The Ontario Court of Appeal, in December of 2023, upheld a jury award of $1.5 million in punitive damages against Sun Life in a claim for unfair treatment of an applicant seeking disability benefits. ¹ At trial before a jury, the plaintiff was awarded lost disability benefits of $220,000, aggravated damages of $40,000 and full costs of the 22 day trial of approximately $1 million. ² She also was awarded a declaration that she, at trial, was totally disabled as such term was defined in the policy.

The issue on appeal was the award of punitive damages. Blue Cross also sought leave to appeal, as is required, on the issue of costs alone. Both appeals were dismissed.

The case arose through a group disability policy provided through the plaintiff’s employment with Compass Group Canada which provided her services to Humber River Hospital.

The plaintiff had suffered a stroke at age 38, while she was exercising in October of 2013. She was paid short term disability benefits until January 2014. She was denied then denied these benefits, a decision which she successfully appealed internally. She was then allowed benefits to March 7, 2014 for a total short term period of 30 weeks.

She then applied for long-term disability. The policy contained the usual “own occupation” test for 2 years and subsequently “any occupation” test. The plaintiff received the first two years without issue. Following the 2 year threshold, she was denied the “any occupation” benefits. She appealed, internally again, the denial of these benefits at two such internal levels. She then sued.

The essential submission of Blue Cross was that it acted in good faith when it denied the claim and that “it has a right to be wrong”. The issue on this question centered on the factual foundation of the award, as found by the jury, that was wrong and that it had committed a good faith error. The Court of Appeal also noted that Blue Cross failed to call as witnesses all but one of the persons considering the internal appeals on the denial of benefits.

The record, the appellate court, was replete with evidence to support the award of punitive damages. ³ These included:

1. Blue Cross relied upon medical opinions from general practitioners which it knew or ought to have known that they were incorrect;

2. It selectively chose evidence to support the denial and ignored contrary medical evidence. One such detail was that a report from a Dr. Knox, an external reviewer, which stated “I don’t believe she can return to work at this time, even on a part-time basis”. This statement was omitted from the review;

3. The insurer sought an independent medical examination for the first time two and one-half years after the stroke;

4. Having received this report, it distorted its conclusion to support the denial decision;

5. It “persisted in distorting Dr. Kane’s and Ms. Kresak’s reports even when counsel for the plaintiff drew these errors to its attention. ⁴

The Court of Appeal saw such evidence supportive of the bad faith conduct of Blue Cross:

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 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.

[31]      These examples or any combination offer a sufficient basis to award punitive damages. Jurors could have concluded that Blue Cross was not just cavalier in treating the respondent’s claim but that it undertook a deliberate strategy to wrongfully deny her the benefits she was entitled to under the policy. The fact that Blue Cross failed to call the critical witnesses to provide the context about their handling of the file could further serve to support a finding that the conduct was deliberate.

As to the quantum awarded, the court also observed that there was ample evidence to show that such conduct was systemic within the company, which added reinforcement for the award.

On the issue of costs, the Court of Appeal did grant leave on this as a discrete issue as it agreed that there should not be a general rule that full costs should follow a successful disability award. However, it then determined that full costs should be allowed, given the conduct of the insurer and allowed this in the sum as awarded.

A full review of similar awards of aggravated and punitive damages in this context of a claim against an insurer for bad faith conduct in the claim process is found here.

1. Baker v Blue Cross
2. The issue of a jury trial in a case against an insurer is unusual. The plaintiff moved unsuccessfully to strike the jury notice due to delay during the pandemic as no juries were then allowed. The reasons are here.
3. These are detailed in para 28 of the decision.
4. Dr. Kane was the consulting neuro-psychologist and Ms. Kresak was the author of a Transferable Skills Analysis report