Baker v. Blue Cross Life Insurance Company of Canada, 2023 ONCA 842

Insurers will want to take note that the ONCA recently upheld an award of $1.5 million in punitive damages and $ 40,000 for aggravated damages for the misconduct of the long-term disability insurer of the plaintiff. The jury awarded this quantum of award for the high-handed, malicious, arbitrary, or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behavior of Blue Cross. With regards to quantum the jury was instructed that“punitive damages are given in an amount [that] is no greater than necessary to rationally accomplish these objectives” and that “judges and juries in our system have usually found that moderate awards of punitive damages which inevitably carry a stigma in the broader community, are generally sufficient.”

The ONCA observed that the evidence at trial raised serious concerns regarding the way the claim examiners and reviewers had processed the file. The Court held that Blue Cross showed reckless indifference to its duty to consider a claim in good faith and to conduct a good faith investigation. The court also saw a deliberate strategy by Blue Cross to wrongfully deny the benefit to Ms. Baker by electing to call at the hearing the appeals specialist as a witness whose involvement was very limited in the process and was unable to explain several actions of her predecessors on the file. The court found that Blue Cross in this case had elected not to call the most relevant witnesses to counter the evidence that it acted in bad faith.

The issue on appeal was whether Blue Cross’ actions in dealing with Ms. Baker’s claim meet the test for punitive damages. The Court observed that there were repeated instances of the Blue Cross team ignoring information, misinterpreting experts’ reports, and relying on the ill-informed advice of their contracted doctors to deny benefits. The Court said, “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.” Blue Cross also failed to call critical witnesses to provide the context about their handling of the file. Blue cross appealed the trial decision saying that it acted in good faith despite its erroneous assessment of whether the respondent met the definition of “total disability” under the policy. In other words, it has a right to be incorrect without being liable for punitive damages

In awarding punitive damages, the Court said that “Punitive damages are designed to punish wrongful conduct, to denounce that misconduct, and to act as a deterrent for future misconduct.” The Court also said 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.”

The ONCA found:

“Overall, we see repeated instances of the Blue Cross team ignoring information, misinterpreting experts’ reports, and relying on the ill-informed advice of their contracted doctors to deny benefits. In effect, they created a closed loop of information that ignored contrary information and created a counter-narrative based on their misinterpretation of the relevant data. 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.”

The Court found the problems within Blue Cross were systemic. It stated that this was not a case of a “rogue” disability claim examiner, as the many Blue Cross employees who touched the file took the same approach, which ignored Ms. Baker’s rights under the policy. This evidence suggested that there may be many other claimants that may have been treated in the same manner by the Blue Cross.

Full indemnity costs of $1,083,953.50 were awarded to sanction Blue Cross for engaging in a litigation strategy where it shielded its employees from appearing at trial to explain themselves. The court found that this was one of the rare cases where there has been bad faith conduct that warrant costs on a full indemnity basis.

Key takeaways for insurance adjusters:

While handling a claim the adjusters should be mindful of their duty of good faith towards the insured and in particular:

• ask for additional documents needed in relation to the claim before denying benefits.
• ensure that its medical experts have all the relevant documents and check that the examiner’s opinion refers to the most relevant ones.
• ensure that any decision is made on a fair and balanced reading of the medical experts’ report.

RISK Report prepared by Shawn O’Connor and Anjani Rai.