Written by: Nielsen C. Beatty In this recent case, the Ontario Court of Appeal upheld a very substantial punitive damages award of $1,500,000.00 against an insurer of disability benefits. The trial was heard at the Ontario Superior Court of Justice on March 22, 2023. The Plaintiff had sought an action against her insurance company, Blue Cross. The Ontario Superior Court of Justice awarded substantial damages, including a very high punitive damages award and full indemnity costs. The Defendant, Blue Cross, appealed the trial decision to the Ontario Court of Appeal. The punitive damages award of $1,500,000.00 is the highest since the $1,000,000.00 punitive damages award in Whiten v Pilot Insurance Co, 2002 SCC 18 (approximately $1,565,000.00 in 2024). Facts: The Plaintiff had sued Blue Cross Life Insurance Company of Canada (“Blue Cross”) in relation to Blue Cross’ denial of long-term “any occupation” benefits. The Plaintiff suffered a stroke at the age of 38 when exercising (the “Injury”). At the time of the Injury, the Plaintiff had Blue Cross benefits through her employer (the “Policy”). She was granted short-term disability benefits, then long-term “own occupation” benefits for two years, although Blue Cross later denied these benefits during these two years, only reinstating them after her appeal. In order to obtain long-term disability benefits under her Policy’s “own occupation” package the Plaintiff needed to prove “total disability” which was defined as the complete and continuous inability of the Covered Employee to perform the regular duties of her own occupation as a result of illness or injury. The Plaintiff then applied for long-term “any occupation” benefits, which was the next coverage option that followed the ending of her “own occupation” benefits. This had a different definition of “total disability”, defined as a state of continuous incapacity, resulting from illness or injury, which wholly prevents the Covered Employee from performing the regular duties of any occupation for which she: 1) would earn 60% or more of her pre-disability earnings; and 2) is reasonably qualified, or may so become, by training, education, or experience. The Plaintiff’s application for “any occupation” long-term disability benefits was denied, and she sought this Action against Blue Cross. Through a jury trial, the Court awarded: a declaration that the Plaintiff was totally disabled within the meaning of Blue Cross’ long-term disability benefits policy; retroactive benefits to the date of the trial in the amount of $220,604.00; aggravated damages for mental distress of $40,000.00; punitive damages in the sum of $1,500,000.00; and full indemnity costs of $1,083,953.50. Blue Cross appealed the punitive damages decision and costs decision to the Ontario Court of Appeal (“ONCA”). Analysis: Entitlement to Punitive Damages The ONCA found that the jurors understood the nature of punitive damages by being instructed: Such damages are only to be awarded in exceptional circumstances … to address the objectives of retribution, deterrence, and denunciation; Punitive damages should be imposed only if there has been high-handed, malicious, arbitrary, or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour; and Punitive damages are given in an amount [that] is no greater than necessary to rationally accomplish these objectives and that judges and juries in our system have usually found that moderate awards of punitive damages which inevitably carry a stigma in the broader community, are generally sufficient. The ONCA found that punitive damages were appropriate in this case for a variety of reasons, including the fact that Blue Cross stopped the payment of benefits on three occasions. On each occasion, it denied benefits first, and then asked for additional documentation, instead of first warning the Plaintiff of a potential cut-off and requesting additional documentation. Additionally, the ONCA found that Blue Cross relied on opinions from its contracted general practitioners, which it knew or ought to have known were incorrect. A medical opinion by one doctor was provided medical history from Blue Cross, but that doctor got the Plaintiff’s medical history wrong in his report nonetheless. Additional reasons that the ONCA considered in coming to its conclusion about punitive damages were the facts that: Blue Cross selectively relied on evidence that supported the denial of benefits and ignored conflicting medical evidence; In the face of conflicting medical evidence, Blue Cross delayed obtaining an independent medical examination of the Plaintiff; Blue Cross distorted a neuropsychological assessment report in such a way that supported denial of benefits. It did so through omitting evidence that did not support denial of benefits; Blue Cross also misread a Transferable Skills Analysis Report in such a way that supported denial of benefits. The ONCA instead found that the doctor the penned the report noted that the Plaintiff’s work as a nutritionist was subject to significant qualifications. The ONCA found that “…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”. It was determined that Blue Cross created a closed loop of information that ignored contrary information. The ONCA determined that the above examples or a combination of them, offered a sufficient basis to award punitive damages. Quantum of Punitive Damages The ONCA stated that “deterrence plays an important role when dealing with claims against insurance companies” and that deterrence is impossible unless the punishment is meaningful. The ONCA took judicial notice that Blue Cross is a large insurance corporation, of which a $1,500,000.00 award was “…little more than a rounding error” compared to a personal defendant or a small business. The ONCA noted that there was evidence that the “…problems within Blue Cross are systemic” and that many Blue Cross employees worked on this file. The systemic nature of Blue Cross’ apparent missteps in claims of this sort was important in justifying the high punitive damages award. The ONCA found that the quantum of the punitive damages award was rationally connected to the evidence and the purposes of punitive damages. Costs The ONCA did not agree with the methods by the trial court at coming to the costs conclusion, in creating a new precedent mandating full costs when “…the wrongful denial of long-term disability benefits by an insurer, given the unique character of long-term disability insurance policies, constitutes special circumstances justifying [an award of full indemnity costs]”. Instead, the ONCA agreed with the costs amount, but because: 1) the conduct of Blue Cross; and 2) had Blue Cross accepted a prior settlement offer, it would have been more advantageous for it than the trial decision. Impact: Though this case was in Ontario, Alberta insurers should be aware of the Ontario Court of Appeal’s significant persuasiveness in Alberta. This decision places a significant onus on insurers to ensure that they partake in proper and fair procedures to award or deny disability coverage. Insurers must pay close attention to reports of medical providers that provide suggestions that may go against denial of coverage, even if much of the report seemingly supports denial of coverage. Tunnel vision of information that supports denial of coverage may be seen as supporting a more significant punitive damages award. Even where an independent medical assessment has information that seems to support denial of coverage, an insurer must be careful to not ignore information within that assessment that supports continuation of coverage. Insurers and Insured persons should be aware of the implications in stopping benefits payments midway through their term and asking for documentation later. Rather, the ONCA suggested Blue Cross should have sought substantiating documentation first, and to make a decision on this after. The very high quantum of the award should be noted by any insurance company, or potential plaintiff, given that this appears to stray away from Canada’s tradition of less “Americanized” punitive awards. The Court of Appeal interestingly noted that because Blue Cross was a large insurance company, this was justification for such a high award, noting Blue Cross’ executives would likely not even have been made aware of such an amount.