It’s important for insurers and plan sponsors to address the possibility of mental distress before curtailing any type of benefits from a plan member.
In Fidler v. Sun Life Assurance Co. of Canada, the plaintiff, Connie Fidler, was diagnosed with fibromyalgia and chronic fatigue syndrome, and in 1991, began receiving long-term benefits from her insurer, Sun Life Assurance Company of Canada (Sun Life). However, in May 1997, after conducting video surveillance of the plaintiff ‘s activities, Sun Life asserted that she was, in fact, able to perform certain kinds of work and discontinued her benefits.
Connie Fidler appealed this decision over a period of two years, during which time Sun Life continued to refuse benefits. In February 1999, she sued Sun Life in the B.C. Supreme Court. Shortly before trial, in April 2002, the Company offered to reinstate her benefits from the date that they were first discontinued.
Damages for mental distress are often characterized as either unforeseeable or inapplicable to the “commercial” nature of most contracts and have traditionally been assessed independently. The exception to this general rule had been contracts in which the central object was “pleasure, relaxation or peace of mind.” Where recovery was allowed, damages were usually characterized as “aggravated damages,” an ambiguous term referring to compensation for distress and suffering, but used inconsistently by the courts.
The Fidler decision clarified the meaning of “aggravated damages” in the context of mental distress. The Court distinguished between mental distress that flowed from “aggravating circumstances,” and was based on a separate cause of action(such as fraud), and mental distress that arose “out of the contractual breach itself.” The Court held that this second category, rather than being an “exception” to the principle of reasonable expectation, should, in fact, be considered an extension of it and thus be classified as “compensatory.” To recover under this second category, a plaintiff must demonstrate that (a) both parties might have reasonably contemplated that mental distress was a consequence that would result from a breach and (b) the degree of the distress was sufficient to warrant compensation. In applying this test to Connie Fidler’s case, the Court held that mental distress was a foreseeable aspect of a breach of her longterm disability contract and ordered damages of $20,000 be paid.
The Court also addressed the issue of punitive damages, which are awarded to punish a party whose conduct has been “malicious, oppressive and high-handed” and where an independently actionable wrong exists. In Connie Fidler’s case, the Court of Appeal had found that Sun Life’s investigation was, in fact, carried out in “bad faith” due to (a) its failure to disclose the surveillance video, (b) its exaggeration of the surveillance results in an internal memorandum and (c) the absence of medical evidence to justify denying her claim. However, the Supreme Court disagreed and agreed instead with the trial judge’s assertion that Sun Life legitimately had “difficulty…in ascertaining whether Ms. Fidler was actually disabled.”
Implications
Fidler may well have consequences for the administration of long-term disability plans. Plan administrators must be sensitive to the possibility of claims for compensatory damages for mental distress. The possibility of punitive damages also exists where a plan administrator has acted in bad faith vis-à-vis the claimant.
However, the Fidler decision has made the recovery of punitive damages considerably more difficult. In its characterization of Sun Life’s investigation (during which it withheld Connie Fidler’s benefits for two years) as one of “good faith,” the Supreme Court held that the threshold for “malicious, oppressive and high-handed” conduct extends well beyond a mistaken assessment of a claim. The Court has therefore left considerable room for legitimate, claimant-sensitive investigations of disability claims based on mental distress.
Murray Gold is a partner with Koskie Minsky LLP in Toronto. With help from Rajeev Ruparell, an associate with Koskie Minsky.
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