Court of Appeal confirms that insurer acted in bad faith.

On November 17, 2015, the Nova Scotia Court of Appeal upheld awards of both aggravated and punitive damages against a long-term disability insurer, but reduced the aggravated damages to $90,000, and reduced the punitive damages to $60,000, in Industrial Alliance v Brine, 2015 NSCA 104.

On June 18, 2014, the Supreme Court of Nova Scotia held, at 2014 NSSC 219, that the long-term disability insurer Industrial Alliance Insurance and Financial Services Inc. (“Industrial”) must account for years of unfair treatment of its insured, Bruce Brine. The court ordered Industrial to pay Brine:

  • $500,000 in punitive damages;
  • $150,000 in aggravated damages;
  • $62,036.81 for breach of contract; and
  • $30,000 for mental distress caused by breach of contract.

Bruce Brine was a police officer insured under a long-term disability policy issued by Industrial. In 1995, Brine made a claim for disability benefits resulting from severe depression. Industrial paid for Brine to attend rehabilitation services, something not covered by the policy, but done at the discretion of Industrial. Brine was eventually found to be totally disabled within the terms of the policy.

In 1998, Industrial alleged that over a period of years Brine had received undisclosed CPP and other disability benefits resulting in a substantial overpayment of $99.506.49, and immediately brought ongoing payments to $0. Industrial also halted Brine’s vocational rehabilitation services without explanation. Brine filed for bankruptcy, and claimed that the $62,036.81 in overpayments were wiped clean. Industrial disagreed. Brine’s benefits were not resumed until 2003.

These disputes brought Industrial and Brine before the courts.

Industrial’s actions were found to be in breach of contract and in breach of its duty of utmost good faith to Brine for the following reasons:

  • Industrial was not entitled to undertake a complete claw-back of Brine’s ongoing disability payments to offset overpayments, but should have spread repayment in a prorated fashion over future years.
  • Industrial refused to acknowledge that Brine’s 1999 bankruptcy wiped clean most of the overpayment which Industrial relied upon in halting payments between 1998 and 2003.
  • At the outset of the Claim, Industrial’s decision to offer discretionary rehabilitation services meant that, once begun, Industrial had an obligation to consider the impact of ending services upon Brine.
  • Brine was forced to go to the Tax Court of Canada on several occasions because Industrial persisted in treating his disability benefits as taxable income, issuing T4 slips to Brine. This caused Brine unreasonable hardship.
  • Industrial failed to disclose the results of an Independent Medical Examination until the week before trial in an attempt to obtain a better bargaining position.

The trial court ordered Industrial to pay $62,000 to Brine for the overpayment amount which was expunged by his 1999 Bankruptcy. $30,000 was awarded for the mental distress Industrial caused Brine by its breach of contract. $150,000 was awarded for aggravated damages, and $500,000 in punitive damages was awarded by the trial court to reflect what it felt was an enormous violation of Industrial’s duty to act in good faith.