Skip to content

Client Update: Nova Scotia Supreme Court awards $500,000 in Punitive Damages in LTD case

In Industrial Alliance Insurance and Financial Services Inc. v. Brine, 2014 NSSC 219, National Life (and later its successor Industrial Alliance) alleged Brine had received undisclosed CPP and Superannuation disability benefits resulting in a substantial overpayment of $99,506.64. Brine had also commenced a human rights complaint against his employer for discrimination on the basis of disability, and received a $300,000 settlement which National Life also claimed via subrogation. By way of Counterclaim, Brine pled the insurer had breached its contractual duties and acted in bad faith. Both parties agreed that Brine remained disabled up to the date of trial.

Clawback or prorate the overpayment?

National Life set-off the overpayment by reducing Brine’s monthly disability payments to $0. Brine submitted based on the wording of the Policy, the retroactive payments should have been prorated over the life of the Policy and not clawed back upfront. Justice Bourgeois noted the Policy did not clearly differentiate between retroactive versus future lump sum income payments, and pointed out that National Life had subsequently amended the Policy wording. She held National Life was not entitled to undertake a complete clawback of disability payments, and that the overpayment should have been prorated.

Furthermore, Justice Bourgeois rejected National Life’s argument that Brine was a fiduciary who had misappropriated funds by failing to notify National Life of the overpayment, and found that Brine’s bankruptcy had wiped out the overpayment.

Breach of the duty of utmost good faith

Justice Bourgeois found that National Life’s interpretation of the set-off provision was not unreasonable or arbitrary in light of the wording.

Early in the claim, National Life arranged discretionary rehabilitation services in an effort to return Brine to employment, but discontinued the services because the medical information on file demonstrated Brine was not capable of returning to work. Although Justice Bourgeois agreed that National Life was not obligated to offer rehabilitation services under the Policy, she held that once those services were implemented, National Life could not escape its obligation to manage in good faith the provision of this benefit. Further, National Life had acted on outdated medical information, had not considered the impact of stopping rehabilitation once it had been started, and did not contact Brine to advise such services were ending.

National Life continued to issue T4 slips to Brine which characterized his disability benefits as taxable income despite Tax Court rulings to the contrary. Justice Bourgeois held National Life was required to either implement the Tax Court decisions or meaningfully consider the rulings.

Justice Bourgeois also chastised National Life for failing to disclose an IME (without any explanation) until the week prior to trial and inferred that National Life had purposely withheld the IME to obtain a better bargaining position. Justice Bourgeois further found that neither of National Life’s witnesses was credible. She concluded one of the National Life witnesses during her direct testimony had wantonly disregarded the evidence from its own file that Brine had advised National Life he had applied for CPP and was pursuing the human rights complaint, and had purposely painted Brine in a negative light to reinforce National Life’s position.

The Damages

Brine argued that he should be awarded past and future loss of income because, had rehabilitation services not been discontinued, he would have likely returned to work. Justice Bourgeois found that given Brine’s longstanding illness, she was not certain rehabilitation services would have been successful and declined the claim for loss of income. She also found that because the human rights settlement was characterized primarily as loss of income, National Life was entitled to subrogation. However, since the majority of the settlement was to the benefit of National Life, the subrogation amount awarded to National Life should be net of the legal fees paid by Brine.

Justice Bourgeois ordered National Life pay approximately $62,000 to Brine, representing the overpayment amount which should have been expunged by his bankruptcy. Justice Bourgeois awarded $30,000 in general damages for mental distress and $150,000 in aggravated damages, noting the impacts of National Life’s bad faith had extended from its suspension of rehabilitation benefits to the week before trial when it had disclosed the IME.

In awarding $500,000 in punitive damages, Justice Bourgeois noted there were several aspects of National Life’s conduct deserving of censure. It had grossly mishandled its duty to fairly consider and assess the provision of rehabilitation services, had failed to disclose the IME, had failed to implement the findings of the Tax Court, and one of its witnesses had demonstrated a wanton disregard for the accuracy of her trial testimony.

