The Liability of Insurance Companies for Unfairly Denying your Disability Claims

If a person believes they were treated unfairly by representatives employed by their insurance company and as a result, they incurred losses such as having their disability benefits denied, can the claimant sue the representatives personally?  The short answer is ‘yes’; however, case law has defined specific circumstances under which individual employees can found liable in civil actions.  Further, a successful lawsuit against company employees requires that the plaintiff is able to show how the individual employee’s conduct was negligent and caused them harm or a loss.

The circumstances under which employees can be sued were defined in a recent civil action, Burns v. RBC Life Insurance Company et al. This case involves a plaintiff who brought a lawsuit against his disability insurer, ‘RBC’, and the two insurance adjusters who administered his disability claim on behalf of RBC and were involved in the decision to terminate Mr. Burns’ benefits.  In his lawsuit, Mr. Burns sought a declaration for entitlement to disability benefits, payment of benefits, $100,000 in special damages, as well as $1 Million in punitive damages.  In Burns (2019), the two RBC representatives named in the claim, Ms. Mclean and Ms. Oslizlok, brought a motion to strike the claim against them for failing to disclose a reasonable cause of action.

Background: Burns v. RBC Life Insurance Company et al. (2019)

In June 2012, Mr. Burns was forced to stopped working as a fire alarm service technician, a job which mostly involved physical activity, due to pain in his lower lumbar area, waist and lower extremity.  An MRI of Mr. Burns’ spine indicated an L4-5 disc protrusion and cauda equina syndrome, and he underwent urgent surgery to remove damaged tissue in the discs of his lower spine.

Mr. Burns was paid long-term disability benefits for over five years under his RBC disability insurance policy, on the basis that he was suffering a ‘total disability’. Under the RBC Policy, ‘total disability’ requires that the claimant is under a physician’s care; not able to perform the important duties of their occupation, due to illness or injury; and not gainfully employed. 

In 2017, Ms. McLean, acting on behalf of RBC, notified Mr. Burns that his disability benefits would be terminated because he did not meet the standard of ‘total disability’.  Mr. Burns appealed RBC’s decision to terminate his benefits and was twice denied on appeal by Ms. Oslizlok.

At the time of the denial of benefits, RBC had access to the plaintiff’s medical records and was made aware that he continued to suffer from physical and psychological complications of his cauda equina syndrome.  The insurer was also informed that Mr. Burns was simultaneously coping with his wife’s unexpected terminal illness.

In his claim, Mr. Burns asserts that, in the course of the adjustment and appeal of his disability claims, the defendants (RBC and its two representatives) “engaged in conduct that, jointly and/or severally, amounted to bad faith, negligence and/or negligent misrepresentation conduct”.  The plaintiff named 45 actions he alleges that the defendants committed collectively and which are examples of misconduct.  Of these, 8 actions refer only to the conduct of RBC and the remainder do not refer to any specific defendant.     

Are there sufficient grounds to hold the two RBC representatives personally liable?

In Burns (2019), Justice Perell stated that employees, directors and officers may be liable for their tortious conduct; however, a plaintiff must successfully plead a specific cause of action against the individuals in their personal capacity. Citing the Court of Appeal decision in Lobo v. Carleton University, the judge noted that in order to find employees liable in a civil case, the plaintiff must show evidence that: the employee committed a tortious action; and the employee’s actions represent a separate interest or identity which is discrete from their employer’s.  (Tortious conduct in a civil case refers to wrongful actions that cause the claimant to suffer a loss, resulting in legal liability.)

In making his decision on the question of liability for the individual RBC employees, Justice Perell referred to Syrtash v. Provident Life and Accident Insurance Co. where the plaintiff sued ‘Provident’ and four employees who were involved in a decision to terminate his benefits.  The four employees successfully moved to have the claims against them dismissed for failure to show a reasonable cause of action.  Justice Perell believed the circumstances in Burns are similar to Syrtash and support the arguments of Ms. Mclean and Ms Oslizlok motioning to have the claim against them removed.  Further, the judge found that Mr. Burns had not presented specific evidence indicating that either employee was acting as a separate identity or interest from RBC and that their individual actions are tortious.  

