Blue Cross Ordered to Pay Record $1.5 Million Damages in Ontario Disability Claim Case

The Court of Appeal for Ontario recently upheld the decision made in a disability claims case against Blue Cross Life Insurance company by the Superior Court of Justice— the largest punitive damages awarded against an insurer in the country.

In 2022, a jury awarded the damages to Sara Baker following a twenty-two-day long trial, amounting to punitive damages of $1,500,000, retroactive benefits to the date of the trial in the amount of $220,604.00, as well as aggravated damages for mental distress of $40,000. The trial judge awarded full indemnity costs of $1,083,953.50, arguing that Ms. Baker’s disability insurance benefits should not be eroded by legal expenses.

Blue Cross’ recent appeal was not against the “total disability” declaration found during the original trial, nor the awarded damages, but specifically against the punitive damages award, and the original conclusion that the insurer did not handle Ms. Baker’s claim in a balanced and reasonable way. However, the court found that there were “serious concerns” in the way in which Ms. Baker’s file had been processed by the insurer, saying: “At best, it shows 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 her benefits.”

Case Background

The respondent, Ms. Baker, suffered a stroke while exercising in October 2013. She was 38 years old at the time of the incident, working full time as a director in food and support services at a health care facility, through which she had a disability insurance policy. At first, she claimed short-term disability benefits, but those were cut off by Blue Cross in 2014. Ms. Baker appealed the decision through the insurer’s internal appeals process, and they were reinstated. She later sought long-term disability benefits, which required her to satisfy the insurer’s notion of “total disability.” She was successful in this application, for which she was paid two years of “own occupation” benefits. The insurer halted those once more, which went through a pattern of internal appeal and reinstatement two more times before a final denial prompted Ms. Baker to seek legal action in 2017.

Ms. Baker filed a lawsuit, requesting the case be heard by a judge alone, but Blue Cross’ legal team filed a jury notice, arguing that the presence of a jury was integral to their defence. After five weeks, the jury delivered a verdict in Ms. Baker’s favour, with the trial judge noting: “insurers must bear the risk if they wrongfully deny coverage in long-term disability policies, forcing an insured, who is economically disadvantaged from challenging the insurer by reason of a wrongful denial of benefits, to pursue costly litigation that can take years to resolve.”

Decision Analysis

Blue Cross’ appeal was built around wanting to reframe how the fairness of their work on Ms. Baker’s case had been qualified, and to push back against the punitive damages awarded in the original case. However, The Court of Appeals found this case lacking. Rather than finding a sympathetic ear, this new appeal exposed the insurance company’s methods to further scrutiny, as the judgement really became about how unfairly Ms. Baker had been treated.

As the court demonstrated in upholding the original decision, Blue Cross’ pattern of stopping payment to Ms. Baker before asking her for supporting documentation, rather than prompting her for additional documentation with a warning of potential benefit cut-off, was always to the detriment of their client, and the insurer’s benefit. Furthermore, the judge observed that the way Blue Cross favoured flawed opinions of general practitioners, selectively relied on evidence that weighed in favour of denying Ms. Baker her benefits, while distorting evidence that supported Ms. Baker’s claim and disability, fell into a pattern of misconduct. The court argued:

“These examples or any combination offer a sufficient basis to award punitive damages. Jurors could have concluded that Blue Cross was not just cavalier in treating the respondent’s claim but that it undertook a deliberate strategy to wrongfully deny her the benefits she was entitled to under the policy. The fact that Blue Cross failed to call the critical witnesses to provide the context about their handling of the file could further serve to support a finding that the conduct was deliberate.”

Not only did the court rule that the insurer’s actions were deliberate, they suggested a wider, systemic issue within the company that could have profound effects on a great number of their claimants.

“The many Blue Cross employees who touched this file took the same approach, which ignored the respondent’s rights under the policy. This evidence suggests that there may be many other claimants that may have been treated in the same manner by Blue Cross. The difference is that, unlike Ms. Baker, most claimants do not have the stamina to engage in long-term litigation.”

It could be argued that even Blue Cross’ choice to appeal the original ruling falls into the same pattern of miring a Long-Term Disability claimant like Ms. Baker’s much-needed funds in litigation and drawn-out appeals (which lasted a period of seven years) rather than doing what was in her best interest. When asked for comment by The Toronto Sun, Ms. Baker just said: “I’m just grateful this is behind me now and that the court recognized it wasn’t right for me to be treated this way.”

Weighing the gravity of the potential exploitation at hand, both the original jury and presiding appeals judge saw this case as an opportunity to serve notice to the insurance industry about how they treat their clients. The upheld award of $1.5 million in punitive damages— the largest ever against an insurer in the country— underscores the gravity of Blue Cross’ conduct in mishandling Ms. Baker’s claim. The court’s emphasis on the detrimental impact on claimants and the recognition of a broader pattern of misconduct serve as a pointed reminder to the insurance industry that fair and balanced treatment of clients is paramount. Hopefully this ruling prompts some industry-wide reflection on current practices and the need for accountability in ensuring that claimants are treated justly and with the respect they deserve.