We always hear about the marketing ploys of insurance companies enticing us to buy their policies. At the same time, we also hear cases where policyholders complain about how their claims were handled badly by their very own insurers. Such is the case of Baker v. Blue Cross.
Here, we’ll discuss the entirety of the case, including the principles related to the award of punitive damages in personal injury and insurance claims. Both legal professionals and clients can use this article to learn more about this important case.
What is the case of Baker v. Blue Cross all about?
The case of Baker v. Blue Cross Life Insurance Company of Canada, 2023 ONCA 842 is one of the landmark cases in Canada in terms of the largest punitive damages awarded.
Huge damages were imposed against an insurance company, which was found to have acted in bad faith when it repeatedly denied the claims of its policyholder. Worse, evidence showed that there was a systematic approach by the insurance company to deny the rights of the claimant under the policy.
This case has a huge impact on both policyholders and insurance companies. For claimants, it shows that litigating against the wrongful deeds of their insurers may be worth a shot. As for insurers, the biggest lesson is to always act in good faith when acting on a claim and be evidence-based when denying an award of damages.
The Baker v. Blue Cross case can be considered as a leading case on how courts view the relationship between an insurer’s act, its effect on a policyholder, and the validity of awarding punitive damages.
As a primer, this video explains what punitive damages are, and how they apply to claims against an insurance company:
For legal advice on what to do if an insurer denies a claim for benefits, consult the best personal injury lawyers in Canada as ranked by Lexpert.
What happened in the case of Baker v. Blue Cross?
Baker v. Blue Cross started when 38-year-old Sara Baker suffered a stroke while exercising back in October 2013. As employee of Compass Group Canada, she was insured under a disability insurance policy, with Blue Cross Life Insurance as the policy’s insurer.
Baker was then paid her short-term disability benefits until January 2014. However, she was then cut off from her benefits, which were eventually reinstated in March 2014 after an internal appeal.
When her short-term disability benefits elapsed in October 2014, Baker sought long-term disability benefits (LTD benefits). To eligible under Blue Cross’s LTD benefits, Baker must prove that she satisfies the two definitions of “total disability” under the policy:
-
“own occupation”: where Baker would be receiving LTD benefits for two years, for being unable to perform the regular duties of her occupation because of her injury
-
“any occupation”: applicable after the two-year “own occupation,” if Baker is continuously incapacitated to perform the regular duties of any occupation
Although Baker was given her “own occupation” LTD benefits, it was again stopped by Blue Cross midway in August 2015. It was only reinstated in March 2016, after she went on an internal appeal again. This was the second suspension of her benefits under the policy.
After receiving her “own occupation” benefits, Baker’s application for the “any occupation” LTD benefits were denied. Yet again, she took part in two internal appeals of the denial. However, she was unsuccessful.
This led to Baker filing an action against Blue Cross for her “any occupation” benefits, while also claiming for aggravated and punitive damages.
The decision of the jury and trial judge
After the trial, Baker was successful and was able to get a favourable decision. The jury found that Baker:
- was “totally disabled” under Blue Cross’ LTD benefits policy
- is entitled to her LTD benefits for $220,604
- is awarded aggravated damages for $40,000 for mental distress
- is awarded punitive damages for $1.5 million
The trial judge then awarded Baker an all-inclusive full indemnity costs at $1,083,953.50. It reasoned that, as a matter of public policy, Baker should not have her rightful LTD benefits minimized through unrecoverable legal expenses.
Decision of the Ontario Court of Appeals
On appeal, Blue Cross did not argue against all other parts of the decision, but only the seemingly huge amount of punitive damages and the costs. For the insurance company, they asserted that they handled Baker’s claim in a balanced and reasonable manner.
Ultimately, the Court dismissed the appeal, both as to the punitive damages and the costs. It held that:
- there was a deliberate strategy on the part of Blue Cross to wrongfully deny Baker her benefits under the policy
- Blue Cross was not able to present evidence and witnesses to prove that they did not act in bad faith
How were punitive damages awarded in Baker v. Blue Cross?
When reviewing awards of punitive damages, appellate courts cannot generally apply the standard of review it uses when reviewing a judge’s decision. Instead, it will look at two things:
- whether there is evidence to support the award of damages
- whether the amount was rationally connected to the evidence and the purposes of punitive damages, if there’s such evidence
One of the common questions is the difference between punitive and compensatory damages. Here’s a video that briefly explains their differences:
For more details on these differences, check out our article on Punitive damages vs. Compensatory damages: differences and similarities.
