



COURT OF APPEAL FOR ONTARIO

CITATION: Fernandes v.
    Penncorp Life Insurance Company, 2014 ONCA 615


DATE: 20140902

DOCKET: C56924

Juriansz, Pepall and van Rensburg JJ.A.

BETWEEN

Avelino Fernandes

Plaintiff (Respondent)

and

Penncorp Life Insurance Company/

La Compagnie dAssurance-Vie Penncorp

Defendant (Appellant)

Paul J. Pape and Sanam Goudarzi, for the appellant

Daniel J. Fife and Maple Anne Cameron, for the
    respondent

Heard: March 5, 2014

On appeal from the judgment of Justice Peter B. Hambly of
    the Superior Court of Justice dated March 22, 2013, with reasons reported at
    2013 ONSC 1637.

Pepall J.A.:

[1]

The trial judge awarded the respondent, Avelino Fernandes, $236,773 in
    damages for failure of the appellant, Penncorp Life Insurance Company/La Compagnie
    dAssurance-Vie Penncorp, to pay disability benefits. He also awarded punitive
    damages of $200,000, aggravated damages of $100,000 (hereinafter referred to as
    mental distress damages) and full indemnity costs of $212,130.66.

[2]

The appellant does not challenge the award of damages for failure to pay
    disability benefits.  It only challenges the punitive and mental distress damages
    awards and, if successful, asks that the total cost award be halved. It submits
    that there was no reasonable basis for an award of punitive damages and
    challenges the quantum of the mental distress damages award.

[3]

For the reasons that follow, I would dismiss the appeal of the punitive
    damages award and allow the appeal of the mental distress damages award.

Facts

(i)

Personal Background

[4]

The respondent was born on a farm in Portugal and left school after the
    equivalent of grade eight in Canada.  He became a bricklayer. He operated a
    bricklaying business in Kitchener, Ontario. He worked 10 to 12 hours a day for
    six to seven days a week.  His work involved erecting and dismantling
    scaffolding, lifting heavy planks on and off the scaffolding, mixing cement,
    laying and lifting bricks and blocks and driving a fork lift.  It was very
    heavy work but he was good at it; indeed, he loved his work.  He made as much
    money as he needed and never felt the need for more.

[5]

On December 11, 2004, he fell off a scaffold from a height of about eight
    feet and injured his back.  Two days later, on December 13, 2004, he fell off a
    trailer from a distance of about three feet, again injuring his back. 
    Following the accidents, he was unable to work, his successful company ceased
    operating and his employees departed.

[6]

At the time he was injured, the respondent was 40 years old.

(ii)

Insurance

[7]

The respondent had not paid into a government employment insurance or a
    provincial workers compensation plan and was therefore not entitled to employment
    insurance or workers compensation.

[8]

However, he did have disability insurance, which he had purchased from
    the appellant in July 2002 and for which he paid a premium of $908.50 semi-annually.
    The policy of insurance entitled the respondent to benefits for a period of two
    years if he was unable to work at his own occupation as a result of injuries.  Thereafter,
    the policy entitled him to benefits if he was disabled from working at any
    occupation for which he was reasonably fitted by education, training or
    experience.

[9]

The policy provided $3,000 in monthly benefits for total disability.
    Total Disability was defined in the insurance policy as:

TOTAL DISABILITY
, whenever used in this Policy,
    means that as a result of Injury the Insured is under the Regular and Personal
    Care of a Physician, and is unable to perform any of the important daily duties
    pertaining to his occupation or profession and is not gainfully employed in any
    other occupation or profession. Total disability is deemed to have begun with
    first medical treatment following Injury. After the Monthly Benefit for such
    Total Disability has been paid for twenty-four months, then thereafter during
    the remainder of such Disability, Total Disability means the complete inability
    of the Insured to engage in any and every occupation or profession for which he
    is reasonably fitted by reason of education, training or experience.

[10]

The
    policy also provided for partial disability benefits, which were payable for a
    maximum of four months.  Partial Disability was defined in the insurance
    policy:

PARTIAL DISABILITY
, whenever used in this Policy, means
    that as a result of Injury, the Insured is under the Regular and Personal Care
    of a Physician and sustains loss of salary or business income due to his
    inability to perform one or more important daily duties of his occupation or
    profession.

[11]

The
    policy also addressed the payment of Partial Disability benefits:

If Injury causes Partial Disability within ninety days after
    the date of the Accident and continues uninterrupted until the expiration of
    the Elimination Period For Injury stated in the Policy Schedule, if any, or
    immediately following a period of Total Disability for which benefits were payable
    under Part One, the Company will pay periodically an amount equal to one-half
    of the Monthly Benefit stated in the Policy Schedule (1/60 of such Monthly
    Benefit for each day of any period less than a full month) during which such
    Partial Disability continues, but not to exceed four months for Any One
    Accident.