On the other hand, Justice Perell acknowledged that the employee’s conduct “may make RBC Life vicariously liable for breach of contract, negligent misrepresentation, or breach of a duty of good faith”.  However, in denying Mr Burn’s disability claim and dismissing his appeal, the judge found that the actions of the two employees, do not expose these individuals to personal liability in the existing claim. Accordingly, the judge dismissed the claims against Ms. Mclean and Ms Oslizlok without leave to amend.

In Burns v. RBC Life Insurance Company (2020), the plaintiff appealed the part of the motion judge’s order that struck out his statement of claim.  The Court of Appeal found that Justice Perell did not err in his conclusion that the plaintiff failed to successfully plead his case against the employees in compliance with the rules governing personal liability in civil cases for the actions of employees during the course of their employment.  However, the Appeal Court found that the motion judge was premature in deciding that the plaintiff cannot plead a case against the employees, and also found that Justice Perell should have provided reasons for his decision.  The Court asserted that “in the absence of reasons explaining why he denied leave to amend, the discretionary order of the motion judge is not entitled to deference”.

The Court of Appeal stated that it is not necessary for this Court to resolve whether the employee’s conduct is in bad faith or constitutes a distinct actionable legal wrong which can be pleaded against them personally.  The Court concluded that Mr. Burns must be permitted to amend his statement of claim to properly plead individualized claims against Ms. McLean and Ms. Oslizlok, and resolution of the dispute between the two parties must await the plaintiff’s amended claim.

It remains to be seen whether Mr. Burns will be successful in proving liability against the two RBC employees and/or RBC.  

Sataur v. Starbucks Coffee Canada Inc. (2017):  The Ontario Court of Appeal states employees are not protected from liability simply because their misconduct occurred in the course of their employment

One of the cases cited by Mr. Burns to support his argument against the employees’ motion is Sataur v. Starbucks Coffee Canada Inc. (2017).   Although the motions judge in Burns ruled that the Sataur case did not support Mr. Burns’ argument, Sataur is an interesting case due to the Court of Appeal’s statements about employee liability.

Sataur v. Starbucks Coffee Canada Inc. (2017) involves a plaintiff who brought a lawsuit against Starbucks, the barista and the store manager for breaching their duty of care, after the plaintiff was injured when the barista at a Starbucks coffee shop poured scalding hot water on her hands.

Similar to the Burns case, the motion judge in Sataur dismissed the Statement of Claim against the two employees on the grounds that the plaintiff did not provide a reasonable cause of action against these individuals and also because “suing the two individual defendants amount to an abuse of progress”.  The motion judge in Sataur further stated that “the general rule remains that employees are not liable for what they do within the scope of their authority and on behalf of their corporation”.

Ms. Sataur appealed the motion judge’s decision and the Court of Appeal agreed with the plaintiff that the motion judge erred in law on both grounds in dismissing the Statement of Claim against the two Starbucks employees.  

The Court of Appeal also disagreed with the motion judge’s viewpoint on employee liability, noting that “there is no general rule in Canada that an employee acting in the course of her employment cannot be sued personally for breaching a duty of care owed to a customer”.  The Court cited London Drugs Ltd. v. Kuehne & Nagel International Ltd (1992) where Justice McLachlin stated that “It has always been accepted that a plaintiff has the right to sue the person who was negligent, regardless of whether the employee was working for someone else or not”.

The Appeal Court found that, in the Starbucks situation and other cases, an employer may be vicariously liable for its employees even when they act within the scope of their employment while, at the same time, individual employees may be personally liable for their own negligent actions.  The Court also disagreed that it is an abuse of process to sue individual defendants in order to obtain discovery, if the defendant has pleaded a proper cause of action against those defendants, as Ms. Sataur did when she plead that the barista was liable for the pouring of the hot water and the manager was liable for not adequately supervising the barista.

The reason why the motion judge in Burns ruled that the Sataur case does not apply in Burns is due to the fact that Ms. McLean and Ms. Oslizlok were not arguing that they are protected from liability simply because they are employees.  Rather, they based their argument on the Court of Appeal finding that claims against employees will be struck down unless the employees were acting in a separate interest from their employer and the employee’s conduct is in itself tortious (in which case employees may be held liable for what they do while employed).