Landmark Disability Case: Ontario Court of Appeal Confirms Record $1.5 Million Punitive Damages Award Against Blue Cross Life Insurance

Toronto, Ontario – In a landmark case against a disability insurer, the Ontario Court of Appeal has upheld the largest punitive damages award in Canadian history, amounting to $1.5 million. The decision in Sara Baker v. Blue Cross Life Insurance Company of Canada sheds light on the reasoning behind this substantial sum. Previously, the jury’s rationale for the award had remained unknown as they are not required to provide written reasons for their verdicts.

The case revolves around Baker, who had suffered a stroke and brain bleed, rendering her unable to continue her job as a director at a Toronto hospital. After initially approving her long-term disability claim, Blue Cross discontinued her benefits, alleging that she could work in a lower-paying position. However, the jury deemed this decision baseless and went on to award Baker ongoing disability benefits, as well as compensation for mental distress and punitive damages.

Punitive damages, in this context, are meant to serve as punishment, denunciation, and deterrence against behavior that is seen as malicious, oppressive, or high-handed. The three-judge panel responsible for considering the evidence in this case found that Blue Cross exhibited a pattern of misconduct. The insurer blatantly ignored crucial information, misinterpreted expert reports, and relied on misguided advice from its own doctors to terminate benefits. The court described these actions as demonstrating either reckless indifference or a deliberate strategy to wrongfully deny benefits.

The misconduct, according to the court, was not isolated to a single employee but appeared to be systemic within Blue Cross. The implications of this finding are significant, as it suggests that numerous other claimants may have been subjected to similar mistreatment but lacked the determination to take their cases to trial.

When justifying the sizable $1.5 million punitive damages award, the court highlighted three factors: deterrence, vulnerability, and profits. Disability policies offer a sense of security for vulnerable individuals who rely on insurers to provide income during times of illness. Accordingly, deterrence is crucial when holding insurance companies accountable for wrongful actions. The court emphasized the need for meaningful punishment in order to achieve deterrence. Notably, the court acknowledged that $1.5 million may have a devastating impact on individuals or smaller businesses, but for a large insurance corporation like Blue Cross, it is a relatively inconsequential sum that could easily be dismissed.

Historically, appeal courts have often reduced punitive damages awards in disability cases. The decision in Sara Baker v. Blue Cross marks a departure from this trend, with the Ontario Court of Appeal affirming the substantial amount. Previous cases involving mishandled disability claims resulted in lesser punitive damages awards on appeal. However, the court opined that larger awards are necessary to capture the attention of insurance companies and effectively deter future misconduct.

This decision serves as a significant precedent in the field of insurance law, highlighting the importance of punitive damages in deterring wrongful behavior by insurers. It also underscores the need for fair treatment of vulnerable individuals who rely on disability policies for support during times of hardship. The outcome of this case sends a clear message to insurers and acts as a reminder of their duty to handle claims in good faith and conduct thorough investigations.