The policy had no elimination period.

(iii)

Insurance Claim

[12]

Following
    his falls, the respondent attended at an urgent care clinic where he saw Dr.
    Kim on December 14, 2004. He also consulted his family doctor, Dr. Huth, on
    December 22, 2004.

[13]

The
    respondent submitted a claim for benefits to the appellant on January 23,
    2005.  He sought payment from December 14, 2005 when he saw Dr. Kim.

[14]

The
    claim enclosed a report from Dr. Huth dated January 21, 2005.  Next to the
    questions: How long was (or will) patient (be) partially disabled? (Able to
    perform some but not all of his/her occupational duties?), Dr. Huth wrote:
    From Dec. 11/04 to Feb. 11/05.  Next to the inquiry: If patient is still
    disabled, please indicate present physical restrictions or limitations, Dr.
    Huth wrote: Cannot work as bricklayer due to pain.

(iv)

Initial Contacts with the Insurers Representative

[15]

Janet
    Mayo, a claims advisor for the appellant, made the decisions regarding the
    payment or non-payment of the respondents claim.

[16]

On
    February 14, 2005, the respondent called Ms. Mayo.  He advised her that he had
    no other insurance and that he did not know at what point he would return to
    work.

[17]

Ms.
    Mayo testified that the respondent indicated to her that he had not worked at
    all and therefore she started payment of total disability benefits. The
    appellant made a payment of $3,700 to the respondent on February 14, 2005 for
    the period December 14, 2004 to January 21, 2005.

[18]

On
    February 14, 2005, the respondent commenced physiotherapy.

[19]

On
    March 21, 2005, the respondent signed a supplemental claim report.  In response
    to the question: What normal duties are you unable to perform? he wrote:
    bending, lifting, turning.

[20]

The
    appellant received a further report dated March 29, 2005 from Dr. Huth in which
    he stated that the respondents progress was slow and tedious and that the
    respondent had been prescribed pain medication.  Dr. Huth opined that the respondent
    would be able to resume some of his usual duties/activities prior to May 15,
    2005 and that he would recover sufficiently to resume full duties/activities
    prior to June 1, 2005.  He also stated that the respondents ability to
    repetitively lift bricks was limited.

[21]

On
    April 8, 2005, the appellant paid the respondent $6,000 for the period January
    21, 2005 to March 21, 2005.

[22]

One
    month later, on May 8, 2005, Ms. Mayo spoke with the respondent again.  He told
    her that he had not returned to work but had unsuccessfully tried to finish off
    some work from a job he had prior to his injury.  He had lasted a couple of hours
    but then had had to call someone else in to finish the work.  His back was
    getting worse and the pain was going down his leg.  He also said that he had
    started massage therapy and that his doctor had referred him for a CAT
    scan.

[23]

On
    May 10, 2005, the appellant paid the respondent $3,000 for the period March 21,
    2005 to April 21, 2005.

(v)

Pre-Surveillance Interview

[24]

In
    her notes to file, Ms. Mayo wrote that on May 13, 2005, she set up a claimant
    interview [and] pre-surveillance as we may want to do surveillance in future. 
    Also do financial check.

[25]

On
    May 24, 2005, Mark Lockhart of Quality Investigative Services Ltd. interviewed
    the respondent.  The respondent told him that he was unable to do anything that
    involved bending, twisting or heavy lifting.  Mr. Lockharts report stated that
    the respondent reported that he tried to keep himself moving and doing little
    things around the house and that when asked for an estimated return to work
    date, the respondent said that he did not have one.  The report stated that one
    of his therapists/doctors had stated possibly by the end of June 2005.

(vi)

Independent Medical Examination

[26]

Thereafter,
    the appellant referred the respondent to Dr. Hupel, an orthopedic surgeon, for
    an independent medical examination.  The respondent saw him on June 2, 2005.

[27]

The
    appellant received Dr. Hupels report on July 8, 2005.  In response to the
    question: In your view, does the [respondent] suffer from a physical
    condition, which prevents [him] from returning to [his] former position at work
    on a full-time basis?, Dr. Hupel wrote: At present, I feel that in the
    absence of radiological investigations, this man should not return to his
    former employment.  Following review of the investigations suggested, I would
    be pleased to comment further on his return to work.

[28]

On
    June 10, 2005, the respondent spoke with Ms. Mayo by phone and requested a copy
    of the investigative report and Dr. Hupels report.  She told him that it was
    the appellants policy not to provide investigative reports to an insured.  She
    said that she would send Dr. Hupels report to the respondents family doctor,
    Dr. Huth, but she never did so.  Dr. Huth did receive the report from someone
    however.

