A long-term disability (LTD) insurance case involving a woman wrongfully denied benefits even though she suffered from a serious brain bleed was recently awarded almost $3 million in damages, past benefits and court costs and could be a “game changer for disability litigation” says Barrie-area litigator Steve Rastin.
In Baker v. Blue Cross, a jury ordered Blue Cross Life Insurance Company of Canada to pay Sara Baker $1.5 million in punitive damages, $40,000 in aggravated damages for mental distress on top of $220,000 in retroactive benefits.
The judge in the case also ordered Blue Cross to pay her $1.08 million in legal costs. The award was based on a cost award for full indemnity costs which is rarely awarded in Canadian courts.
“This case was like a nuclear bomb going off in the world of LTD litigation,” says Rastin, senior counsel at Rastin Gluckstein Lawyers. “However, whether this decision is going to be a marker for an entirely new way of litigating these types of files is still up for debate."
“It will be interesting to see if this is going to change the rules of engagement or if it is going to be considered a one-off,” he tells LegalMattersCanada.ca. “We always tell our clients the playing field is unbalanced in the insurance industry’s favour. This decision does not level the field but it goes a long way toward making the fight a little fairer.”
Suffered a Stroke in 2013.
Court was told Baker was a director at a Toronto hospital when she suffered a stroke in 2013. She initially received LTD benefits under her employer’s group disability insurance policy. Those benefits were later terminated because Blue Cross determined the woman did not “meet the eligibility criteria for ‘total disability’ as defined by its policy,” according to the judgment.
Baker filed a lawsuit in 2017 and wanted to have the case heard by judge alone. However, lawyers for Blue Cross filed a jury notice on the basis that they believed it was essential to the defence strategy because the denial of benefits was based on surveillance reports and videotapes. The case was not decided until June 2022.
Rastin, who was not involved in the case but comments generally, says it is not uncommon for insurers to insist on a jury.
“It goes back to the perception that insurance companies have – especially in the realm of motor vehicle accident claims – that some plaintiffs take advantage of the system. Juries look unfavourably on that,” he says. “Clearly in this case, however, the plight of the claimant resonated with the jury.”
Rastin says jury trials in long-term disability cases are rare. In fact, with MacLennan v. National Life in the 1990s he successfully fought to establish the precedent that allows jury trials in LTD claims.
Insisting on a jury trial comes with challenges if the jury does not like how one side or the other conducts itself, Rastin says.
‘Just a Staggering Number.’
“In this case, court heard Blue Cross conducted 375 hours of surveillance on Mrs. Baker,” he says. “Think about that. It is just a staggering number.
“We do not get to hear the jury’s reasons for their decision, but it can be assumed they decided that Blue Cross’s rationale for denying payment was completely unjustified,” Rastin adds. “It could be argued they may have been outraged at the insurer’s conduct. Clearly, a hardball, take-no-prisoners litigation strategy can sour a jury.”
At the end of a trial, the winner is entitled to ask for a portion of their legal costs to be paid by the losing party. Typically, the winner receives partial or substantial indemnity costs. But in Baker v. Blue Cross, the plaintiff argued she was “entitled to full indemnity costs on the public policy basis that she should not have her disability insurance benefits, of which she was wrongfully deprived, eroded by costs.”
The judge agreed, stating, “insurers must bear the risk if they wrongfully deny coverage in long-term disability policies, forcing an insured, who is economically disadvantaged from challenging the insurer by reason of a wrongful denial of benefits, to pursue costly litigation that can take years to resolve.”
“Full indemnity costs are rare,” Rastin says. “Even though this is a discretionary remedy, the judge, in my opinion, is saying the rules for dealing with costs in LTD cases are going to be different.
“The court points out that economic hardship is likely to occur if the insured party cannot work and is deprived of the monthly income the insurance they purchased was intended to provide,” he adds. “This goes back to the concept of peace of mind contracts. People buy insurance and expect to rely on coverage when it is needed. When benefits are unjustifiably denied there ought to be consequences.”
Rastin says it is too soon to tell if Baker v. Blue Cross will lead to the insurance industry changing its approach, but it could lead to claimants rethinking early offers to settle.
Sends a Message to Plaintiffs.
“The message this case sends is that plaintiffs and their lawyers perhaps ought to seriously reconsider if they really want that quick payout,” he says.
LTD cases rarely get to trial since the majority are resolved before they even get to the discovery phase, Rastin says. That’s because some claimants have been without benefits or any other source of income and need to find a way to make ends meet, he explains.
“I have had more than one client tell me they are in difficult financial straits and even though they realize the offer is low, they take what is on the table because they need to do what is best for their family,” he says. “There is such an economic disequilibrium that there is a powerful incentive for people to settle. Even when their lawyers advise them that they can do better.
“These plaintiffs may be months behind in their mortgage when they are offered $50,000 to settle their case. They might jump at it because it seems like a life preserver thrown to them in the middle of a storm,” Rastin adds. “It isn’t until months or years later that they realize the benefit they gave up for that $50,000 may have been worth up to $600,000. The insurer could have been paying benefits for 20 years but instead, they basically got off for a song.”
It is understandable that people may be reluctant to wait years for their day in court, he says.
“It can be difficult to ask counsel and their client to walk away from a settlement and take their chances in court,” says Rastin. “What you need is courageous trial counsel and a resolute client willing to draw a line in the sand. This case is a reminder to carefully consider the merits of each case to ensure that they are being fairly settled.
“It is also a warning that there is a risk to insurance companies who take a hardline position with respect to litigation,” he adds. “Hopefully, it provides a clear lesson to both plaintiffs’ lawyers and the insurance industry. Is it an outlier or will it lead to real change? Time will tell.”
