If you are unable to work due to a long-term injury or illness and you are covered by a long-term disability insurance policy, you may be able to claim long-term disability benefits. You might be covered by a group benefits plan organized by your employer.
We have previously written about what you can do if you have been denied benefits by the insurance company. Suppose you have a valid benefits claim and it has been denied. In that case, you may have a claim against the insurance company for compensation, reflecting the amount that should have been paid out in long-term disability benefits.
But if your claim has been denied (or initially denied and then later approved), can you seek additional damages from the insurance company arguing that the denial was in bad faith? That’s exactly what the plaintiff did in the recent Ontario Superior Court of Justice case of Fraser v Fenchurch General Insurance Company, which is the topic of this article.
Plaintiff applied for long-term disability benefits and was referred for medical examination
In March 2017, the 56-year-old plaintiff stopped working as an industrial cleaner. She was suffering from a range of medical conditions, including severe pain from osteoarthritis, exhaustion from sleep deprivation, depression and fibromyalgia. She had also previously had a heart attack and knee surgery.
In July, the plaintiff submitted an application for long-term disability benefits based on physical limitations to the insurance company. The insurer asked the plaintiff to undertake an independent medical examination.
Insurer denied long-term disability benefits
The doctor opined that from a physical point of view, the plaintiff had non-specific chronic pain or fibromyalgia and was likely to suffer from a pain disorder associated with psychological factors. However, as this was outside their expertise, the doctor recommended a psychological assessment. The doctor concluded that the plaintiff had no physical impairment but would be considered disabled if diagnosed with a pain disorder associated with psychological and medical conditions.
The insurance company denied the plaintiff’s claim for long-term disability benefits, citing the lack of physical impairment. It did not order a psychological assessment, but notes showed that had the plaintiff appealed the decision internally with the insurance company, it would have sought such an assessment.
Plaintiff commenced litigation, insurance company started paying benefits
The plaintiff sued the insurance company. Her lawyer referred her for psychiatric evaluation and the doctor diagnosed her with chronic depression and post-traumatic stress disorder arising from childhood trauma. These conditions had led to a chronic pain disorder, which prevented her from doing physically challenging work.
The insurance company also referred the plaintiff for psychiatric assessment and this doctor agreed that the plaintiff could not return to work. On this basis, the insurer allowed the long-term disability benefits claim retroactively.
Plaintiff sought aggravating and punitive damages for bad faith conduct
The plaintiff proceeded with her court case, arguing that the insurance company breached the duty to act in good faith for reasons including that it required independent medical examination and ignored the recommendation to obtain a psychological assessment.
The plaintiff pointed to the requirement to act in good faith, set out by the Supreme Court of Canada in the case of Bhasin v Hrynew:
“This Court has also affirmed the duty of good faith which requires an insurer to deal with its insured’s claim fairly, both with respect to the manner in which it investigates and assesses the claim and to the decision whether or not to pay it.”
Denial of the plaintiff’s claim was an act of bad faith
Justice Leibovich decided that it was reasonable for the insurance company to seek an independent medical examination. However, his Honour agreed with the plaintiff that the insurer wrongly denied the claim after receiving the doctor’s report.
While there is no legal requirement to follow the doctor’s recommendation, the insurance company had no reasonable basis for not following it. His Honour found that the insurer was wrong to deny the claim based on the evidence of the plaintiff’s family doctor, which supported the claim, and the independent doctor, which recommended a psychological assessment and did not say that the plaintiff was able to work.
Rather than being a simple mistake, Justice Leibovich decided that the decision to deny:
“was high-handed, a marked departure from the conduct one would expect in the situation and designed to take advantage of [the plaintiff’s] vulnerable state and to avoid paying the claim.”
His Honour also criticized the insurer’s plan only to refer the plaintiff for psychiatric assessment if she appealed the decision, explaining that it was not “a game between an employee and a wily insurer to see who can out-manoeuvre who”.
Court awarded $160,000 in aggravating and punitive damages
Justice Leibovich awarded the plaintiff $10,000 in aggravating damages for the mental distress and anxiety caused by the insurer’s delay in paying out the benefits claim.
His Honour also hit the insurance company with an order to pay the plaintiff $150,000 in punitive damages. This was designed to denounce and deter the insurer’s conduct, specifically, its decision to deny the plaintiff’s long-term disability benefits claim in the absence of evidence she could return to work and by ignoring the doctor’s recommendation to obtain a further assessment.
Contact the Personal Injury Lawyers at Tierney Stauffer LLP for Advice on Disability Benefits Claims
At Tierney Stauffer LLP, we help those that have been improperly denied disability benefits to obtain the compensation they are entitled to receive. As this case demonstrates, courts are prepared to punish insurance companies that breach the duty to act in good faith and improperly deny claims. Remedies are available to help you recover from your illness or injury.