Case Law Update July 21, 2021: Punitive Damages in a Life Insurance Action

Case Law Update July 21, 2021: 

Punitive Damages in a Life Insurance Action 

In Murray v. TD Life Insurance Company, 2021 ONSC 4748 TD Life paid out a mortgage life insurance on one property (policy 1) and denied payment of a second mortgage life policy on another property (policy 2).  During the litigation, the insurer amended its pleadings and sought recovery of the payment made under policy 1.  The basis for denial of policy 2 and the claim for repayment on policy 1 (based on mistake) was the deceased’s failure to disclose facts about his health history. 

I would point out that this decision is one that I would recommend my colleagues in both the plaintiff and defense bar review closely.  Although there is a possibility of an appeal (as of the date of this article), the decision, in my opinion, demonstrates how a trial should and should not be conducted when dealing with a life insurance denial claim. 

In Murray, the judge found in favour of the plaintiff with respect to the claim vis a vis policy 2 and ordered that TD Life pay out the claim.  With respect to policy 1, the judge did not find that the doctrine of mistake was applicable and did not find in favour of TD.  The court considered the issues of aggravated and punitive damages based on the behaviour of the defendant.  Particular focus will be made on the issue of punitive damages in this review.   

The court focused on the behaviour of TD Life and its counsel’s counterclaim when considering the issue of punitive damages.  Specifically, the judge found that the counterclaim in the action involving policy 1, if not meant to be intimidation, was “certainly a calculated litigation strategy meant to place additional pressure on Susan [the plaintiff] to end this litigation.”   

Furthermore, the court held: 

“While mistake of fact is certainly available at law in the appropriate circumstances and would not automatically attract an award of punitive damages if unsuccessful, in this case the evidentiary basis for alleging mistake was so tenuously weak that I conclude that it was put forward for no purpose other than as an exercise in muscle flexing by an economically stronger party. It was designed to “up the stakes” if Susan continued with her claim. It goes well beyond just requiring Susan to prove her case. And the plan to amend was communicated within just a few months of the power of sale proceeding being temporarily halted; the defendants would have known that this would be additional pressure. It bears repeating that TD Life was aware of Susan’s high blood pressure because she had declared that condition on each credit protection application that she submitted from 2003 onward, but they decided to use pressure tactics nonetheless. It is conduct that can be described as reprehensible. 

That the driving force behind the defendants’ unreasonable position was solely litigation gamesmanship is underscored by the unproven allegation found in paragraph 28 of their counterclaim. There was not a shred of evidence that Susan breached a duty of utmost good faith in relation to the medical records. But faced with such an allegation, one puts oneself in the position of the plaintiff – how could it not add to her turmoil and distress to be so unfairly accused of such wrongdoing? The defendants put that false allegation in the pleading even though they had the evidence in their hands, for years, that showed otherwise.” 

As a result of the actions of the defendants, the court found that they breached their duty of good faith.  The court considered the behaviour of the defendants in this case and awarded $150,000 in punitive damages.   

The actions of the insurer in Murray before the commencement of and during litigation should not be taken as an isolated event.  I have been involved in a number of these claims in my career and I can tell you that these tactics are par for the course.  It is not uncommon for adjusters to request medical documentation following a claim and then cherry-pick medical entries to justify its denial. 

Tullio A. D'Angela

Experienced Disability and Personal Injury Lawyer.

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