Insurer Hit With $30,000 in Damages for “Mental Distress” For Wrongfully Denying Insurance Benefits

Reasons for judgement were published today by the BC Supreme Court, Chilliwack Registry, finding an insurance company in breach of contract and ordering them to pay, in addition to wrongfully withheld benefits, damages for “mental distress”.

In today’s case (Gascoigne v. Desjardins Financial Security Life Assurance Company) the Plaintiff was insured with the Defendant.  She became disabled in her own occupation and sought benefits.  The Defendant initially approved the plaintiff’s claim and paid LTD benefits for a short period but later took “the position that the plaintiff is not disabled and it has refused to pay further benefits.“.

The Plaintiff produced medical evidence in support of her claim.  The Defendant did not have any independent medical exams contradicting this evidence and instead relied on a medical consultant whose evidence the Court criticized as amounting “to little more than generic opinions unsupported by the evidence”.

In ordering that the Defendant pay damages for ‘mental distress’ for wrongfully denying insurance benefits Mr. Justice Skolrood provided the following reasons:

[151]     As can be seen, true aggravated damages may be awarded in a breach of contract case where there is a separate cause of action beyond simply the contractual breach. A breach of the duty of good faith may give rise to such an award.

[152]     In contrast, mental distress damages may be awarded in respect of the breach itself, where the contract is one intended to secure a psychological benefit and where mental distress resulting from a breach would be within the reasonable contemplation of the parties at the time the contract was made: Fidler at para. 44.

[153]     Here, while the plaintiff has advanced a claim for aggravated damages, the claim is more accurately characterized as one for mental distress damages in that it is based on the mental suffering experienced by the plaintiff as a result of the defendant’s breach of the insurance contract.

[154]     In terms of mental distress damages, the Courts have held that a disability insurance contract is the type of “peace of mind” contract, the breach of which may attract such damages: Fidler at para. 57; Tanious at para. 259. In Fidler, the Court described the rationale for awarding such damages as follows, at paras. 56-58:

56.  …The bargain was that in return for the payment of premiums, the insurer would pay the plaintiff benefits in the case of disability. This is not a mere commercial contract. It is rather a contract for benefits that are both tangible, such as payments, and intangible, such as knowledge of income security in the event of disability. If disability occurs and the insurer does not pay when it ought to have done so in accordance with the terms of the policy, the insurer has breached this reasonable expectation of security.

57.  Mental distress is an effect which parties to a disability insurance contract may reasonably contemplate may flow from a failure to pay the required benefits. The intangible benefit provided by such a contract is the prospect of continued financial security when a person’s disability makes working, and therefore receiving an income, no longer possible. If benefits are unfairly denied, it may not be possible to meet ordinary living expenses. This financial pressure, on top of the loss of work and the existence of a disability, is likely to heighten an insured’s anxiety and stress. Moreover, once disabled, an insured faces the difficulty of finding an economic substitute for the loss of income caused by the denial of benefits…

58.  People enter into disability insurance contracts to protect themselves from this very financial and emotional stress and insecurity. An unwarranted delay in receiving this protection can be extremely stressful…

[155]     The question then becomes whether the plaintiff has established mental distress resulting from the defendant’s breach. Clearly she has. In fact, the stress and anxiety she has experienced is exactly that contemplated by the Court in Fidler.

[156]     The plaintiff testified at some length about the financial stress she and her family have been under as a result of the defendant’s denial of her LTD claim. This has included struggling to make mortgage payments, pay bills and even feed her family. She has been compelled to borrow money from family and friends. Her inability to support and provide for her children has been particularly devastating. She worries about their future.

[157]     The plaintiff testified that her relationship with her husband and children has been impacted, to the point where her marriage is in jeopardy. She is more withdrawn socially and less able to cope with the demands of daily life.

[158]       The defendant did not seriously contest that the plaintiff has experienced mental distress (nor could it do so on the evidence). Rather, its position is that mental distress damages are not available because it did not breach the insurance contract and because the plaintiff failed to mitigate. I have already rejected both of those arguments.

[159]     I therefore find that the plaintiff is entitled to an award of damages for mental distress. The plaintiff points to a number of cases in which the range of mental distress damage awards is between $15,000 (Tanious) and $75,000 (Clarfield v. Crown Life Insurance Co. (2000), 50 O.R. (3d) 396 (S.C.J)). In the middle of that range are Fidler ($20,000) and Godwin #1 ($30,000).

[160]     The plaintiff submits that an award of $30,000 is reasonable. Based on the evidence and the applicable authorities, I agree. The plaintiff is therefore entitled to mental distress damages in the amount of $30,000.