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Insurer to pay $200K in punitive damages

|Written By Yamri Taddese

In a warning about the use of surveillance evidence, an Ontario Superior Court judge has awarded $300,000 in punitive and aggravated damages against an insurance company found to have demonstrated bad faith towards a long-term disability applicant.

The decision ‘has raised the standard which insurance companies must meet in order to avoid a punitive damages cost,’ says Joan Takahashi. Photo: Laura Pedersen

In a March 22 decision, Justice P.B. Hambly ruled in favour of a Kitchener, Ont., man caught on surveillance video doing work his insurer said was sufficient to prove he didn’t qualify for total disability benefits. The judge also slapped the insurer, Penncorp Life Insurance Co., with more than $500,000 in aggravated, punitive, and contractual damages.

The plaintiff, Avelino Fernandes, had suffered injuries to his lower back after repeated falls during his work as a bricklayer. He received monthly disability payments from Penncorp for two years following his claim. In 2006, the insurer stopped making payments to Fernandes as it required him to have a total disability in order to receive payments for more than two years.

If a person can’t work in any suitable occupation for more than two years, the law considers them to have a total disability. When Fernandes started an action against Penncorp for refusing payment, the insurer argued he could in fact take other jobs. The company used dozens of hours of surveillance evidence that showed Fernandes doing manual work to back up its case that he was fit to work.

“Avelino was observed in the surveillance on August 3, 2005, to lift a wheelbarrow and a wooden skid in and out of a truck on a single occasion,” wrote Hambly in Fernandes v. Penncorp. “He was also observed to shovel some dirt. This does not remotely establish that he was able to do the heavy continuous labour for long hours for six to seven days per week that he was doing in his bricklaying occupation, before he was injured.”

Hambly continued: “Avelino is captured on video working for short periods of time at light work. He is never observed working at anything like the heavy demands of bricklaying. He explained that he was in pain while he was doing this work. He was in pain at night. He took extra painkillers.”

Penncorp presented more than 140 hours of surveillance evidence, an unusual amount for cases like this, according to lawyer David Share of Share Lawyers in Toronto.

“I think the message to the insurance industry is . . . don’t fall in love with your own surveillance,” he says. “At the end of the day, when it comes to surveillance, unless the surveillance is completely and flatly inconsistent with what the complainant says they can and cannot do, the surveillance has limited usefulness.”

Once an injury makes it impossible for someone to continue working at one type of job, the legal principle is the person shouldn’t have to take another position that pays significantly less or is entirely different from the previous employment.

A vocational expert who assessed Fernandes’ skills found his ability to read and understand English was poor. The expert found jobs in the market supervising bricklayers he could do without having to perform the work himself. But such jobs required the ability to read a blueprint, something the judge found Fernandes wouldn’t be able to do given his limited English skills.

The judge also pointed out the emotional impact of income loss on Fernandes, who reported feeling ashamed that he couldn’t support himself and his wife Tracy due to his inability to work. “He came from a culture where the man provides,” wrote Hambly.

“Now that he does not have money, he is dependent on Tracy’s income. He is embarrassed in his relationship with Tracy.” Fernandes “loved to work,” wrote Hambly.

“His not being able to work is very stressful for him. He is greatly embarrassed by his inability to generate income and hence his dependence on Tracy. In my view, if Avelino was able to work, he would be doing so.”

The judge seemed to like Fernandes, says insurance lawyer Joan Takahashi, a fact she calls a “real danger” for Penncorp. Takahashi, who practises at Gilbertson Davis Emerson LLP, notes the judge was harsh when it came to the punitive damages award of $200,000 against Penncorp.

“If Justice Humbly was correct in awarding punitive damages, I found the amount is too high for this behaviour,” she says, adding the insurer’s mistakes don’t exactly establish malice. Once an insurance claim supervisor herself, Takahashi says the job isn’t an easy one.

Other cases have established that insurance companies can make poor judgments as long as they don’t have a malicious intent, she says, noting there were no punitive damages awarded in previous similar cases.

