Court Awards Full Indemnity Costs in Long-Term Disability Case against Blue Cross Life Insurance

Court Awards Full Indemnity Costs in Long-Term Disability Case against Blue Cross Life Insurance

Written By: Brandon Pedersen and Jon MacDonald, Student-at-Law

In 2017, Ms. Baker commenced a lawsuit against Blue Cross Life Insurance Company of Canada for long-term disability benefits. Ms. Baker, who was working as a director at the Toronto Hospital at the time, suffered a stroke and had a group disability insurance policy with Blue Cross. Blue Cross initially paid Ms. Baker long-term disability benefits but terminated them, arguing that she did not meet the definition of “total disability” as defined in the policy. Ms. Baker then filed a lawsuit seeking retroactive benefits, aggravated damages, and punitive damages. Following a five-week jury trial, Ms. Baker was awarded retroactive benefits, aggravated damages, and punitive damages in the amount of $1.5 million.

Following the jury’s decision, both sides presented their arguments on the amount that Blue Cross should pay towards Ms. Baker’s legal costs. The Court considered the applicable rules and guidelines for awarding costs, as well as the principles of indemnity, fairness, proportionality, and reasonable expectations of the unsuccessful party. In most personal injury cases, the successful party is awarded “partial indemnity costs” (typically between 50-60%), and in some cases, a Court may grant a higher percentage on a “substantial indemnity” basis (typically between 60-90%). It is rare for a Court to award full indemnity costs, where the successful party indeed recovers the entirety of its legal costs.

In this case, Ms. Baker argued that she was entitled to receive full indemnity costs on the basis of public policy, as she should not be required to use her disability insurance benefits to pay for costs. She cited previous cases to support her argument that when an insurance company wrongfully refuses to defend someone, that person should be fully compensated for their legal costs.

One of the several cases that Ms. Baker relied on was Wright v. National Life Assurance Co. of Canada, 1987 CarswellOnt 708, in which an insurer wrongfully deprived an insured of her long-term disability benefits. In Wright, the Court found that the Plaintiff was forced to establish her rights to recover benefits that were properly recoverable under the long-term disability policy, and held that “it should not cost her a single penny to have established it”. In Baker, the Plaintiff incurred extensive legal costs as a result of establishing her rights to long-term disability benefits, and therefore should be compensated for such.

The Court stated that insurance companies have the right to dispute whether insured individuals are entitled to the benefits. However, if the insurer’s behaviour during the legal proceedings is deemed unacceptable or extraordinary, or if there are extenuating circumstances, then an increased amount of compensation to the Plaintiff may be justified. If there are no such circumstances, the typical amount of partial compensation for legal costs will be awarded as per usual.

The judge stated that denying long-term disability benefits wrongfully is a special circumstance that warrants such an elevated award. The judge exercised her discretion under Section. 131 of the Courts of Justice Act and granted full indemnity costs in the sum of $850,000 plus HST in the sum of $110,000.

Brandon Pedersen


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