When things go wrong with your long term disability insurance company…
It all seems proper and appropriate when you receive your initial claim forms and speak with the (often pleasant) representative at the insurance company about obtaining benefits from the disability insurance policy that you have paid into for all those years. At that point you are thinking, “Lawyer, why do I need a lawyer?”
But then you end up with a long protracted absence and it becomes apparent that you will not be able to return to work for a long time, if ever. I sometimes hear from my clients that the insurance company’s conduct changes a lot at that point.
The Luciano Branco case seems to be one such case and the Court of Appeal released its decision in the case on June 19, 2015. In that case, the trial Judge ordered a combined $3,000,000 in “punitive damages” against AIG Insurance and Zurich Insurance to punish it for its conduct in relation to its denial of Mr. Branco’s claims as well as awards for mental distress on top of that.
In June 2015, the Court of Appeal noted that the trial judge had little difficulty concluding Zurich had failed to deal with Mr. Branco’s claim in good faith and that it had improperly tried to take advantage of his economic vulnerability to gain leverage in negotiating a settlement. In the course of his discussion of this issue, the trial judge seems to have based his conclusion on the following main considerations (taken from the Court of Appeal decision):
(a) Zurich failed to pay Mr. Branco benefits even after his claim was accepted and, instead, made a low ball offer to settle (para. 202 of trial decision). (There is some uncertainty about whether Zurich first authorized the payment of benefits in 2002 or 2003 and about whether the trial judge erred in refusing to allow Zurich to call evidence to clarify that issue. Logically, it appears the date would have to be 2003. However, I have chosen not to resolve this point because it ultimately does not materially affect the result of the appeal. I will proceed on the same basis as the trial judge, i.e. that Zurich accepted Mr. Branco’s claim in 2002.)
(b) Zurich’s denial of benefits continued for more than ten years (para. 203 of trial decision).
(c) Zurich failed to settle with Mr. Branco even when it received a report from an independent assessor indicating that his claim should be settled (para. 204 of trial decision).
(d) Zurich failed to disclose to Mr. Branco information from specialists in Calgary indicating that he was not capable of being re-trained (para. 204 of trial decision).
(e) Zurich misconducted itself during the course of the litigation (paras. 76, 202 and 207 of trial decision).
Our country’s higher courts often reduce punitive damage awards and they reduced this award as well (to about $175,000 against AIG and $500,000 against Zurich).
To give you an idea of how bad things can get in these kinds of cases, the Court found that the insurer ignored or resisted paying Mr. Branco’s claims for 10 years. Those who knew him noted that he was starving, unable to buy his own clothes and was wearing clothes that had been given to him by others at trial. The trial judge had this to say about the insurer conduct:
The 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 from financial and emotional vulnerability.2
This court cannot imagine more protracted and reprehensible behaviour than that of Zurich in blatantly refusing to pay what had been owed in monthly payments for almost eight years (10 years from the date of the accident),” the judge on the case said in his ruling. “This failure to pay and continual court applications instigated by Zurich with no reasonable justification were nothing short of torturous on Branco.”
The judge had similarly harsh words for AIG, describing its actions as “calculated and abhorrent”.
On June 19, 2015, the Court of appeal described the conduct of AIG and Zurich in this way:
Based on the principles discussed above, and considering the whole of the factual picture bearing on this point, I conclude that the appropriate punitive damages award against AIG is $175,000. This amount recognizes that AIG acted improperly in suspending Mr. Branco’s benefits knowing that he was incapable of working at his original job, that it attempted to push him into accept an unfairly low settlement of his claim, and that it had acted in a broadly similar manner in another Saskatchewan claim. AIG knew or ought to have known that its actions were a significant breach of its duty of good faith. As a result, its conduct warrants a punitive damages award of some significance.
Zurich’s administration of “own occupation” benefits was a dramatic transgression of the bounds of good faith and it should and must attract punitive damages. By way of review, the key features of Zurich’s actions in this regard were as follows:
(a) Zurich approved Mr. Branco’s claim for “own occupation” benefits in March of 2002.
(b) Zurich did not pay out Mr. Branco’s claim and did not tell him that his claim had been approved. Rather, it made an unconscionable effort to settle his claim for $62,688 in exchange for a release from all future liability of any kind under the policy.
(c) The amount of the settlement offer made to Mr. Branco was calculated by deducting Zurich’s legal costs from the amount of benefits owing to Mr. Branco. Zurich had a practice of deducting legal fees in this way, notwithstanding that there were no provisions in its policies of insurance to permit such deductions.
(d) Zurich’s legal department withheld medical reports from its own claims department for years.
(e) After having accepted Mr. Branco’s claim, Zurich filed a statement of defence denying that he was disabled and disputing that he even had a claim against it.
(f) Zurich did not advise Mr. Branco that his claim for “own occupation” benefits had been approved until 2007, and only then during answers given at an examination for discovery.
(g) Zurich did not pay Mr. Branco’s “own occupation” benefits until 2009, when it finally acknowledged its liability to him.