A claims administrator may owe a duty of good faith to an insured.

The New Brunswick Court of Queen’s bench held that where an insurer acts as a claims administration service only but makes decisions regarding the adjudication of claims, computation and issuance of benefits it owes a duty to the insured to act in good faith as it was adjudicating claims and benefits. As such, the traditional tort of intentional procurement of breach of contract is broad enough to capture bad faith actions by an adjuster that bring about the rejection of a meritorious claim for insurance benefits.

In LeBlanc v. Atlantic Blue Cross Care, [2011] N.B.J. No. 446 (December 12, 2011), the plaintiff was insured under a group disability insurance with her employer for short and long term disability benefits. She received payments under this policy between March 2003 and December 2004. In December 2004, the defendant, Blue Cross, denied further benefits to the plaintiff. The defendant determined that she was not disabled and discontinued the payments. The plaintiff commenced this action.

The defendant claimed that it was not a proper party to the action and asked that the matter be dismissed. The New Brunswick Court of Queen’s Bench severed the issue of whether the plaintiff had a cause of action against the defendant for payment of disability benefits from the remaining issues. This judgment is in respect of those issues.

The province of New Brunswick established a self insured group plan for the benefit of certain employees which included the plaintiff. The plan provided for long term disability benefits to employees. A Standing Committee on Insured Benefits (“SCIB”) was established with a mandate to make recommendations to the province with respect to benefits provided under the plan. The defendant entered into an Administration Services Only Contract (the “ASO Contract”) with SCIB. The defendant said that under the ASO Contract they provided claims administration services only. The defendant therefore argued that it was not a proper party to the action.

The defendant pointed out that under the ASO Contract, SCIB provided the funding for benefits and assumed liability for all payments of long term disability benefits. Paragraph 10 of the ASO Contract provides that “the SCIB is liable for payments of benefits under the Plan […] such payments are not guaranteed by Blue Cross”.

The court reviewed provisions of the long term disability plan and the ASO Contract. The ASO Contract set out a schedule of services to be provided by the defendant and said under the heading “Claims Services” that the defendant was to provide adjudication of claims, computation and issuance of benefits.

Three cases were cited by counsel as being on point, Palk v. Canada Life Insurance Company, [1994] N.B.J. No. 562, Young v. Saskatchewan, [1991] S.J. No. 16 and Uy v. Great-West Life Assurance Co., [2003] O.J. No. 5216. The defendant submitted that all three cases stood for the proposition that an employee under a plan with an ASA Contract cannot sue an administrative service provider under that plan.

The court noted that the plaintiff dealt with Blue Cross only. All her payments came by way of Blue Cross cheques, all her claims were submitted to Blue Cross, and all were evaluated and either paid or denied by Blue Cross. She had no dealings with the SCIB, nor was the SCIB involved in evaluating her claims.

The court cites the decision of Walsh v. Nicholls and CGU Insurance Company of Canada, 2004 NBCA 59. The plaintiff argued that the Walsh decision stood for the proposition that the defendant had mandatory obligations to act in good faith as it was adjudicating claims and benefits; this made the defendant liable to the plaintiff. The court accepted that the Walsh decision stood for the proposition that the traditional tort of intentional procurement of breach of contract is broad enough to capture bad faith actions by an adjuster that bring about the rejection of a meritorious claim for insurance benefits.

The court held that the defendant determined that the plaintiff’s disability benefits should be terminated. As such, the defendant had more duties and authorities than the insurance companies in the previously noted cases. The defendant was to provide “adjudication of claim, computation, and issuance of benefits”. The court held that this was not done in consultation with the SCIB. The court held that if an adjuster can be a proper party in a tort action, as in the circumstances of the Walsh case, that an administrator could fall into that same position or would be a proper party in a lawsuit. As such, the court held that Blue Cross had not discharged the burden of establishing that it was not a proper party or that the plaintiff’s claim against it was without merit.