[29]

On
    June 20 and July 22, 2005, the appellant paid the respondent $3,000 for each of
    the periods April 21, 2005 to May 21, 2005 and May 21, 2005 to June 21, 2005.

(vii)

Dr. Huths Report

[30]

The
    respondent attempted to work in the week of June 28, 2005 but was unable to do
    so.

[31]

On
    August 10, 2005, the appellant received a supplemental claim report from the
    respondent stating that his current activities consisted of limited household
    activities.  He attached a report dated July 21, 2005 from Dr. Huth.
[1]
In this report, Dr. Huth stated that it does not seem that this man will be
    able to work at bricklaying again.  He noted that the respondent was having
    physiotherapy and that an EMG and an MRI were pending.  The June 6, 2005 CAT
    scan showed a problem with the respondents lumbar spine.

[32]

On
    August 22, 2005, the appellant paid the respondent $3,000 for the period June
    21, 2005 to July 21, 2005.  This was the last payment the respondent would
    receive from the appellant until September 2011.

(viii)

Surveillance

[33]

At
    some point, the appellant retained Quality Investigative Services Ltd. to
    conduct surveillance on the respondent.  The appellant received its report,
    dated August 17, 2005, on August 24, 2005.  The report addressed surveillance
    conducted on August 3, 10 and 11 and provided a video synopsis.  As noted by
    the appellant, the observations for the latter two days were unremarkable.  The
    respondent was not observed doing any work on those days.

[34]

The
    August 3
rd
surveillance was maintained from 6 a.m. to 4 p.m. outside
    the respondents residence.  He was observed to be working in his back yard and
    about his house from 1:35 p.m. until 3:02 p.m. He was seen shoveling what
    appeared to be a powder mixture from a van into a pail and wheeling it into the
    back yard in a wheelbarrow.  He removed tools and other work-related items from
    his backyard.  He lifted the wheelbarrow and a wooden skid into the back of a trailer.

(ix)

Decision to Terminate Benefits

[35]

After
    viewing the surveillance, Ms. Mayo decided not to pay any further disability
    benefits beyond July 21, 2005. She testified that it appeared that the
    respondents activities were inconsistent with the information he was providing
    to the appellant.  She also testified that the appellant was not receiving any
    medical reports from the respondents doctor.

[36]

She
    made the decision to terminate benefits in the absence of any medical evidence
    indicating that the respondent was other than totally disabled.  At that point,
    the medical evidence was from Dr. Huth and Dr. Hupel, who had both expressed
    the opinion that the respondent could not return to bricklaying.

[37]

Although
    she made the decision in August 2005, Ms. Mayo never directly told the
    respondent that she was terminating his benefits until close to five months
    later, when on January 17, 2006 she wrote a letter to him.

(x)

Further Report from Dr. Huth

[38]

On
    October 3, 2005, the appellant received a supplemental claim report dated
    September 23, 2005 from the respondent.  Enclosed was a report dated September
    20, 2005 from Dr. Huth.  He stated that the respondent was reporting continuing
    back pain, had problems with the discs in his lower back and could not lift
    repetitively.  Dr. Huth stated that there was no progress and the date when the
    respondent could resume some of his usual activities was unknown as was the
    date when he would be sufficiently recovered to resume full activities.

[39]

Between
    September 26 and October 28, 2005, the respondent again tried to work as a
    bricklayer but was unable to do so.

(xi)

Additional Surveillance

[40]

The
    appellant arranged for further surveillance of the respondent in the fall of
    2005. Surveillance was conducted on November 8, 9, 21 and 22, 2005 for a total
    of 21 hours.  During this time, the respondent was observed driving his vehicle
    but he was not observed doing any work.

(xii)

Request
    for Reinstatement of Benefits

[41]

On
    November 14, 2005, the respondent was involved in a motor vehicle accident in
    which he injured his left shoulder and neck.

[42]

On
    December 6, 2005, the respondent requested reinstatement of his benefits,
    retroactive to July 22, 2005, and provided the appellant with a completed form entitled
    Occupational Inquiry for Self-Employed Claimants. I will refer to this form as
    the December 6
th
questionnaire.  In it, the respondent was asked
    to outline the physical activities involved in his job.  In response, he provided
    the appellant with a completed form to which he attached a detailed description
    of his heavy work as a bricklayer.

[43]

On
    December 21, 2005, Ms. Mayo completed a claim report.  She wrote that she had discussed
    the August surveillance with the respondent and told him that it had shown him
    actively physically working.  She also wrote that she tried to close the claim.

[44]

In
    her testimony she explained this entry. She testified that she had indicated to
    the respondent that it appeared that he was partially disabled and not totally
    disabled and she discussed providing him with partial disability benefits. These
    represented a maximum of four months of benefits.

