Case information

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The Respondent was a Royal Bank employee and was covered by a group insurance policy underwritten by the Appellant insurer. In June 1990, at 36 years of age and while still a full-time employee of the bank, she became ill with an acute kidney infection known as pyelonephritis. She developed chronic fatigue syndrome and fibromyalgia a short time later, in 1991. Although the direct effects of the kidney infection were resolved relatively quickly, the chronic fatigue syndrome and fibromyalgia persisted.

At the time the Respondent became ill, the bank’s employees were covered by a group insurance policy with the Appellant which included a long-term disability insurance benefit provision. Under that provision, a “Totally Disabled” employee was eligible to receive long-term disability benefits after a six month elimination period. An employee was eligible to receive benefits until their 65th birthday or normal retirement age, provided that they continue to be “Totally Disabled”. The policy did not include any provision as to who bore the onus of establishing that an employee meets the definition of “Totally Disabled”, nor did it state whether this determination was to be made according the medical or non-medical evidence, or some combination of the two. Nor did it provide any procedure for termination of benefits once payments had commenced.

The Appellant paid disability benefits until May 1997, then ceased payments on the grounds that the Respondent was no longer disabled. During the time the Appellant paid benefits to the Respondent, she received medical care from a number of physicians which consistently confirmed her total disability. In August and September 1996, the Appellant retained Tower Investigative Group to conduct video surveillance of the Respondent. The investigators produced a video that depicted the Respondent carrying out what the trial judge described as “errands or personal business activities.” An internal memo stated that the video disclosed that the Respondent was active for 5 full days. Benefits were discontinued thereafter.

Further to her efforts to appeal the discontinuance, requests for a copy of the surveillance tapes and a letter in which she stated never having claimed “to be unable to walk, shop or bend”, the Respondent sued for unpaid benefits and aggravated and punitive damages. One week before trial and further to examinations for discovery, the Appellant paid the benefits owed and offered to reinstate the Respondent’s long-term benefits. The only remaining issue was whether the Respondent was entitled to punitive and aggravated damages. The trial judge held that she was entitled to aggravated damages but not punitive damages. Both parties appealed to the Court of Appeal. The Appellant’s appeal from the trial judge’s award of aggravated damages was dismissed and the Respondent’s cross-appeal from the trial judge’s refusal to award punitive damages was allowed.