Extracontractual Damages In a Long-Term Disability Denial
In long-term disability (“LTD”) denial claims, the goal is for the claimant to receive compensation for the benefits owed to them under their insurance policy. In some cases, the conduct of the insurance company in making the denial was done in a way that causes additional harm to the claimant, which could result in the claimant being entitled to receive additional compensation. This additional compensation is known as extracontractual damages, and it generally comes in two forms: punitive damages and aggravated damages.
WHAT ARE PUNITIVE DAMAGES?
Punitive damages are a special type of damages that are used as a way to “punish” the insurance company for the wrongful LTD denial and wrongful conduct.
Punitive damages are meant to denounce the bad faith conduct of the insurance company and act to deter this behaviour from happening again in the future. The case of Whiten v. Pilot Insurance Co., 2002 SCC 18 is the leading authority on the topic. The court in Whiten set out a number of principles that guide punitive damages awards, such as:
a) Punitive damages should only be awarded in exceptional cases and with restraint;
b) An appellate court is entitled to intervene where an award exceeds the other boundaries of the rational and measured response to the facts of the case; and
c) In order for a court to award punitive damages, the defendants must have committed an independent or separate actionable wrong causing damage to the plaintiff, and the defendant’s conduct towards the plaintiff must be either harsh, vindictive, reprehensible and malicious, or so high-handed that it offends the court’s sense of decency.
The claimant must usually prove that the insurance company performed an independent actionable wrong done in bad faith. Punitive damages are to be awarded in situations where the actions of the insurance company would otherwise go unpunished, and the mere award of the claimant’s LTD benefits is not enough.
Just because someone is denied LTD benefits in bad faith, does not mean the case is worthy of punitive damages. Not all cases of bad faith are seen as being “harsh, vindictive, reprehensible and malicious” as per the court in Whiten.
In Godwin v. Desjardins Financial Security Investments Inc., 2018 BCSC 99, the court awarded $30,000 in punitive damages for a claim arising out of an LTD denial. The court found that the defendant’s handling of the claim was so exceptional as to require denunciation in the form of punitive damages, due to the initial LTD rejection being so flawed and an utter lack of investigation into the matter that represents a “complete dereliction of duty”.
In Fernandes, the trial decision was for $200,000.00 in punitive damages and $100,000.00 in aggravated damages. The Ontario Court of Appeal upheld the punitive damages award but reduced the aggravated damages award to $25,000.00.
In Greig v Desjardins Financial Security Life Assurance Company, 2019 BCSC 1758, the trial decision was for $200,000.00 in punitive damages and $50,000.00 in aggravated damages. There was an unsuccessful appeal to the Court of Appeal for British Columbia with respect to the jurisdiction of the trial judge to award punitive damages.
In Branco v American Home Assurance Company, 2013 SKQB 98, the trial decision was for $3 million in punitive damages and $300,000.00 in aggravated damages. The Saskatchewan Court of Appeal reduced the punitive damages award to $500,000.00 and the aggravated damages to $30,000.00. Leave to appeal to the Supreme Court of Canada was refused.
In Whiten, the Supreme Court of Canada affirmed the jury award of $1 million for punitive damages. While suggesting that the award was at the high end of the appropriate range, the court commented that it was “within the rational limits within which a jury must be allowed to operate” and “not so disproportionate as to exceed the bounds of rationality”. Aggravated damages were not claimed.
In Baker v. Blue Cross, a jury awarded $1.5M in punitive damages for a 47 years old nurse who suffered a stroke. The insurance company did hours of surveillance and refused to pay her claim
WHAT ARE AGGRAVATED DAMAGES?
Aggravated damages are entirely different than punitive damages, and are awarded more frequently – although that is not to say they are common These types of damages are not aimed to punish the insurance company for their actions, but rather to compensate a claimant if the insurance company’s refusal to pay LTD benefits has resulted in mental distress and/or financial difficulties.
Aggravated damages are defined in Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30 as being awarded for breach of contract where such damages were in the reasonable contemplation of the parties at the time the contract was made, meaning that the LTD benefits are a “peace of mind” contract and a breach of that contract may attract damages for mental distress.
In Gascoigne v. Desjardins Financial Security Life Assurance Company (Desjardins Insurance), 2019 BCSC 1241, the court awarded $30,000 for aggravated damages for the financial and mental distress the plaintiff suffered due to the insurance company’s denial of her LTD benefits. The plaintiff struggled to pay her mortgage and put food on the table, and her familiar relationships suffered.
The Court can also award damages for additional financial strain caused by a wrongful denial. For example, if the disabled person is forced to take on loans to pay bills when they can’t work and their disability payments are denied.
CAN THE COURT AWARD BOTH TYPES OF EXTRACONTACTUAL DAMAGES?
The answer is yes, they can. In the case of Stewart v. Lloyd’s Underwriters, 2019 BCSC 1582 the plaintiff was awarded $100,000 in punitive damages and $10,000 in aggravated damages. This case dealt with travel medical insurance rather than LTD benefits, however it shows what type of case would warrant an award for both types of extracontractual damages.
The plaintiff was seriously injured while on vacation and the insurance company denied his claim, despite the plaintiff having purchased travel medical insurance prior to his departure. The insurance company originally denied the plaintiff’s claim, so he incurred tens of thousands of dollars in medical bills. The insurance company later settled the health care bills at an enormous discount. A significant factor in warranting punitive damages was the profit gained by the insurance company for their handling of the claim.
The court found that the plaintiff’s endured worry of financial ruin at a time when he was trying to recover from potentially devastating injuries to have affected his recovery, caused mental distress. The plaintiff did not receive any treatment for his mental distress, a fact the court did not find to be fatal to the claim for aggravated damages.
HAVE YOU BEEN UNFAIRLY DENIED LTD BENEFITS?
If you have been unfairly denied long-term disability benefits (or other benefits) under an insurance policy, contact Preszler Injury Lawyers today for a free consultation. Our skilled lawyers know how to handle disability denials and will fight to get you every penny you are owed – including extracontractual damages if you’ve been treated unfairly.