A $25,000 Question?

In the recent decision of McQueen v. Echelon (2009 CanLII 50865 (ON S.C.))¹, Justice Harris was called upon to consider the issue of aggravated damages for mental distress.

The law has swiftly developed in this area since the 2006 Supreme Court of Canada ruling in Fidler v. SunLife (2006 SCC 30 (CanLII)) where the British Columbia Supreme Court awarded aggravated damages for mental distress of $20,000; a decision which was later upheld by the highest court. In that case, Fidler had been denied disability benefits over a period of time, which were later paid on the eve of trial. In upholding the trial judge’s award, the Supreme Court of Canada concluded that aggravated damages for mental distress were warranted where:

a) An object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and

b) The degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation.

Shortly after the Fidler decision, the issue was again considered, this time by the Court of Appeal for Ontario in Monks v. ING (2008 ONCA 269 (Can-LII)). In Monks, the claim was for Ontario Statutory Accident Benefits flowing from a motor vehicle accident. The trial judge awarded significant benefits to Monks who had suffered a catastrophic impairment as a result of three motor vehicle accidents and the Court of Appeal confirmed the trial judge’s award of $50,000 for aggravated damages for mental distress.

The bar was raised and a shift from the $20,000 question² occurred. The real concern is whether we are moving, much as the game show did, to a $100,000 question. Arguably, we are.

In the recent decision of McQueen, Justice Harris made an award of $25,000 for aggravated damages for mental distress in a case involving a mere $13,181.41 in disputed past benefits.

McQueen was involved in a motor vehicle accident on Jan. 31, 2004. The vehicle she occupied rolled over and she sustained injuries. Prior to the accident, the plaintiff was vulnerable, suffering from bi-polar disorder and pre-existing upper back complaints.

Following the accident and over the course of time, the defendant insurer refused to pay for various benefits claimed, and limited her access to various medical assessments. In three years, the insurer made 21 denials of 16 separate benefits, including housekeeping benefits, taxi funding to get to and from treatment sessions and three costs of assessments.

As a result, the plaintiff contended the insurer’s conduct caused her mental distress.

In considering the matter, Harris reiterated the Supreme Court of Canada’s comments in the Fidler case, noting an insurer owes the duty at common law to act in good faith in all its dealings with the insured and has an additional duty not to inflict unnecessary mental distress. Continuing, it was noted an independent actionable wrong is not required for an award of mental distress. Rather, in the context of damages for mental distress, “aggravated damages takes full account of the intangible injuries such as distress and humiliation.” ³

Financial hardship as a consequence of the insurer’s breach is not the only concern in considering a damages award for mental distress. Where it is reasonably foreseeable that intangible injuries and mental distress may flow from the insurer’s wrongful refusal to pay benefits, despite any evidence of financial consequences, an award of damages for mental distress may flow.

In considering the claim for aggravated damages in this case, Harris reviewed the conflicting reports proffered by experts for the plaintiff and the insurer’s examination reports, noting that in a case where an insurer’s expert was not provided with the complete relevant file materials, his evidence would be discounted, deemed incomplete, discarded. Additionally, the insurer defendant was criticized where the “benefit of the doubt” was not given to the plaintiff in the case of conflicting medical opinions.

As a reminder to insurers about how (not) to document the file, Harris reviewed the claim log notes. These notes included references such as “the claimant is expecting great things from her claim”; “she has retained a lawyer” and “the lawyer is not the easiest to deal with”, and were interpreted to connote an outmoded attitude that runs against the settled case law established by Whiten v. Pilot (2002 SCC 18 (CanLII)). Those notes persuaded the trial that there was evidence of an adversarial approach to the plaintiff ab initio and in behaving in this manner, the defendant insurer breached its contract of insurance with the plaintiff.

While the multitude of denials, the conflicting medical evidence, the incomplete medical disclosure to the insurer’s examiner and subsequent reliance on his report, and questionable entries into the internal notes all caused concern for the Harris to succeed on a claim for damages for mental distress, evidence must still be put forward to confirm such allegations.

For McQueen, her family doctor and her psychiatrist had well documented her mental state, frustration, increasing anxiety and depressive symptoms flowing from the insurance claims process and her dealings with the insurer.

Based on the medical evidence and on the balance of probabilities, Harris J. found that an adversarial relationship had been created which was likely to cause mental distress and did so. The insurer’s approach was found to be counter-productive to the well being of the plaintiff.

With this information in hand, we must query two significant issues. Firstly, how does one justify an award of $25,000 for damages for mental distress in a case involving almost half that in denied benefits (to date) and less than $20,000 in benefits in total? Is this a sign that the damages for mental distress need not relate, at all or in part, to the value of the benefits in dispute?

For some time, Ontario practitioners have known that where benefits have been unreasonably withheld or delayed, the most successful forum for an award in excess of benefits would be the Financial Services Commission of Ontario, where an arbitrator may grant a special award of a value of up to 50 per cent of the benefits found to be unreasonably withheld or delayed, and 50 per cent of the interest found to be payable. Keeping in mind the interest under the Statutory Accident Benefits Schedule (section 46) is two per cent per month compounded monthly. A four year old case involving $10,000 in unreasonably delayed or withheld benefits can quickly be worth, $10,000 in benefits, the same in interest, and $10,000 for a special award.

The second significant concern relates to the recent proposed amendments to the Ontario Insurance Act, particularly the accident benefits regulation. Where all signs seem to indicate a desire by the legislature to curtail the costs of administering auto insurance with a consequent reduction in benefits available under the policy, isn’t a decision like McQueen fodder for plaintiffs with minimal benefits in dispute to push insurers to trial in the hopes of achieving an award for mental distress well in excess of the value of benefits in dispute?

Surely some plaintiff counsel have already noted this decision as a template for moving forward. If insurers have not, they should.

Kadey B.J. Schultz, LL. B., LL. M. practices civil litigation with a focus on advising insurers at Hughes Amys LLP in Toronto.

1 This case has been appealed.

2 For those readers wise enough to recall the days of Dick Clark’s The $20,000.00 Pyramid)

3 See Fidler , para 42).