But Hambly’s decision, Takahashi adds, “has raised the standard which insurance companies must meet in order to avoid a punitive damages cost.” The judge felt the insurer ignored the details of Fernandes’ job, relied too heavily on surveillance evidence, and failed to provide compelling expert opinion suggesting the 48-year-old plaintiff could in fact do bricklaying work, says Takahashi.

Lawyer Allan Rouben, who represents insurance claimants, agrees the judge was notably unhappy with Penncorp’s conduct.

“Clearly, this judge was not happy with the manner in which Penncorp handled this claim and seemed to be giving the plaintiff every benefit of the doubt,” he says.

“When it comes to surveillance that’s not completely inconsistent, you’re left to judge it on the basis of the credibility of the claimant and here the judge found that Mr. Fernandes explained himself in a credible manner.”

Hambly’s decision is a reaffirmation that disability claims involve an individualized process, says Rouben, noting a one-size-fits-all formula doesn’t work.   

  • Mr

    Paul Taylor
    Sounds puzzling how it is not a WSIB case??? but amazing how he got justice in the courts.
  • Mr.

    Andrew Bome
    [quote name="Paul Taylor"]Sounds puzzling how it is not a WSIB case??? but amazing how he got justice in the courts.[/quote]

    I have been told that Penncorp will provide LTD benefits even if the worker has a work-related injury and will not deduct WSIB benefits from their benefits. It is a decidedly unusual insurance contract, but not unheard of.
  • Justice
    What about the doctors and occupational therapists and phych evaluators who are appointed by the insurers and all report their findings to suit the insurers deny deny deny agenda. This must be the next domain of litigation. i want to see one of them made an example if they act with bias to protect their ongoing consults.
  • Thoughts

    KC Taylor
    Until you are forced to deal with WSIB/WCB after a workplace injury, WSIB/WCB is worse than any insurance company since the government allows these agencies to completely abuse and violate injured workers. Paper doctors and fake clinics are there normal also. WSIB/WCB are also forcing legitimate claims into years of phony appeals before they can even take there cases to a real court and has forced many permanently disabled workers into poverty and onto welfare. WSIB/WCB was created as a social program to protect disabled workers from becoming a burden on family friends and society. Same abusive insurance tactics but very little recourse as WSIB/WCB workers use their positions to abuse the disabled. Some businesses are not being forced to pay the full cost of workplace injuries and disabilities from their workplaces. Corruption at it's finest and allowed to continue by government since everyone benefits from this corruption except disabled workers who are kicked to the curb. Shame!!
  • Brian
    I've long wondered why insurers are punished more severly for wrongly/maliciously denying a property (fire)insurance claim (Whiten for example) than when disability and auto insurers routinely wrongly deny injured claimants with dubious surveillance and with substandard medico-legal IMEs/IEs written be "hired gun" assessors. The $4.5 million award covered in the Globe seems to finally corrected this problem. After all - shouldn't abusing highly vulnerable claimants who are seriously ill or catastrophically injured be considered more loathesome than wrongly accusing healthy - albeit innocent - people of burning down their own homes?
  • ML King
    Part of my work is to represent members of an Ontario union whose LTD benefits are denied or terminated. In most of our cases, the benefits are arbitrable under the applicable collective agreement. Arbitrators were traditionally not permitted to award punitive damages, even in such egregious cases. However, some inroads have been made into this tradition recently, a development which gave the union's members, labour representatives and litigators some hope for suitable awards in future cases of "bad faith" actions by insurance companies.
  • Justice
    God bless this judge for responding to the pleas and suffering of so many innocent victims who pay disability premiums as asked but are made to feel like sinners with photos taken through curtains of your life being made hell revictimized and these disability insurers answer to no one. I feel for these victims and it is time these disability insurers are reminded what good faith is all about. What you see physically is always just not the end of it. Mentally and emotionally it is worse, I know.
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