Disabled worker awarded $20,000 for mental distress

But Supreme Court of Canada dismisses $100,000 in punitive damages awarded after Sun Life stopped paying worker LTD

A former bank employee has been awarded $20,000 for mental distress after Sun Life cut off her long-term disability (LTD) benefits without adequate reason.

The Supreme Court of Canada upheld the damages for mental distress awarded by a lower court, but threw out $100,000 in punitive damages awarded by the British Columbia Court of Appeal because there wasn’t enough proof Sun Life was acting in a high-handed or bad-faith manner in denying her benefits.

Connie Fidler was a receptionist at a Royal Bank branch in Burnaby, B.C. In 1990, at the age of 36, she became ill with pyelonephritis, an acute kidney infection, resulting in her hospitalization for several days. After the infection, Fidler continued to suffer from fatigue. She was eventually diagnosed with chronic fatigue syndrome and fibromyalgia.

Fidler was covered by a group policy which included LTD benefits. The insurer was Sun Life. Under the terms of the policy, she was eligible to receive LTD benefits six months after becoming totally disabled. She was entitled to receive LTD benefits for two years if she was unable to do her own job. Eligibility after two years was dependent on her not being able to do any job.

Despite some initial disputes between Fidler and Sun Life about whether she was totally disabled, she began receiving LTD benefits on Jan. 4, 1991. She continued to receive the benefits until April 30, 1997.

The decision to stop benefits

Sun Life had no medical evidence indicating Fidler was capable of working when it terminated her benefits. But it had conducted a non-medical investigation consisting of a “lifestyle questionnaire” it asked her to complete in January 1996 and video surveillance it conducted in August and September 1996.

On the questionnaire, Fidler described her activities as “rarely go shopping … no hobbies … no entertaining … recreation limited to occasional camping.” She expressed a preference not to drive because of “fatigue and pain” and she said her condition had “not much hope for change.”

The surveillance video showed Fidler getting in and out of her vehicle, driving, shopping and climbing into the rear of her vehicle, among other things. According to Sun Life, the surveillance impugned her credibility, leading it to doubt her assertion she was incapable of doing any work.

But Fidler said what the video showed was consistent with information she supplied in a supplementary statement to Sun Life on Aug. 5, 1996, a month before the video surveillance began. In that statement she said: “I feel I am doing well to take care of myself and my daily business — i.e., paying bills, shopping, etc. — and as this seems like a full-time effort for me I cannot imagine trying to hold a job.”

Sun Life’s denial of benefits was followed by almost two years of correspondence involving medical professionals, investigators and claims examiners. On May 30, 1997, Fidler asked for a copy of the surveillance video and any other evidence Sun Life had used as the basis for its decision. Sun Life said it was not prepared to disclose its investigative report and detailed the activities it thought were inconsistent with her claim that she was incapable of performing light or sedentary work.

In January 1998 Fidler’s doctor again confirmed the existence of total disability and reiterated that she was not fit to return to work. An independent medical examination was recommended on March 5, 1998, by both Sun Life and her doctor. Fidler readily agreed to the independent exam.

The independent examination was conducted on Sept. 29, 1998. The doctor said: “It would be my opinion that Connie Fidler is increasingly able to consider returning to work on a graduated basis. Prior to this being successful, she should embark on a graduated training program to improve her level of physical fitness.”

Both Fidler and Sun Life relied on this conclusion. Sun Life emphasized that the doctor said she was “increasingly able to return to work” while Fidler emphasized the words “prior to this being successful,” which she said indicated that a return to work was premature and conditional on a training program.

Sun Life did not pursue the suggestion that she “embark on a graduated training program.”

On Feb. 2, 1999, Fidler filed a lawsuit against Sun Life. In April 2002, a week before the trial was scheduled to start, Sun Life offered to reinstate her benefits and pay all outstanding amounts along with pre-judgment interest. The total, as of April 22, 2002, was $52,516. As a result, the trial only dealt with aggravated and punitive damages.

The trial judge awarded $20,000 in damages for mental distress. That judge was satisfied that she “genuinely suffered significant additional distress and discomfort arising out of the loss of the disability coverage.”

Given the five-year duration of the cessation of payments, the trial judge thought it appropriate to award $20,000 in aggravated damages to compensate Fidler. But the trial judge stopped short of awarding punitive damages. While Sun Life was at times “rather zealous” with respect to her claim, it had not acted in bad faith.

Sun Life appealed the aggravated damages and Fidler cross-appealed the denial of punitive damages. The Court of Appeal upheld the $20,000 in aggravated damages. It went the additional step of deciding that Sun Life’s actions were, in fact, bad faith and awarded $100,000 in punitive damages.

That ruling was appealed to the Supreme Court of Canada. The high court upheld the $20,000 in aggravated damages but tossed out the $100,000 in punitive damages.

Mental distress damages OK

The Supreme Court of Canada said that people enter into disability insurance contracts to protect themselves from financial and emotional stress and insecurity.

“An unwarranted delay in receiving this protection can be extremely stressful,” the Supreme Court said. “(The trial judge) concluded that merely paying the arrears and interest did not compensate for the years Ms. Fidler was without benefits. His award of $20,000 seeks to compensate her for the psychological consequences of Sun Life’s breach.”

Punitive damages not

But the Supreme Court had a problem with the B.C. Court of Appeal’s $100,000 in punitive damages.

“Punitive damages are designed to address the purposes of retribution, deterrence and denunciation,” the Supreme Court said. “To attract punitive damages, the impugned conduct must depart markedly from ordinary standards of decency — the exceptional case that can be described as malicious, oppressive or high-handed and that offends the court’s sense of decency.”

The court said it is important that punitive damages be resorted to only in exceptional cases, and with restraint.

Sun Life’s decision to stop benefits and continue to deny them for five years was, to say the least, inappropriate, the court said. And while the conduct was troubling, it didn’t exhibit bad faith.

The Supreme Court also awarded costs to Fidler.

For more information see:

Fidler v. Sun Life Assurance Co. of Canada, 2006 CarswellBC 1596 (S.C.C.)

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