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Special Costs where Insurer Denied Disability Benefits

If my disability insurance is denied, and the court orders that it is payable under the contract, can they also order that my insurance company pay for my lawyer?

In the recent decision of Tanious v. Empire Life Insurance Co. (2017 BCSC 85), the plaintiff was totally disabled by multiple sclerosis (“MS”) under the terms of her disability insurance policy. She was diagnosed at age 25, and over the seven years that followed she suffered changes including the onset of dementia, loss of executive function, disorganization, and depression. Her work was cognitively demanding, and she started to use illicit crystal methamphetamine to improve her cognition (infrequently and in low doses – insufficient to cause the debilitating physical and mental effects that disabled her).  Seven years after diagnosis, her physician provided a report stating that her medical condition prevented her from working any longer. At trial, the insurer argued that she was disabled by her illicit drug use, and therefore not entitled to long term disability benefits. In the trial decision, Justice Brown concluded that her MS (not the use of crystal meth) was the cause of her conditions, and that she would have suffered her disabling conditions regardless of her illicit drug use.  Accordingly, the insurance company was forced to pay her disability benefits.

This summary relates solely to the decision on costs. The plaintiff sought “solicitor client costs” meaning that she sought an order that the insurer pay for her legal fees.  In the usual course, the unsuccessful party pays for “costs” on the basis of units per step taken in litigation – rather than the usually thousands of dollars (or hundreds of thousands) incurred in legal fees for a trial. In this particular case, the plaintiff hired her lawyer on a contingency basis, requiring her to pay her lawyer 35% of the amount recovered through litigation.

In deciding that the circumstances warranted special costs, Justice Brown made the following findings:

155      I am satisfied that in the particular circumstances of this case it is fitting that I exercise my discretion in making an award for full indemnification in order to put the plaintiff in the position she would have been in had she not been forced to retain counsel and enforce the contract through litigation. I come to this conclusion based on the following considerations: 

a) The plaintiff had a disability insurance contract with the defendant, the purpose of which was to provide her, in the event of a disability that rendered her unable to work, with a subsistence level amount of income with which to feed, clothe, and house herself while unable to work; and to provide her with the peace of mind that flows from the coverage.

b) The plaintiff did in fact suffer a disability which rendered her unable to work and triggered the defendant’s obligation to pay those subsistence level benefits, which it did not do.

c) The plaintiff was required to commence litigation against the defendant or else forfeit the benefits to which she was entitled under the contract. The significant challenges caused by the plaintiff’s disability also necessitated (and complicated) the assistance of counsel for virtually every aspect of that litigation.

d) The legal costs the plaintiff reasonably incurred in obtaining her contractual benefits in this case substantially deprived her of the full benefit of the contract, leaving her with less than the necessary amount of income on which to obtain the basic necessities of food, clothing, and shelter.

e) The coverage issue in the case at bar is not fundamentally different in principle than the coverage issues in third party proceedings cases where courts have awarded special or solicitor and client costs in addition to the insurance benefits payable under the terms of the policy. In both situations, fulfillment of the intention of the insurance coverage is the driving consideration. There is also case law to support the proposition that full indemnification is appropriate where a plaintiff has been forced to enforce a disability or other type of insurance contract through litigation, and ought to be put in the position they otherwise would have been in had the litigation not been required.