In a June 2014 decision, the Supreme Court of Nova Scotia awarded $500,000 in punitive and $180,000 in aggravated damages to plaintiff Bruce Brine as a result of his insurer Industrial Alliance’s (“Industrial”) failure to handle Mr. Brine’s claim for Long Term Disability (“LTD”) benefits in a good faith manner.
Mr. Brine worked as a police officer for a number of years when he became severely disabled by depression. Mr. Brine stopped working as a result of his depression and was approved for LTD benefits in 1995 which were available to him through his employment.
As with many group policies of LTD insurance, Mr. Brine’s LTD insurance policy with Industrial provided that any disability benefits payable by the Canada Pension Plan (“CPP”) or through Mr. Brine’s public service pension plan would be directly deducted and offset from Mr. Brine’s LTD benefits.
After three years of being on LTD benefits, Mr. Brine was approved for disability benefits under both CPP and his pension plan. In 1998, Mr. Brine received lump sum payments for both CPP and his pension benefits, representing the retroactive disability benefits that Mr. Brine ought to have received between 1995 and 1998.
Under Mr. Brine’s policy, Industrial was required to pay benefits until Mr. Brine reached age 65. The policy provided that if Mr. Brine received a lump sum payment of CPP or other benefits, this lump sum was to be divided equally and offset over the remaining term of Mr. Brine’s policy. Because Mr. Brine was 49 when he received a lump sum payment of CPP and pension benefits, this meant Industrial was required to divide his lump sum payment for CPP and pension benefits and apply an offset over the remaining 16 years of the policy.
Instead of pro-rating the offset for CPP and pension benefits in accordance with the policy, Industrial implemented a total clawback of Mr. Brine’s LTD benefits and cut off his LTD benefits completely between October 1998 and 2003. This meant that Industrial had reduced Mr. Brine’s LTD benefit to zero, until the CPP and pension payments were completely paid off. As a result, Mr. Brine’s financial circumstances deteriorated and he was forced to declare bankruptcy. After Mr. Brine’s bankruptcy was discharged, Industrial refused to recognize that Mr. Brine’s CPP and pension benefit overpayment had been discharged, and refused to reinstate LTD benefits until 2003.
Mr. Brine’s difficulties were compounded by the fact that in July 1998, Industrial had terminated the vocational rehabilitation services that he was entitled to under the policy, which caused him to experience a setback in his mental health. Further, between 1995 and 1998, Industrial withheld tax and issued T4 statements for Mr. Brine’s LTD benefits, despite the fact that his benefits were non-taxable.
After 1999, Industrial continued to issue T4 statements for Mr. Brine’s LTD benefits, even after Mr. Brine obtained two Tax Court of Canada rulings which determined that Mr. Brine’s LTD benefits were non-taxable. Mr. Brine was repeatedly forced to deal with inquiries and re-assessments from Canada Revenue as a result of Industrial’s ongoing failure to comply with the Tax Court of Canada rulings.
At trial, the Judge agreed that a portion of Mr. Brine’s CPP and pension benefit overpayment had been extinguished by his bankruptcy. Accordingly, the Court awarded Mr. Brine damages of $62,036, representing the portion of his CPP and pension overpayment that ought not to have been collected by Industrial.
The Court further found that Industrial had breached its duty of utmost good faith in its handling of Mr. Brine’s LTD claim. Specifically, the Court found that Industrial’s arbitrary termination of Mr. Brine’s rehabilitation benefits and its conduct of continuing to treat Mr. Brine’s disability benefits as taxable, despite the Tax Court of Canada rulings, justified an award of punitive and aggravated damages. The trial judge awarded Mr. Brine $150,000 in aggravated damages and $500,000 in punitive damages as a result of this conduct on the part of Industrial. The Trial judge further awarded $30,000 in mental distress damages to Mr. Brine for Industrial’s failure to comply with the offset provisions of the policy.
The full text of the Nova Scotia Supreme Court’s decision can be found here: Industrial Alliance Insurance and Financial Services Inc. v. Brine, 2014 NSSC 219.