Insured not entitled to punitive damages or actual legal fees following an initial travel medical policy denial

Insurance law – Medical travel insurance – Coverage – Good faith, Breach of – Damages – Punitive damages – Costs – Special or increased costs – Practice – Appeals – Duties and liabilities of insurer

Stewart v. Lloyd’s Underwriters, [2022] B.C.J. No. 349, 2022 BCCA 84, British Columbia Court of Appeal, March 3, 2022, G.J. Fitch, P. Abrioux and P.G. Voith JJ.A.

The insured suffered a brief loss of consciousness while drinking at a bar in Reno, Nevada, in 2015. He fell, hit his neck, and was hospitalized as a result. His health care costs totaled $293,127.60. The insurer paid $15,500 under a travel medical policy with limits of $10,000,000. Health Insurance BC paid $3,574.63. In September 2015, the insurer denied coverage for the balance on the basis that the insured was intoxicated at the time of the incident despite there being conflicting medical reports concerning the cause of the fall. Collections agents began contacting the insured directly for the balance of the health care costs. The insured retained counsel in October 2016. His counsel asked the insurer to reconsider, and a trial was set for 2019. In November 2018, the insurer obtained the opinion of a blood alcohol specialist and reversed its coverage position. The insurer then settled the outstanding health care costs at a 78% discount instead of the industry standard 20% discount.

At trial, the insured sought, among other things, punitive damages on the basis that the insurer’s institutional practices favoured their own self-interest, as well as pecuniary damages for legal fees on the novel basis that they should be awarded as a head of damage for breach of an insurance contract. He was awarded $100,000 in punitive damages but the claim for legal fees was dismissed. The insured and insurer appealed.

On appeal, following a lengthy analysis, the court agreed that pecuniary damages for actual legal fees were not recoverable as compensatory damages because: indemnity for legal fees was not available under the policy in this case; legal fees had not been awarded in other cases involving a breach of the duty of good faith; and, it could have complex ramifications for the law of costs. The appellate court also found that the trial judge’s failure to consider that the policy limits were not in jeopardy fundamentally undermined her conclusion that punitive damages were warranted since the basis for the award was not an inadequate investigation, but instead the manner in which the health care costs claim was resolved. In this case, once coverage was accepted, and since the policy limits were not in jeopardy, the insurer’s conduct in settling the health care costs claim at a significant discount did not give rise to punitive damages, regardless of whether it was more profitable than typical for the insurer.

This case was digested by Michael J. Robinson, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Michael J. Robinson at [email protected].

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