Long term disability insurer's appeal of a punitive damages award of $500,000 allowed in part. The Court of Appeal upheld the finding of entitlement to punitive damages but reduced the punitive damages award to $60,000.

[2015] N.S.J. No. 486

2015 NSCA 104

Nova Scotia Court of Appeal

J.E. Fichaud, L.L. Oland and J.E. Scanlan JJ.A.

November 17, 2015

The plaintiff worked for Ports Canada Police until he was terminated in March 1995. Shortly after, the plaintiff was diagnosed with depression. The plaintiff subsequently applied for long term disability benefits and on August 1, 1995, the insurer approved the plaintiff's application.

The disagreement between the plaintiff and the insurer over the following years concerned rehabilitation services, the tax treatment of the benefits, and the insurer's reduction of benefits for third party payments to the plaintiff. The insurer commenced the litigation in 2001 but at trial, in 2013, what remained was the plaintiff's counterclaim alleging the insurer had breached specific terms of the policy and its duty of good faith. The insurer argued that it had handled the claim appropriately and that it was entitled to a settlement that the plaintiff had received regarding the plaintiff's human rights complaint against Ports Canada Police.

The trial judge found the insurer had breached its duty of good faith by (1) discontinuing rehabilitation counselling services, (2) not providing the plaintiff with a report dated April 15, 2003 by Dr. Rubens until the week before trial, and (3) continuing to issue T4 slips that classified the plaintiff's disability benefits as taxable after the insurer had received a tax court ruling that they were not taxable. The trial judge awarded the plaintiff $150,000 in aggravated damages,$30,000 for mental distress, and $500,000 in punitive damages.

The insurer appealed inter alia the trial judge's finding that the insurer’s conduct should attract punitive damages and, in the alternative, argued the trial judge erred by awarding an amount that was too high. The insurer and the plaintiff raised numerous additional issues on appeal and cross-appeal that are not discussed in this summary.

The trial judge concluded punitive damages were justified based on four aspects of the insurer's conduct: the three elements of the insurer's breach of its duty of good faith and the evidence of the insurer's supervisor of the long term disability department, Ms. Antonini, whom the judge described as having "wanton disregard for the accuracy of her testimony".

The insurer argued the problematic testimony provided by Ms. Antonini was an issue that should be dealt with in assessing costs, not punitive damages. The insurer relied on Marchen v. Dams Ford Lincoln Sales Ltd., 2010 BCCA 29, for the principle that litigation misconduct may generate cost penalties, but should not result in an award of punitive damages. The Court of Appeal rejected this argument and found that a series of high-handed actions that began before the trial may extend into the trial to compound what happened before. In addition, the Court of Appeal noted that the parties had agreed to the quantum of trial costs after the trial judge issued her decision and therefore duplication was not an issue.

The Court of Appeal also dismissed the insurer's argument that the punitive damages award should be overturned because the additional particulars of the insurer’s bad faith did not support an award of punitive damages. The Court of Appeal found that the trial judge cited and applied the correct principles of law and found that the insurer's conduct was in bad faith and sufficiently egregious to warrant a punitive award. The misconduct was in the insurer's management of a "peace of mind" contract meant to ease the insured's stress at a moment of crisis and vulnerability. The plaintiff was in crisis and particularly vulnerable, emotionally and financially, and the insurer's conduct added to his mental stress.

Lastly, the insurer argued that the award of $500,000 in punitive damages was inordinate and exceeded the amount needed to rationally serve the purposes of prevention, deterrence, and denunciation.

The Court of Appeal reviewed awards for punitive damages across Canada and noted that insurance cases where punitive damages of $100,000 or more where imposed are limited to Whiten v. Pilot Insurance Co. ($1,000,000), Branco v. American Home Assurance Company ($500,000 and $175,000),Plester v. Wawanesa Mutual Insurance Co. ($350,000 and $100,000), Khazzaka (c.o.b. E.S.M. Auto Body) v. Commercial Union Assurance Co. of Canada ($200,000), Fernandes v. Penncorp Life Insurance Co. ($200,000), Asselstine v. Manufacturers Life Insurance Co. ($150,000), and Kogan v. Chubb Insurance Co. of Canada ($100,000).

The Court of Appeal noted that the insurer did not deny coverage in this case and was not trying to profit from the plaintiff's vulnerability or to use that vulnerability as a negotiating tactic. In the result, the Court of Appeal found the award of $500,000 was inordinate given the relevant authorities and reduced the punitive damages award to $60,000. The Court concluded as follows:

In Whiten (para. 118), Justice Binnie spoke of a "large whack" needed to jolt an obdurate professional litigant. Needed here is a sharp jab, not a concussive blow. In our view, after balancing everything, a punitive award of $60,000 would be proportionate to the required degree of retribution, denunciation, and deterrence.