Long-Term Disability insurers in Canada might be treading a little lighter these days, as the Ontario Court of Appeal has upheld a landmark $1.5 million punitive damages award, the largest in Canada for a Long-Term Disability claim, in the decision of Baker v. Blue Cross Life Insurance Company of Canada.


Sara Baker was the Director of Food Services, Environment, and Porter or Transport Services at Humber River Hospital. In October of 2013, at just 38 years old, Ms. Baker suffered a stroke while exercising.

Following her injury, Ms. Baker applied for, and was subsequently paid, short-term disability benefits through her employer's policy with Blue Cross. In January of 2014, Blue Cross ceased Ms. Baker's benefits, only to reinstate them just two months later after appeal.

Following the completion of Ms. Baker's short-term disability benefits, Ms. Baker was transitioned to Blue Cross' long-term disability benefits ("LTD"). In order to be eligible for LTD benefits, Ms. Baker, like many insured persons under similar policies, had to demonstrate that she satisfied the definition of "total disability".

For the first two years, the first prong for Ms. Baker to satisfy the definition of "total disability", was to prove that she was unable to perform the regular duties of her own occupation. Following the two-year period, in order to still qualify for benefits, Ms. Baker had to prove an inability to perform any occupation that would earn 60% or more of her previous earnings with her employer.

Ms. Baker was paid two years of "own occupation" benefits following the conclusion of her short-term disability. During this period, Ms. Baker's benefits were yet again cut-off by Blue Cross, only to be reinstated – again – after an appeal.

When Ms. Baker hit the "any occupation" stage, Blue Cross cut her off again. This time, however, Blue Cross refused to reinstate Ms. Baker's benefits after she exhausted Blue Cross' appeal process. It was at this point that Ms. Baker elected to commence a civil action against Blue Cross, seeking her "any occupation" benefits, along with aggravated and punitive damages for Blue Cross' conduct.

Following a 22-day jury trial, Ms. Baker was awarded a whopping, $1.76 million dollars. Although Ms. Baker's retroactive benefits was substantial, $1.5 million of the award was made up of punitive damages alone. On top of this award, Ms. Baker was subsequently awarded $1,083,953.50 in full indemnity costs.

Blue Cross filed an appeal strictly against the punitive damages and costs awards.

The Appeal Decision

On appeal, Blue Cross argued that a contextual and fair reading of the record demonstrated that Ms. Baker's claim was handled in a balanced and reasonable manner. The Court rejected this argument, providing Blue Cross with a wake-up call for handling of future claims.

Early into the Court's decision, it becomes immediately clear that this was not going to sway in Blue Cross' favour:

[9] For the reasons discussed below, I would dismiss the appeal and grant leave to appeal costs but deny the costs appeal. In summary, the evidence at trial raised serious concerns regarding the manner in which several disability claim examiners and reviewers at Blue Cross processed Ms. Baker's file. At best, it shows reckless indifference to its duty to consider the respondent's claim in good faith and to conduct a good faith investigation, and at worst, a deliberate strategy to wrongfully deny her benefits.
[12] Further, there is nothing about the quantum of the award that warrants appellate interference. It was open to the jury to conclude that Blue Cross engaged in systemic and deliberate misconduct in handling Ms. Baker's claim and that a significant punitive damages award was necessary to deter Blue Cross from conducting themselves in that fashion in the future.

The Court of Appeal detailed a number of factors which weighed heavily on the jury's decision to award such a precedent-setting amount. These factors included:

  • Ceasing Ms. Baker's benefits on three separate occasions. On each occasion, rather than warning Ms. Baker first, Blue Cross chose to cut-off her benefits and then request additional documentation to support her ongoing disability;
  • Relying on opinions from contracted general practitioners which it knew or ought to have known were incorrect;
  • Selectively relying on evidence that supported their decision to deny Ms. Baker's benefits, while ignoring conflicting medical evidence. Then, in the face of conflicting evidence, Blue Cross delayed obtaining an independent medical examination (or "IME") of Ms. Baker;
  • Distorting various specialist reports; and
  • Misreading a Transferable Skills Analysis report in a way which supported Blue Cross' decision to deny Ms. Baker's benefits.

In upholding the punitive damages award, the Court emphasized the ample evidence that this was a systemic issue within Blue Cross, not simply an issue limited to the handling of Ms. Baker's claim. The Court confirmed that a punitive damages award of such significance was required to deter similar misconduct by Blue Cross in the future.

With respect to the pricey full indemnity costs award against Blue Cross, to the tune of just over $1 million, the Court chose not to hold back in detailing to Blue Cross how reprehensible its conduct truly was:

[44] There was undoubtedly misconduct by Blue Cross that was worthy of sanction by the court by awarding full indemnity costs. Without repeating the specific instances referenced above, it is fair to conclude that Blue Cross has markedly disregarded its good faith obligations to Ms. Baker. Although some of that conduct is addressed in the awards of damages, not all of it is. In addition to wrongfully denying the respondent coverage in the manner that it did, Blue Cross engaged in a litigation strategy wherein it shielded its employees from appearing at trial to explain themselves. This is one of those rare cases where there has been bad faith conduct that warrants costs on this scale: see e.g., Clarington (Municipality) v. Blue Circle Canada Inc., 2009 ONCA 722, 100 O.R. (3d) 66, at para. 40; Hunt v. TD Securities Inc. (2003), 2003 CanLII 3649 (ON CA), 66 O.R. (3d) 481 (C.A.), at para. 131.


The Baker decision is a warning to disability insurers across the country – if you do not act in good faith in the dealing on an insured's claim, you will be sanctioned. Following this decision, insurers will likely be acting much more carefully in adjudicating individual disability benefit claims.

For insured individuals, the important message here is that being denied short or long-term disability is not necessarily the end of the road. There could be thousands (or millions, in this case) being left on the table. If you are cut off from your benefits, or it feels as though the insurer is doing everything possible to try and get you cut off from your benefits, speak with a disability lawyer immediately.

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