Compensation for mental distress awarded as damages for breach of a disability insurance contract

An Insured under a disability insurance policy (“Rowe”) claimed for damages resulting from the mental distress of having their claim for insurance denied.  After the initial reasons for judgment were released, the Supreme Court of Canada released its decision in Fidler v. Sun Life Assurance Co. of Canada. Rowe then brought an application requesting the Court vary the award to include damages for mental distress.  The Court awarded $30,000 in damages for mental distress.

Rowe v. Unum Life Insurance Co. of America, [2006] O.J. No. 4937, Ontario Superior Court of Justice, H.S. Polowin J., December 11, 2006

On May 12, 2006, the Reasons for Judgment were released in this case. Subsequently, but prior to a formal Order or Judgment being issued in the case, the Supreme Court of Canada released its decision in Fidler v. Sun Life Assurance Co. of Canada, [2006] S.C.J. No. 30. Rowe brought an Application requesting that the Court vary its decision by awarding and fixing consequential damages resulting from the breach of the disability policy.

The Court reviewed the decision in Fidler, and noted that the Supreme Court of Canada accepted the “peace of mind exception” to the general rule against recovery from mental distress and contract breaches. The Supreme Court of Canada indicated that the Court must be satisfied that: 1) that an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and 2) that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation.

In this case, Rowe sought to add a claim for aggravated damages in the amount of $100,000 for mental distress. Rowe also sought $600,000 for consequential damages, including damages related to the sale of Rowe’s home and damages related to the reduction of his investment portfolio. The Court was satisfied that Rowe suffered mental distress as a result of the breach of contract and that such distress was significant and deserving of compensation. The Court assessed the damages for mental distress in the amount of $30,000.

The Court declined to allow Rowe to amend his claim to seek $600,000 for consequential damages, including damages relating to the sale of Rowe’s home and the reduction of his investment portfolio. The Court noted that Rowe failed to adduce substantive evidence to substantiate the financial losses. Further, the Court held that as this was a group disability insurance policy, consequential financial losses (for example, the cashing in of RRSPs or the selling of one’s home) might well exceed the claim for disability benefits and that this would significantly stretch the concept of what was in the reasonable contemplation of the parties at the time of the making of the contract. The Court held that the damages for financial loss arising out of the collapsing of RRSPs or the sale of a home could not be considered damages which arise naturally in the context of the group disability insurance contract. As a policy consideration, an extension of the circumstances when such consequential damages could be awarded may cause business people to be wary of dealing with persons with mental disabilities for fear of exposure to claims for damages much higher than the value of the contract. The Court accepted Unum’s submissions that the awarding of consequential damages relating to the specific financial loss suffered by a plaintiff due to an incorrect decision to deny or terminate benefits would lead to potentially unlimited and unpredictable liability for disability insurers.

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