Too often we see disabled employees leaving money behind on the proverbial negotiating table. Litigation provides one — and only one — opportunity to maximize your long-term disability entitlements. Do not squander that opportunity on a “quick and dirty” settlement. We previously recommended in these columns seeking, and holding out for, punitive damages, in addition to ordinary disability benefits, when insurers behave badly in denying or discontinuing a claim.

One case, involving an employee suing her long-term disability insurer, loudly punctuates the notion of leaving nothing on the table. In Sara Baker v. Blue Cross Life Insurance Company of Canada, Ms. Baker suffered a brain bleed in 2013. Satisfied that she could not fulfill her job as a director of a Toronto hospital, Blue Cross initially approved her claim. It later discontinued her benefits after concluding that she could work in a different job that paid at least 60 per cent of her salary. Put differently, it relied on a technical definition in the insurance policy to justify its denial of her claim.

Ms. Baker sued Blue Cross for past benefits, reinstatement back onto the disability policy, mental distress, punitive damages and for her legal fees.

The judge’s decision in the latter two categories make this case a game-changer for disabled employees.

Blue Cross opted for a trial by jury, which is unusual in the long-term disability arena, where the relatively low percentage of cases that make it to court are typically decided by a judge.

The case dragged on, in part, because of Blue Cross’ insistence on a jury and the pandemic complications of finding six people to sit safely on the panel. During that time, Blue Cross amassed nearly 380 hours of surveillance on Ms. Baker. Most disability insurers conduct surveillance as part of their defence, hoping to catch the employee acting inconsistently with their reported restrictions. In our experience, between 25 and 70 hours is the norm, not the staggering amount of hours undertaken by Blue Cross.

It backfired — badly.

After a five-week trial, the jury returned an award of $220,604 for past benefits, reinstatement back onto the policy, $40,000 for mental distress damages and an unprecedented $1,500,000 in punitive damages.

Unlike a judge, juries do not provide a written rationale for their verdict. This award is now the highest punitive damages award against a Canadian long-term disability insurer, three times the previous titleholder. We can only speculate that the jury was not impressed with the excessive surveillance, which presumably did not adversely impact Ms. Baker’s credibility as Blue Cross had hoped it would. An appeal of the punitive damages award is underway. In its decision, the Ontario Court of Appeal will hopefully shed light on what facts support this juggernaut figure.

The issue of costs was left to the judge. That is the norm. But the result was not. The rule of thumb in ordinary civil litigation is that the winning party gets some of its costs paid, usually 50 per cent, called partial indemnity costs. In some cases, the successful party may receive 80 per cent or 90 per cent of their legal fees, called substantial indemnity costs, but those are typically reserved for inappropriate conduct by the losing party. In Blue Cross, the judge recently held that because of the special nature of long-term disability contracts, the employee was entitled to 100 per cent of her costs, called full-indemnity costs.

“The insured must pursue litigation against her insurer to obtain the contractual monthly benefits she purchased by way of a long-term disability insurance policy to provide for basic living requirements,” the judge found. “It would not be fair or reasonable to erode her fixed monthly income replacement benefit by payment of unrecoverable legal fees in these circumstances. I am therefore exercising my discretion … to award full indemnity costs. I find that the wrongful denial of long-term disability benefits by an insurer, given the unique character of long-term disability insurance policies, constitutes special circumstances justifying this elevated award.”

Consider that: full costs because of the wrongful denial of long-term disability benefits by an insurer. That would be true for many, many cases.

After a slight reduction for duplicate work by four lawyers acting for the employee, the court awarded $850,000 in costs plus $110,500 in HST, plus disbursements. Ms. Baker’s costs award represents over 50 per cent of the $1,760,000 jury award for a total judgment close to $3 million.

Whether or not insurers will change their tactics following Blue Cross remains to be seen. Prudence suggests reducing excessive use of invasive surveillance. And insurers will want to think twice before insisting on a jury trial — a tactical error that led to the highest punitive damages award in Canada against a disability insurer. To maximize the threat of obtaining punitive damages, employees should seriously consider requesting a jury trial if the insurer’s conduct is egregious.

As for costs, employees should refuse to settle for much less than their full legal fees. That is what we now recommend in our office.