[45]

She
    testified that she felt the appellant was partially disabled based on the
    surveillance. She also relied on the fact that he had reported that he had
    tried to work on a number of occasions.

[46]

Ms.
    Mayo subsequently discussed the claim review with the appellant on December 28,
    2005. Her notes show that the appellant insisted that he remained totally
    disabled.

[47]

As
    mentioned, Ms. Mayo finally wrote to the respondent on January 17, 2006 to
    advise him that his benefits were terminated.  Her letter stated:

Total disability whenever used in this policy means that as a
    result of an injury, you are unable to perform all the important daily duties
    pertaining to your occupation or profession and are not gainfully employed in
    any other occupation or profession.

Information received from both you and your doctor and local
    investigations carried out indicate that you continued to work on a partial
    basis; therefore, you do not meet the definition of total disability as defined
    in the policy.

[48]

Further
    correspondence between the parties did not resolve the issue.

[49]

In
    February and June 2006, the appellant received additional surveillance reports
    showing the respondent engaged in various employment-related activities such as
    shovelling, unloading large boxes onto a wheelbarrow, sweeping, and pushing a
    wheelbarrow.

(xiii)

Commencement of
    Action

[50]

On
    July 17, 2007, the respondent commenced an action against the appellant.  He
    claimed that since December 13, 2004, he had been and continued to be totally
    disabled and asserted a damages claim of $1,000,000.  He also claimed the
    return of premiums paid in error, mental distress damages of $100,000 and
    punitive damages of $500,000.

[51]

In
    defense, the appellant took the position that the respondent was not, since the
    termination of benefits on July 21, 2005, totally disabled as defined  by the
    policy.  It also denied the claims for mental distress and punitive damages.

[52]

Following
    commencement of the action, the appellant received the results of additional
    surveillance of the respondent conducted on its behalf, additional medical
    information, and a vocational assessment and functional capacities evaluation.
    The medical information included an opinion from the appellants own expert, Dr.
    McGonigal, an orthopedic surgeon, stating that the respondent could not go back
    to work as a bricklayer.

[53]

At
    trial, Ms. Mayo conceded that, based on the information, the appellant knew by
    the end of 2010 that Mr. Fernandes could not go back to work as a bricklayer.

[54]

That
    said, the appellant did not make that concession and pay the respondent for the
    period July 22, 2005 to December 22, 2006 until September 19, 2011.

[55]

With
    respect to the post-December 22, 2006 period, the question at trial was whether
    the respondent was disabled from engaging in any occupation for which he was
    reasonable fitted by reason of education, training or experience.

Trial Judges Decision

(a)

Contractual Damages

[56]

At
    the trial of the action, the respondent sought $233,536 representing the post
    December 22, 2006 period plus the return of premiums he had unnecessarily paid
    while disabled.

[57]

The
    trial judge conducted a detailed review of the evidence, including that of the
    respondent and the respondents assessments and attempts at rehabilitation. He
    found the respondent to be a credible witness.

[58]

He
    also reviewed in detail the surveillance evidence conducted over 19 days
    between August 2005 and February 2010 and referenced portions of the video summary
    that highlighted some of the respondents activities during the periods of
    surveillance.  He noted that the surveillance evidence only showed light work
    for short periods and that this represented a small portion of his time.  The
    surveillance omitted periods of recuperation and bad days. The trial judge
    considered the expert medical evidence and the appellants handling of the
    respondents claim.

[59]

He
    referred to the August 27, 2012 report of Dr. Reid, the orthopedic surgeon
    called by the respondent, writing at para. 46 of his reasons:

Dr. Reid, in his report dated August 27, 2012, stated that the
    point is that he really could not do any bricklaying work of any kind as he
    does not have the physical abilities to do it.  He also stated that Avelino
    is totally and substantially disabled from duties of any occupation for which
    he has requisite education skills and experience.

[60]

The
    trial judge also referred to the reports of Dr. McGonigal, the orthopedic
    surgeon called by the appellant.  He noted at para. 47 of his reasons that Dr.
    McGonigal had testified that the respondent should not be considered physically
    capable of returning to his occupation of bricklayer on a full-time basis.  It
    was Dr. McGonigals opinion that the respondent was not at the present time
    physically capable of returning to this work either on a part-time or modified
    basis.

[61]

Having
    reviewed the evidence, the trial judge concluded that the respondent continued
    to suffer from a total disability.  He determined that the respondent was
    unable to perform substantially all of the duties of his occupation as a self-employed
    bricklayer. Additionally, the trial judge was satisfied that, given the
    respondents limitations, he was disabled from any occupation for which he was
    reasonably suited by education, training or experience. As such, the respondent
    met the definition of total disability contained in the policy and was entitled
    to damages of $236,773 for breach of contract plus the return of premiums.

