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ONCA Upholds $1.5M Punitive Damages Award Against LTD Insurer

February 20, 2024

Baker v Blue Cross 2023 ONCA 842: The Ontario Court Appeal upholds $1,500,000 in punitive damages and full indemnity costs due to bad faith handling of LTD claim

In its decision in Baker v Blue Cross, the Ontario Court of Appeal upheld two awards that sent shockwaves through the insurance industry last year: a $1,500,000 punitive damages award, as well as full indemnity costs, against an insurer following its denial of long-term disability benefits to the respondent, Sarah Baker. In its decision, the Court unequivocally denounced what it described as “reckless” conduct from Blue Cross in handling Ms. Baker’s claim for long-term disability (LTD) insurance.

The respondent, Ms. Baker, commenced an action against Blue Cross following its denial of her LTD claim. She sought payment of the LTD benefits, as well as aggravated and punitive damages.

The matter proceeded by way of a jury trial which lasted 22 days. The jury returned a verdict entirely in favour of Ms. Baker. The jury found that Ms. Baker was totally disabled within the meaning of the Blue Cross policy and awarded retroactive benefits to the date of trial in the sum of $220,604; aggravated damages for mental distress in the sum of $40,000; and punitive damages in the sum of $1,500,000.[1]

In a subsequent decision[2], Vella J. awarded Ms. Baker full indemnity costs in the amount of $1,083,953.50. Vella J. found that Ms. Baker should not have her disability benefits, of which she was wrongfully deprived, eroded by unrecoverable legal expenses. In reaching this decision, Vella J. likened the matter to duty-to-defend claims.[3]

The only issues raised on appeal by Blue Cross were the punitive damages and costs awards. Additionally, the Canadian Life & Health Insurance Association Inc. was granted intervenor status with respect to the costs issue.

The Ontario Court of Appeal dismissed Blue Cross’s appeal, upholding both the punitive damages and costs awards (though the Court reached the same costs quantum for different reasons than those of Vella J.).

Justice C. W. Hourigan, writing for a unanimous panel of the Court of Appeal, commented that while appellate courts typically have a more limited basis upon which to interfere with jury verdicts, their role is different when it comes to the award of punitive damages.[4] The Court of Appeal reiterated that the relevant test for whether a jury’s punitive damages award is appropriate is the rationality test, as set out in Hill v Church of Scientology and Whiten v Pilot Insurance.[5]

The focus is on whether the award is the product of reason and rationality. The appellate court must consider whether there is an evidentiary basis that would rationally lead to a punitive damages award, and if so, whether the quantum awarded was rationally connected to the evidence and the purposes of punitive damages.

Blue Cross’s position on the appeal was that it acted in good faith despite its erroneous assessment of whether Ms. Baker met the definition of total disability. It also advanced the position that the Court of Appeal had a complete record before it on this issue. However, the Court disagreed, noting that there were significant gaps in the evidence. The Court of Appeal pointed to Blue Cross’s decision to only call one witness, with the effect being that the jury did not have any evidence with respect to why the representatives of Blue Cross acted as they did and whether they considered other courses of action.

Moreover, the Court of Appeal found that there was ample evidence on the record that did support an award of punitive damages: for instance, Blue Cross had ceased benefits on three separate occasions without first asking for additional documentation; it relied on opinions from its contracted general practitioners which it knew, or ought to have known, were incorrect; it ignored conflicting medical evidence; and it selectively relied on or distorted medical evidence in a way that supported a denial of benefits.[6]

The Court of Appeal did not mince words when it came to describing Blue Cross’s conduct in handling Ms. Baker’s claim, stating, “this is a pattern of misconduct that, at best, shows reckless indifference to its duty to consider the respondent’s claim in good faith and conduct a good faith investigation, and at worst, demonstrates a deliberate strategy to wrongfully deny her benefits, regardless of the evidence that demonstrated an entitlement.”[7] Moreover, the Court found that there was ample evidence before the jury to conclude that the problems within Blue Cross are systemic, which further justified the need for punitive damages.[8]

Furthermore, the Court of Appeal disagreed with Blue Cross that the quantum of the jury’s award was too high, indicating that punitive damages are designed to punish and denounce wrongful conduct and to act as a deterrent for future misconduct. Accordingly, the Court of Appeal took judicial notice of the fact that Blue Cross is a large insurance company and that, while $1.5 million might be devastating to a personal defendant or small business, “it is little more than a rounding error for Blue Cross.” Anything less than this amount, according to the Court of Appeal, would be unlikely to garner the attention of senior executives, let alone deter future misconduct.[9]

With respect to the trial judge’s decision to award full indemnity costs to Ms. Baker, the Court of Appeal agreed with Blue Cross and the Intervenor that the trial judge erred in effectively creating a new category of cases where full indemnity costs will automatically follow.[10] Nevertheless, the Court found that Blue Cross’s misconduct was worthy of sanction by the court in the form of a full indemnity costs award. The Court stated that not all of this misconduct was addressed by the award of punitive damages, and this was a rare case where the bad faith conduct warranted costs on such a scale.[11]


[1] 2023 ONCA 842 at para 6.

[2] Baker v Blue Cross, 2023 ONSC 1891.

[3] 2023 ONSC 1891 at para 18

[4] 2023 ONCA 842 at paras 16 and 17.

[5] 2023 ONCA 842 at para 18

[6] 2023 ONCA 842 at para 28.

[7] 2023 ONCA 842 at para 30.

[8] 2023 ONCA 842 at paras 35 & 36.

[9] 2023 ONCA 842 at paras 32 & 34.

[10] 2023 ONCA 842 at para 41.

[11] 2023 ONCA 842 at para 44.

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