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Insurance - Duty of Good Faith (2). Truong v. Jeweler’s Mutual Insurance Company
In Truong v. Jeweler’s Mutual Insurance Company (Ont CA, 2024) the Ontario Court of Appeal dismissed a jewelry insurer's appeal, here where a central issue was whether the insured actually owned the stolen jewels.
Here the court addresses the appellant's argument that the trial court erred in it's treatment of punitive damages, which turn on the issue of bad faith:[4] The trial judge found in favour of the respondents and awarded them $502,100 as compensatory damages for the loss of the jewellery. He also awarded a further $45,000 as punitive damages. He was of the view that the respondents never should have been put to the proof of their pre-Policy ownership of the jewellery because Jeweler’s Mutual accepted the respondents’ ownership when it issued the Policy – a policy it admitted had not been the result of any material misrepresentation. By not paying, and defending, on the basis that once there was a loss the respondents had to prove pre-Policy ownership, Jeweler’s Mutual attempted to impose an obligation on the respondents that would not have been reasonably expected by an insured and arrogated unto itself an un-bargained for right, in bad faith.
[5] Jeweler’s Mutual does not challenge, on appeal, the trial judge’s findings that the respondents owned the jewellery and that it was stolen from them as they alleged. It asserts, however, that there was no legal basis for an award of punitive damages, and that the compensatory damages were assessed on an incorrect principle.
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[7] The trial judge did not err in awarding punitive damages. Whether an insurer’s handling of a claim amounts to bad faith depends, in each case, on the facts. Deference is owed to such a finding absent legal error. In my view, no such error has been shown. It was open to the trial judge to find that Jeweler’s Mutual had accepted that the respondents owned the jewellery when it issued the Policy and that Jeweler’s Mutual acted in bad faith by investigating the claim, refusing to pay and defending the action through trial, on the basis that the respondents’ pre-Policy ownership of the jewellery remained in question.
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[37] In Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3, the Supreme Court explained that a decision as to whether an insurer acted in bad faith rendering it liable for punitive damages is a contextual one, revolving around the facts of the particular case: at para. 72. The question in each case is whether the denial of insurance coverage was the result of the overwhelmingly inadequate handling of the claim or the introduction of improper considerations into the claims process: at para. 71. At para. 63 the court stated:In Whiten, this Court set out the principles that govern the award of punitive damages and affirmed that in breach of contract cases, in addition to the requirement that the conduct constitute a marked departure from ordinary standards of decency, it must be independently actionable. Where the breach in question is a denial of insurance benefits, a breach by the insurer of the contractual duty to act in good faith will meet this requirement. The threshold issue that arises, therefore, is whether the appellant breached not only its contractual obligation to pay the long-term disability benefit, but also the independent contractual obligation to deal with the respondent’s claim in good faith. On this threshold issue, the legal standard to which Sun Life and other insurers are held is correctly described by O’Connor J.A. in 702535 Ontario Inc. v. Lloyd’s London, Non-Marine Underwriters (2000), 2000 CanLII 5684 (ON CA), 184 D.L.R. (4th) 687 (Ont. C.A.), 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 obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith. [38] Jeweler’s Mutual’s submission that an insured must have an insurable interest in the property at the time of the loss is correct. But it does not follow that in the context of this case Jeweler’s Mutual was engaged in good faith handling of the claim in refusing payment, up to the end of trial, on the basis that the respondents did not prove pre-Policy ownership. It is one thing to question whether an insured who owned property at the time of the Policy thereafter disposed of or encumbered it before the alleged loss occurred, affecting the existence or extent of their insurable interest at the time of the loss. It is quite another to challenge whether the insured ever owned the property at the time it obtained the Policy.
[39] In this case, there is no suggestion with any air of reality to it that the respondents had disposed of or encumbered the jewellery at some point between the issuance of the Policy and the theft. This was not the focus of Jeweler’s Mutual’s investigation, its questioning of the respondents, or its challenge to the credibility of their claim at trial. Rather, the focus was the alleged absence of proof that the respondents ever owned the jewellery.
[40] Nor do I agree that the trial judge was bound to consider Jeweler’s Mutual’s conduct to arise from a reasonable interpretation of the Policy because its proof of loss provisions contemplated substantiation of the inventory of the property lost, or because of its right under the Policy to require additional information. The question was not how those provisions operate in theory, but whether Jeweler’s Mutual’s conduct was justified by a reasonable interpretation of them given the factual context of this case. The requirement for substantiation did not specify any consequence if a particular form of substantiation was unavailable, and the right to additional information was limited by the terms of the Policy to information that Jeweler’s Mutual might “reasonably require”.
