A recent decision from the Ontario Court of Appeal underscores the need for an insurer to deal fairly with their insured or face the financial consequences.

In Baker v Blue Cross Insurance Company of Canada, 1 the Plaintiff encountered a 10-year battle with her disability insurer after she suffered a stroke while exercising in October of 2013. At various points during that time frame, she was paid short-term disability benefits but consistently denied long-term benefits on the basis that the insurer refused to accept her claim for long-term disability. This, despite numerous medical reports, attendances at assessments at the request of the insurer, and continued appeals through Blue Cross' internal appeal process.

Eventually Ms. Baker commenced action against Blue Cross, seeking payment of past and future benefits, but in additional aggravated and punitive damages arising from the insurer's conduct during the claim. The trial took 22 days, and eventually a jury gave a declaration of permanent disability; retroactive benefits to the date of trial in the sum of $220,604.00; aggravated damages for her mental distress in the sum of $40,000.00; and most notably, punitive damages in the sum of $1,500,000.00. The Judge also awarded full indemnity legal costs to her in an amount in excess of $1,000,000.00 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 chose not to appeal the declaration, the retroactive award, or the aggravated damages. It limited its appeal to the punitive damage award and sought leave to appeal the cost award.

The Ontario Court of Appeal dismissed the appeal; granted leave to appeal on the costs issue but then denied that appeal as well.

In its reasons, the Court recognized that the usual limitation on the scope of judicial review of a jury award did not necessarily extend to the same degree to a review of punitive damage awards. The Court stated that Blue Cross had the onus of demonstrating that the award of punitive damages did not serve a rational basis. Blue Cross, in the court's view, did not meet that onus. To the contrary, the Court found that it was open to the Jury to find that Blue Cross had engaged in a "systemic and deliberate misconduct in handling Ms. Baker's claim and that a significant punitive damages aware was necessary in order to deter Blue Cross (and perhaps other insurers) from conducting themselves in that fashion in the future."

The Court noted that in the instructions from the Trial Judge to the Jury, they were cautioned 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." Further, the instructions made it clear that "punitive damages are given in an amount [that] is not greater than necessary to rationally accomplish these objectives."

Clearly the Jury listened and determined that an award of $1.5 million plus indemnity costs satisfied those tests.

The Court of Appeal agreed that there was ample evidence to support an award of punitive damages in this amount, pointing to such things as:

  • Blue Cross stopping payments of benefits on three separate occasions, and continued requests for additional documentation;
  • Blue Cross' reliance on its own contracted general practitioners when it knew or ought to have known they were incorrect;
  • Blue Cross' selective reliance on evidence supporting the denial of benefits and ignoring conflicting medical evidence;
  • Delays in securing independent medical exams where Blue Cross actually did acknowledge a conflict in medical evidence; and
  • Blue Cross' misreading or misinterpretation of certain Analysis Reports in a way that supported the denial of benefits.

Based on this, the Court noted "...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."

This case should sound a warning to disability insurers, and insurers generally, that the Courts will take the duty of good faith owed by an insurer to its insured seriously. It also sets a substantial precedent for an award of Punitive Damages that should make insurers embarking on a pattern of denials and obstruction think twice about their strategy.


1. Baker v Blue Cross Life Insurance Company of Canada, 2023 ONCA 842

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