When a disability insurer denies benefits and later starts paying again, that may look like a win for the claimant, and sometimes it can be. But in litigated disability claims, a unilateral reinstatement of benefits can also be used in a way that sharply reduces the plaintiff’s leverage.
An insurer may pay arrears, restart monthly benefits, and then argue that the only issues left for trial are aggravated or punitive damages. That can be a dangerous position for a plaintiff, because those remaining claims are often the hardest claims to prove and the least predictable to value.
How Reinstatement Can Remove the Biggest Part of the Claim
In many denied disability cases, the most concrete part of the lawsuit is the claim for past-due benefits. Those arrears are easy to identify, easy to quantify, and they give the plaintiff real settlement leverage. Once the insurer pays them, that part of the case may effectively disappear. That does not necessarily erase the earlier breach, but it can strip the lawsuit of the clearest money claim the plaintiff had.
A plaintiff who goes to trial seeking unpaid disability benefits is asking the court to enforce the core bargain in the policy. A plaintiff who goes to trial only on aggravated or punitive damages is asking for something much narrower and much more exceptional. Even where the insurer’s conduct was troubling, the plaintiff may recover far less than expected, or nothing at all, on those remaining heads of damage. That is exactly why a late reinstatement can materially change the risk profile of the case.
Why Future Settlement Value Can Also Shrink
A late reinstatement can also reduce the plaintiff’s ability to negotiate a meaningful amount for future benefits. While it is common to have settlements involving amounts for future benefits, as a practical matter, all a Court can do is order a insurer to put a person back on claim. Once the insurer has put the claimant back on claim, it will take the position that there is no reason to pay a substantial lump sum to resolve future exposure as this is not something the Court can do at law. Instead, it can say we are paying now, so the plaintiff is getting the benefit of the contract, and the only real issue left is aggravated or punitive damages. That can make settlement much harder.
The Plaintiff May Be Left With the Riskiest Claims Alone
Once arrears are paid and monthly benefits resume, the plaintiff may be left advancing only aggravated damages, punitive damages, or both. That is risky litigation terrain. Damages for mental distress are available in disability cases, but only where the evidence proves real mental suffering of a degree sufficient to warrant compensation. Even then, the award remained modest compared with what many plaintiffs might hope to achieve after years of litigation.
Punitive damages are harder still. The Courts have consistently described punitive damages as exceptional and reserved for “malicious, oppressive and high-handed” misconduct that offends the court’s sense of decency. Insurers are not automatically liable for punitive damages just because it wrongly denied a claim that was later conceded or judicially found valid. The question is whether the denial resulted from “overwhelmingly inadequate handling” of the claim or improper considerations in the claims process.
This is the real danger of a strategic unilateral reinstatement of benefits. The insurer may succeed in converting a concrete benefits case into an extra-contractual damages case, and those are very different types of litigation. One is about enforcing unpaid contractual benefits. The other is about proving compensable mental distress or exceptional misconduct. Plaintiffs and their counsel need to recognize that shift for what it is, which is often a serious narrowing of the case with a massive increase of risk to the Plaintiff.
Reinstatement Does Not Always End the Analysis
None of this means a plaintiff should reject reinstatement. In many cases, restarting benefits is important and necessary. But it does mean the file needs to be reassessed immediately and carefully. The questions become were all arrears paid, was interest addressed, are there viable aggravated damages on the evidence, is there any realistic punitive claim, are costs still meaningful, and has the insurer’s move materially weakened the plaintiff’s settlement leverage?
Experienced Disability Lawyers in BC
A unilateral reinstatement of disability benefits can be helpful, but it can also be strategically useful to the insurer. By paying arrears and resuming monthly benefits, the insurer may eliminate the clearest part of the plaintiff’s damages claim, reduce the chance of a future lump-sum settlement, and leave the plaintiff facing trial on aggravated and punitive damages alone. Because those claims are narrower, more discretionary, and far riskier than a straightforward benefits claim, a careful legal review is essential before assuming that reinstatement means the case has been won.
Contact the experienced disability lawyers at Taylor & Blair LLP today for a free consultation.