Punitive damages awarded for insurer’s poor handling of LTD claim
In a recent case of Godwin v. Desjardins Financial Security Investments Inc. 2018 BCSC 99, the plaintiff had insurance uuder a group disability insurance policy (the “Policy”) . The plaintiff, Ms. Godwin, became totally disabled from her employment as a paralegal on June 24, 2011 due to psychiatric illness. She remained disabled up to the date of trial. In this lawsuit, she asked for compensation from the insurance company for mental distress. She also asked for punitive damages because of the way the insurance company handled her claim.
After a series of denials and appeals, Ms. Godwin’s claim for Own Occupation benefits (benefits for being disabled from her own occupation as a paralegal) was eventually allowed on November 23, 2012, 13 months after her earliest date of eligibility. Earlier, on January 31, 2012, her claim was initially rejected by Mrs. DaSilva, an employee of the defendant, on the basis that she was not “totally disabled” according to the Policy definition. This was despite Dr. Bell’s clear statement that it might be another six months before Ms. Godwin was ready to go back to gainful employment. Further there was no consultation report from a psychiatrist for a determination of coverage by Mrs. DaSilva.
In addition, Mrs. Da Silva’s statement that there was “no objective medical evidence” to support a finding of Total Disability was inaccurate. To the contrary, Dr. Bell’s report of January 5, 2012 had described Ms. Godwin’s GAD-7 (Generalized Anxiety Disorder) score as 17, “indicating severe anxiety”, and had disclosed that starting Ms. Godwin on Cipralex had controlled approximately 1/2 to 2/3 of her anxiety but she was continuing to have ongoing symptoms. Despite the fact that Dr. Barber’s letter clearly responded to all the concerns Mrs. Da Silva had expressed in her August 16, 2012 letter rejecting the appeal, Mrs. Da Silva still did not find it sufficient to justify recognition of Ms. Godwin’s disability benefits claim.
On July 30, 2013, following an independent medical examination conducted by a psychiatrist, Dr. Alexander Levin, the defendant advised Ms. Godwin that her claim for Any Occupation benefits (benefits for being disabled from any occupation) would be denied, and her benefits were terminated effective October 2013. The court found that the stated rationale for the denial was barely coherent; it appears to reflect not a studied review of the evidence, but instead a grab-bag of whatever considerations Mrs. Da Silva could identify to justify a denial of coverage.
Ms. Godwin appealed that decision, and the appeal was denied on November 22, 2013. Ms. Godwin commenced her legal action on August 20, 2014. Ms. Godwin retained legal counsel, Mr. Bentley Falkenberg, in April 2014. Mr. Falkenberg wrote to Mrs. Da Silva on April 17, setting out his concerns as to Desjardins’ lack of good faith in handling her claim. Mr. Falkenberg requested a copy of the audio tape recording of the interview of Ms. Godwin kept by Dr. Levin, a critical piece of evidence, in dealing with the opinions and the alleged statements said to be made to Dr. Levin. Desjardins took no steps to obtain a copy of Dr. Levin’s recording in response to Mr. Falkenberg’s request.
On Thursday March 23, 2017, just days before the scheduled commencement of trial, the defendant advised Ms. Godwin that it was electing to reinstate Ms. Godwin’s disability benefits, with interest on the outstanding arrears. The trial proceeded on the issues of the defendant’s liability for damages for mental distress caused Ms. Godwin by the denials of her claim and by the conduct of the litigation, and for punitive damages.
The court found that Mrs. Da Silva’s claims handling was substandard, and in breach of the insurer’s duty of good faith. However it did not depart from proper claims handling standards “to a marked degree” in all instances. There was a lack of good faith throughout, but not entirely to the extent that it should all be seen as having been arbitrary, callous, high-handed or malicious. Mrs. Da Silva did not act without the advice of Desjardins’ medical consultants. Before making a decision on the Any Occupation claim she retained Dr. Levin — in good faith — and did not accept Dr. Levin’s report without again having it reviewed by a consultant. There is no evidence of conscious disregard of procedures, nor of the claims having been denied through design. Many of the deficiencies in the claims handling appear possibly to have arisen as a result of a lack of training or a lack of supervision.
The Court, however, found that Mrs. Da Silva’s rejection of the Own Occupation claim in January 2012 was severely flawed. It imported improper considerations, and concluded without any foundation that motivational factors were dominating Ms. Godwin’s claim. In those respects, Mrs. Da Silva’s denial of the claim may properly be characterized as having been arbitrary.
The Court also found that Mr. Asselin’s utter failure to investigate the existence of the audio recording was simply shocking, representing a complete dereliction of duty. These two aspects of Desjardins’ claims handling were so exceptional as to require denunciation in the form of a punitive damages award.
The Court held that the Supreme Court of Canada stated in Whiten, the amount of the award must be proportionate to the harm caused, the degree of the misconduct, the relative vulnerability of the plaintiff and the advantage gained by the defendant. Ms. Godwin was obviously financially vulnerable, but she did have means of appealing the Own Occupation denial, with the assistance of her physicians. As to Mr. Asselin’s failure to secure a copy of the recording, it was also open to the plaintiff to obtain an order against Dr. Levin for production, once litigation had commenced, and so in that regard the plaintiff’s vulnerability was limited.
The Court awarded general damages to the plaintiff for mental distress of $30,000, and punitive damages of $30,000.
Hauer and Company assists clients with wrongful denial of disability benefits