Pre-Fidler

Prior to Fidler the case law initially required an independently actionable wrong to assert a claim for incremental damages. Some decisions diverted from this requirement.

The 1994 decision of the Alberta Court of Queen’s Bench ¹ was an early case to find such a good faith obligation of the insurer resulting in an award of $7,500 of punitive damages. The decision to conduct a needless surveillance and the insurer’s subsequent breach of the Rehabilitation Agreement were individually conduct that led to an independent wrong.

The decision of the B.C. Court of Appeal in September of 1996 also considered an award of mental distress damages due to similarly offensive conduct. ²

The insurer persistently refused to pay benefits despite medical evidence which “on any reasonable view should have led Great-West to realize that Mr. Warrington was in fact ‘wholly and continuously’ disabled within the meaning of the short-term policy, and that he was prevented by disease or injury from being gainfully employed, as specified by the long-term policy”. Immediately prior to trial, the plaintiff was paid the total of unpaid benefits accrued over the prior 26 months.

The Court of Appeal expressed and approved of the concept that the “subject matter of the contract….is to provide peace of mind or freedom from distress”, after noting the impact that the refusal of benefits had upon the insured’s life.

The Court of Appeal concluded that a disability insurance contract was one of few contracts in which damages for mental distress would be recoverable, where they resulted from the breach. No independently actionable wrong was required. This was a landmark decision. It marked the beginning of the “peace of mind” concept which was later approved in Fidler.

The court did indicate that judges should exercise caution in assessing the quantum of the award. In this instance the trial award of $10,000 was upheld. These words of restraint have since been revisited by later decisions and are no longer the law. The 1997 Supreme Court of B.C. decision ³ followed the same ratio, awarding $8,500, mindful of the above cautionary words. ⁴ The reasons again focused on the impact that the denial of benefits had upon the plaintiff’s life. ⁵

In 1998 the B.C. Supreme Court ⁶ awarded the sum of $15,000 as mental distress damages. The court found that the insurer’s medical advisor took no reasonable effort to assess the plaintiff’s medical condition. The court also found that the company misinterpreted the insured’s medical advice and wrongly asserted that she was required to produce objective clinical evidence by the policy terms. Due to the denial of benefits, the plaintiff and her husband lost their home and endured much grief.

The cases in Ontario prior to Fidler did not adopt the peace of mind concept and looked to the need to see an independently actionable wrong to allow for awards of aggravated damages.

A good example is Ontario Superior Court case which nonetheless awarded $75,000 in aggravated damages for breach of contract and $200,000 in punitive damages. ⁷

Despite what was described as “clear medical evidence of disability”, the insurer denied the claim on the basis that the plaintiff was in treatment and improving. It offered to make “an extra-contractual” payment of $4,800 in exchange for a release. When questioned as to the company’s position, the insurer reminded the plaintiff of the extra-contractual payment and threatened to ask for its repayment. The company failed to advise the plaintiff of his entitlement to residual disability benefits nor his right to select certain years of income to determine a higher benefit entitlement.

The trial judge ⁸ found that such actions were bad faith conduct entitling the plaintiff to aggravated damages of $75,000, including a real estate commission of $40,000 and moving expenses. The court found that the plaintiff suffered from increased anxiety, stress and financial pressure due to the rejection of his claim over three years at a time when he was particularly vulnerable.

Case law, prior to this decision and following, has declined to award damages for consequential economic loss, even in the era when aggravated damages were recoverable. Such was the 2001 case in the British Columbia Supreme Court ⁹ which denied the claim made by the plaintiff for additional compensation due to his need to collapse his RRSP, as such a loss was beyond the terms contemplated in the contract of insurance.

A 2002 Supreme Court of Ontario decision awarded aggravated damages in the sum of $18,000 due to the failure of the insurer to process the plaintiff’s claim in a timely manner. ¹⁰

An award similar to Clarfied v. Crown Life above, was made in the 2002 decision of the Newfoundland Supreme Court. ¹¹

The 2003 decision of the British Columbia Supreme Court ¹² made a $20,000 damage award of aggravated damages due to the manner in which Telus ¹³ terminated the plaintiff’s disability benefits.

The employer, which provided coverage by an ASO, had argued unsuccessfuly that a “peace of mind” contract and its principles ought not to apply, to this claim as it was a feature of employment and not that of insurance.

A 2003 trial decision of the B.C. Supreme Court ¹⁴ allowed $35,000 for aggravated and $150,000 for punitive damages in an ASO ¹⁵ context against both defendants, ¹⁶ in which Manulife had withheld meaningful documentation from its consulting firm, including (1) the first 2 pages of the employer’s assessment of the plaintiff, (2) certain pages of the plaintiff’s self- assessment, describing her condition and how it impacted her ability to work, (3) certain medical reports and (4) her resume.

In addition, the court found that the defendant failed to assess the application in an even-handed manner and chose to dismiss evidence which supported the plaintiff’s application and was hence in violation of its obligation to make a good faith assessment of the claim. The trial judge agreed that contracts of disability insurance were “peace of mind” contracts. ¹⁷

The claim against Manulife was dismissed as there was no privity in contract between the plaintiff and this defendant. The trial judgment was otherwise upheld. ¹⁸ The Court of Appeal agreed that this was such an exceptional case to allow for a punitive damage award. As to the quantum of the award, the majority found the sum on the high end of the scale, but declined to interfere. ¹⁹