Court of Appeal upholds $1.5M punitive damages award against disability insurer for bad faith as well as trial judge’s order of full indemnity costs to insured

27. February 2024 0

The Court of Appeal upheld a $1.5 punitive damages award against a disability insurer, finding that it was warranted in the face of what appeared to be a systemic approach by the insurer’s claims handling team to ignore the insured’s rights under the policy. However, the court found that the trial judge erred in creating a new category of cases where full indemnity costs will automatically follow (although they were allowed on the facts of this case).

Insurance Law – Disability insurance – Benefits – Total disability – Damages – Aggravated damages – Punitive damages – Practice – Appeals – Rights and duties of insured

Baker v. Blue Cross Life Insurance Co. of Canada, [2023] O.J. No. 5748, 2023 ONCA 842, Ontario Court of Appeal, December 20, 2023, C.W. Hourigan, B. Zarnett and J.C. George JJ.A.

The insured suffered a stroke while exercising. Her disability insurer paid short-term disability benefits and afterwards long-term “own occupation” disability benefits, but then denied the insured long-term “any occupation” benefits. The insured commenced an action for “any occupation” benefits, and the jury found for the insured and awarded her retroactive benefits, aggravated damages, and $1.5M in punitive damages. The trial judge found that full indemnity costs were appropriate on the basis that, as a matter of public policy, the insured should not have her disability, which were wrongfully denied, eroded by the insured’s legal expenses. Costs were fixed at just over $1M. The insurer appealed the punitive damages award and sought leave to appeal the costs award.

The Court held that the standard of review when considering both the award of and quantum of a punitive damages award is whether there was an evidentiary basis that would rationally lead to a punitive damages award and, if so, whether the quantum awarded was also rationally connected to the evidence and the purposes of punitive damages. The Court found that there was ample evidence to support an award of punitive damages, including that: the insurer stopped payment of the benefits on three separate occasions and on each occasion it denied benefits first and then asked for additional documentation instead of first warning the insured of a potential cut-off and requesting additional documentation; the insurer relied on statements from its contracted general practitioners which it knew or ought to have known were incorrect and did not seek to clarify or address the flaws in these reports; the insurer selectively relied on evidence that supported the denial of benefits and ignored conflicting medical evidence; in the face of conflicting medical evidence, the insurer delayed obtaining an independent medical exam; the insurer distorted an expert’s report and misread another report in a way that supported the denial of benefits; and the insurer continued to persist in distorting these reports even after the insured’s lawyer advised of the errors.

Further, the Court found that there were repeated instances of the insurer ignoring information, misinterpreting experts’ reports, and relying on the ill-informed advice of their contracted doctors to deny benefits. In effect, the insurer created a closed loop of information that ignored contrary information and created a counter-narrative based on their misinterpretation of the relevant data. This was considered to be a pattern of misconduct that, at best, shows reckless indifference to the insurer’s duty to consider the insured’s claim in good faith and conduct a good faith investigation, and at worst, demonstrates a deliberate strategy to wrongfully deny the insured benefits, regardless of the evidence that demonstrated an entitlement.

With respect to the quantum of punitive damages awarded, the Court held that, for punitive damages to act as a deterrent for future misconduct, the punishment must be meaningful. The Court found that a punitive damages award of $1.5M would not be devastating to a large insurance company and anything less would likely not even garner the attention of senior executives, let alone deter future conduct. Further, the Court found that there was ample evidence for the jury to conclude that the insurer’s problems were systemic as many of the insurer’s employees who handled the claim took the same approach and ignored the insured’s rights under the policy. The Court held that there was no basis to interfere with the quantum of the punitive damages award as it was rationally connected to the evidence and it was required to deter similar conduct by the insurer in the future.

The Court upheld the trial judge’s award of full indemnity costs, but found that the trial judge erred in finding entitlement to costs on the basis that disability insurance policies as a class should automatically attract such an award. The Court held that full indemnity costs were warranted, however, on the basis of the insurer’s misconduct and the fact that the insured had made a generous offer to settle.

This case was digested by Tricia M. Milne, 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 Tricia M. Milne at

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