[41] The particular factual constellation in this case was that Jeweler’s Mutual accepted that the respondents had obtained the Policy without making any misrepresentation. I do not accept the argument that the application for insurance was agnostic on the question of whether the jewellery the respondents were seeking to insure was theirs. The application referred to it as “my jewelry”, and the information the respondents were asked to provide about it (who wears it, how is the respondents’ residence safeguarded, what precautions are taken when travelling) was all consistent with their ownership of the jewellery. The application confirmed that the respondents had not withheld any facts that would be material to the risk. It would undoubtedly have been material to the risk the insurer was being asked to undertake if the respondents were seeking to insure jewellery in which they had no interest. They would have made a material misrepresentation if they did not own the jewellery and applied to insure it as “my jewelry”.
[42] It follows that it was open to the trial judge to find that Jeweler’s Mutual, by accepting that there had been no misrepresentation, had accepted when it issued the Policy that the respondents owned the jewellery at the time. It was also open to him to interpret the terms of the Policy as not requiring substantiation of an already accepted matter – pre-Policy ownership – and to consider demands for further information and documentation to prove pre-Policy ownership to go beyond information that it could “reasonably require”.
[43] I also do not accept Jeweler’s Mutual’s characterization of how it handled the claim as simply asking questions. The trial judge properly characterized Jeweler’s Mutual’s conduct as being premised on an unjustifiable interpretation of the Policy that persisted through trial. Before litigation, Jeweler’s Mutual responded to the claim by questioning the respondents, and requiring them to point out where they purchased the jewellery and to provide substantiation. Its defence through to the end of trial challenged the respondents’ honesty about whether they ever owned the jewellery. I agree with the respondents that Jeweler’s Mutual, while not directly alleging misrepresentation, implicitly suggested that the respondents had sought to insure and claim for jewellery they never owned, an assertion which is suggestive of fraud.
[44] The trial judge’s conclusion as to whether Jeweler’s Mutual breached its duty of good faith in the way it dealt with the respondents’ claim was drawn from “a thorough review of the relevant evidence” about how the claim was handled and the basis on which it was defended. Absent legal error (which is not present) or palpable or overriding error of fact (which is not argued) his finding of bad faith is entitled to deference: Fidler, at paras. 73-75.
[45] Accordingly, I reject this ground of appeal. . Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada
In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Court of Appeal considered an insurer appeal of a complex interlocutory application to declare 'duties to defend' and if so, the allocation of legal expenses between defendants, in five merged opioid class actions against several retailers, each with multiple insurers.
Here the court addresses "a certain tension in the relationship between an insured and its insurer in the context of the defence of an action", which is primarily a matter of contractual duties of good faith:(i) Reasonable apprehension of conflict
[236] There is a certain tension in the relationship between an insured and its insurer in the context of the defence of an action. Over time, the law on duties and rights has evolved.
[237] Both parties owe each other a duty of utmost good faith and fair dealing and the insured also owes a duty of cooperation to its insurer. Pursuant to these duties, an insured has a general obligation to disclose all the facts that are material to the insured risk: Canadian Indemnity v. Canadian Johns-Manville Co., 1990 CanLII 78 (SCC), [1990] 2 S.C.R. 549, at p. 579. The insured is also to give to the insurer “material information concerning significant developments in the litigation”: Canadian Newspapers Co. v. Kansa General Insurance Co. (1996), 1996 CanLII 2482 (ON CA), 30 O.R. (3d) 257 (C.A.), at p. 23; see also Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, at para. 55. This encompasses information in the insured’s possession that might void coverage: Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Company of Canada, 2021 SCC 47, 463 D.L.R. (4th) 477, at para. 36. . 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. . 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 (and dismisses) an appeal against an large award of punitive damages, here in long-term disability litigation where the court questions the insurer's of good faith:[9] For the reasons discussed below, I would dismiss the appeal and grant leave to appeal costs but deny the costs appeal. In summary, the evidence at trial raised serious concerns regarding the manner in which several disability claim examiners and reviewers at Blue Cross processed Ms. Baker’s file. At best, it shows reckless indifference to its duty to consider the respondent’s claim in good faith and to conduct a good faith investigation, and at worst, a deliberate strategy to wrongfully deny her benefits.