(b)

Mental Distress Damages

[62]

The
    respondent sought $25,000 on account of mental distress damages arising from
    the appellants conduct.  In his written submissions filed at the trial of the
    action, the respondent acknowledged that his anger and stress were not caused
    solely by the appellants conduct.  In its written submissions, the appellant
    argued that if aggravated damages were to be awarded, they should not come
    close to the $20,000 awarded in
Fidler v. Sun Life Assurance Co. of Canada
,
    2006 SCC 30, [2006] 2 S.C.R. 3.

[63]

In
    addressing this issue, the trial judge considered the decisions of
Fidler
and
McQueen v. Echelon General Insurance Co.
, 2011 ONCA 649, 107 O.R.
    (3d) 780, and observed that those decisions had upheld mental distress damages
    awards of $20,000 and $25,000 respectively.

[64]

He
    determined that the respondent had purchased disability insurance from the
    appellant so as to provide peace of mind.  The appellant had not paid him for
    six years from August 2005 until September 2011.  At para. 63 of his reasons,
    the trial judge wrote:

The failure of Penncorp to pay Avelino what it contracted to
    pay him, both from being disabled from doing bricklaying and from doing any
    other occupation for which he is reasonably suited by education, training and
    experience, has humiliated Avelino.  It has made him dependent on Tracy
    financially.  He was a proud, self-reliant man who always worked to the fullest
    extent possible.  He has suffered great mental distress as a result of the
    failure of Penncorp to pay him what it contracted to pay him.  I find that this
    would have been in the reasonable contemplation of the parties as the likely
    result of Penncorps failure to honour its obligations to Avelino under the
    contract of insurance when they entered into the contract.
[2]

[65]

Later
    in his reasons, the trial judge awarded $100,000 in aggravated damages to the respondent. 
    He gave no reasons for the quantum.

(c)

Punitive Damages

[66]

In
    his written submissions filed at the trial of the action, the respondent sought
    $500,000 in punitive damages.  The appellant argued that an award of punitive
    damages was unwarranted.

[67]

In
    addressing this issue, the trial judge considered the decisions of both
Whiten
    v. Pilot Insurance Co.
, 2002 SCC 18, [2002] 1 S.C.R. 595, and
Fidler
.

[68]

He
    noted that the surveillance did not remotely establish that the respondent was
    able to do the heavy continuous labour he had done as a bricklayer. 
    Additionally, the appellant had received Dr. Huths report dated August 10,
    2005 in which he opined that the respondent would not be able to work at
    bricklaying again. The appellant never received a contrary opinion.  After
    viewing the surveillance, the appellants own expert, Dr. McGonigal, wrote that
    it was impossible to say whether [the respondent] could return to work on a
    full time basis as a bricklayer.

[69]

The
    trial judge commented that there was no evidence that Ms. Mayo ever considered
    the detailed description of the heavy nature of the bricklaying work that the
    respondent submitted with his completed December 6
th
questionnaire
    and she tried to settle the claim on the basis that he was partially disabled
    when, in the trial judges opinion, there was never any doubt based on the
    information the appellant had that the respondent was totally disabled.  Later
    in his reasons, he wrote that Ms. Mayo ignored the detailed job description of
    his occupation of bricklaying that he had provided along with the December 6
th
questionnaire.

[70]

He
    concluded that the appellants handling of the claim demonstrated bad faith. Citing
702535 Ontario Inc. v. Lloyds of London, Non-Marine Underwriters
(2000), 184 D.L.R. (4
th
) 687, he found that the appellants efforts
    to settle the claim on the basis of partial disability and its denial of
    benefits for six years amounted to a denial of coverage or delay of payment in
    order to take advantage of the insureds economic vulnerability or to gain
    bargaining leverage in negotiating a settlement.

[3]
Ms. Mayo took an adversarial approach and did not deal with the claim fairly
    and in a balanced way.  The conduct constituted an independent actionable wrong
    and met the test for punitive damages.  It was highhanded, malicious,
    arbitrary or highly reprehensible misconduct.  He then awarded $200,000 in
    punitive damages.

Punitive Damages Award

A.      Grounds of Appeal

[71]

First,
    on the issue of punitive damages, the appellant submits that its conduct did
    not depart markedly from ordinary standards of decency and did not require
    punishment.  There was no high-handed conduct or bad faith.  The trial judge
    erred by failing to appreciate that coverage for partial disability was a
    component of the insurance policy and Ms. Mayos efforts to settle the claim on
    the basis of partial disability were reasonable in light of what the policy
    contemplated and the information she had, including the surveillance videos
    that were inconsistent with the respondents reporting. The trial judge never addressed
    the appellants defence to that effect and never asked himself whether the
    decision was made in good faith.

