Ontario Court of Appeal upholds punitive damages award in landmark disability benefits claim

The Ontario Court of Appeal has affirmed a Toronto jury's punitive damages award of $1.5 million – the largest known punitive damages award in a Long-Term Disability (LTD) claim in Canada, according to the plaintiff’s counsel.

The court ruled in favour of Sara Baker, a former employee of Humber River Hospital, in her dispute with Blue Cross Life Insurance Company of Canada over disability benefits. Baker, who suffered a stroke in October 2013, faced challenges in securing LTD benefits under her employer's policy.

The appeal court's findings highlighted the intricacies of Blue Cross' handling of Baker's case. The insurance company ceased her short-term disability benefits in January 2014, later reinstating them after an internal appeal in March 2014. When Baker sought long-term disability benefits, Blue Cross utilized two provisions to assess her eligibility: the "own occupation" and the "any occupation" provisions.

While Baker received two years of "own occupation" benefits, her pursuit for "any occupation" benefits faced hurdles. Blue Cross ceased and reinstated long-term disability benefits during this period, ultimately denying "any occupation" benefits. As a result, Baker filed a legal action, seeking retroactive benefits, aggravated damages, and punitive damages.

The court's verdict favoured Baker, granting a declaration of total disability, retroactive benefits, aggravated damages for mental distress, and a substantial punitive damages award of $1.5 million. The court underscored Blue Cross' misconduct and highlighted its failure to call crucial witnesses during the trial, raising concerns about the company's handling of Baker's claim.

Blue Cross chose not to appeal the declaration of total disability, the award of damages equivalent to owed benefits, or the order for aggravated damages. However, it contested the punitive damages award, arguing its actions were reasonable and balanced. Blue Cross asserted that, while it reached the wrong conclusion about Baker's condition, it acted in good faith.

In its analysis, the court rejected Blue Cross' assertions, emphasizing the serious concerns arising from the company's handling of the case. The court pointed out 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. The court emphasized that Blue Cross demonstrated "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 court also noted the absence of crucial witnesses to provide the context about Blue Cross' case handling. The court said that the lack of these essential witnesses could further serve to support a finding that Blue Cross' conduct was deliberate. As a result, the court decided to uphold the punitive damages award of $1.5 million, emphasizing that punitive damages are designed to punish wrongful conduct, denounce misconduct, and act as a deterrent for future misconduct.

The appeal court took judicial notice that Blue Cross is a large insurance corporation. The court said, "While a punitive damages award of $1.5 million might be devastating to a personal defendant or a small business, it is little more than a rounding error for Blue Cross." The court further explained that an award of anything less than $1.5 million may not garner the attention of senior executives, let alone deter future misconduct.

The court also found ample evidence for the jury to conclude that the problems within Blue Cross are systemic. The court said that the case was not a case of a rogue disability claim examiner, as the evidence suggested there may be many other claimants that may have been treated in the same manner by Blue Cross.

"The Court's endorsement underscores the significance of holding insurance companies accountable for their actions," said Stephen Birman, a lawyer from Thomson Rogers and one of the plaintiff's representatives.

Ultimately, the court dismissed Blue Cross' appeal and upheld the award of $1.5 million in punitive damages.