[10] Given the claim for punitive damages, Blue Cross was on notice that how it handled this file would be a significant part of the trial. Yet, it elected to call only the last appeals specialist as a witness, whose involvement was limited to a review of the final decision not to reinstate benefits at the time of the change of the applicable definition of “total disability.” She was unable to explain several of the actions of her predecessors on the file.
[11] Because punitive damages are not at large, the jurisprudence permits appellate courts a greater scope and discretion when reviewing jury awards of punitive damages than an ordinary award of damages. However, Blue Cross must still demonstrate that the punitive damages award does not serve a rational purpose. In the instant case, Blue Cross elected not to call the most relevant witnesses to counter the evidence that it acted in bad faith. One of the consequences of this litigation strategy is that it does not have the evidence to meet its onus on the appeal.
[12] Further, there is nothing about the quantum of the award that warrants appellate interference. It was open to the jury to conclude that Blue Cross engaged in systemic and deliberate misconduct in handling Ms. Baker’s claim and that a significant punitive damages award was necessary to deter Blue Cross from conducting themselves in that fashion in the future.
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(b) Entitlement to Punitive Damages
[22] The evidentiary review includes an analysis of the evidence before the jury and the lack of evidence on critical aspects of Blue Cross’ conduct. Before examining that evidence, I turn first to a consideration of what the jury understood about punitive damages. As noted, the appellant takes no issue with the instructions given to the jury about punitive damages. Nonetheless, it is helpful to consider that instruction in determining whether the jury’s award of punitive damages is rationally connected to the evidence and the purposes of punitive damages.
[23] The instruction largely tracks the suggested elements of the charge outlined in Whiten, at para. 94. It states that such damages are “only to be awarded in exceptional circumstances ... to address the objectives of retribution, deterrence, and denunciation.” The jurors were also instructed that punitive damages should be imposed only “if there has been high-handed, malicious, arbitrary, or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour.” With regard to quantum, they were told that “punitive damages are given in an amount [that] is no greater than necessary to rationally accomplish these objectives” and that “judges and juries in our system have usually found that moderate awards of punitive damages which inevitably carry a stigma in the broader community, are generally sufficient.”
[24] Based on this instruction, the jurors understood the nature of punitive damages, when they were available, what they were meant to achieve, and the restraint that should be exercised in determining the quantum of the damages.
[25] Blue Cross’ primary submission is that it acted in good faith despite its erroneous assessment of whether the respondent met the definition of “total disability” under the policy. In other words, it has a right to be incorrect without being liable for punitive damages.
[26] The second part of this submission is a strawman argument, as it is unassailable and is not an issue on the appeal. No one is suggesting that an error regarding the entitlement to long-term benefits automatically leads to an award of punitive damages. The problem with the submission is its factual premise that all that occurred was a good faith error. The actual issue is whether Blue Cross’ actions in dealing with the respondent’s claim meet the test for punitive damages. Its position, that the disability claim examiners sought out medical advice from Blue Cross’ medical experts and relied on that advice in good faith in handling the respondent’s file, is essentially a factual assertion. So is its assertion that its conduct cannot result in punitive damages because nothing was high-handed, malicious, arbitrary, or highly reprehensible in its conduct.
[27] The appellant also argues that this court has the complete record and is, therefore, in a position to evaluate the jury’s decision to award punitive damages. We indeed have all of the evidence that was before the jury. However, there are significant gaps in that evidence. As noted above, Blue Cross elected not to call as witnesses all but one of the appeals specialists. The result is that the jury never had evidence regarding why the representatives of Blue Cross acted the way they did and whether they considered other courses of action.
[28] There was ample evidence to support an award of punitive damages. Set out below are some examples in the record that would justify such an award:. Blue Cross stopped the payment of benefits on three separate occasions. On each occasion, it denied benefits first and then asked for additional documentation instead of first warning Ms. Baker of a potential cut-off and requesting additional documentation.
. Blue Cross relied on opinions from its contracted general practitioners, which it knew or ought to have known were incorrect. For example, on June 12, 2015, Blue Cross sent a Medical Consultant Referral Form to Dr. Knox, a contracted general practitioner, to provide a medical opinion on Ms. Baker’s condition. Blue Cross populated a section on the form summarizing Ms. Baker’s “History” based on her submitted medical documentation before sending it to Dr. Knox for review. Dr. Knox’s completed referral form, dated July 7, 2015, contained several misstatements of Ms. Baker’s condition contrary to the information Dr. Knox had been provided by Blue Cross. Blue Cross did not seek to clarify or address the flaws in this report. Instead, it relied on it as an accurate statement of her condition.
