Blue Cross’ decision to deny Sara Baker long term disability benefits may cost the insurer $3,000,000.
The Trial Decision
In June of 2022, a Toronto jury ordered Blue Cross Life Insurance Company of Canada to pay Sara Baker $1,500,000 in punitive damages, in addition to more than $220,000 for past long term disability benefits owing to her, reinstatement of disability benefits, plus $40,000 in aggravated damages for mental distress.
After the jury verdict, both sides made legal submissions regarding how much Blue Cross should be required to contribute towards the plaintiff’s legal expenses.
Typically, a successful party is awarded a percentage of the actual costs incurred, often 50-60% on a “partial indemnity” basis. In some circumstances, a judge can award a higher percentage, on “substantial indemnity” basis. But here the trial judge noted that long term disability policies of insurance are a special type of contract, and that breach by an insurer should result in an award of “full indemnity” costs.
The judge also considered various legal principles including indemnity, fairness, proportionality, and the reasonable expectations of the unsuccessful party.
Ultimately Blue Cross was ordered to pay $850,000 for the plaintiff’s legal fees, plus HST, plus the disbursements incurred by her lawyers. This brings the total judgment close to $3,000,000, plus the costs of defending the claim.
The trial judge’s reasons include the following:
 Accordingly, I am persuaded that the rationale derived from the duty to defend cases justifying full indemnity costs should extend equally to long-term disability insurance cases, including this one. In these cases, the insured must pursue litigation against her insurer to obtain the contractual monthly benefits she purchased by way of a long-term disability insurance policy to provide for basic living requirements. It would not be fair or reasonable to erode her fixed monthly income replacement benefit by payment of unrecoverable legal fees in these circumstances.
 I am therefore exercising my discretion under s. 131 of the Courts of Justice Act to award full indemnity costs. I find that the wrongful denial of long-term disability benefits by an insurer, given the unique character of long-term disability insurance policies, constitutes special circumstances justifying this elevated award.
From a long term disability lawyer’s perspective, this is an important decision not only because of the amount awarded, but the legal principles the judge relied on to award such a large amount.
The decision has been appealed; however, so it remains to be seen whether the Ontario Court of Appeal will reduce the costs or other amounts awarded.
Key Take Away Points
Long term disability insurers should be warry of taking hard line positions that result in trial decisions. This case demonstrates the damages and costs exposure can far exceed the value of the underlying benefits in dispute.
Individuals who have been denied long term disability benefits can take some comfort knowing that judges (and in this case the jury) are willing to order long term disability insurers to pay of substantial sums when LTD claims are improperly denied.
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