The British Columbia Supreme Court has ordered the University of British Columbia and the administrator of its long-term disability insurance plan, Manufacturers Life Insurance Co., to pay $35,000 in aggravated damages and $150,000 in punitive damages to a UBC employee who was dismissed shortly after being diagnosed with multiple sclerosis. The Court found that the defendants breached their “duty of good faith”, in failing to assess the plaintiff’s disability claim in a balanced and reasonable manner, and in failing to act fairly in dealing with the termination of her employment.
The plaintiff was employed by UBC as a research nurse. She paid premiums to UBC for long-term disability benefits, under a plan administered by Manufacturers Life. In early 1997, the plaintiff began to experience severe fatigue, persistent vertigo and weakness. In March 1997 she was diagnosed with multiple sclerosis.
On May 1, 1997, the plaintiff received notice from UBC that her employment would terminate on July 31, 1997. The Employer offered to change the working notice to salary continuance, if she signed a release which permanently released UBC from all claims. The plaintiff accepted and signed the release. Although she understood that the release would prevent her from suing for wrongful dismissal, she was unaware that it also precluded her from making a disability claim. The release was never explained to the plaintiff, and the University representative present during the signing acknowledged that she herself did not understand it, despite its standard form nature.
Early in 1998, the plaintiff made an application for long-term disability benefits. Her application was denied. The defendants claimed that she had not been disabled during her employment, and that if she later became disabled, she was at that time no longer an eligible insured under the plan.
The Court found that the defendants had breached the duty of good faith that they owed to the plaintiff. Firstly, the defendants “cherry picked” from the available medical information, choosing only to accept the medical evidence that aligned with their interests, in the face of compelling evidence that supported the plaintiff. Secondly, the defendants persistently refused to consider any evidence regarding the plaintiff’s condition after July 1997, thereby denying her the opportunity to prove the required six months of continued disability. And thirdly, when Manufacturers Life requested an informal rehabilitation opinion from the clinic where the plaintiff was being treated, it failed to send the clinic many pertinent pieces of information which could have influenced their opinion. Consequently, the whole process was flawed.
The Court also found that UBC had dealt with the plaintiff unfairly in the termination process. The Court commented on the Employer’s behaviour relating to the release, noting that the “near-imposition of an agreement on a vulnerable, inadequately represented party gives rise to grave concern.”
The Court ruled that, unlike a commercial contract, an insurance contract is “one of those classes of contract intended to provide peace of mind to the insured.” As such, it requires the insurer to act in the utmost good faith. The Supreme Court of Canada has recently noted that the breach of the contractual duty of good faith is independent of and in addition to the breach of contractual duty to pay the loss; it constitutes an “actionable wrong” upon which damages may be founded.
The Court awarded the plaintiff $35,000 for aggravated damages, finding that the plaintiff had suffered increased anxiety, mental, emotional and financial stress as a result her dealings with the defendants.
The defendants were also ordered to pay the plaintiff $150,000 in punitive damages, “to deter the defendants and others in similar positions from exploiting the vulnerability of insureds who … are entirely dependent on their insurers when disasters strike”.
This decision demonstrates the willingness of our courts to award substantial damages for a failure to act fairly and in good faith, when there is a contractual obligation to do so. It should be noted that this case dealt primarily with a contract of insurance. It remains to be seen whether the courts will go a step further and find that the breach of the duty to act fairly and in good faith in the wrongful dismissal context is an independent actionable wrong, thereby permitting an award of aggravated and/or punitive damages.
(click here for full text of the judgment)