. Blue Cross selectively relied on evidence that supported the denial of benefits and ignored conflicting medical evidence. For example, when Ms. Baker’s benefits were denied on August 5, 2015, this decision was based on Dr. Knox’s July 2015 report rather than the evidence submitted by Ms. Baker’s doctors, which included the opinion, “I don’t believe she can return to work at this time, even on a part-time basis.” This opinion should have at least been addressed in Blue Cross’ decision to cut off benefits. Another example is in Blue Cross’ notes in Ms. Baker’s file on the level one review of her claim, dated October 12, 2016. These notes were also selective in the interpretation of Ms. Baker’s medical documentation. They reference conclusions from the reports completed by Dr. Bauman, dated August 2, 2016, that supported a denial of benefits and ignored evidence in the report that militated in favour of the payment of benefits.
. In the face of conflicting medical evidence, Blue Cross delayed obtaining an independent medical exam of Ms. Baker. It only sent Ms. Baker for a neuropsychological assessment with Dr. Kane in March 2016, over two and a half years after she suffered the stroke.
. Blue Cross distorted Dr. Kane’s neuropsychological assessment report in a way that supported the denial of benefits. Dr. Kane’s report stated:[I]t is expected that Ms. Baker would be able to return to a role as a Nutritionist in which she could meet with clients individually in a quiet environment and provide feedback individually or in written format and with minimal need for decision-making or feedback in speeded situations or amidst large groups. Whether such a role exists will need to be determined by her employer. Whether Ms. Baker would be able to perform such a role on a full-time basis in terms of fatigue and/or headache will need to be determined by her Physicians and/or Physiotherapist. Blue Cross repeatedly omitted the caveats in Dr. Kane’s report in their internal files and communications and in communications with Ms. Baker. For example, Blue Cross’ notes from January 2017, which supported the denial of the level two appeal, read:After reviewing all the information on file, we conclude that the [claimant] has the ability to perform the previously identified alternate occupations, as confirmed by the medical consultant. According to the neuropsychologist’s assessment, the [claimant] would even have the ability to do her previous job, with some modifications. As the [claimant] would be able to do her previous job with modifications and also the alternative occupation of dietician and nutritionist, which meets the commensurate salary, the [claimant] does not meet the definition of total disability for any occupation. Dr. Kane did not identify that Ms. Baker could do her previous job with modifications. Rather, she indicated that even the potential to perform the work of a nutritionist was subject to significant qualifications.
. Blue Cross misread Ms. Kresak’s Transferable Skills Analysis report (“TSA”) in a way that supported the denial of benefits. On several occasions, Blue Cross misinterpreted the TSA, which identified only one suitable alternative occupation that satisfied the requirement of compensating Ms. Baker at least 60% of her pre-disability salary. For example, an email from Blue Cross to one of its medical consultants, dated December 21, 2016, stated that “6 alternative occupations were identified for the claimant.” Blue Cross later conceded that the average income depictions of five of the six occupations in the report were not commensurate with 60% of Ms. Baker’s pre-disability income.
. Blue Cross persisted in distorting Dr. Kane’s and Ms. Kresak’s reports even after the respondent’s lawyer wrote to it and pointed out the errors. [29] In the face of this evidence, Blue Cross asserts that, while it reached the wrong conclusion about Ms. Baker’s condition, it acted in good faith. It was open to the jury to accept this theory of the case. However, to do so, it would have had to ignore the coincidence that every time Blue Cross erred in handling the respondent’s file, it was to her detriment and to the benefit of Blue Cross.
[30] Overall, we see 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 and created a counter-narrative based on their misinterpretation of the relevant data. This is a pattern of misconduct that, at best, shows reckless indifference to its duty to consider the respondent’s claim in good faith and conduct a good faith investigation, and at worst, demonstrates a deliberate strategy to wrongfully deny her benefits, regardless of the evidence that demonstrated an entitlement.
[31] These examples or any combination offer a sufficient basis to award punitive damages. Jurors could have concluded that Blue Cross was not just cavalier in treating the respondent’s claim but that it undertook a deliberate strategy to wrongfully deny her the benefits she was entitled to under the policy. The fact that Blue Cross failed to call the critical witnesses to provide the context about their handling of the file could further serve to support a finding that the conduct was deliberate.
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