[72]

The
    appellant also submits that the trial judge made palpable and overriding errors
    in his punitive damages analysis.  It submits that there was no evidence that
    the December 6
th
questionnaire was ignored by the appellant: Ms.
    Mayo was not cross-examined on the issue and her notes of her claim review of
    December 21, 2005 refer to this document and to the medical information she had
    and demonstrate that she considered both during her review of the claim.

[73]

Additionally,
    the appellant submits that the trial judge focused on whether the surveillance
    evidence established that the respondent could continue bricklaying. Instead,
    he should have asked whether it was reasonable to conclude, based on the August
    3, 2005 and video evidence, that the respondent was either partially disabled or
    a malingerer.

B.      Analysis

[74]

The
    law relating to punitive damages was canvassed in detail by the Supreme Court
    in
Whiten
and addressed again more recently in
Fidler
.  The
    key applicable principles may be summarized as follows.

·

Punitive damages are designed to address the objectives

of

retribution,

deterrence and denunciation, not to
    compensate the plaintiff:
Whiten
, at paras. 43 and 94, and
Fidler
,
    at para 61.

·

They are awarded only where compensatory damages are insufficient
    to accomplish these objectives:
Whiten
, at para. 94.

·

They are the exception rather than the rule:
Whiten
, at
    para. 94.

·

The impugned conduct must depart markedly from ordinary standards
    of decency; it is conduct that is malicious, oppressive or high-handed and that
    offends the courts sense of decency:
Whiten
, at paras. 36 and 94; and
Fidler
, at para. 62.
[4]


·

In addition to the breach of contract, there must be an
    independent actionable wrong:
Whiten
, at para. 78, and
Fidler
,
    at para. 63.

·

In a case of breach of an insurance contract for failure to pay
    insurance benefits, a breach by the insurer of its contractual duty to act in
    good faith will constitute an independent actionable wrong:
Whiten
, at
    para. 79, and
Fidler
, at para. 63.

[75]

In
    considering the issue of good faith, it must be emphasized that disputing or
    refusing a meritorious claim does not, in itself, constitute a breach of a duty
    to act in good faith:
Fidler
, at para. 63.

[76]

The
    decision of
702535 Ontario Inc. v. Lloyds of London, Non-Marine
    Underwriters

(2000), 184 D.L.R. (4
th
) 687 (Ont. C.A.),
    which was approved by the Supreme Court in
Fidler
, describes the
    parameters of an insurers duty at para. 29:

The duty of good faith also requires an insurer to deal with
    its insureds claim fairly.  The duty to act fairly applies both to the manner
    in which the insurer investigates and assesses the claim and to the decision
    whether or not to pay the claim.  In making a decision whether to refuse
    payment of a claim from its insured, an insurer must assess the merits of the
    claim in a balanced and reasonable manner.  It must not deny coverage or delay
    payment in order to take advantage of the insureds economic vulnerability or
    to gain bargaining leverage in negotiating a settlement.  A decision by an
    insurer to refuse payment should be based on a reasonable interpretation of its
    obligations under the policy.  This duty of fairness, however, does not require
    that an insurer necessarily be correct in making a decision to dispute its
    obligations to pay a claim.  Mere denial of a claim that ultimately succeeds is
    not, in itself, an act of bad faith.

[77]

Applying
    these principles to this appeal, the trial judge considered the applicable
    jurisprudence and concluded that, in addition to its breach of the insurance
    contract to pay disability benefits, the appellant had also breached its duty
    of good faith.  He heard the evidence over the course of an eight-day trial and
    had the opportunity to observe the witnesses, including the respondent, whom he
    found to be credible, and Ms. Mayo, and to review the documentary evidence. The
    trial judge found that the appellant had not dealt with the respondent in a
    fair and balanced manner and that the appellants representative, Ms. Mayo, had
    taken an adversarial approach to the respondents claim and met the test for an
    award of punitive damages.

[78]

There
    was evidence to support this conclusion:

·

Ms. Mayo stopped coverage in a vacuum of medical evidence that
    would support her position.  The benefits were terminated contrary to the
    medical evidence; indeed, there was no medical evidence, including that of the
    insurers own independent doctor, Dr. Hupel, that supported termination.  At
    the time the benefits were terminated, the appellant had opinions from both Dr.
    Huth and Dr. Hupel supporting the respondents claim that he was disabled from
    his own occupation of being a bricklayer.

·

The surveillance evidence did not reasonably support the
    appellants decision to terminate benefits.

·

The appellant failed to formally advise the respondent of the
    termination of his benefits until about five months after the fact. It simply
    ceased sending the disability benefit cheques.

