Canada: Toronto Litigators Successful In Overturning High Punitive Damages Award

The Saskatchewan Court of Appeal recently set aside the largest punitive damages awards ever made against insurers in Canada in Zurich Life Insurance Co. v. Branco. The Court of Appeal decision resulted in a 90% reduction of the $1.5 million award against American Home Assurance Company (AIG).

In Branco, the Court of Appeal conducted a detailed assessment of the facts and reiterated the importance of trial judges considering and analysing the specific terms of an insurance policy and the respective obligations of both the insurer and insured. Trial decisions like Branco that fail to do so and analyze and refer to the underlying policy terms in "only the most general of terms" are vulnerable to being overturned on appellate review. The Court of Appeal also reinforced the applicable legal standard and principles for awarding punitive damages.

Background of the Action

The factual context and history of the claim's handling is long and complex. The following is a brief synopsis. In 2000, Mr. Branco injured his foot while working as a welder at a mine in Kyrgyzstan. He sought coverage from AIG under a group insurance policy that provided workers' compensation-type benefits to injured mine employees mirroring the Saskatchewan workers' compensation regime. AIG did not dispute that Mr. Branco had sustained work related injuries, and paid him some but not all of the benefits he claimed under the policy. However, one of the central issues in dispute was the extent of Mr. Branco's injuries and his ability to be trained for and perform other job functions. AIG ultimately terminated Mr. Branco's benefits in 2004 based on his and his lawyer's failure to cooperate with AIG's 20-month effort to enroll him in vocational rehabilitation, involving 22 written requests for cooperation and 12 warnings by AIG or its counsel. Mr. Branco commenced an action against AIG seeking to recover additional and ongoing benefits he alleged were owed to him and claiming an entitlement to punitive damages.

The Decision of the Trial Judge

The Trial Judge ruled in favour of Mr. Branco and found that AIG was liable to pay him additional past and future benefits under the AIG policy. In the decision, the Trial Judge broadly and briefly referenced the AIG policy as providing workers' compensation type benefits. In his Reasons for Decision, the Trial Judge did not critically examine and analyze the terms of the policy or the legal principles governing workers' compensation insurance coverage. The Trial Judge concluded that AIG breached the policy and acted in bad faith, without making any specific findings of breaches of the workers' compensation policy or specific findings of bad faith conduct. Flowing from the purported finding of bad faith on the part of AIG, the Trial Judge awarded $1.5 million in punitive damages and $150,000 in "exemplary" or mental distress damages against AIG.

The Court of Appeal Decision

AIG appealed the Trial Judge's decision and on appeal argued that the Trial Judge omitted two fundamental analytical steps in concluding that AIG breached its policy and its independent duty of good faith. First, AIG argued that the Trial Judge failed to analyze and interpret the terms of the AIG policy in any meaningful way to determine both parties' obligations pursuant to it. Second, as a consequence of the first error, the Trial Judge failed to properly analyze whether Mr. Branco's refusal to comply with his obligations under the policy - and in particular, to attempt vocational rehabilitation - entitled AIG to suspend his benefits.

Chief Justice Richards, writing for the Saskatchewan Court of Appeal, agreed with AIG's position, stating that "[t]here is a great deal of merit in AIG's submission" regarding the Trial Judge's failure to analyze the terms of the AIG policy and the parties' obligations pursuant to it. His Honour, speaking for the Court, stated:

[77]  The central problem with the trial judge's analysis of AIG's obligations under its policy is that he failed to examine the particulars of the policy itself. Rather, he referred to the policy in only the most general of terms, describing it as being "based upon WCB benefits" and as providing "disability" benefits. Overall, he appears to have proceeded on the basis that, if Mr. Branco was disabled to some extent, he was entitled to benefits. The reality of the AIG policy is considerably more complex than that as it involves obligations imposed on both the insurer and the insured.

The Saskatchewan Court of Appeal carefully examined the policy terms and Mr. Branco's obligations under them. The Court of Appeal agreed with AIG that over the critical 2003-2004 time period, Mr. Branco had failed to comply with AIG's legitimate requests for vocational rehabilitation, and that AIG's subsequent suspension of benefits was authorized and therefore could not be considered an act of bad faith. The Court of Appeal characterized the parties' conduct over this period as follows:

[83] ...as of February of 2003, no medical opinion suggested that Mr. Branco was unable to perform any occupation or that he was not a candidate for re-training. ... Mr. Branco also testified at trial that, in 2003, he believed he could work at any occupation that did not require him to stand or walk for a long time.

[84]  It was against this background that, in April of 2003, AIG proposed a program of vocational rehabilitation-something it was entitled to do pursuant to s. 51.1(b) of the [Workers Compensation] Act. For almost two years, AIG sought Mr. Branco's cooperation in locating a suitable rehabilitation program. Initially, it made arrangements for Mr. Branco to attend the state-funded facility in Lisbon. As noted above, Mr. Branco's lawyer then advised AIG that there were "better and more suitable facilities" closer to Mr. Branco's home. AIG requested that Mr. Branco provide information regarding these more suitable facilities. Notwithstanding repeated requests throughout 2003 and 2004, Mr. Branco's lawyer did not identify any such facility.

[85]  AIG's decision to suspend Mr. Branco's benefits in December of 2004 was the conclusion of a 20-month effort to engage him in a program of vocational rehabilitation. By that point, there had been 22 requests from AIG seeking Mr. Branco's cooperation and 12 warnings, no doubt with s. 104(4)(b)(ii) of the Act in mind, that his benefits might be suspended if he did not cooperate. Mr. Branco confirmed at trial that he had been aware of AIG's standing offer to reinstate benefits if he enrolled in a rehabilitation program.

The Court of Appeal expressly held and stated that the Trial Judge's assessment of AIG's liability with respect to this time period and the vocational assessment was "fundamentally flawed", stating as follows:

[82] In my view, the trial judge's assessment of AIG's liability under its policy was fundamentally flawed because, as noted above, he did not consider the specific terms of the policy when coming to his conclusions and failed to relate the terms of the policy to the facts. When the analysis on this front is conducted properly, it becomes apparent that AIG was entitled to suspend benefits as it did in 2004.

...

[86] Thus, on a plain reading of the Act, AIG was entitled to suspend Mr. Branco's benefits as of December of 2004. He had a duty to cooperate with rehabilitation efforts under s. 51.1(b) and AIG had the authority, under s. 104(4)(b)(ii), to suspend his benefits if he did not. None of this was properly appreciated or considered by the trial judge.

The Court of Appeal concluded that AIG's justification for the ultimate termination of benefits in 2004 was entirely valid given the parties' obligations under the AIG policy. The Court of Appeal found that AIG's denial of benefits was not justifiable in only two isolated periods over the long history of the case. On the issue of damages, the Court of Appeal weighed all the factors from Whiten v. Pilot Insurance Co. and, based on AIG's much "narrower" breach of the duty of good faith, reduced the punitive damages award from $1.5 million to $175,000 and reduced the "exemplary" damages award from $150,000 to $15,000.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions