Mental Distress and Punitive Damages in a Long Term Disability (LTD) Claim

[This article is for informational purposes only and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]

In Godwin v Desjardins Financial Security Investments Inc.[1], the Supreme Court of British Columbia found that the Insurer breached its duty of good faith by failing to assess the plaintiff’s disability claims in a fair and balanced manner. Moreover, the Court awarded damages for mental distress in the amount of $30,000 and punitive damages of $30,000.

The plaintiff was a paralegal that became disabled due to a psychiatric condition (anxiety and depression). Her family doctor indicated that the plaintiff’s chances of going back to work were “extremely good” but that the plaintiff should not go back to her former employment.  The family doctor estimated that the plaintiff might be ready to return to gainful employment in 6 months.

A psychiatrist hired by the insurance company conducted an Independent Medical Evaluation (IME). The psychiatrist found that the plaintiff’s symptoms might include more occupational (issues with her employer) and motivational factors than a severe and limiting psychiatric impairment. The claims examiner denied the plaintiff’s claim on the basis that her condition was not severe enough to cause significant and prolonged psychiatric impairments, despite the fact that the phrase “significant and prolonged psychiatric impairment” is not found in the definition of Total Disability set out in the insurance policy.

The Court also noted that the claims examiner’s notes do not give any weight to the fact that the plaintiff’s disability was recognized by Canada Pension Plan Disability benefits. See our article: “Frequently Asked Questions regarding Canada Pension Plan Benefits”.

Moreover, the claims examiner failed to note the serious discrepancies between the IME and the plaintiff’s treating therapists and physicians.  Given the inconsistencies in the diagnoses between the medical reports, it was necessary for the claims examiner to ensure that the medical consultant had fairly reviewed the medical reports submitted by the plaintiff to the insurance company.

The Court found that the claims examiner denial of benefits was severely flawed as “she was looking for reasons to deny coverage, even to the point of manufacturing reasons, rather than trying to find a basis in the evidence for paying the claim”.

Mental Distress and Punitive Damages

In citing the Supreme Court of Canada Fidler decision[2], which sets out the rationale for mental distress damages caused by breach of a disability insurance policy, the Court awarded mental distress damages of $30,000 and another $30,000 for punitive damages.  See our article: “Seeking punitive and mental distress damages in a Long-Term Disability (LTD) Claim”.

Here, the Court found that the defendant insurance company had failed to assess the plaintiff’s Own Occupation and Any Occupation claims in a fair and balanced manner and that these failures went beyond mere errors of judgment or misunderstandings. The claims examiner repeatedly failed to analyze and to weigh the evidence before her, and applied a test for disability that went beyond the Total Disability definition set out in the insurance policy. The Court concluded that the mental distress suffered by the plaintiff as a result of the delay in the payment of Any Occupation benefits was sufficient to warrant compensation for mental distress.

Notably, the Court held that had the insurance company’s conduct only marginally aggravated the plaintiff’s symptoms. Had the insurance company been responsible for the entirety of the plaintiff’s psychiatric symptoms, an appropriate award would have been approximately $70,000 to $80,000.

In awarding punitive damages, the Court found that the claims examiner’s rejection of the Own Occupation coverage was severely flawed, as it imported improper considerations and concluded without any foundation that motivational factors were dominating the claim. As such, the denial of the claim was arbitrary.

Takeaways

• Claims examiners are required to weigh the totality of the medical evidence against the insurance policy requirements;
• A claims examiner cannot deny coverage on the basis of a test, such as “significant and prolonged impairment”, if such a test is not found in the definition of Total Disability set out in the insurance policy;
• A delay in payment of a disability claim may be sufficient to warrant mental distress compensation.

When initiating a proceeding regarding a denial of LTD benefits, you should discuss the possibility of seeking punitive or mental distress damages with a disability benefits lawyer. In suitable cases, courts can award these damages.

[1] Godwin v Desjardins Financial Security Investments Inc., 2018 BCSC 99 (CanLII)

[2] Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 SCR 3,  2006 SCC 30 (CanLII)