Punitive and Aggravated Damages in Long-Term Disability Lawsuits

When an insurer fails to provide the LTD benefits you’re entitled to, the first line of relief is usually compensatory damages. These aim to cover the unpaid benefits that were wrongfully withheld. However, if an insurer’s conduct goes beyond a mere breach of contract, you might also be eligible for two additional forms of damages: aggravated and punitive damages.

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Common damages in long-term disability cases

Typically, when an insurer breaches its contractual obligations by denying or delaying your LTD benefits, you may be entitled to compensatory damages for the benefits that were wrongfully withheld.

But your rights may extend further. In cases marked by particularly egregious conduct, additional types of damages might come into play:

Aggravated Damages: These are a form of compensatory damages awarded when the breach has caused significant mental or financial distress.
Punitive Damages: Also known as extra-contractual or exemplary damages, punitive damages are meant to punish the insurer and deter similar conduct in the future.

Aggravated damages

Aggravated damages come into play when an insurer’s breach of contract leads to not just financial loss but also serious mental distress. For instance, if your insurer’s refusal to pay benefits leaves you feeling overwhelmed, anxious, and under severe financial strain, you might be entitled to aggravated damages. In Canada, awards for aggravated damages typically range from around $10,000 to $100,000, though most cases settle on the lower end of that spectrum.

What makes aggravated damages unique is that you don’t have to prove a separate wrongful act beyond the breach of contract. This makes them more accessible than punitive damages—even though both are awarded in cases where the insurer’s behaviour goes beyond mere contractual non-performance.

Punitive damages

Punitive damages aren’t meant to compensate you for your losses. Instead, they serve as a powerful deterrent and a formal denunciation of an insurer’s misconduct. When an insurance company’s bad-faith actions shock the court’s sense of fairness and decency, punitive damages can be awarded as a way to punish that behaviour and discourage similar tactics in the future.

In LTD lawsuits, punitive damages hinge on the insurer’s duty to act in good faith. If your insurer’s decision to deny benefits is tainted by misconduct—such as cherry-picking evidence, ignoring key medical opinions, or using aggressive tactics—then you might have a basis for claiming punitive damages. Although these awards are less common, they play a crucial role in holding insurers accountable when their actions are particularly reprehensible.

Case examples

Fidler v. Sun Life Assurance Co. of Canada (2006)

Connie Fidler, a bank receptionist diagnosed with chronic fatigue syndrome and fibromyalgia, began receiving LTD benefits in 1991 under a policy that paid benefits for two years if she was unable to perform the essential duties of her own occupation—and beyond if she was unable to perform any job.

In May 1997, Sun Life terminated her benefits based on video surveillance and a lifestyle questionnaire despite no medical evidence suggesting she could work. After nearly two years of correspondence and supportive medical opinions, Sun Life reaffirmed its decision.

One week before the trial was scheduled to start, the insurer offered to reinstate her benefits and to pay all arrears with interest. As a result, the only issue at trial was Fidler’s entitlement to damages. At trial, Fidler was awarded $20,000 for mental distress, acknowledging that the loss of peace of mind was a foreseeable consequence of the breach.

Although the Court of Appeal later added $100,000 in punitive damages for alleged bad faith, the Supreme Court ultimately set aside the punitive portion, affirming that punitive damages require clear, egregious misconduct.

Fraser v. Fenchurch General Insurance Company (2022)

In this case, Mrs. Fraser, a claimant suffering from chronic pain and depression, was denied LTD benefits despite an independent medical examiner’s recommendation for further psychiatric evaluation—a step the insurer never took.

The court ruled that the insurer acted in bad faith and awarded $10,000 in aggravated damages for mental distress plus a substantial $150,000 in punitive damages. The hefty punitive award reflected the court’s view that the insurer’s baseless denial and disregard for expert advice were particularly outrageous.

Fernandes v. Penncorp Life Insurance Company (2014)

Mr. Fernandes, a bricklayer who sustained a serious back injury after two falls, was unjustly denied LTD benefits by Penncorp Life Insurance. Despite overwhelming medical evidence, Penncorp denied his claim based on weak surveillance evidence that only “showed the plaintiff engaging in light work for short periods of time.”

The trial judge awarded him roughly $236,000 in compensation, along with an extra $200,000 in punitive damages for the insurer’s misconduct and $25,000 for aggravated damages.

This case highlights that insurers must handle claims fairly—failure to do so can result in significant financial consequences.

When are aggravated and punitive damages awarded?

Aggravated damages in LTD claims typically fall within the $10,000 to $90,000 range, often landing between $20,000 and $35,000.

Punitive damages, on the other hand, can vary widely—from $30,000 up to $500,000—depending on the severity of the insurer’s misconduct. Some common examples of insurance company missteps that might lead to punitive damages include:

Relying on an exaggerated interpretation of surveillance evidence that doesn’t truly justify a denial.
Terminating benefits without any supportive medical evidence.
Denying claims based on incomplete or cherry-picked medical records.
Failing to investigate the mental health aspects of a disability.
Applying tests for disability that go beyond what is stipulated in the policy.
Using unreliable medical examinations or exploiting the claimant’s financial vulnerability through delay tactics.

How Resolute Legal can help you fight back

Facing an insurance company on your own can be daunting, but you don’t have to navigate this challenging process alone. At Resolute Legal, we specialize in holding insurers accountable for unfair practices and ensuring our clients receive the compensation they deserve. Here’s how we can assist you:

Comprehensive case review: We meticulously analyze every detail—from medical records and insurance communications to your complete claim history—to determine if you have grounds for extra damages.
Skilled negotiation: Our team negotiates assertively on your behalf, ensuring that insurers meet their obligations promptly and fairly.
Litigation support: If your claim has been wrongfully denied, we’re ready to take your case to court and fight for your rights.
Maximizing your compensation: Beyond securing the LTD benefits you’re entitled to, we explore every avenue for additional damages when bad faith is evident.

Interested in finding out if you have a case? Click on the button below to schedule a free consultation with our team.

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Final thoughts

Insurance companies are expected to handle long-term disability claims with fairness and in good faith. When they fail to meet this standard, the resulting financial strain and emotional distress can be severe. Canadian courts have made it clear: insurers can be held accountable with both aggravated and punitive damages when they breach their contractual duty and act in bad faith.

If you believe your long-term disability claim has been mishandled or unfairly denied, don’t delay. Contact Resolute Legal today for a free consultation—we’re here to help you fight back and secure the justice and compensation you deserve.