·

Ms. Mayo attempted to shut down the respondents claim in
    December 2005 on the basis of a four- month payment of partial disability
    benefits.  Moreover, if she did believe that partial disability benefits were
    payable, she nonetheless never paid any such benefits to the respondent.

·

After terminating his benefits effective July 2005, the appellant
    only paid the respondent the remainder of his two years of benefits in
    September 2011, five years after they had been terminated, even though the
    appellant knew that the respondent could not go back to being a bricklayer.

[79]

As
    for the appellants allegations of palpable and overriding error, at paras. 44
    and 64 of his reasons, the trial judge wrote that there was no evidence that
    Ms. Mayo considered the detailed description of the heavy work required of the
    respondents work as a bricklayer, which was submitted with his completed
    December 6
th
questionnaire. In para. 65, he stated that she ignored
    the detailed job description of his occupation as bricklayer.

[80]

In
    my view, these comments do not amount to palpable and overriding errors of
    fact. Based on the record before him, it was open to the trial judge to make
    the findings and conclusions he did.  While Ms. Mayo clearly received the
    respondents completed December 6
th
questionnaire, there indeed was
    no evidence that she considered the details of the physical activities involved
    in his job that were attached to the form. Furthermore, she terminated his
    benefits before she received the completed form.  In these circumstances, it
    was reasonable for the trial judge to conclude that she ignored the detailed
    job description that had been provided by the respondent.

[81]

The
    appellant also takes issue with the trial judges finding in his reasons that
    the August 3, 2005 surveillance video did not establish that the respondent was
    able to do the heavy labour of bricklaying. The appellant submits that the
    trial judge ought to have asked whether, based on the video, it was reasonable
    to conclude that the respondent was partially disabled or a malingerer.

[82]

Again,
    based on the record before him, it was open to the trial judge to conclude that
    the August 3, 2005 video did not remotely establish the respondents ability
    to perform the work of a bricklayer and that there was never any doubt that
    the respondent was totally disabled from performing any of the important daily
    duties pertaining to his occupation of bricklayer.  It is implicit in these
    findings that the trial judge considered that it was unreasonable to conclude
    that the respondent was partially disabled or a malingerer based on the video
    evidence.

[83]

I
    also would not give effect to the appellants submission that the trial judge
    erred by failing to appreciate that Ms. Mayos efforts to settle the claim on
    the basis of partial disability were reasonable and that the trial judge made
    an error in law in failing to ask whether the appellants decision was made in
    good faith. The trial judge made an express finding that the appellants
    handling of the respondents claim demonstrated bad faith. There was no doubt as
    to the respondents full disability; there was no medical evidence to the
    contrary.

[84]

For
    all of these reasons, I would not interfere with the trial judges findings and
    conclusion relating to punitive damages.

Mental Distress Damages Award

A.      Grounds of Appeal

[85]

On
    the issue of mental distress damages, the appellant concedes that there is some
    entitlement to damages but takes issue with the quantum.  A reading of the
    evidence as a whole does not, in the appellants submission, support the
    conclusion that the respondents mental distress merited a compensatory award
    in the amount of $100,000.

[86]

The
    appellant submits that the trial judges reasons on this issue were also
    deficient. He provided no explanation for the quantum, and failed to reference
    any of the psychiatric evidence that pointed to bases other than the
    appellants failure to pay benefits as contributors to the respondents mental
    distress.  Nor did he explain why the facts of this case justified a higher
    award than those in comparable cases or why he departed from the respondents
    requested quantum of $25,000 and the appellants suggestion of $20,000.

[87]

The
    appellant submits that a reasonable range for mental distress damages was
    between $20,000 and $25,000 and the amount awarded constituted an error in
    principle.

B.      Analysis

[88]

In
Fidler
, at paras. 51-53, the Supreme Court observed that the
    jurisprudence speaks of two different types of aggravated damages.  The court
    clarified that the term aggravated damages is misplaced in a case of mental
    distress damages arising out of a contractual breach.  This was the nature of
    the damages claimed and awarded in the case under appeal.

[89]

In
Fidler
, the Supreme Court held that damages for mental distress for
    breach of contract may be awarded where they are established on the evidence
    and shown to have been within the reasonable contemplation of the parties at
    the time the contract was made: para. 45.

[90]

This
    does not obviate the need to prove the loss. The court stated at para. 47:

The court must be satisfied: (1) that an object of the contract
    was to secure a psychological benefit that brings mental distress upon breach
    within the reasonable contemplation of the parties; and (2) that the degree of
    mental suffering caused by the breach was of a degree sufficient to warrant
    compensation.

[91]

In
    that case, the Supreme Court determined that the plaintiffs distress and
    discomfort arising out of the loss of disability coverage was amply supported
    by the evidence, which included extensive medical evidence.  The court did not
    disturb the award of $20,000.

