Ontario appeal court ruling marks substantial shift in enforcement of termination clauses

The Ontario Court of Appeal’s affirmation of a $1.5 million punitive damages award — reportedly the largest award of its kind in a Canadian long-term disability case — may signal greater exposure for employers and insurers that fail in their duty to treat such claims in good faith.

“The court had no problem with the $1.5 million award, which was 50 per cent higher than any previous such award in Canada,” says Geoff Adair of Adair Goldblatt Bieber LLP, who represented claimant Sara Baker. “Given the historical caution that judges have shown in awarding punitive damages, you’ve got to believe that we’re looking at a significant upswing going forward.”

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Baker, a former employee of Humber River Hospital in Toronto, suffered a stroke in 2013. In dealing with her LTD claim, Blue Cross Life Insurance Co. of Canada stopped payments to her three times. On each occasion, the insurer denied benefits, only asking for additional information thereafter.

As the court saw it, the insurer had also ignored information, misinterpreted experts’ reports and relied on reports from its own doctors, “which it knew or ought to have known were incorrect.” Overall, the evidence showed a “pattern of misconduct that, at best, shows reckless indifference to its duty to consider [Baker’s] claim in good faith . . . and at worst, demonstrates a deliberate strategy to wrongfully deny her benefits.”

Punitive damages were aimed at punishing and deterring wrongful conduct, said the court, adding in this context, the $1.5 million award against a large insurance corporation wasn’t excessive. “Indeed, it is difficult to envision how an award of anything less than $1.5 million would even garner the attention of senior executives, let alone deter future misconduct.”

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Alf Kwinter, a lawyer at Singer Kwinter who wasn’t involved in the case, believes it’s significant that the award came following a jury trial. “To this point in time, a judge sitting alone would never have awarded so much money to Baker for fear of opening the floodgates to the enormous awards we see in the U.S. But now that the Court of Appeal has said punitive damages must be significant enough to stick, in the sense of acting as a deterrent to large companies, things may change.”

Adair agrees. “The whole tone of the appeal court’s judgment is very matter of fact. The court’s attitude seems to be that if $1.5 million is what it takes to achieve the purposes behind punitive damages, it’s no problem.”

Blue Cross’ lawyer didn’t respond to a request for comment.

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