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History in the Making


May 31, 2013   by


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The Saskatchewan Court of Queen’s Bench made history when Justice Murray Acton assessed one of the largest punitive damage awards against an insurer in Canadian history this March.

Acton awarded the plaintiff $3,000,000 in punitive damages against Zurich Life Insurance Company Ltd. and a further $1,500,000 against AIG, after the insurers denied the plaintiff’s long-term disability and regular benefit payments for more than nine years.

As he concluded his lengthy judgment, Acton stated he hoped the award would garner the attention of the insurance industry:

“The industry must recognize the destruction and devastation that their actions cause in failing to honour their contractual policy commitments to the individuals insured.”

The decision, which is being appealed, condemned the insurers’ “protracted,” “outrageous,” “reprehensible” and “abhorrent” management of the plaintiff’s claim in the decade preceding the trial.

The plaintiff, Luciano Branco, worked as a welder for a subsidiary of a Saskatchewan company in Kyrgyzstan. He injured his foot in the course of his employment in December 1999, with a re-injury in March 2000. Branco ultimately reported his injury to his employer in June 2000.

AIG was obligated to provide benefits to Branco for his work-related injuries based on Workers’ Compensation Board benefits payable in Saskatchewan. Zurich was responsible for his long-term disability.

The Court concluded that both Zurich and AIG’s policies were “peace of mind” contracts, the object of which was to secure a psychological benefit. On this basis, the Court concluded the plaintiff’s mental distress, caused by a breach of these contracts, was within the reasonable expectation of the parties.

The Court confirmed the goal of punitive damages is deterrence. The blameworthiness of AIG and Zurich’s conduct, and their liability for punitive damages, was assessed against the factors identified by the Supreme Court of Canada in Whiten v. Pilot Insurance Co., when considering awards for punitive and aggravated damages. These factors include:

• Whether the conduct was planned and deliberate;

• The intent and motive of the defendant;

• Whether the defendant persisted in the outrageous conduct over a lengthy period of time;

• Whether the defendant concealed or attempted to cover up its misconduct;

• The defendant’s awareness of what he or she was doing wrong;

• Whether the defendant profited from the misconduct; and

• Whether the interest violated by the misconduct was known to be deeply personal to the plaintiff or a thing that was irreplaceable.

The case against AIG

AIG failed to pay benefits when due, but for some erratic payments to Branco over several years, until the benefits were discontinued entirely in December 2004.

The Court found AIG’s failure to pay benefits in a prompt and reasonable manner was a breach of duty of good faith and fair dealing. The Court recognized that the purpose of monthly benefits is to enable those who are disabled to meet the monthly expenses of living. It found AIG’s failure to pay benefits for months or years on end was “malicious and designed to leverage a reduced settlement”.

The Court was exceptionally critical of AIG given the case of Sarchuk v. Alto Construction Ltd. In Sarchuk, the Court awarded punitive damages against AIG in the amount of $60,000 based on the reprehensible actions of the adjuster. Acton recognized the same adjuster in Sarchuk was involved in the plaintiff’s case and employed the “same technique” to the Branco’s claim. Noting this, the Court felt the punitive damage award in Sarchuk was “not sufficient to prevent an immediate reoccurrence of the unacceptable technique.”

In this case, the Court found AIG was aware of how deeply their actions were affecting the well-being of Branco, that the dispute had continued for over nine years, and that Branco’s determination for a fair resolution was the only thing preventing the insurer from profiting from its misconduct.

The Court awarded Branco $1,500,000 in punitive damages against AIG on the basis that:

“The goal of punitive damages is deterrence. Insurers must discontinue exploiting the vulnerability of insureds in times of disaster. The court must also consider the fact that previous awards such as $60,000 in Sarchuk and $1,000,000 in Whiten appear to have done little or nothing to deter insurance companies from their actions.”

The case against Zurich

With respect to Zurich, the Court acknowledged that Zurich accepted that Branco was totally disabled up until December 2013. However, the Court found that Zurich failed to commence payments in a timely manner, as required under the policy. Specifically, Branco was injured in 1999 and re-injured in 2000. In spite of never being able to work since his injuries, and in spite of having long-term disability insurance with Zurich, the plaintiff did not receive any payment from Zurich until the spring of 2009.

The Court held that this almost 10-year period without receipt of the benefits, to which the plaintiff was entitled, demonstrated “reprehensible” conduct by Zurich and was a “gross breach of a peace of mind contract.” The Court concluded the fact that interest paid to the date of payment in no way compensated for the mental distress caused by the many years during which Branco was unable to make his mortgage payment, support his family, support himself, and provide for the other necessities of life.

The Court awarded $3,000,000 in punitive damages against Zurich on the basis that it:

“… could not imagine more protracted and reprehensible behaviour than that of Zurich in blatantly refusing to pay what had been owed in monthly payments for almost eight years. This failure to pay and continual court applications instigated by Zurich with no reasonable justification were nothing short of torturous on [Mr.] Branco.”

The Court concluded both insurers’ conduct constituted planned and deliberate attempts to avoid responsibility for Branco’s claims and to make a significant profit. This conduct persisted for ten years, in spite of numerous medical reports confirming Branco’s disability, suggesting that the insurers were “well aware” that their conduct was wrong.

Acton’s final remarks were direct to the insurance industry:

“The court is cognizant of the fact that a punitive damages award of $3 million may not be particularly significant to the financial bottom line of a successful worldwide insurance company. It is hoped that this award will gain the attention of the insurance industry. The industry must recognize the destruction and devastation that their actions cause in failing to honour their contractual policy commitments to the individuals insured.”

As it stands, this decision will be front and center for many Plaintiff’s counsel respecting insurance claims. Clearly, the decision is important and a reminder to insurers to treat their clients fairly and in “good faith.”