Lessons Learned

Well-documented communication with an insured and their treatment providers, including appropriate follow-up, is necessary to demonstrate that an insurer is meeting its duty of utmost good faith. Furthermore, decision makers should rely on current information in making decisions, and should notify insureds of their decisions and reasons for same. Once discretionary services like rehabilitation are offered, insurers must apply the same standard of care in discontinuing such services.

Although Stewart McKelvey was not involved in this case, if you would like to discuss the implications of this lengthy 166 page decision in greater detail or would like advice on avoiding bad faith damages, please contact Steve Hutchison, Patricia Mitchell, Michelle Chai or the other members of the Stewart McKelvey Life & Disability Insurance Practice Group.

SHARE

Archive

Search Archive


 
 

Workplace investigation helps avoid costly litigation

July 29, 2024

By Sheila Mecking and Lauren Sorel The British Columbia Human Rights Tribunal (“BCHRT”) recently dismissed a complaint of discrimination in the workplace, stating that the employer’s investigation, and settlement offer, adequately resolved the complaint.1 The …

Read More

Cybersecurity class actions against database defendants persist, but hurdles for plaintiffs remain

July 25, 2024

By Sarah Dever Letson, CIPP/C, Meaghan McCaw and Bertina Lou[1] Two decisions earlier this month from the Court of Appeal for British Columbia left open the question as to whether so-called “database defendants” can be held…

Read More

Let’s talk about batteries: Nova Scotia Power’s latest development in renewable energy

July 18, 2024

In conjunction with our upcoming sponsorship of the Halifax Chamber of Commerce luncheon, featuring the Minister of Energy and Natural Resources the Hon. Jonathan Wilkinson, we are pleased to present a Thought Leadership article highlighting…

Read More

“Sale” away: The SCC’s more flexible approach to exclusion clauses in contracts for the sale of goods

July 9, 2024

By Jennifer Taylor & Marina Luro A recent Supreme Court of Canada decision has clarified how to interpret exclusion clauses in sale of goods contracts. The Court in Earthco Soil Mixtures Inc. v Pine Valley…

Read More

Recent case re-confirms temporary ailment is not a disability

June 24, 2024

By Mark Tector and Tiegan A. Scott Decision On April 3, 2024, the Alberta Court of King’s Bench (“ABKB”) upheld a decision of the Chief of the Commissions and Tribunals (the “CCT Decision”), which held…

Read More

Compensation for expropriation: Fair, but not more than fair

June 17, 2024

By Erin Best, Stephen Penney, Robert Bradley, Megan Kieley1 and Elizabeth Fleet1 Expropriation is a live issue in Canadian courts. The Supreme Court of Canada’s decision to broaden the test for constructive expropriation in Annapolis…

Read More

Changes affecting federally regulated employers

June 10, 2024

By Killian McParland and Sophie Poulos There have been many changes in recent months affecting employers governed by federal labour and employment laws. In September 2024, Stewart McKelvey will be hosting a webinar to review…

Read More

Impending changes to Nova Scotia’s Workers’ Compensation Act – Gradual onset stress

June 4, 2024

By Mark Tector and Annie Gray What’s changing? Currently, workers’ compensation coverage in Nova Scotia applies to only a narrow subset of psychological injuries. Specifically, in Nova Scotia – as in all Atlantic Provinces –…

Read More

Appeal Courts uphold substantial costs awards for regulators

May 22, 2024

By Sean Kelly & Michiko Gartshore Professional regulators can incur substantial costs through discipline processes. These costs are often associated with investigations, hearings as well as committee member expenses and are an unfortunate by-product of…

Read More

Less than two weeks to go … Canada Supply Chain Transparency Reports are due May 31st

May 21, 2024

By Christine Pound, ICD.D., Twila Reid, ICD.D., Sarah Dever Letson, CIPP/C, Sheila Mecking, Hilary Newman, and Daniel Roth Introduction The first reports under the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the…

Read More

Search Archive


Scroll To Top