a kind of “what-not-to-do” guide for insurers when handling a disability claim.

The insurance company only challenged the punitive damages award, but the Court of Appeal declined to interfere with the jury’s ruling, finding that it was open to them to conclude that Blue Cross engaged in “systemic and deliberate misconduct” in its treatment of Baker’s case and imposed significant punitive damages to stop it from happening again.

The evidence presented at trial, they wrote, revealed Blue Cross had repeatedly ignored information, misinterpreted expert reports and relied on the ill-informed advice of their own doctors to deny benefits, creating a “closed loop” that overlooked any evidence to the contrary. 

“This is a pattern of misconduct that, at best, shows reckless indifference to its duty to consider the respondent’s claim in good faith and conduct a good faith investigation, and at worst, demonstrates a deliberate strategy to wrongfully deny her benefits, regardless of the evidence that demonstrated an entitlement,” the decision reads.

What next for LTD claimants and insurers?

The size of this award, which is believed to be a record, is undeniably shocking. The reverberations have been felt in the offices of LTD lawyers and insurers alike, but I’m not so sure they will be long-lasting.

To start, I will be surprised if the insurer does not appeal the case again so that the Supreme Court of Canada can have its say on the issue.

Assuming the award is upheld, insurers will likely adopt a more cautious approach in dealing with their insureds in the short term. They will look closely at their systems and ensure they can back up their denials and show that they are acting in good faith.

On the plaintiff side, LTD claimants and their long-term disability lawyer should not get carried away by this individual’s success. Before Baker, the record punitive damages award against an insurer stood at $1 million, but awards are, in fact, quite rare, and most are worth considerably less than seven figures.

In addition, these damages are notoriously difficult to prove, since plaintiffs must demonstrate an “independent actionable wrong” committed by the insurer, often involving deliberate or malicious conduct.

Another question raised by the case concerns jury notices in Ontario, where either side in a civil case can elect a trial by jury. Traditionally, insurers are much more likely than plaintiffs to make the election, as opposed to proceeding before a judge alone, and that has certainly been my experience in all my years acting for both plaintiffs and defendants in LTD matters.

It will be interesting to see if this case challenges that conventional wisdom as I can see more claimants feeling emboldened to roll the dice on a jury.

Whether or not election patterns shift, the key factor in jury trials will still be the credibility of the plaintiff and the impression they make on the members of the public conducting their civic duty. What we do know for sure is that the gamble emphatically backfired on Blue Cross.

If you are experiencing issues with a long-term disability (LTD) insurance claim, seeking legal advice is crucial. Contact our team today for a confidential consultation. Feel free to contact me or another member of the team at Edwards Pollard. We would be happy to help you.

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