The Ontario Court of Appeal has sounded a warning to insurers who deny benefits under a policy despite the medical evidence by awarding damages for the loss of the policyholder’s peace of mind.
Defence lawyers hope the decision may bring some balance to what they say is the current arbitrary treatment of minor injury claims.
In its judgment in McQueen v. Echelon General Insurance Co. on Nov. 16, the Court of Appeal refused to overturn an award of $25,000 for mental distress caused by the denial of benefits.
The case involved a plaintiff who had been in a motor vehicle accident in which she sustained injuries. Prior to the accident, she was already suffering from bipolar disorder and upper back pain.
After the incident, the defendant insurer refused to pay for some of the benefits applied for and limited the plaintiff’s access to medical assessments. In fact, there were 21 denials of 16 separate benefits over a period of three years.
As well as the benefits, the plaintiff claimed extra contractual damages, bad faith, mental distress, aggravated damages, and punitive damages.
In supporting the trial court’s finding that the mental distress warranted compensation, the Court of Appeal declared: “People purchase motor vehicle liability policies to protect themselves from financial and emotional stress and insecurity.
An object of such contracts is to secure a psychological benefit that brought the prospect of mental distress upon breach within the reasonable contemplation of the parties at the time the contract was made.
As an insured person entitled to call on the policy, Ms. McQueen was entitled to that peace of mind and to damages when she suffered mental distress on breach.”
Lou Ferro of Ferro and Co. in Hamilton, Ont., notes that it has been easier to get damages for mental distress since Fidler v. Sun Life Assurance Co. of Canada. Ferro represented the plaintiff at trial, while lawyer Jane Poproski of his firm acted on the appeal.
As well, he says there are five or six other Court of Appeal and Supreme Court cases that laid the foundation for this judgment. “It takes advantage of what’s gone before,” he says.
Ferro argues that although the insurance industry is slow to change, it would be foolhardy not to take notice of the decision. “This case points out that the claims process is now under scrutiny.
The fairness component applies to the adjuster, and individual decisions made by the adjuster are subject to review.”
Ferro believes the case also confirms that insurance companies can’t be adversarial to the policyholder. “Some insurers just throw their cases into litigation as a standard response.
They use the courts as a profit centre. That’s not wise. You can’t dispute that you should treat the policyholder fairly. It’s like motherhood and apple pie. They go together.
If the adjuster makes an arbitrary or unsupported decision or is derisive or adversarial, it’s difficult to defend it. There will be lots more cases like this to come.”
Laura Hillyer of Martin & Hillyer Associates sees a lot to like in this decision as well. “The Court of Appeal affirmed the messages that insurers use to sell insurance: slogans like, ‘We’ve got you covered’ and ‘You’re in good hands.’ They use peace of mind to sell the product.
This decision confirms that that is what they do. I think of that as obvious, but it’s nice to hear the Court of Appeal saying it.”
Hillyer is happy to see the court holding the insurer to the standard it advertises and not just with the person it contracts with. “Echelon’s contract was not with Mrs. McQueen,” she says.
“It was her husband’s policy. The court chose not to draw a line between people who actually entered into the policy and people covered by the policy. It’s inclusive.”
The judgment criticizes a number of insurance industry practices, such as giving a denial without a reason. “Since Sept. 1, 2010, we are seeing a lot more of that,” says Hillyer.
“The insurer says it is not reasonable or necessary with no explanation. This decision calls on insurers to give more details if the decision is contrary to medical recommendations, which is what the treatment plan really is.”
Another insurance industry practice that the judgment criticizes is choosing to rely on a particular report that supports a denial of benefits. “If there are two reports and one says you should pay and one says you shouldn’t, they will need to think twice before denying it,” says Hillyer.
“That’s very, very helpful, especially if they are relying on what they should know is a short, perfunctory insurer examination. Often, the client says they sat in the waiting room for an hour, they saw the doctor for 10 minutes, and he hadn’t read the file yet.”
Hillyer also likes the fact that the Court of Appeal is sending those messages in relation to a modest claim. “Often, the denials aren’t for a large amount and you wonder if it’s cost-effective to proceed.
This decision makes it cost-effective, assuming you have a true link between the insurer’s behaviour and the claimant’s mental state.”
Hillyer notes that while people who have family and savings are less likely to suffer from mental distress, there are others who aren’t as fortunate and don’t have those fallbacks.
“If insurers engage in these behaviours with them and it detrimentally affects them, they are on the hook,” she says.
Ferro attributes some of the success in the action to the fact that the application didn’t go too far. “We asked the judge for $25,000. That’s not a great deal, but it represents the beginning of a process that has set the floor on damages.”
Hillyer also hopes the decision will change the use of the minor injury guidelines. “The [guideline] is very challenging. It’s very difficult to get someone out of [it] once they are in.
It shouldn’t be, but it is and our remedy is so far away. It’s very frustrating. If you take notice of some of these comments, I’d say keep sending information to the insurer. Indicate that the medical background is there. If they persist with a blanket refusal, they may be in hot water.”
For his part, Ferro is astounded by the practices of insurers who tell their adjusters to throw everything into the minor injury guidelines and then hunker down. Ferro personally knows an adjuster who has resigned upon receiving that instruction.
“He thought it was crazy,” says Ferro. “Eventually, adjusters will have to defend their decisions.”