In Baker v Blue Cross Life Insurance Company of Canada, 2023 ONCA 842, the Ontario Court of Appeal upheld a substantial punitive damages award - $1.5 million. This is the highest punitive damages award in Canada since the $1 million award in Whiten v Pilot Insurance Co., 2002 SCC 18.
The Trial
In Baker, the Plaintiff suffered a stroke while exercising in October 2013. She was 38 years old and was working as the Director of Food Services at Humber River Hospital. At that time, she had a disability insurance policy through Blue Cross. The Plaintiff was initially paid disability benefits until January 2014, at which time Blue Cross discontinued payments. After an internal appeal, the Plaintiff’s benefits were reinstated on March 7, 2014.
The Plaintiff was later transitioned into long-term disability benefits, and she received two years of “own occupation” benefits. During this period, Blue Cross again discontinued payments in August 2015 and then reinstated them in March 2016, after another internal appeal.
Next, Blue Cross denied the Plaintiff long-term “any occupation” benefits. After exhausting two levels of internal appeals, the Plaintiff sued Blue Cross for “any occupation” disability benefits, aggravated damages, and punitive damages.
After a 22-day trial, a jury granted judgment for the Plaintiff as follows:
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 trial in the amount of $220,604;
Aggravated damages for mental distress of $40,000; and
Punitive damages of $1,500,000.
Additionally, the trial judge found that full indemnity costs were appropriate, in the amount of $1,083,953.50, as a matter of public policy to avoid the Plaintiff’s disability benefits being eroded by unrecoverable legal expenses.
The Appeal
Blue Cross did not appeal the declaration of total disability, the damages for benefits owed, or the aggravated damages, but they did appeal the punitive damages award and sought leave to appeal the costs award as well.
Ultimately, the Court of Appeal dismissed Blue Cross’s appeal regarding the punitive damages and granted leave to appeal costs. However, the Court denied the costs appeal.
With respect to jury instructions, the Court held that the jury had correctly been instructed regarding the nature and purpose of punitive damages. Specifically, punitive damages are only to be awarded in exceptional circumstances to address the objectives of retribution, deterrence, and denunciation. Punitive damages should only be imposed “if there has been high-handed, malicious, arbitrary, or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour.” With respect to quantum, the jury was correctly instructed that “punitive damages are given in an amount [that] is no greater than necessary to rationally accomplish these objectives.”
Interestingly, Blue Cross chose to call only the last appeals specialist as a witness, and this witness was unable to explain several of her predecessors’ actions on this file. The Court noted that Blue Cross elected not to call the most relevant witnesses to counter the evidence that it acted in bad faith. The jury did not have evidence about why the representatives of Blue Cross acted the way they did and whether they considered other courses of action. As a result, Blue Cross lacked the evidence to meet its onus on appeal.
Blue Cross’s primary submission was that it acted in good faith despite its erroneous assessment of the Plaintiff’s eligibility for benefits. The Court confirmed that an error regarding entitlement to long-term disability benefits does not automatically lead to an award of punitive damages. However, a good faith error is not what occurred in this case.
In fact, the Court found that there was ample evidence to support an award of punitive damages, including the following examples:
Blue Cross stopped payment of benefits on three occasions, and on each occasion, they denied benefits first and then asked for additional documentation.
Blue Cross relied on opinions from contracted general practitioners, which it knew or ought to have known were incorrect.
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 in obtaining an independent medical examination of the Plaintiff, waiting over 2.5 years after the Plaintiff’s stroke.
Blue Cross distorted a neuropsychological assessment report in a way that supported the denial of benefits.
Blue Cross misread a Transferable Skills Analysis report in a way that supported the denial of benefits.
Blue Cross persisted in distorting the above reports, even after the Plaintiff’s lawyer pointed out the errors.
This was not the case of a rogue disability claims examiner; there were many employees who touched this file and took the same approach, which ignored the Plaintiff’s rights under the policy.
The Court concluded that Blue Cross repeatedly ignored information, misinterpreted experts’ reports, and relied on the ill-informed advice of their contracted doctors to deny benefits. The Court described this as creating a closed loop of information that both ignored contrary information and created a counter-narrative based on their misinterpretation of the relevant data. In summary, the Court concluded:
“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.”
Given the foregoing, the Court found that an award of punitive damages was warranted.
With respect to quantum, the Court upheld the $1.5 million jury award for punitive damages. The purpose of punitive damages is to punish wrongful conduct, denounce misconduct, and act as a deterrent for future misconduct. The Court specifically noted that deterrence “plays an important role when dealing with claims against insurance companies” and that “deterrence is impossible unless the punishment is meaningful.”
Notably, the Court took judicial notice that Blue Cross is a large insurance corporation. Although $1.5 million might be devastating to a small business or an individual, the Court stated that “it is little more than a rounding error for Blue Cross.” Additionally, the Court concluded that “it is difficult to envision how an award of anything less than $1.5 million would even garner the attention of senior executives, let alone deter future misconduct.”
With respect to costs, the Court of Appeal found that the trial judge erred by creating a new category of cases where full indemnity costs will automatically follow. On that basis, leave to appeal the costs award was granted. However, the Court held that awarding full indemnity costs was correct based on Blue Cross’s conduct and their decision to turn down a generous settlement offer made during the course of litigation. The Court held that Blue Cross had markedly disregarded its good faith obligations and that this was worthy of sanction by awarding full indemnity costs.
Significance
Although this is an Ontario Court of Appeal decision, this case will have significant persuasive value in Alberta.
This case serves as a cautionary tale to insurers and as a reminder of their duty of good faith. Insurance companies must not ignore contrary information or misstate medical evidence when deciding to deny coverage. Additionally, this case suggests that insurers should ask for additional documentation before denying benefits.
When defending a bad faith claim at trial, counsel should take care to produce witnesses who can speak to the entire claims adjusting and decision-making process.
Notably, the Court took judicial notice that Blue Cross is a large insurance company and held that a substantial punitive damages award was necessary to gain Blue Cross’s attention. This case confirms that large insurance companies who are found to have engaged in bad faith are more likely to be given higher punitive damages awards.
