Punitive Damages awarded against Insurance Companies

The courts have a message for the insurance industry in Canada – honour your policy commitments in good faith and do not try to take advantage of an insured’s economic vulnerability to gain an advantage in settlement negotiations. Otherwise, your company may be hit with a significant punitive damage award!

In a recent decision from the Queen’s Bench for Saskatchewan, a total of $4.5 million in punitive damages was awarded against AIG and Zurich.  To read the March 2013 court decision in its entirety, click Branco v. American Home Assurance Company.

Background Facts

Mr. Branco, who was 62 years old at the time of the trial, was injured at work in December of 1999 when he dropped a steel plate on his foot while working as a welder overseas for a subsidiary of a Saskatchewan company.  Despite surgery, physiotherapy and rehabilitation efforts, Mr. Branco was diagnosed as permanently disabled by his physician and was unable to return to his job.  Eventually, Mr. Branco was also diagnosed with  Reflex Sympathetic Dystrophy (RSD).  As a result of non-payment under his insurance policies, Mr. Branco and his family were without funds for many years causing severe mental distress.

What did AIG and Zurich do?

The AIG policy provided monthly benefits for work-related injuries.  The court found that although AIG initially paid benefits to Mr. Branco , these benefits  were terminated in 2001 when AIG was unable to get an update from a doctor – a doctor they had arranged for Mr. Branco to see!  Over the course of the next few years, Mr. Branco’s benefits were started and stopped a few times without explanation.  Medical specialists arranged by AIG confirmed Mr. Branco’s disability.  In 2004, when Mr. Branco refused to attend an inappropriate vocational retraining program chosen by AIG, they terminated his benefits.

The Zurich policy was a long term disability policy – which had an own occupation test for the first 24 months and thereafter, an any occupation test.  Although Zurich approved the claim in March 2004 and agreed that Mr. Branco was entitled to full benefits for the first 24 months, it refused to pay because Mr. Branco refused to accept a $9,000 deduction for legal fees.  The court found this was an unenforceable and unjustified demand for a deduction. In the end, Zurich did not pay any benefits until May 2009 – nine years after the first payment was due, despite medical reports received in 2007 confirming in general terms Mr. Branco’s disabilities.

What are Punitive Damages?

As set out by the trial judge in the Branco decision, punitive damages are awarded against a defendant in cases of “malicious, oppressive and high-handed” misconduct that “offends the court’s sense of decency”.   This type of damage is designed to punish the defendant rather than compensate the plaintiff.   In general, punitive damage awards are rare in Canada.

How much?

Punitive damages of $1.5 million were awarded against AIG and $3 million against Zurich.

In reaching its decision regarding punitive damages, the court considered 7 possible factors influencing the level of blameworthiness, namely:

• Whether the misconduct was planned and deliberate

• The intent and motive of the defendant

• Whether the defendant persisted in the outrageous conduct over a lengthy period of time

• Whether the defendant concealed or attempted to cover up its misconduct

• The defendant’s awareness of what he or she was doing was wrong

• Whether the defendant profited from its misconduct

• Whether the interest violated by the misconduct was known to be deeply personal to the plaintiff or a thing that was irreplaceable

The court noted that “(T)he cruel and malicious acts of AIG and Zurich combined with the previously ignored award of punitive damages against AIG is evidence of how calculated and abhorrent the actions of AIG were in dealing with Branco.  The actions of AIG and Zurich establish a pattern of abuse of an individual suffering financial and emotional vulnerability.”

In the end, the court stated that it hoped that this award would catch the attention of the insurance industry – as it was apparent that the previous award of $1 million in the Whiten case had not.  Whether or not it does remains to be seen.

Have you been denied disability benefits?

Is your insurance company refusing to pay your disability claim?  Our team of experienced personal injury lawyers will ensure you are accessing all the benefits you are entitled to receive and ensure that all steps are being taken to advance and protect your rights.  Contact us toll free at 800-563-6348 or fill out our online form for a free initial consultation with an Ontario Injury Lawyer.