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$4.5 Million in Punitive Damages Awarded Against Disability Insurers
April 17, 2013

A recent decision of the Saskatchewan Queen’s Bench awarded $4.5 million in punitive damages to a disabled employee after a 10-year legal battle with two insurance companies.

The employee injured his foot while working at a mine in Kyrgyzstan for a subsidiary of a Saskatchewan-based company. The American Home Assurance Company (AIG) provided benefits coverage for employees at the mine based on the Workers Compensation Board benefits payable in Saskatchewan. Zurich Life Insurance Company Limited (Zurich) provided long-term disability benefits coverage.

Despite overwhelming medical evidence that the employee was permanently disabled as a result of the accident, both companies failed to deal with the employee’s claim in good faith. In particular, AIG delayed payments and at times discontinued benefits for inappropriate reasons, and then tried to take advantage of the employee’s economic vulnerability in the course of settlement negotiations. Zurich also delayed making payments of any kind for almost eight years even though the employee was indisputably entitled to them. The Court commented that it could not “imagine a more protracted and reprehensible behaviour” in the circumstances.

The Court awarded aggravated damages for mental distress caused by AIG ($150,000) and Zurich ($300,000) on the basis that both companies breached the duty of good faith and fair dealing owed in a “peace of mind” contract.

The Court also awarded $1.5 million and $3 million dollars in punitive damages against AIG and Zurich, respectively. Prior to this case, the highest punitive damage award was $1 million (also awarded against an insurance company). While an appeal seems likely in this case, no appeal has been filed to date.

As anticipated, Zurich recently filed an appeal of this decision to the Saskatchewan Court of Appeal. Whether the damage award will be upheld on appeal remains to be determined.

For more information about this decision, please contact Matthew Cooperwilliams, Partner.

Branco v. American Home Assurance Company et al., 2013 SKQB 98