“The fact that Branco was able to continue to withstand this pressure for so many years on two different fronts is truly remarkable and almost superhuman, even though his resistance may have resulted in irreparable mental distress which may last for the remainder of his lifetime” – Justice Murray Acton
A Saskatchewan court has handed down a decision that provides for the highest punitive and aggravated damages award in Canadian history, a record $4.9 million. The legal significance of this decision, however, will not end with the amount of damages awarded. Justice Acton was scathing in his comments with respect to the tactics employed by the involved insurance companies. The decision calls on the insurance industry to recognize the destruction and devastation which could be caused by their actions and change their practices where appropriate.
Mr. Branco had been a welder working for a mining company high in the mountains of Kyrgyzstan, thousands of kilometers from his family. The mine was at extremely high latitude in the remote mountains, an 8 hour bus ride from Bishkek, the capitol city, where the head office of the company, and the airport for the workers, was located.
On Christmas Day in 1999, during the course of his 12 hour shift, Mr. Branco dropped a steel plate on his foot. Although his foot swelled, Mr. Branco wanted to maintain his perfect attendance record and continued to work. At the end of his shift he washed the blood off, found that his foot was still intact and packed his foot in snow. He was able to complete his 28 day work rotation.
He next returned for his 28 day shift in February. Two days before the end of that rotation he stepped on a piece of steel and reinjured his foot. As before, he managed to finish his rotation and return home. However, once home it was determined that Mr. Branco’s cumulative injury was very serious. He would not be able to either return for his next shift or, as it turned out, work again.
The Claims Process
American Home Assurance Company (“AIG”) initially provided income replacement coverage to Mr. Branco. As is standard practice, they required Mr. Branco to be assessed by their appointed physician. As a result of this examination, the AIG doctor recommended surgery to attempt a repair of the damaged foot. Despite the surgeon’s best efforts, Mr. Branco did not have a good result. AIG’s doctor concluded that Mr. Branco was permanently disabled from working. Despite AIG’s own medical assessor stating that Mr. Branco was unable to return to work, the adjuster for AIG suspended payment of income benefits to Mr. Branco in May of 2001 because their own doctor failed to give AIG information in a timely manner.
In September of 2001, further examinations and assessments were conducted at the request of AIG by specialists in Saskatchewan. These medical examinations again confirmed Mr. Branco’s disability. Despite these second confirming medical opinions, AIG continued to deny income benefits to Mr. Branco.
Zurich Life Insurance Company (“Zurich”) was to provide long term disability benefits for the mining employees in the event of a long term disability. The Zurich policy was to assume responsibility at the two year mark. Despite medical documentation which confirmed Mr. Branco continued to suffer a long term disability, Zurich did not make a single disability benefit payments to Mr. Branco.
Mr. Branco had no choice but to commence a claim against both of his insurance companies. With insufficient funds to battle large insurance companies through the courts he was fortunate to have found a lawyer who not only would take his case on a contingency basis but also has sufficient skill to win his the case.
On March 21, 2013, after a long trial, Justice Murray Acton of the Saskatchewan Superior Court determined that the policies provided by AIG and Zurich were “peace of mind contracts”, the object of which was to secure a psychological benefit for Mr. Branco. The intangible benefit of such contracts is the prospect of continued financial security when a person’s disability makes working, and therefore receiving an income, no longer possible. Justice Acton confirmed that the failure to pay benefits can result in mental distress of the type suffered by Mr. Branco.
Justice Acton determined that had “AIG made the monthly payments on a regular and timely basis as required under the policy there would in all likelihood not have been the significant amount of mental distress which has virtually destroyed Branco’s life over the last 13 years”.1 AIG was held to be in breach of its duty to deal in good faith and fair dealing with Mr. Branco, as evidenced by numerous lengthy and unexplained delays in paying the benefits owed to him. These acts were held to be “malicious and designed to leverage a reduced settlement of the claim”.2
In his reasons, Justice Acton cited evidence of persistent tactical disregard by AIG towards its insured. In May of 2003, the Saskatchewan Court had awarded $60,000 in punitive damages against AIG due to the actions of their adjuster Patti Schibler.3 Despite an award of punitive damages in 2003, the same Patti Schibler applied the same techniques to Mr. Branco. Justice Acton considered that the close timeframe between the payment the earlier punitive damage award, intended to deter similar behavior, and the adjuster continuing to employ the same tactic against Mr. Branco, indicated that the prior award had done little to deter insurance companies from such conduct:4 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. Justice Acton held that the actions of AIG and Zuri5 The cruel and malicious acts of AIG and Zurich combined with the previously ignored award of punitive damages against AIG is evidence of how calculated and abhorrent the actions of AIG were in dealing with Branco. The actions of AIG and Zurich establish a pattern of abuse of an individual suffering from financial and emotional vulnerability.
Although Canadian courts may have believed that the $1 million award in the Whiten case would catch the attention of the insurance industry and the court’s disapproval of such actions, it is apparent that the $1 million was not sufficient. These decisions were rendered during the same time period that AIG and Zurich were continuing their pattern of aggressive non-activity on the claim of Branco.
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.
Lessons for Insurance Companies
Insurance companies must treat their clients fairly and in “good faith”. This court sent a strong message of the expectation of ethical behavior by insurance. While this decision will most likely be appealed, one can hope that the strong remarks by Justice Acton will resonate with insurance companies and provide motivation to maintain fair and balanced claims adjudication procedures and to properly and firmly manage those entrusted with the claims adjudication process.
Anna Szczurko is an associate in the Personal Injury Group, dealing primarily with instances of negligence and the related aspects of insurance law. Anna is committed to helping individuals and their families when they are often at their most vulnerable, whether injured from a motor vehicle accident, a slip and fall or dealing with a fire loss claim. Contact Anna at (519) 660-7784 or send an email to email@example.com to discuss your situation free of charge.
1 Branco v. American Home Assurance Company et al. 2013 SKQB 98 at para. 146.
2 Branco at para. 150.
4 Branco at para. 197.
5 Branco at para. 214 – 216.