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ONCA Upholds Record Setting Punitive Damages Award for Insurer’s Bad Faith Claim Handling

9 minute read
Also authored by: Benjamin Hantsis

The recent Court of Appeal for Ontario decision in Baker v Blue Cross upheld a $1,500,000 punitive damages award concerning a denied long-term disability claim. The decision marks the largest punitive damages award against a long-term disability insurer in Canada. It may signal a willingness of courts to grant higher punitive damages awards in the future, and demonstrates some of the risks associated with jury trials.


38-year-old Sara Baker suffered a stroke while exercising in October 2013. She had a disability insurance policy with the Blue Cross Life Insurance Company (“Blue Cross”) through her employer.

After the incident, Ms. Baker was paid short-term disability benefits by Blue Cross. Once her eligibility for short-term disability elapsed, she applied for long-term disability benefits (“LTD”). She was paid two years of LTD benefits. During this period Blue Cross stopped the payment of LTD benefits, but reinstated it after an internal appeal process.

Ms. Baker was denied any further LTD benefits after July 31, 2016. After being unsuccessful in two further internal appeals with Blue Cross, she commenced this action. Blue Cross served a jury notice and successfully resisted a motion to strike it due to the pandemic. Ultimately, the jury returned a verdict in favour of Ms. Baker as follows:

(a) a declaration that she was totally disabled within the meaning of Blue Cross’ long-term disability benefits policy;
(b) retroactive benefits to the date of the trial in the amount of $220,604.00;
(c) aggravated damages for mental distress of $40,000; and
(d) punitive damages in the sum of $1,500,000.00.

Blue Cross appealed the punitive damages award. The Canada Life & Health Insurance Association was granted intervener status.

The Court of Appeal Decision

The Court of Appeal[1] upheld the award. In doing so, the court commented on the applicable standard of review of jury awards of punitive damages. The court explained that because juries do not provide reasons, appellate courts generally have a limited basis to interfere with jury verdicts and apply a deferential approach.

However, courts have greater scope to interfere with jury awards of punitive damages. The court is to apply a “rationality test” to both whether an award of punitive damages should be given and the quantum of the award and “appellate review should be based on the court’s estimation as to whether the punitive damages serve a rational purpose. In other words, was the misconduct of the defendant so outrageous that punitive damages were rationally required to act as deterrence?”[2] The issue is only “whether the court’s sense of reason is offended rather than on whether its conscience is shocked.”[3] Ultimately, the question in these cases is “whether there was an evidentiary basis that would rationally lead to a punitive damages award and, if so, whether the quantum awarded was also rationally connected to the evidence and the purposes of punitive damages.”[4]

The onus on an appeal of punitive damages rests with the appellant to demonstrate that the punitive damages award does not serve a rational purpose. Blue Cross asserted that despite being wrong in assessing Ms. Baker’s entitlement to LTD benefits, her claim was handled in a balanced and reasonable manner. However, there was substantial evidence at trial regarding the manner in which several of Blue Cross’ claim examiners and reviewers handled Ms. Baker’s file. Significantly, at trial Blue Cross only called one of its appeals specialists as a witness. The jury thus had no evidence about why the other staff of Blue Cross acted as they did, and whether they considered alternative courses of action.

The Court of Appeal cited several instances of the repeated mishandling of Ms. Baker’s claim that supported an award of punitive damages. As summarized by the court:

Overall, we see repeated instances of the Blue Cross team ignoring information, misinterpreting experts’ reports, and relying on the ill-informed advice of their contracted doctors to deny benefits. In effect, they created a closed loop of information that ignored contrary information and created a counter-narrative based on their misinterpretation of the relevant data. 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.[5]

Regarding the quantum of the punitive damages award, the court held that there was nothing that warranted appellate intervention. It was open to the jury to conclude based on the evidence 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.

In upholding the jury’s award, the court noted the purposes of punitive damages: “to punish wrongful conduct, to denounce that misconduct, and to act as a deterrent for future misconduct.”[6] In cases involving insurance companies, the court emphasized the importance of deterrence, as insurers must feel the sting of these awards to deter them from acting similarly in future claims.

The court took judicial notice that Blue Cross is a large insurance company. It stated that an award of $1,500,000 was little more than a “rounding error” for Blue Cross and that “it is difficult to envision how an award of anything less than $1.5 million would even garner the attention of senior executives, let alone deter future misconduct.”[7] All of Blue Cross’ employees who were involved in Ms. Baker’s file took the same misguided approach in determining her entitlement to benefits. Significantly, the court made the inference that this evidence suggested “that there may be many other claimants that have been treated in the same manner by Blue Cross. The difference is that, unlike Ms. Baker, most claimants do not have the stamina to engage in long-term litigation.”[8]


The Court of Appeal was clearly appalled by the conduct of the Blue Cross employees who handled Ms. Baker’s file. The punitive damages award was nearly seven times larger than the retroactive benefits that Ms. Baker was entitled to under the LTD policy.

The Baker decision demonstrates that insurance companies should pay careful attention to claims handling and assessment, as consistent poor handling may lead to a substantial punitive damages award. It also shows the risks of proceeding by way of jury trial. For defendants, the goal of selecting a jury trial is that a jury will likely award less damages than a judge would. However, with that potential benefit comes the potential risk that the jury will render a verdict more favorable to the plaintiff than a judge would, and that successfully appealing a jury award could be more difficult than appealing a judge’s reasons.

Before Baker, the most significant punitive damages decision was Whiten v Pilot Insurance,[9] where $1,000,000 in punitive damages was awarded against Whiten’s home insurance company. That amount has generally been considered the upper limit of punitive damages, though it is worth noting that accounting for inflation the present value of $1,000,000 in 2002 is approximately $1,600,000 in 2024. It is also worth remembering that the Supreme Court of Canada in Whiten did not place a formal cap on the maximum allowable for a punitive damages award.

The Baker case is reminiscent of the Moore v 7595611 Canada Corp. decision,[10] where the Court of Appeal set out that there was no maximum cap for loss of care, guidance, and companionship damages under the Family Law Act in Ontario and upheld the $250,000 jury awards to each parent. There was a question after Moore whether courts would start awarding higher FLA awards. Nearly three years since the Moore decision was released, this has yet to be reflected in the case law. The same question is now raised with respect to punitive damage awards in light of the Baker decision, and members of the Plaintiff-side personal injury and insurance bar are sure to rely on it. Time will tell if and to what extent Baker influences appellate review of future punitive damage awards.

[1] Justices Hourigan, Zarnett and George. Justice Hourigan wrote the reasons for the court.

[2] Ibid at para 18, citing Hill v Church of Scientology of Toronto, 1995 CanLII 59 (SCC), [1995] 2 SCR 1130 at para 197.

[3] Ibid at para 19, citing Whiten v Pilot Insurance Co., 2002 SCC 18 at para 108.

[4] Ibid at para 21.

[5] Ibid at para 30.

[6] Ibid at para 32.

[7] Ibid at para 34.

[8] Ibid at para 35.

[9] 2002 SCC 18.

[10] 2021 ONCA 459.

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