Full Indemnity For Costs Award In Disability Insurance Dispute Has Far Reaching Consequences

On January 19, 2017, Madam Justice Brown of the British Columbia Supreme Court issued reasons in Tanious v The Empire Life Insurance Company, 2017 BCSC 85 ("Tanious"), awarding the plaintiff full indemnity for her costs in a dispute over long term disability benefits, a decision with possible far reaching consequences for insurance coverage disputes.

Facts and Claim

The underlying action was a claim by the plaintiff against her insurance company after it terminated her long-term disability benefits pursuant to a disability policy that formed part of her employment benefits. The plaintiff was diagnosed with Multiple Sclerosis ("MS") which impaired her ability to continue working and triggered the payment of long-term disability benefits under her policy. To cope with the symptoms of MS, the plaintiff began using crystal methamphetamines ("crystal meth"). The defendant took the position that the plaintiff was not entitled to long term disability benefits on the grounds that disability stemmed from an addiction to crystal meth which was caught under an exclusion clause in the contract. In the trial decision, Tanious v The Empire Life Insurance Company, 2016 BCSC 110, the court found that the plaintiff's use of crystal meth was not the proximate cause of her debilitating condition. As a result, the plaintiff was found to be entitled to the benefits under her disability insurance contract.

In this subsequent decision, the plaintiff applied for solicitor client costs (meaning the total legal costs with no tariff) of the proceeding, either as costs or damages. Typically, special costs are not awarded unless reprehensible conduct is found in the circumstances giving rise to the cause of action or in the proceedings that follow. However, a recent British Columbia Supreme Court decision, Williams v Canales, 2016 BCSC 1811, affirmed that special costs are not limited to cases involving reprehensible conduct and are available in other circumstances. The plaintiff here does not allege, nor does the court find, reprehensible conduct. The plaintiff claimed that the nature of disability insurance disputes requires consideration of other factors which may, in some cases, justify an order for full indemnification of the insured's costs.

Important Legal Findings

Madame Justice Brown held that disability insurance claims can be distinguished from personal injury, fire losses or life insurance claims due to the uniqueness in the way disability insurance claims...