Not all bad faith results in punitive damages

Non-contracting beneficiary of a group benefits policy could enforce payment of benefits but not a lump sum for future benefits.

Insurance law – Accident and sickness insurance – Group insurance – Long term disability benefits – Good faith, breach of – Damages – Aggravated damages – Punitive damages – Practice – Leave to appeal

Gascoigne v. Desjardins Financial Security Life Assurance Co. (c.o.b. Desjardins Insurance), [2020] B.C.J. No. 1821, 2020 BCCA 316, British Columbia Court of Appeal, November 3, 2020, M.E. Saunders, P.M. Willcock and G.B. Butler JJ.A.

The insured, an ICBC bodily injury adjuster, sued her disability insurer under her group benefits policy when her claim for long term disability benefits was denied. She developed inflammation of the tendons of her left elbow, requiring surgery, and subsequently developed depression. At trial, the medical evidence established that she would have ongoing vocational disability but had not yet reached maximal medical improvement.

The insured declined accommodations at work. The insurer took the position that the plaintiff had denied modified duties. The trial judge found this constituted bad faith, as modified duties had not been offered to the insured. It was wrong to deny the claim on the basis of insufficient medical information and hold the view that the insured could return to work. However, the insurer did not have tunnel vision, display an intent to look for reasons to deny the claim, or take advantage of the insured’s economic vulnerability. Therefore, the trial judge declined to award the insured punitive damages, although aggravated damages were awarded for mental distress.

On appeal, the Court of Appeal dismissed the insured’s appeal seeking punitive damages, noting that, in addition to establishing bad faith on the part of the insurer, the insured had to show that the insurer’s conduct constituted a marked departure from ordinary standards of decency. Not every breach of good faith will give rise to an award of punitive damages.

A second issue on appeal was whether the trial judge erred in declining to award a lump sum for the present value of future benefits. The trial judge decided that the insurer’s breach of the duty of good faith did not constitute a fundamental breach of the insurance contract, and the insured could not terminate the group policy. The Court of Appeal agreed, applying the decision of Warrington v. Great-West Life Assurance Co. (1996), 139 D.L.R. (4th) 18 (BCCA). A non-contracting beneficiary of a group policy is entitled to enforce the payment of benefits, but not entitled to terminate the group policy or accept the insurer’s repudiation.

This case was digested by Joe Antifaev, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Joe Antifaev at jantifaev@harpergrey.com.

To stay current with the new case law and emerging legal issues in this area, subscribe here.