Wake-up Call

In a recent decision of the Queen's Bench for Saskatchewan, Branco v American Home Assurance Company, Justice Acton in awarding the Plaintiff $4.95 million, $4.5 million of which was for punitive damages, sent a strong and clear message to insurance companies that refusal to pay for legitimate claims and making the lives of claimants unnecessarily difficult would not be tolerated by the court.

The Plaintiff, Luciano Branco, was a Canadian welder working for a Saskatchewan-based company in Kyrgyzstan in 1999 when a heavy steel plate fell on his foot. The injury became aggravated and soon he could no longer work. Doctors eventually told him the injury was untreatable and permanent.

In 2000, two insurance companies got involved, Zurich Life Insurance and American Home Assurance Company (AIG). A year later, after being offered unsatisfactory compensation, Mr. Branco filed a lawsuit against both companies. It took another 12 years before Mr. Branco saw any money.

The court found that Zurich "blatantly" refused to hand over "what had been owed in monthly payments for almost eight years." AIG used "cruel and malicious" delay tactics to leverage a reduced settlement. This was in the hopes that Mr. Branco's dire financial situation, as a result of his inability to work, would force him to settle for a lesser amount. Justice Acton wrote in his decision that "The actions of AIG and Zurich establish a pattern of abuse of an individual suffering from financial and emotional vulnerability". While insurance fraud does cost insurance companies millions of dollars a year, the onus is on both parties, the insurer and the insured, to deal with each other in an honest and fair manner.

Mr. Branco was a hard-working, proud man who suffered a legitimate job-related injury and met all the requirements for collecting disability insurance payments. However, instead of honouring their end of the bargain, Zurich and AIG used their financial position to abuse, in what the court called a "calculated and abhorrent" manner, an honest claimant. It should be noted that court held that the purposes of awarding punitive damages is retribution, denunciation and deterrence, and that a disproportionate award overshoots its purpose and becomes irrational. However, if the award is too small, it fails to achieve its purpose.

Justice Acton listed seven factors that the Supreme Court of Canada considered in assessing the blameworthiness of the Defendant, which are: Whether the misconduct was planned and deliberate, the intent and motive of the defendant, whether the defendant persisted in the outrageous conduct over a lengthy period of time, whether the defendant concealed or attempted to cover up its misconduct, the defendant's awareness of what he or she was doing was wrong, whether the defendant profited from its misconduct, whether the interest violated by the misconduct was known to be deeply personal to the plaintiff or a thing that was irreplaceable.

With its decision, the court hopes to gain the attention of the insurance industry so that insurers recognize the destruction and devastation that their actions cause in failing to honour their contractual policy commitments to the individuals insured. The question remains: how many individuals have been unable to withstand the financial and psychological pressure of these tactics?