In a recent decision the British Columbia Court of Appeal awarded $100,000 in punitive damages and upheld a trial judge’s award of $20,000 in aggravated damages against an insurer for conduct towards an LTD Claimant that the Court described as “arbitrary and high-handed”.
A bank employee became ill with an acute kidney infection and subsequently developed Chronic Fatigue Syndrome and Fibromyalgia. She was covered by a workplace group insurance policy which included long term disability benefits. She qualified for and received LTD benefits for several years on the basis of medical evidence that she was totally disabled from performing work in any occupation.
In due course, the insurer terminated payment of LTD benefits without notice, based largely on evidence of activity by the plaintiff that it obtained through video surveillance. The insurer alleged the observed activity was inconsistent with the level of disability claimed by the employee. The insurer continued to deny coverage for the next five years, even though there was no change in the plaintiff’s condition.
The employee commenced an action to confirm her entitlement to disability benefits. In addition, she sought aggravated damages, damages for mental distress and punitive damages. On the eve of trial, the insurer reinstated her disability benefits without any medical evidence to support its change in position. The trial proceeded on the issue of the employee’s entitlement to aggravated damages, damages for mental distress and punitive damages.
The trial judge ordered the insurer to pay the plaintiff approximately $56,000 for LTD benefits and awarded $20,000 in aggravated damages. The insurer appealed the aggravated damages award and the plaintiff cross-appealed claiming that the trial judge erred in not awarding her punitive damages.
The Court of Appeal dismissed the insurer’s appeal and found that the trial judge made a palpable and overriding error of fact in not awarding punitive damages.
The Court held that while the insurer could not be criticized for protecting its own interests and in taking steps necessary to investigate and assess the validity of the claim, it was bound by a standard of utmost good faith in its behaviour towards the employee. The Court observed that LTD insurance is a type of contract which is supposed to provide peace of mind. It is also a contract between parties of markedly different financial power, where the claimant is in a position of vulnerability and reliance. In the result, the insurer’s course of conduct towards the employee was arbitrary and high handed and differed to a significant degree from the standard of good faith and fair dealing expected in the circumstances.