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October 2013

Branco v American Home Assurance Company, 2013 SKQB 98


Mr. Branco was a Canadian citizen, originally from Portugal, who had entered into an employment contract with Kumtor Operating Company ("Kumtor") in Kyrgyzstan wherein he would work for 28 days and then have 28 days off. Through his employment with Kumtor, Mr. Branco had an insurance policy with American Home Assurance Company ("AIG") that was designed to pay benefits similar to workers compensation benefits if so entitled and a long term disability insurance policy with Life Insurance Company ("Zurich"). Mr. Branco was noted to have been an excellent employee with a perfect attendance record and no Workers' Compensation Board claims.

The Accident

On December 25, 1999, Mr. Branco was injured while working when he dropped a steel plate on his foot. Although his foot was swollen, he was able to complete his shift and his 28 day rotation. Mr. Branco returned for his next 28 day rotation in February. Near the end of this rotation, he stepped on a piece of steel and re-injured his foot. Mr. Branco returned to Portugal after the end of the rotation, and subsequently advised the company that he was ill and not able to work.

The Claims Process

When AIG was advised of Mr. Branco's work-related injury, it arranged for him to see a doctor in Portugal. This doctor subsequently recommended surgery to repair Mr. Branco's foot. The surgery took place on January 29, 2001 and was not successful. Despite physiotherapy and rehabilitation treatments, AIG's doctor concluded that Mr. Branco was permanently disabled and advised AIG of same.

Despite AIG's doctor concluding that Mr. Branco was permanently disabled, AIG's adjuster suspended his income benefits when she was unable to get information from the doctor to which AIG had referred Mr. Branco to.

In September of 2001, AIG requested further examinations of Mr. Branco by specialists in Saskatchewan. Mr. Branco agreed to make the journey to Canada at which time he saw various specialists as arranged by AIG. Mr. Branco's disability was confirmed by the specialists, yet AIG continued to refuse to make any payments.

Although Zurich was aware of the extent of Mr. Branco's disability, it did not provide Mr. Branco with benefits until 9 years after the accident, six years after the claim was filed and 1.5 years after a medical examination requested by Zurich which again found Mr. Branco disabled.

Mr. Branco commenced a claim against both AIG and Zurich in October of 2001.

The Decision

After hearing all of the evidence, the Honourable Justice Acton accepted that the worker's compensation coverage and the long term disability coverage provided by AIG and Zurich respectively were both peace of mind contracts. He confirmed the principle established by the Supreme Court of Canada that there exists a right to obtain damages for mental distress for breach of contracts which promise pleasure, relaxation or peace of mind.1 In Mr. Branco's case, Justice Acton found that one of the purposes of his insurance contracts with AIG and Zurich, was continued financial security in the event that he was injured and unable to continue working. He concluded that Mr. Branco suffered from mental distress when AIG and Zurich failed to pay him the benefits to which he was entitled under the insurance contracts.

Justice Acton further found AIG to be in breach of its duty to deal in good faith and fair dealing with Mr. Branco. He pointed to the numerous and unexplained delays in paying Mr. Branco his benefits as well as the actions of the adjuster handling his claim. He noted that AIG's adjuster was involved in a previous action in which $60,000 in punitive damages was awarded against AIG for the way the adjuster handled a previous claim and noted that despite this punitive damage award, the adjuster was again employing similar tactics towards an insured.

In addition to the adjuster's actions, Justice Acton noted the following in regards to AIG and Zurich's conduct:

The cruel and malicious acts of AIG and Zurich combined with the previously ignored award of punitive damages against AIG is evidence of how calculated and abhorrent the actions of AIG were in dealing with Branco. The actions of AIG and Zurich establish a pattern of abuse of an individual suffering from financial and emotional vulnerability.2

In considering the award for punitive damages in this action, Justice Acton stated that:

Although Canadian court may have believed that the $1 million award in the Whiten case would catch the attention of the insurance industry and the court's disapproval of such actions, it is apparent that the $1 million was not sufficient. These decisions were rendered during the same time period that AIG and Zurich were continuing their pattern of aggressive non-activity on the claim of Branco.

The court is cognizant of the fact that a punitive damages award of $3 million may not be particularly significant to the financial bottom line of a successful worldwide insurance company. It is hoped that this award will gain the attention of the insurance industry. The industry must recognize the destruction and devastation that their actions cause in failing to honour their contractual policy commitments to the individuals insured.3

This case makes it abundantly clear that insurance companies must treat their insureds fairly.


This case makes it abundantly clear that insurance companies must treat their insureds fairly. It is a recognized principle of law that many contracts of insurance will be considered peace of mind contracts. If a contract of insurance is considered to be a peace of mind contract, then a plaintiff has the right to sue for damages related to mental distress. If an insurer unfairly denies benefits, unduly lengthens the claim process or causes an insured distress unjustly, this may trigger a significant aggravated damage award. Further, numerous delays and unjustified denial of benefits, could also lead a court to conclude that an insurer has breached their duty of good faith and fair dealing with their insured. If a court finds this to be the case, punitive damages may be awarded on top of the damages for mental distress.

Branco is an unfortunate example of what can happen to an insurer if they choose to engage in these sorts of tactics. In his decision, Justice Acton painstakingly reviewed the course of Mr. Branco's claim, laying bare the insurer's pattern of misconduct in this instance. Justice Acton focused on the numerous delays that Mr. Branco was forced to endure and highlighted that AIG continued to refuse to pay Mr. Branco benefits despite its own doctors concluded that Mr. Branco was permanently disabled. With respect to Zurich's actions, he found that Zurich refused payment on any benefits for 9 years. AIG and Zurich's refusal to acknowledge which was objectively abundantly clear, is at the core of the size of this punitive damage award.

The punitive damage award was the largest of its kind in Canadian history against the insurance industry. This award was meant to make the insurance industry stand up and take notice: unfairly deny claims and unjustly lengthen the claims process and a court will award significant aggravated and punitive damages. Insurers must be vigilant in responding to claims and ensure that they treat their insureds with fairness. This is not to say that unfairly denying claims or lengthening the process is the only ways to bring on significant aggravated and punitive damage awards. Branco makes it clear that any significant misconduct on the part of an insurer will not be tolerated.

1 Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 S.C.R. 3 at para 41.
2 At para 214.
3 At paras 215-216.


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