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Damages - Insurers Denial of Meritorious Claim. Baker v. Blue Cross Life Insurance Company of Canada
In Baker v. Blue Cross Life Insurance Company of Canada (Ont CA, 2023) the Court of Appeal considers the quantum of punitive damages, particularly in an insurance context:(c) Quantum
[32] Little was said in oral argument regarding the quantum of punitive damages other than to assert that they are too high. I disagree. Punitive damages are designed to punish wrongful conduct, to denounce that misconduct, and to act as a deterrent for future misconduct.
[33] Deterrence plays an important role when dealing with claims against insurance companies. As Laskin J.A. noted in the Court of Appeal for Ontario decision in Whiten v. Pilot Insurance Co. (1999), 1998 CanLII 1539 (ON CA), 41 O.R. (3d) 641 (C.A.), at p. 659, rev’d 2002 SCC 18, [2002] 1 S.C.R. 595,[V]indicating the goal of deterrence is especially important in first-party insurance cases. Insurers annually deal with thousands and thousands of claims by their insureds. A significant award was needed to deter Pilot and other insurers from exploiting the vulnerability of insureds, who are entirely dependent on their insurers when disaster strikes. [34] Deterrence is impossible unless the punishment is meaningful. I take judicial notice of the fact that Blue Cross is a large insurance corporation. While a punitive damages award of $1.5 million might be devastating to a personal defendant or a small business, it is little more than a rounding error for Blue Cross. 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.
[35] Another point worth emphasizing is that there was ample evidence for the jury to conclude that the problems within Blue Cross are systemic. This was not a case of a rogue disability claim examiner. The many Blue Cross employees who touched this file took the same approach, which ignored the respondent’s rights under the policy. This evidence suggests that there may be many other claimants that may have been treated in the same manner by Blue Cross. The difference is that, unlike Ms. Baker, most claimants do not have the stamina to engage in long-term litigation.
[36] The fact that this appears to be a systemic approach to Blue Cross’ claims handling process reinforces why a significant award of punitive damages is required. Otherwise, a small award is effectively spread over all the other cases where claimants have decided that it is not worth suing to obtain the benefits they are legally entitled to receive. Put simply, a modest punitive damages award becomes a nominal cost of operating in a way that wrongly and systematically denies policyholders their legal right: see Whiten, at para. 72.
[37] There is no basis for appellate interference with the quantum of the punitive damages award. It was rationally connected to the evidence and the purposes of punitive damages. Further, it was required to deter similar misconduct by Blue Cross in the future. . Fernandes v. Penncorp Life Insurance Company
In Fernandes v. Penncorp Life Insurance Company (Ont CA, 2014) the Court of Appeal commented on when damages may emanate from an insurer's denial of a meritorious claim:[75] In considering the issue of good faith, it must be emphasized that disputing or refusing a meritorious claim does not, in itself, constitute a breach of a duty to act in good faith: Fidler, at para. 63.
[76] The decision of 702535 Ontario Inc. v. Lloyd’s of London, Non-Marine Underwriters 2000 CanLII 5684 (ON CA), (2000), 184 D.L.R. (4th) 687 (Ont. C.A.), which was approved by the Supreme Court in Fidler, describes the parameters of an insurer’s duty at para. 29: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. This duty of fairness, however, does not require that an insurer necessarily be correct in making a decision to dispute its obligations to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith.
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