In the recent decision of Fraser v. Fenchurch General Insurance Company, the plaintiff was awarded $150,000 in punitive damages and $10,000 in aggravated damages on the basis of bad faith. The plaintiff had sought long-term disability (“LTD”) benefits from the defendant insurer in 2017, was denied, and brought an action for damages. During the litigation, the defendant assessed further medical evidence and reversed its denial, retroactively allowing her claim. The plaintiff continued the action, seeking extra-contractual damages for bad faith.
LTD Claim
The plaintiff was 60 years old at the time of trial and had been working full-time as an industrial cleaner for 10 years. She stopped working in March of 2017 due to chronic pain associated with fibromyalgia, osteoarthritis and degenerative disc disease in her spine. She submitted a LTD application in July 2017, with her family doctor supporting the application. The insurer advised it needed further medical documentation and required an independent medical examination (“IE”), which was conducted in October 2017. Based on that IE, the insurer denied the claim. The plaintiff applied for Canada Pension Plan Disability (“CPPD”) benefits in June 2018 and was granted CPPD in January 2019.
During the initial assessment of the LTD application, the insurer reviewed the medical evidence and had an internal discussion about the need for an orthopaedic assessment. This was to identify restrictions and limitations, noting the claimant had the conditions for several years prior to the LTD application (there were no exclusions in the policy for pre-existing conditions). It was further noted that the claimant’s primary diagnosis was fibromyalgia, and that very few orthopaedic surgeons could address issues of chronic pain. An assessment with a physiatrist to opine on the chronic pain issues would have caused some delay in assessing the claim, however, the insurer proceeded with the orthopaedic assessment.
After receiving the orthopaedic assessment report, the insurer denied the claim. The assessment report noted:
…from a purely physical point of view, her presentation at this stage does fit with non-specific chronic pain of fibromyalgia. I am not able to make any comment with regard to her psychological condition… however, I would expect that at this stage she does suffer from some type of pain disorder associated with both psychological factors and general medical conditions, which do present with symptoms suggestive of fibromyalgia… from a physical point of view there are no neuro musculoskeletal structural or physiological abnormalities. However, if a person suffers from severe fibromyalgia or a chronic pain disorder, they may not be able to continue with their vocational activities. Should Mrs. Fraser be diagnosed with pain disorder associated with both psychological and medical condition, then she will be considered disabled. I would recommend a psychological assessment by a practitioner experienced in assessing individuals with chronic pain syndromes.[1]
In denying the claim, the insurer made internal notes that the plaintiff had the conditions for many years, and there was no triggering factor to discontinue work. The IE assessor’s recommendation for a psychological assessment by a practitioner experienced in assessing individuals with chronic pain was also noted. The internal recommendation was to decline the claim because there was no physical impairment to preclude the claimant working at her own occupation. That recommendation was accepted by Fenchurch’s COO and Director of Claims, who stated they “agree with [the] plan to decline – if appealed I would have the psych assessment ready to go”.[2]
LTD Denial and Further Medical Evidence
Following the denial, the plaintiff became depressed and didn’t want to leave her house. She experienced financial difficulties and had to relocate to a smaller home in a more affordable area. Her family doctor never sent her for a psychiatric evaluation, despite reviewing the IE report. However, an assessment was arranged by plaintiff’s counsel, and took place in March 2020. During the examination, the plaintiff disclosed significant childhood trauma. She was diagnosed with Persistent Depressive Disorder (“Dysthymia”), with Persistent Major Depressive Episode, moderate; Somatic Symptom Disorder, with Predominant Pain, Persistent, severe; Generalized Anxiety Disorder, moderate to severe; and Complex and Chronic Posttraumatic Stress Disorder, moderate. The assessing psychiatrist opined she was disabled.
The insurer obtained its own psychiatric assessment, which was consistent with the plaintiff assessment. Based on the further medical evidence, the insurer approved the plaintiff’s LTD claim, retroactively to the date of disability in 2017.
