Case Citation: Baker v Blue Cross Life Insurance Company of Canada, 2023 ONCA 842
 

Background Facts:

Ms. Baker suffered a stroke in October 2013. She held a policy of insurance with Blue Cross via her employer, entitling her to short-term and long-term disability benefits.

There were three levels of disability benefits: short-term (30 weeks); two years of long-term “own occupation” benefits (Covered Employee is unable to perform the regular duties of his own occupation), and thereafter “any occupation” benefits, where the illness/injury “wholly prevents the Covered Employee from performing the regular duties of any occupation for which he: Would earn 60% or more of his Pre-disability Earnings and is reasonably qualified, or may so become, by training, education or experience.”

Ms. Baker’s short-term benefits were stopped in January 2014 and reinstated after an appeal. Ms. Baker was paid two years of “own occupation” benefits, but during that period Blue Cross stopped payment in August 2015 before reinstating benefits in March 2016 after an appeal. After the two years had expired, Blue Cross denied “any occupation” benefits altogether. Two levels of internal appeals were unsuccessful. Ms. Baker brought a civil claim for the “any occupation” benefits, along with aggravated and punitive damages. After a 22-day jury trial, Ms. Baker was awarded:

1. A declaration that she was totally disabled, and backdated benefits of $220,604.00;
2. Aggravated damages of $40,000 for mental distress; 
3. Punitive damages of $1,500,000.00; and
4. Full indemnity costs of $1,083,953.50.

Blue Cross appealed the award of punitive damages, asserting that the claim had been handled in a balanced and reasonable manner. There was no challenge to the judge’s instructions to the jury on punitive damages. 

The Appeal 

In dismissing the appeal, Justice Hourigan, writing for the Court, found that the evidence raised serious concerns about the manner in which the file had been processed, specific examples being:

• Blue Cross had stopped payment of benefits on three separate occasions, denying benefits first and then seeking additional evidence, instead of giving a warning of a potential cut-off and requesting additional documents;
• It relied on opinions from its own GPs which it knew or ought to have known as incorrect from a review of the records, without clarifying or addressing flaws within the reports;
• It relied selectively on evidence, referencing conclusions which supported their denial of benefits, and ignoring conflicting medical evidence in favour of the payment of benefits;
• In the face of conflicting medical evidence, delayed obtaining an IME, and only sent Ms. Baker for a neuropsychological assessment over two and a half years after her stroke;
• It distorted the neuropsychological report, omitting caveats and qualifications within the report;
• It misread a Transferable Skills Analysis in a way which supported the denial of benefits, identifying six alternative occupations for Ms. Baker, when the report identified only one suitable alternative.

In spite of the above, Blue Cross maintained it had acted in good faith.

The Court of Appeal said the following in relation to the appeal of punitive damages awards:

“The appellate review should be based on the court’s estimation as to whether the punitive damages serve a rational purpose. In other words, was the misconduct of the defendant so outrageous that punitive damages were rationally required to act as deterrence?” (Hill v Church of Scientology of Toronto [1995] 2 SCR 1130).

The Court of Appeal considered “whether there was an evidentiary basis that would rationally lead to a punitive damages award and, if so, whether the quantum awarded was also rationally connected to the evidence and the purposes of punitive damages” (para. 21). In noting that the Appellant did not challenge the judge’s instructions to the jury, the Court of Appeal referred to the above examples of conduct and found “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”. The record showed at best reckless indifference to its duty to consider the claim in good faith, and at worst, a deliberate strategy to wrongfully deny her benefits. Every time Blue Cross erred in handling the file, it was to Ms. Baker’s detriment and to the benefit of Blue Cross. That evidentiary record was a sufficient basis for the jury to award punitive damages.

The Appellant’s appeal of the quantum of punitive damages was also dismissed, as there was no basis for appellate interference in this case. Notably, while the Court of Appeal stated the $1.5 million award would be devastating to a personal defendant or small business, this amount was merely a “rounding error” for a sophisticated company like Blue Cross (para 34). From a policy perspective, the Court of Appeal relied on the principle in Whiten that a modest punitive damages award would simply become a “nominal cost of operating in a way that systematically denies policyholders their legal right” (para 36).

Blue Cross was granted leave to appeal the award of full indemnity costs, which was also dismissed. The Court of Appeal found the damages award only partially addressed the Appellant’s marked disregard of its good faith obligations. The Appellant’s trial strategy involved shielding their employees from appearing at trial to explain themselves. The Respondent also advanced a settlement offer that was far less than the amount ultimately awarded at trial. These factors taken together were sufficient to warrant the rare award of full indemnity costs. 

Key Takeaways:

1. While Baker is an Ontario case, it is likely to be persuasive for Courts across Canada, as it relies on principles of punitive damages established by the Supreme Court in Whiten v Pilot Insurance Co, 2002 SCC 18. 
2. Baker is a signal to insurers to be wary when denying benefits, as “bad faith” claims will almost certainly be advanced if such claims go to litigation. In Alberta, a denial of Section B medical or disability benefits is likely to be subject to allegations of “bad faith”. 
3. Insurers are at greater risk of attracting significant punitive damages awards, as Courts are likely to view modest awards as incentivizing a systematic denial of benefits. 
4. Juries do not need to provide reasons for their verdicts and are given significant deference on appeal. In the case of punitive damages, as long as the jury’s award is rationally connected to the conduct of the defendant, the award is unlikely to be overturned.

Judge: the Honourable Justice Hourigan, for the Court of Appeal, Justices Zarnett and George agreeing

For the Appellant Blue Cross: Pape Chaudry LLP

For the Respondent Ms. Baker: Adair Goldblatt Bieber LLP