Fernandes v. Penncorp Life Insurance Company, 2014 ONCA 615
In the recent Court of Appeal decision Fernandes v. Penncorp Life Insurance Company, the Court of Appeal upheld a punitive damages award of $200,000 but reduced a damages award of $100,000 for mental distress to $25,000 in a claim involving disability benefits.
The insured was born on a farm in Portugal. He became a bricklayer after completing the equivalent of Grade 8 in school. He came to Canada and operated a bricklaying business. He worked hard and loved his work. In 2004, the insured injured his back after two falls. He was unable to work and his business ceased operating. He was not entitled to employment insurance or worker’s compensation benefits. He did, however, have disability insurance with Penncorp. The policy entitled him to benefits if he was disabled from working in his own profession for two years and thereafter if he was disabled from working in any profession that he was reasonably fitted by education, training or experience.
The insured applied for disability benefits from Penncorp after his falls. A claims advisor for Penncorp made the decisions regarding the payment or non-payment of the insured’s claim. Penncorp paid the insured benefits until July 21, 2005. During that time medical reports from the insured’s family doctor were provided to Penncorp and an interview with the insured was conducted. A report of the insured’s family doctor dated July 21, 2005 stated that the insured would not be able to work at bricklaying again. An independent medical exam requested by Penncorp and prepared by an orthopaedic surgeon also stated that in the absence of radiological investigations the insured should not return to his former employment.
In August 2005 Penncorp retained a private investigation company to conduct surveillance on the insured. The surveillance was conducted over three days. On one of the days the insured was observed to be shoveling what looked like powder mixture into a pail and wheeling it into the back yard of his house using a wheelbarrow. After viewing the surveillance and despite the medical reports that were provided, Penncorp’s claims adjuster decided not to pay any further disability benefits to the insured. This decision was made in August 2005 but the insured was not advised of same until January 2006. It should be noted that during this time the insured unsuccessfully attempted to return to work a few times.
Additional surveillance was conducted in the fall of 2005 and the insured was not observed to be doing any work.
In December 2005 Penncorp’s claims adjuster discussed the surveillance from August 2005 with the insured and told him that it showed him to be physically working. She discussed providing the insured with partial disability benefits to a maximum of four months.
In February and June 2006 Penncorp received additional surveillance showing the insured engaged in various employment-related activities such as shoveling, unloading large boxes onto a wheelbarrow, sweeping and pushing a wheelbarrow.
In July 2007 the insured commenced an action for damages as against Penncorp. He claimed mental distress damages of $100,000 and punitive damages of $500,000 in addition to the disability benefits owed to him. After the action was commenced, various medical reports were received by Penncorp and at trial Penncorp’s claims adjuster admitted that by the end of 2010 Penncorp knew that the insured could not go back to work as a bricklayer. Despite this, Penncorp did not pay the insured for the remainder of the two year period following his disability until September 2011. At trial the issue of whether the insured was disabled from engaging in any occupation past the two year mark was considered.
At trial the insured was found to be credible. The trial judge found that the surveillance evidence only showed light work for short periods of time and the surveillance omitted periods of recuperation and “bad days”. After a review of the evidence the trial judge found that the insured suffered a total disability and was unable to participate in any occupation which he was reasonably suited by education, training or experience. The insured was entitled to damages for the benefits owed and premiums paid.
The insured sought $500,000 for punitive damages at trial. The trial judge noted that the surveillance did not remotely establish that the insured was able to do the heavy continuous labour he had done as a bricklayer and Penncorp never received a contrary report to those provided by the insured’s family doctor which indicated that he was unable to work as a bricklayer again. Penncorp even ignored their own expert’s opinion that it was impossible to say whether the insured could return to work full time as a bricklayer. The trial judge also found that the claims adjuster for Penncorp tried to settle the claim on the basis of partial disability when there was never any doubt based on the information that the insured was totally disabled. The trial judge concluded that Penncorp’s handling of the claim demonstrated bad faith. The claims adjuster took an adversarial approach and did not deal with the claim fairly and in a balanced way.
The Court of Appeal reviewed the law with respect to punitive damages. They stated that “it must be emphasized that disputing or refusing a meritorious claim does not, in itself, constitute breach of a duty to act in good faith”. However, the Court of Appeal stated that there was no doubt as to the insured’s full disability and there was no medical evidence to the contrary. They upheld the trial judge’s findings with respect to bad faith and his award of $200,000 in punitive damages.
At trial the insured sought $25,000 for mental distress damages. The trial judge awarded $100,000 with no reasons for the quantum. The Court of Appeal stated that “mental distress damages are to be compensatory, not punitive”. An award four times that requested by the insured can only be described as punitive. The award was inordinately high and entirely disproportionate where the evidence was that circumstances apart from Penncorp’s conduct contributed to the insured’s psychological distress. The award of $100,000 was reduced to $25,000.
This appeal dealt primarily with the quantum of damages awarded by the trial judge for punitive and mental distress damages and whether an error was made. The trial judge’s findings with respect to bad faith were upheld. One of many take away messages from the trial decision in this matter is that claims adjusters should not rely too heavily on surveillance when making a decision to terminate benefits.
Consideration should be given to the entirety of evidence presented in support of the claim and particularly medical evidence.