Disability insurance: More delay and deny benefits tactics


SATURDAY, MAY 25, 2013 06:35 PM EDT

Penncorp Life Insurance Company has a mission statement. According to its website, Penncorp “provides financial security by specializing in simplified, personal disability insurance and financial solutions that fit the unique needs of Canada’s self-employed, skilled tradespeople and other individuals who do not have easy access to traditional insurance and financial products.”

It’s an admirable mission statement but they sure fell short of the mark in their handling of Avelino Fernandes’ disability claim. In fact they fell so short that Justice P.B. Hambly of Ontario’s Superior Court of Justice recently awarded Fernandes $100,000 as aggravated damages and $200,000 as punitive damages in addition to ordering them to pay six years of back payments and $212,130 in legal fees.

Justice Hambly concluded Penncorp’s conduct was “highhanded,” “malicious,” “arbitrary” and “reprehensible” as they delayed and denied payments in order to take advantage of Fernandes’ economic vulnerability or to obtain settlement leverage.

Fernandes was a bricklayer. To protect himself he purchased disability insurance that would pay benefits of $3,000 per month provided he met the definition of total disability. Although he owned his own company he worked full-time laying bricks. He worked 10 to 12 hours a day, six or seven days per week until he suffered two accidents — falling eight feet off a scaffold and three feet off a trailer — in late 2004.

He attempted, but was unable, to work as a bricklayer in 2005 and his company went out of business.

Medical evidence showed lumbar disc disease, right sciatica, cervical disc disease, chronic pain syndrome and other ailments. He was physically incapable of performing the duties of a bricklayer and indeed Penncorp made disability payments for about six months until they viewed a surveillance video showing Fernandes working in his backyard for about 90 minutes. He was observed shoveling some material into a pail and wheeling it into the backyard in a wheelbarrow. He removed tools and other items from the backyard and lifted the wheelbarrow and a wooden skid into the back of a trailer. That was enough for Penncorp to conclude, wrongly, that Fernandes was not entitled to further disability payments.

In total, Penncorp’s investigator conducted surveillance for about 140 hours over 19 days during a span of about four and a half years. But none of the surveillance evidence even came close to establishing that Fernandes was capable of performing the arduous duties of a bricklayer. What they established is that Fernandes could perform light work for short periods of time. What they didn’t show and what surveillance can never show is the pain being suffered during or after the work, the pain medication taken or the number of bad days that followed a short period of activity.

In most disability policies the test for entitlement for benefits during the first two years of disability requires the insured person to be incapable of performing the essential duties of his own occupation. Following the two year period entitlement is based on a definition that requires the insured to be incapable of performing the essential duties of any occupation for which the insured is reasonably suited, taking into account the insured’s education, training or experience.

While Penncorp paid Fernandes’ entitlements for the first two years of the disability, albeit with most of that paid only after commencement of a lawsuit, Penncorp refused to make any further payments, claiming Fernandes was capable of starting his own bricklaying or painting company or becoming a bricklaying supervisor. But Justice Hambly felt the evidence was clear that none of these were realistic based on Fernandes’ medical condition and intellectual abilities.

Facing a rejected disability claim and having to sue for contractual benefits is traumatizing for most. It’s good to see that judges are penalizing insurance companies for violating their contracts, although Penncorp got off easy having to pay only $300,000 in punitive and aggravated damages. 

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