Analysis
Aggravated damages do not require an independent actionable wrong, rather they are meant to cover situations where the insured suffers distress arising out of the delay in receiving LTD benefits. They must be established by the evidence and shown to have been within the reasonable contemplation of the parties at the time the contract was made.[3]
Punitive damages against an insurer require a finding of bad faith in the insurer’s handling of the claim and are only awarded in exceptional cases.[4] An incorrect decision does not in itself equate with bad faith, and incorrectly denying a claim that is later judicially determined to be legitimate will not necessarily be in breach of the duty of good faith.[5]
At the time of the denial in 2017, Fenchurch did not have evidence of the plaintiff’s mental disorders. The analysis of whether Fenchurch was liable for extra contractual damages necessarily focused on what the defendant knew, and what steps they took in assessing and investigating the claim, in 2017. The plaintiff’s family physician supported her LTD application, however the physician’s statement was noted to be “quite spartan”.[6] In exploring the basis for the disability application, Fenchurch reviewed the medical evidence and could have asked the claimant, or her family physician, for further information. Instead, Fenchurch sought an IE, which given the circumstances, was reasonable.[7]
After receiving the orthopaedic assessment report, Fenchurch wrongly denied the plaintiff’s LTD claim. The “requirement of good faith requires that the insurer fairly investigate the claim and assess the claim in a balanced and reasoned manner”.[8] Further, not following the orthopaedic assessor’s recommendation to seek a psychological assessment was not reasonable.[9] Fenchurch was not required to follow the orthopaedic assessor’s recommendation, but it must have a reasonable basis to depart from it, which was not provided.[10] At the time Fenchurch denied the plaintiff’s LTD claim, it did not have any medical evidence she was able to return to her job, and further, it did not have enough information at that stage to make a determination, and therefore it was “wrong” to deny the claim.[11]
Fenchurch was investigating whether the plaintiff met their definition of disabled, but they stopped their investigation after receiving half an answer from their IE assessment, declining to obtain the other half and making their decision in an “information vacuum”.[12] The denial 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 avoid paying the claim”.
Damages
Aggravated damages were assessed at $10,000 for mental distress and the anxiety caused by the over three-year delay in receiving LTD benefits. In awarding that amount, the court recognized that the financial difficulties the plaintiff endured following the denial were precipitated in part by poor financial management generally in years prior, and that the depression she experienced was difficult to pinpoint to a specific source.[13]
Punitive damages were assessed at $150,000 because the denial of the LTD claim was found to be an act of bad faith:
- there was no “rational or logical explanation” presented by defendant for the decision not to follow its own IE assessor’s recommendation to obtain a psychological assessment;
- the decision was contrary to its own procedural manual which stated more medical evidence should be obtained where there are informational gaps;
- the defendant’s attitude that since the basis for the LTD application was physical conditions, Fenchurch had no responsibility to investigate the psychological concerns, despite the recommendation of its own assessor, which is “the opposite of a fair and balanced assessment of the claim”;
- there was no logical way to interpret the initial IE assessment as supporting the plaintiff’s return to work;
- the insurer has a duty to fairly assess the claim, because the request for LTD benefits “should not be seen as a game between an employee and a wily insurer to see who can out-maneuver who”; and
- Fenchurch’s approach overall was consistent with its procedural manual which casts suspicion on subjective claims such as fibromyalgia, and the Director of Claims had a “preconceived view that those diagnosed with fibromyalgia are malingerers”.[14]
Punitive damages were assessed with consideration of the fact that until the denial, the defendant acted reasonably, and following receipt of new medical evidence, they acted “quickly and appropriately”.[15]
Costs
The plaintiff as the successful party was entitled to costs, quantum to be determined by submissions (as necessary).
[1] At para 22
[2] At para 26
[3] At para 72
[4] At para 73
[5] Ibid
[6] At para 81
[7] At paras 81, 85
[8] At para 86
[9] At para 87
[10] At para 91
[11] At para 95
[12] At para 97
[13] At para 104
[14] At para 99
[15] At para 107
