At our weekly meeting, Eli Feldman discussed the recent decision of the Ontario Court of Appeal (the “ONCA”) in Baker v. Blue Cross Life Insurance Company of Canada, 2023 ONCA 842, concerning the entitlement of a group disability insurance policy member to long-term disability benefits after suffering a sudden stroke while exercising in October 2013.
Facts and Procedural History
At the time of the incident, the respondent, Ms. Sara Baker (“Ms. Baker”), was 38 years old and the Director of Food Services, Environmental, and Porter or Transport Services at Humber River Hospital in Toronto, Ontario.
Following the incident, Ms. Baker was paid short-term disability benefits under the policy until January 2014, when she was cut off by the Blue Cross Life Insurance Company of Canada (“Blue Cross”). Following an internal appeal, Blue Cross reinstated Ms. Baker’s benefits, but Ms. Baker sought long-term disability benefits after her eligibility for short-term benefits elapsed 30 weeks later.
In order to obtain long-term disability benefits under Blue Cross’ policy, an insured had to demonstrate that they satisfied the definition of “total disability”. The policy featured two provisions defining “total disability”:
- An “own occupation” provision, which applied for the first two years of receipt of long-term disability benefits, and defined “total disability” as “the complete and continuous inability of the Covered Employee to perform the regular duties of his own occupation as a result of illness or injury”; and
- An “any occupation” provision, which defined a “total disability” as a “state of continuous incapacity, resulting from illness or injury, which wholly prevents the Covered Employee from performing the regular duties of any occupation for which he:
- would earn 60% or more of his Pre-disability Earnings; and
- is reasonably qualified, or may so become, by training, education, or experience.”
Ms. Baker was paid long-term disability benefits for two years pursuant to the “own occupation” provision in the policy, but was denied long-term “any occupation” benefits. After unsuccessfully participating in Blue Cross’ internal appeal process, Ms. Baker commenced an action in the Ontario Superior Court of Justice for “any occupation” benefits, along with aggravated and punitive damages.
Following a 22-day jury trial, Ms. Baker received the following verdict:
- a declaration that she was totally disabled within the meaning of Blue Cross’ long-term disability benefits policy;
- retroactive benefits to the date of the trial in the amount of $220,604.00;
- aggravated damages for mental distress of $40,000; and
- punitive damages in the sum of $1,500,000.00.
The trial judge also awarded Ms. Baker full indemnity costs on the basis that, as a matter of public policy, Ms. Baker should not have her disability benefits, of which she was wrongfully deprived, eroded by unrecoverable legal expenses.
Blue Cross appealed the punitive damages award on the grounds that a contextual and fair reading of the entire record demonstrated that Ms. Baker’s claim was handled in a balanced and reasonable manner, and also sought leave to appeal the costs award.
The ONCA Judgement
The ONCA dismissed Blue Cross’ appeal, granted Blue Cross leave to appeal costs, but denied the cost appeal.
In essence, the court held that 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. The court determined that “at best, Blue Cross’ handling of Ms. Baker’s long term disability claim reflected a 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 Ms. Baker of the benefits to which she was entitled.”
With respect to the punitive damages award, the court noted that the jurisprudence offers appellate courts a greater scope and discretion when reviewing jury awards of punitive damages than ordinary damages awards, and that Blue Cross had the onus of demonstrating that the punitive damages award did not serve a relational purpose.
Against this backdrop, the court held that Blue Cross’ decision not to call the most relevant witness to counter the evidence that it acted in bad faith (and instead call only the last appeals specialist as a witness, whose involvement was limited to a review of the final decision not to reinstate Ms. Baker’s benefits) was a litigation strategy that amounted a failure on the part of Blue Cross to discharge its onus on appeal.
Also with respect to punitive damages, the court held that 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 the same fashion moving forward.
Finally, the court granted Blue Cross leave to appeal the cost award after determining that the trial judge erred in finding entitlement to costs on a full indemnity scale solely because disability insurance policies as a class should automatically attract such an award. However, the court concluded that full indemnity costs were nevertheless warranted in the circumstances based on Blue Cross’ misconduct, coupled with Ms. Baker’s generous offer to settle.
Overall, Baker v. Blue Cross Life Insurance Company of Canada sends a warning to disability insurers across Canada: crossing a long-term disability benefits applicant may leave even the mightiest insurer blue.