Insurer Ordered to Pay Full Indemnity Costs

by Melissa Miller, Associate

The recent decision in Fernandes v. Penncorp Life Insurance confirms the Judiciary’s view on holding insurance companies accountable when they wrongfully deny long-term disability claims. Not only did the Court award aggravated and punitive damages at Trial, but also ordered the insurer to pay the full amount of the Plaintiff’s litigation costs.

In Ontario, the rule regarding costs typically requires the unsuccessful party to pay part of the successful party’s costs in having to pursue legal action. There are times when the loser will have to pay most of the winner’s costs if, for example, the winner had served a formal Offer to Settle which was not accepted, and subsequently “beaten” at trial. It is very rare that a party’s full costs of the litigation are paid for by the losing party, but that is precisely what happened in this case.

The Court chose to punish the insurer with an award of punitive damages and full indemnity costs. The insurer argued that it was inappropriate to order both because ordering full indemnity costs was already punitive in nature. The Court disagreed. In this case, the insured was a brick layer and had injured his left shoulder. The insurer only paid a few months of benefits and then stopped. The Court found that the insured met the definition of disability in his policy and was entitled to the disability benefits all along. It found that in denying those benefits, the insurer acted in a high-handed and malicious manner. The principle of “peace of mind” is crucial in long-term disability contracts and the Court found that the insurer took advantage of the insured’s vulnerability. This conduct forced the insured incur litigation costs he should not have.

The Court’s strong views on insurer conduct in disability cases are a critical weapon in a Plaintiff’s arsenal. Plaintiffs should not settle for simply a repayment of benefits, but also consider a demand that the insurer pay for their misconduct, where appropriate.

Howie, Sacks & Henry represents individuals who have been denied disability benefits. For more information on any disability claims and how Howie, Sacks & Henry LLP can assist you, please contact Melissa Miller at (416) 847-1063 or

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