In A Long Term Disability Claim Denial, Can You Get Damages In Addition to the Monthly Benefit?

In Industrial Alliance Insurance and Financial Services Inc., v. Brine, 2015 NSCA 104, Mr. Brine was covered under a long term disability policy with Industrial Alliance (“Industrial”). The Policy required Industrial to be the last payor for his disability benefits. But Mr. Brine recovered some benefit amounts from other sources too. Industrial, as a result, stopped paying him until the overpayments were reimbursed to Industrial.

Disability Insurance

At trial Mr. Brine successfully argued breach of contract by Industrial and a judgment was declared in his favor. The trial judge awarded Mr. Brine $30,000 for mental distress, $150,000 in aggravated damages and $500,000 in punitive damages.

The NS Court of Appeal (CA) decreased these amounts to one award of $90,000 in compensatory damages that combined the trial judge’s two separate awards of $30,000 and $150,000. The punitive damages were also reduced from $500,000 to $60,000. Hence, Mr. Brine was awarded a total of $150,000 as compensation in addition to the continuation of his monthly benefits.

This CA’s decision does not change the law of damages in Nova Scotia rather reconfirms it as follows.

Breach of ‘Peace of Mind’ Long Term Disability Contract

On appeal, Industrial contended that the trial judge erred in finding a breach of contract in Mr. Brine’s favour. At trial proceedings, Industrial relied on Fidler v. SunLife Assurance Co. of Canada, [2006]; and 702535 Ontario Inc., v. Lloyd’s London Underwriters [2000] arguing, “an insurer will not necessarily be in breach of contract by incorrectly denying a claim that is eventually conceded, or judicially determined to be legitimate.”

The trial judge also reviewed these authorities. But she noted that the duty of utmost good faith extends over the duration of the life of a policy. She stated that Industrial introduced improper considerations into the management of Mr. Brine’s claim and found that its handling of Mr. Brine’s claim over a span of years failed the legal standard.

The CA agreed with the trial judge and decided that there was no mistake on the trial judge’s part. The court of appeal referred to 702535 Ontario and noted that the appropriate legal standard was rightly observed in this case which reads that:

“The duty of good faith also requires an insurer to deal with its insured’s claim fairly. The duty to act fairly applies both to the manner in which the insurer investigates and assesses the claim and to the decision whether or not to pay the claim. In making a decision whether to refuse payment of a claim from its insured, an insurer must assess the merits of the claim in a balanced and reasonable manner. It must not deny coverage or delay payment in order to take advantage of the insured’s economic vulnerability or to gain bargaining leverage in negotiating a settlement. A decision by an insurer to refuse payment should be based on a reasonable interpretation of its obligations under the policy.”

As such, the CA upheld the trial judge’s decision respecting Industrial’s breach of contract due to the discontinuance of rehabilitation services, ten-year delay in the provision of a medical report commentingon Mr. Brine’s possibility to return to work and the treatment of Mr. Brine’s taxability. For Industrial’s actions had caused Mr. Brine to file for bankruptcy and experience mental distress as a result.                                                               

Damages

The trial judge had held Mr. Brine entitled to two separate awards of $30,000 contractual and $150,000 aggravated damages. Industrial argued that there needs to be an independent actionable wrong before an award of aggravated damages is given. The CA disagreed with this classification and quantum of damages, and noted that Mr. Brine’s case did not require an independent actionable wrong.

This was sufficient that Mr. Brine experienced additional distress and discomfort arising out of the discontinuance of his disability benefits on top of already being without work. The CA concluded that damages for breach of contract and aggravated damages for mental distress stemmed from the same category, “…where such damages were in reasonable contemplation of the parties at the time the contract was made.” Both parties had formed a peace of mind contract to cover the plaintiff’s loss in such like situations while these considerations were sabotaged by Industrial’s aforementioned actions. The CA, therefore, awarded Mr. Brine a single award of $90,000 in compensatory damages combining two separate awards of $30,000 and $150,000 for mental distress and aggravated damages respectively.

Similarly, an award of punitive damages was also made in Mr. Brine’s favour. Courts in Canada recognize retribution, deterrence and denunciation as the justification for an award of punitive damages. These damages are awarded where, “conduct is so malicious, oppressive and high-handed that if (sic) ‘offends the court’s sense of decency’. Such awards are not to compensate a plaintiff but rather ‘address the purpose of retribution, deterrence and denunciation’.” The Trial Judge, therefore, awarded $500,000 in punitive damages to Mr. Brine.

The CA, on the other hand, opined that the quantum should stem from a principled analysis and be proportional to the wrong done by the defendant and loss sustained by the plaintiff. In this case, however, after reviewing everything, the CA found a punitive award of $60,000 to be proportionate to the required degree of retribution, denunciation and deterrence.

Mr. Brine, as a result of the final verdict, recovered a total of $150,000 for breach of contract terms by his insurer and for suffering additional mental distress. His disability benefits were also restored.   

If you are experiencing a similar situation please do not hesitate to contact our legal team. As always, our lawyers here at MacGillivray Injury and Insurance Law Firm are ready, willing and able to provide advice and to assist you in your legal representation.

Case law cited:

Industrial Alliance Insurance and Financial Services Inc. v Brine, 2015 NSCA 104 (CanLII)