Canada: Over-Reliance On Surveillance Footage Costs Disability Insurer $225,000

Fernandes v. Penncorp Life Insurance Company, 2014 ONCA 615

Avelino Fernandes owned a brick laying business. As he was not able to receive EI or Worker's Compensation benefits, Fernandes bought himself disability insurance from Penncorp Life Insurance Company ("Penncorp").

In 2004, Fernandes was injured after he fell from scaffolding. He began receiving disability benefits from Penncorp and attended physiotherapy. His doctor said his recovery was slow, but believed he could return to work in the future.

In the meantime, Penncorp sent him for two medical examinations; both reports said Fernandes should not return to work. In the face of those contradicting medical opinions, Penncorp conducted three days of surveillance on Fernandes in August 2005 which showed him shoveling and wheeling around a wheelbarrow in his backyard for approximately an hour-and-a-half. After receiving this surveillance, Penncorp immediately discontinued benefits despite having medical evidence that Fernandes was completely disabled.

Fernandes continued to attend medical examinations. Further surveillance was conducted, with no conclusive results. However, Penncorp refused to reinstate benefits.

Fernandes eventually sued Penncorp for over $1,000,000, including damages for mental distress and punitive damages. The trial judge found that the August 2005 surveillance of Fernandes did not establish that he was able to work. Instead, the trial judge stated that there was never any doubt that Fernandes was disabled from performing any of the important daily duties pertaining to his work as a brick layer. The trial judge awarded Fernandes $236,733 for breach of contract, $100,000 for mental distress, and $200,000 in punitive damages.

Penncorp appealed the punitive damages and mental distress awards stating they were excessive. The Court of Appeal panel upheld the $200,000 punitive damages award saying that the trial judge's factual findings, especially regarding Penncorp's over-reliance on surveillance, were correct. The mental distress award was considered excessive and reduced to $25,000.

In the end, Penncorp was stuck paying an extra $225,000 to Fernandes because it did not properly weigh the value of its surveillance footage against the medical evidence it received.

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