What are punitive damages
The Court in Baker v. Blue Cross discussed the nature and rationale of awarding punitive damages, as related to the jury’s understanding of what these damages are. Using the words of the court, it said that this type of damages is designed to:
- punish wrongful conduct
- denounce that misconduct
- act as a deterrent for future misconduct
Referencing Whiten v. Pilot Insurance Co., 2002 SCC 18, punitive damages are awarded only in exceptional circumstances. The objectives of awarding these damages are retribution, deterrence, and denunciation. Notably, Whiten is also a case where a large sum of punitive damages was awarded, in the amount of $1 million.
Instruction to jurors on awarding damages
With these objectives in mind, jurors are guided on when to award punitive damages. The test is: “if there has been high-handed, malicious, arbitrary, or highly reprehensible misconduct” that significantly differs “from ordinary standards of decent behaviour.”
As to the amount of punitive damages, jurors are instructed that:
- it should not be greater than what is necessary to carry out its objectives
- moderate awards of punitive damages are generally sufficient to deter similar future misconduct
Rationale behind punitive damages against Blue Cross
The Court held that the jury in Baker’s case understood the nature of punitive damages assignment. It even discussed the various evidence to support the award of punitive damages made by the jury against Blue Cross. Among them are the following:
-
the payment of benefits to Baker were stopped on three separate occasions, where each denial is followed by asking her to submit more documents, instead of warning her first of a potential cut-off
-
the reliance of Blue Cross on the opinions from its contracted general practitioners, which it knew were incorrect, and on selective evidence supporting the denial of Baker’s benefits despite conflicting medical evidence
All these pieces of evidence countered the defense of Blue Cross that its error is just a “good faith error.” These also showed Blue Cross’ “pattern of misconduct” and “a deliberate strategy” to wrongfully deny Baker the benefits that she is entitled to.
When taken altogether, this justifies the award of damages imposed against Blue Cross.
$1.5 million punitive damages — too high?
After settling the issue on the propriety of awarding punitive damages, the next question is it too much? The Court said no.
One of the main objectives of punitive damages is the deterrence of future misconduct. It also plays an important role when dealing with claims against insurance companies. As such, “[d]eterrence is impossible unless the punishment is meaningful.”
This means that the $1.5 million punitive damages are proper in this case, according to the Court, given that:
-
Blue Cross is a large insurance company: a smaller sum of punitive damages would not be enough to get the attention of its senior executives, or even deter this insurance company’s future misconduct when their policyholders come to them for their claims
-
Blue Cross’ problems are systemic: as pointed out by the jurors, this is not just a case of a “rogue disability claim examiner,” as there were many employees who reviewed the files of Baker, but still ignored her rights under the policy
-
Similar cases as those with Baker: there’s also evidence that Baker’s case is not just an isolated one, and there are many other claimants treated similarly by Blue Cross, and it’s just that Baker is the only one determined to pursue her case
Thus, a modest award of punitive damages is just an insurer’s nominal cost to use in a wrongful systematic manner to deny the right of their policyholders. With the evidence on record supporting the large damages, it was sustained by the Court.
What is the impact of the Baker decision?
There are two ways to look at Baker v. Blue Cross, whether you are part of an insurance company or a policyholder of LTD benefits. In any case, having the aid of a lawyer from a personal injury law firm would be your best option.
For insurers: the evidence to be presented
Reading through the decision, it can be noted that Blue Cross had not presented all its witnesses to prove its allegation that it acted in good faith in handling Baker’s claims.
The Court said that the insurance company only called its "last appeals specialist" as a witness. This is insufficient, since that specialist’s involvement in reviewing Baker’s files was only limited. The specialist was also unable to explain the actions of the previous officers acting on the same file.
It just shows that when opposing a large award of punitive damages, great attention must be made to the evidence and witnesses during appeal. This is considering that appellate courts have “a greater scope and discretion when reviewing jury awards of punitive damages.”
For policyholders: on claiming benefits
On the other hand, this case empowers other insureds and policyholders to consider filing a case to address the unfairness and bad faith of their insurers. Here, Baker went through the rigorous internal appeals process of Blue Cross, no matter how painstaking it was. Other policyholders must also consider enduring their own insurer’s appeal process, to give an opportunity for their insurer to correct their own mistakes, should there be.
Baker v. Blue Cross: insurers being liable for damages
The Baker v. Blue Cross case serves as a reminder for both policyholders and insurers. The large punitive damages awarded reflect the serious consequences of an insurer’s bad faith and systemic misconduct. It also highlights the importance of pursuing rightful claims, while insurers are reminded to handle claims with integrity and fairness to avoid significant legal injury.
Interested in reading other articles on common law, aside from Baker v. Blue Cross? How about articles on punitive damages? Head over to our Legal FAQs page for more.