[92]

In
    the case under appeal, it is common ground between the parties that an
    objective of the insurance policy was to secure a psychological benefit and
    that, at the time, the parties reasonably contemplated that a failure to pay
    benefits could cause the respondent mental distress.

[93]

As
    mentioned, on appeal the appellant concedes that there was some entitlement to
    mental distress damages but takes issue with the quantum of the award.

[94]

In
    his reasons, the trial judge relied on
Fidler
and
McQueen v.
    Echelon
,

noting
    that these decisions had upheld mental distress damages awards of $20,000 and $25,000
    respectively.

[95]

In
    the case under appeal, the trial judges reasoning on the issue of mental distress
    damages consisted of one paragraph, which is reproduced at para. 64 of these
    reasons.

[96]

Later
    in his reasons, without elaboration, the trial judge wrote that the respondent
    was to have judgment for $100,000.

[97]

The
    applicable principles for appellate review of damage awards are described by
    Viscount Simon in
Nance v. British Columbia Electric R. Co.
,
[1951] 3 D.L.R. 705, at p. 713:

The principles which apply under this head are not in doubt. 
    Whether the assessment of damages be by a Judge or a jury, the Appellate Court
    is not justified in substituting a figure of its own for that awarded below
    simply because it would have awarded a different figure if it had tried the
    case at first instance.  Even if the tribunal of first instance was a Judge
    sitting alone, then, before the Appellate Court can properly intervene, it must
    be satisfied either that the Judge, in assessing the damages, applied a wrong
    principle of law (as by taking into account some irrelevant factor or leaving
    out of account some relevant one); or, short of this, that the amount awarded
    is either so inordinately low or so inordinately high that it must be a wholly
    erroneous estimate of the damage [citations omitted].

[98]

This
    decision has been repeatedly affirmed by this court. See for example,
Barrick
    Gold Corporation v. Lopehandia
(2004), 71 O.R. (3d) 416.

[99]

In
Lumsden v. Manitoba
,
2009 MBCA 18, 236 Man. R. (2d) 130, the Manitoba Court of Appeal reduced the
    trial judges mental distress damages award from $45,000 to $35,000 on the
    basis that it was excessive.  The court stated at para 72:

[I]n assessing the reasonableness of the award of damages, the
    trial judge is entitled to significant judicial discretion; only if she erred in
    principle or if the award is completely out of line and truly excessive (or
    inordinately low, as the case may be) may an appellate court interfere.

[100]

In the case
    under appeal, there was no explanation of how the trial judge arrived at the
    figure of $100,000 or what facts justified such an amount. The award appears
    inordinately high and entirely disproportionate, where the evidence was that
    circumstances apart from the appellants conduct contributed to the
    respondents psychological  distress.  Mental distress damages are to be
    compensatory, not punitive:
Pate Estate v. Galway-Cavendish and Harvey
    (Township)
, 2013 ONCA 669, 117 O.R. (3d) 481.  An award of four times that
    requested by the respondent can only be described as punitive.

[101]

Moreover,
    although not determinative, the parties were also of the view that $100,000 was
    not an appropriate measure.  As noted, the respondent sought $25,000 and the
    appellant suggested $20,000 in mental distress damages.

[102]

In my view, the
    evidence properly supported the award requested by the respondent, that is,
    $25,000.

Disposition

[103]

In conclusion, I
    would dismiss the appeal of the punitive damages award.  I would allow the
    appeal of the mental distress damages award and replace the award of $100,000 with
    an award of $25,000.

[104]

In light of the
    divided success, I would order that the parties each bear their own costs of
    the appeal.  I would also reduce the full indemnity trial costs award by
    $30,000.

Released:

SEP                                       S.E. Pepall
    J.A.

SEP -2 2014                           I agree Russell
    Juriansz J.A.

I agree
    K. van Rensburg J.A.





[1]
The appellant states in its factum that it received an undated medical report
    from Dr. Huth on July 8, 2005.  That said, the trial judge does not refer to
    this report in his reasons and Ms. Mayos evidence on this report is not
    definitive.  Among other things, the undated report states that Dr. Huth had
    advised the respondent that he must consider another line of work.



[2]
Tracy is the respondents common law spouse.



[3]
He reiterated this finding in his May 14, 2013 costs award at para. 19 where he
    wrote: Penncorp tried mightily to get rid of Avelino.  It used his
    vulnerability in doing so.



[4]

Whiten
refers to malicious, oppressive
and
highhanded conduct
    at para. 36 but high-handed, malicious, arbitrary
or
highly
    reprehensible conduct at para. 94.
Fidler
refers
to 
malicious,
    oppressive
or
high-handed conduct

at

para. 62
.
Given
    that
Fidler
is a more recent decision, the use of or reflects the
    proper description of actionable conduct.


