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Insurance companies don’t run scared: be aware

|Written By Steve Simpson and Stephanie Neate
Insurance companies don’t run scared: be aware

A recent Saskatchewan Court of Queen’s Bench decision, Branco v. American Home Assurance Co., awarded aggravated and punitive damages in the millions against the insurers. This case attracted the attention of everyone in the insurance industry due to the high awards: a total of $450,000 in aggravated and $4.5 million in punitive damages were awarded against AIG (American Home Assurance) and Zurich Life Insurance Co. Ltd.

However, insurers need not feel threatened by this case. The large aggravated damages award represents a significant departure from previous awards; yet the court failed to justify the substantial increase in aggravated damages. Furthermore, this case does not change the limited circumstances in which punitive damages may be ordered. The distinctive manner in which the disability claim was adjudicated and subsequently handled during the litigation process is what attracted punitive damages.

Plaintiffs should not presume to be entitled to such large awards. The Supreme Court of Canada in 2002’s Whiten v. Pilot Insurance Co. recognized that aggravated damages are compensatory in nature. Although the conduct of the defendant is relevant, the quantum of the aggravated damages should reflect the plaintiff’s non-pecuniary loss. In long-term disability actions, it should compensate for mental distress that arises from humiliating or oppressive conduct on the part of the insurer.

Similar to other instances where damages are awarded for injury, a range for mental distress awards has developed. According to the 2006 trial decision in Rowe v. Unum Life Insurance Co. of America, courts have ordered between $10,000 and $50,000 in aggravated damages for mental distress in LTD actions. Another LTD trial decision in Ontario, Clarfield v. Crown Life Insurance Co. in 2000, awarded $75,000 in aggravated damages, but that seems to have included $40,000 for financial losses. Even the Supreme Court of Canada’s Fidler v. Sun Life Assurance Co. of Canada, the leading case on aggravated damages in LTD actions, fell within the above range by awarding $20,000.

These awards are not granted as a result of slight mental discomfort. The court in Fidler made it clear the degree of mental distress should be sufficient to justify compensation. An award of aggravated damages is not appropriate for trifling disturbances. Thus, the significant award for mental distress in Branco should be questioned. No significant analysis is provided to explain the departure from the established range for the aggravated damages.

While the court in Branco found the plaintiff’s mental distress to be significant, so did the courts awarding damages within the established range. We suspect the relatively large award for aggravated damages contained a punitive component. However, punishment is not the purpose of aggravated damages. To hold otherwise is to risk double-recovery in the event that punitive damages are also awarded.

The purpose of awarding punitive damages is for the retribution, denunciation, and deterrence of misconduct that represents a marked departure from ordinary standards of decent behaviour. Ultimately, when an insurer breaches its duties under the policy in bad faith and does not deal with the insured’s claim fairly, punitive damages may be awarded. In Whiten, the court awarded $1 million in punitive damages. The Supreme Court of Canada found this award to be high but within the rational limits.

In Branco, the court found the insurers had knowledge the plaintiff was totally disabled but purposefully exerted financial pressure over him by withholding payment of disability benefits, for seven years, in an effort settle the claims for a significantly reduced amount. Zurich had approved the plaintiff’s claim in 2002 but did not make any disability payments until 2009. Important to the court’s decisions to award punitive damages was the fact there was no medical evidence disputing disability. The court therefore found the insurers had denied, or terminated, the plaintiff’s claim in bad faith.

Branco has not changed the circumstances in which punitive damages will be awarded. They are reserved only for the punishment and deterrence of reprehensible behaviour. The $3-million award against Zurich and $1.5 million against AIG went well above the $1 million awarded in Whiten, which was decided at the time the claim was being handled.

The court’s view in Branco was the $1-million award in Whiten did not successfully catch the attention of insurers. Moreover, a previous $60,000-damages award against AIG to punish similar conduct was found to be ineffective. However, the jump from $60,000 to $1.5 million on similar facts does not seem to be a measured increase. The $3-million award against Zurich is even more disproportionate.

This case serves as a reminder to insurers that the insured should be prudently paid when claims are proven and acknowledged. As disability insurance defence lawyers, we see many files with competing evidence as to the question of disability. Insurers that adjudicate and manage claims in a diligent and reasonable manner and make decisions on claims based on the totality of the evidence need not be concerned about attracting punitive damages. Such an award requires something more than simply a wrong decision on a claim.

Branco does not change the legal framework for awarding aggravated and punitive damages. That being said, the quantum of damages ordered has far surpassed the established range of awards in long-term disability actions. One thing is for sure, where there is egregious conduct, insurers should be aware there will be significant aggravated and punitive damages awarded.

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Steve Simpson and Stephanie Neate are lawyers at Bennett Gastle P.C. They practise insurance defence law with a focus on long-term disability claims. Steve and Stephanie can be reached at [/em]ssimpson@bennettgastle.com and sneate@bennettgastle.com.

  • downed worker

    bruce junker
    BIG DEAL, 1 injured worker finally wins a legal case of BAD faith, THERE ARE LITERALLY HUNDREDS IF NOT THOUSANDS of these BAD FAITH claims. ANYONE who has ever suffered a workplace injury in Saskatchewan looks at this as a JOKE why? because workers compensation in Saskatchewan is the leading BAD FAITH insurance company and GOVERNMENT OWNS it. so "GOOD LUCK" getting money or mediczal care for work injury in this corrupt province; ask me my case is over 10 years old and workers compensation has falsified and fabricated alm ost all claim file info;

    and by the way, their are no LAWYERS i Saskatchewan willing to fight for injured workers;
  • distinctive manner in which the disability claim was adjudi

    Brian
    There is nothing "distinctive" about the manner in which this claim was handled. For example, the Ontario auto insurance landscape is littered with cases in which auto insurers played hardball with seriously injured claimants by wrongfully denying policy benefits for months and years on end. Often these denials lacked medical support - but even more often - the defence medical "experts" turned out to be (under)unqualified. Some of the Ontario auto insurers' dubious "preferred vendors" of unqualified medico-legal opinions also sold/sell second opinions to disability insurers. The real question is not whether this behavior is "reprehensible" - but why so many plaintiff lawyers so often fail to check the qualifications of the insurers' medico-legal "experts" and aggressively challenge them whenever it is appropriate to do so (as the LSUC says they should).
  • downed worker

    bruce junker
    Well Stated; Canada is home to; Medical Legal Insurance Fraud - Racketeering; Whenever there is significant injury with insurance interests, EVERYTHING will be done to deny timely-diagnosis - Timely Medical care; "Cost Containment being the immediate focus". GOD HELP you when workers compensation is involved because these people are psychopaths, and push the psychopathic corporate agenda;

    To make matters even worse, if you complain to GOVERNMENT, or any Government Body, your complaint will be denied any investigation; The Canadian Criminal Code section 221 criminal negligence causing bodily injury, is NOT even enforced when you are a injured worker; These workers comp claims adjusters deny doctors requests for MRI / CT Scan, specialists appointment, operations. The ONLY recourse is to take the workers comp to court; In my opinion these people should be hunted down and PUNISHED SEVERLEY so they can't due this to anyone else. Western Justice Style;

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