When to Pursue Punitive Damages for Long-Term Disability Claims: An Overview of Baker vs. Blue Cross Life Insurance Co. of Canada

It is an all too common story.

You become sick or injured for reasons that are not your fault.

It is a very stressful time. There are bills to pay, a family to support. They have expectations that there will not be a dramatic change in their accustomed lifestyle.

Initially, there is some relief. You are entitled to benefits under an insurance policy, which you had paid into for many years. You are paid long-term disability (LTD) benefits because you are unable to return to work. The LTD benefits are not a lot, just a portion of your income before becoming sick or injured, but it is enough to get by. 

And then one day the insurance company announces that it intends to stop paying your long-term disability benefits and that you will need to return to work. This comes as a surprise. Your doctors say that you are not ready to return to work. But dealing with the insurance company does not get you anywhere. They insist that you can return to work, possibly in a different role than you had pre-injury or sickness, and/or they need more information from you or your doctor. 

As the deadline for the end of benefits approaches, concerns about paying the bills increase. The stress builds. But the insurance company never changes its mind and you now lack the benefits that were keeping you and your family afloat.

Now what?

A claim can be made against the insurance company to resume the payment of benefits on the basis that the insurance company wrongfully stopped payments under the insurance contract.

But, in some situations, you may deserve additional compensation.

A claim against the insurance company could also include “extra-contractual damages”. These damages are beyond what is found in the insurance contract. They might be available to a person because Canadian courts have found that insurance companies have a duty to fairly deal with the claims submitted to them. They are in violation of this duty when they act in a high-handed manner or with disregard towards the insured person.

Aggravated and Punitive Damages in a Long-Term Disability Case

There are two types of extra-contractual damages. Aggravated damages are meant to compensate a person who suffers distress arising from the delay in receiving the LTD benefits that were wrongfully denied. 

Punitive damages are meant to punish the insurance company for its actions and deter the insurance company from acting that way in the future. In law, damages are meant to compensate a wronged person but punitive damages are meant to punish the wrongdoer. Punitive damages may be awarded against an insurance company because the insured person is in a highly vulnerable condition and relies on the insurance company to act fairly.

Canadian courts have made awards of punitive damages against insurance companies. Reviewing these cases is very useful to understand the types of behaviour that deserve an award of punitive damages.

Arguably the most important case on this issue is the Ontario Court of Appeals decision in Baker vs. Blue Cross Life Insurance Co. of Canada, 2023 ONCA 842. The Ontario Court of Appeal heard an appeal from a trial where a jury found in in favour of the plaintiff, Ms. Baker. The jury agreed that Ms. Baker was totally disabled under the insurance policy. It also awarded Ms. Baker $220,604 in benefits under the policy, $40,000 for mental distress, and a whopping $1.5 million in punitive damages. The focus of this article is on the award of punitive damages.

The insurance company argued that punitive damages should not have been awarded because it acted fairly under the claim. It also argued that the award of $1.5 million was too high. The Court of Appeal rejected both arguments.

In upholding punitive damages, the Court of Appeal relied on the sum of the following facts. Blue Cross stopped paying benefits and requested additional documents three different times. Blue Cross selectively relied on medical evidence that supported their case while ignoring other conflicting evidence. It took too long for Blue Cross to get an opinion from an independent medical examination and then it distorted the reports conclusions.

The Court of Appeal gave this overall assessment of Blue Cross actions:

“Overall, we see repeated instances of the Blue Cross team ignoring information, misinterpreting experts reports, and relying on the ill-informed advice of their contracted doctors to deny benefits. In effect, they created a closed loop of information that ignored contrary information and created a counter-narrative based on their misinterpretation of the relevant data. This is a pattern of misconduct that, at best, shows reckless indifference to its duty to consider the respondents 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 Court of Appeal agreed with the $1.5-million award for punitive damages. It wrote that Blue Cross was a large insurance company and that a large award was necessary to deter Blue Cross from acting like this again in the future.

Our Client Wins Punitive Damages When Insurer Ignores Experts

Another recent judgment imposing punitive damages on an insurance company is Fraser vs. Fenchurch General Insurance Co., 2022 ONSC 6222. In this case, Preszler Injury Lawyers represented the plaintiff.

Mrs. Fraser, the plaintiff, applied for LTD benefits and she had the support of her family doctor. The insurance company ordered an independent medical assessment. That independent assessor did not find anything physically wrong with Mrs. Fraser, but he recommended that Mrs. Fraser be tested for chronic pain. The insurance company ignored the suggestion of the assessor and denied the claim for long-term disability benefits.

After starting her lawsuit, Mrs. Fraser obtained a psychiatric review that concluded she could not return to work. The insurance company then had Mrs. Fraser examined by its own expert, who agreed with the other experts conclusion that Mrs. Fraser could not return to work. At this point, the insurance company changed its position and allowed her LTD claim. However, the matter still went to trial to determine if Ms. Fraser was entitled to extra-contractual damages because of the insurance companys actions.

At the end of the trial, the judge awarded $150,000 in punitive damages to Mrs. Fraser (along with $10,000 in aggravated damages to compensate her for the years-long delay between her initial claim and denial and her finally receiving benefits).

The judge awarded punitive damages given some of the following facts. The insurance company wrongly denied the insurance claim after it received the initial expert report. While an insurance company does not have to follow every recommendation in a report, the insurance companys “requirement of good faith requires that it fairly investigate the claim and assess the claim in balanced and reasoned manner.” The insurance company was aware of the suggestion to get a psychological report for chronic pain but decided to deny the claim without getting that report. There was no reasonable basis to ignore this suggestion. Moreover, the failure to get the psychological report was contrary to the published policies of the insurance company. 

Extra-Contractual Damages Are Not Available in Every LTD Denial

A person, or that persons experienced legal counsel, must make a careful and detailed review of the evidence in the disability file. The basis for the denial must be determined. Is the denial based on a fair interpretation of the medical evidence? Has the insurance company listened to the insureds treating physician who has been treating the insured for years and presumably has the most insight into the condition of the insured? If independent examinations have been done, is the insurance company fairly interpreting the results and conclusions, and if there are suggestions for further treatment or examination, is it reasonable for those suggestions to be followed? Has there been an unexplained delay in getting any necessary assessments and reports? Have payments stopped without giving the insured person the opportunity to address any questions from the insurance company? Is the insurance company following its own policies and procedure manuals in denying the claim?

Should You Pursue Punitive or Aggravated Damages?

If the answer is “yes” to one or more of the questions above, it is advisable to consider whether a claim for extra-contractual damages is warranted. We can help you find the answers if any of these questions apply to you. Call us at 1-888-494-7191 to set up a free initial consultation and speak with one of our Calgary long-term disability lawyers.