Published October 2004
Disability insurance litigation is an interesting combination of personal injury issues and contract interpretation. Recently, the law in this area has been in a considerable state of flux. Accordingly, such litigation presents a changing landscape of judicial interpretation of disability insurance contracts and often inconsistent awards for aggravated and punitive damages.
As a result, in my view, disability insurance litigation presents an excellent opportunity to achieve a mediated resolution of what can be highly acrimonious, complex and protracted proceedings.
Disability insurance litigation is now, like most other litigation in BC, subject to BC Regulation 4/2001 enacted on February 15, 2001. This regulation requires all parties to attempt mediation where one party has served upon the other a Notice to Mediate pursuant to the aforesaid Regulation. Even prior to enactment of this legislation, mediation of disability insurance disputes was not uncommon. Such mediations were conducted for the same reasons that mediation has become so popular over the past several years in not only British Columbia, but in many other provinces across Canada. Mediation can be a quick and cost effective way to settle claims.
Disability insurance litigation, however, has some unique features that makes it particularly well suited for a mediated settlement. Individuals who become embroiled in disability insurance litigation have very strong feelings about the insurance company who they perceive (rightly or wrongly) has treated them improperly in the context of the handling of their claim. Not unlike individuals involved in motor vehicle accidents, the level of mistrust and the lack of communication between the disputant and the insurance company is poor. This is then, unfortunately, further fuelled by the litigation process itself. Like plaintiff personal injury litigation, getting the parties into the same room and having a face put to the claimant and to the insurance company can do wonders toward reaching a resolution of an outstanding lawsuit.
Unlike plaintiff personal injury mediation, however, disability insurance mediation opens up a myriad of possible creative solutions that are not otherwise available to the disputant/complainant outside of the mediation process.
Disability insurance litigation can often be an all or nothing proposition for the plaintiff. Most of this litigation involves a disability claim under an insurance contract that has either been allowed for a period of time and then terminated or, alternatively, never accepted by the insurer. Litigation then ensues. In most (but not all) cases, a successful plaintiff litigant in an insurance disability dispute case is seeking a finding in his/her favour as to arrears of disability payments owed and a declaration, at that time, as to ongoing disability therefore the insurer’s obligation to continue to pay his/her benefits. Aggravated and punitive damages are also often claimed.
Thus, at the end of a trial, the “successful” plaintiff remains in an unhappy relationship with the insurance company. An unsuccessful plaintiff can receive nothing. From the insurer’s perspective, if unsuccessful in its defence, it has not only lost the lawsuit but now has to continue managing what has already become a particularly acrimonious claimant’s file. The relationship between the parties is not severed if the plaintiff is successful. A trial judge cannot sever the relationship by ordering a “buyout” of the term of the insurance contract between the plaintiff and the defendant insurer. This alternative, however, does remain open to the parties to a mediation and is often the catalyst for an overall and final resolution of the parties’ litigation and contractual relationship.
There are, of course, many insurance disability mediations that do not result in a “buyout” or a “surrender” of the plaintiff insured’s contract of insurance with the defendant insurance company. It is, however, an alternative open for consideration at mediation that is simply not an alternative at trial. It is not within the judge’s jurisdiction to deal with the ongoing future relationship between the plaintiff insured and the defendant insurance company once a declaration as to current entitlement has been made. The parties, however, by way of settlement, may do so and there is much that can be said for a severance of a relationship that has otherwise gone sour.
For those practitioners who are involved in disability insurance litigation, if you are not already doing so, I recommend you avail yourself of mediation services. In doing so, look for a mediator who has experience with this kind of mediation work and who will be familiar with the creative solutions that are not otherwise available through the litigation process.
Reaching a resolution is not always easy in these cases. However, the ability to canvass otherwise unavailable solutions and to “think outside the box” during such mediations provides the parties with a far greater likelihood of reaching not only a resolution of the lawsuit itself but, potentially, a mutually satisfactory termination of the contractual relationship as well.