You paid for long-term disability (LTD) coverage precisely so that, if illness or injury ever stopped you from working, there would be money coming in. So it can feel like a betrayal when the insurer denies your claim — or cuts you off — despite medical evidence that you cannot work.

Insurers are allowed to investigate and to say no when a claim genuinely does not qualify. What they are not allowed to do is act in bad faith. This guide explains the duty of good faith in LTD claims, what bad faith can look like, how punitive damages work, and what one leading Ontario case tells us about all of it. It is general information, not advice about your particular claim.

The duty of good faith in disability insurance

An LTD policy is more than a simple contract. Courts have long recognized that insurers owe policyholders a duty of good faith — a duty to handle claims fairly, honestly, and promptly. That duty flows both ways, but it places real obligations on the insurer: to investigate a claim reasonably, to weigh the evidence even-handedly, and not to prefer its own financial interest over a fair assessment of whether you are disabled.

When an insurer breaks that duty in a way that goes beyond an ordinary wrong denial, a court can respond with more than just ordering the benefits paid. It can award additional damages aimed at the insurer’s conduct itself.

What bad faith can look like

A denial being wrong is not, on its own, bad faith. Reasonable people — and doctors — can disagree. Bad faith is about how the insurer behaved. Patterns that courts have found troubling include:

  • Ignoring contrary medical evidence — brushing aside the opinions of treating doctors that support the claim.
  • One-sided reliance on surveillance — leaning heavily on video of a claimant on their better days, taken out of context, instead of the full medical picture.
  • Cherry-picking — quoting the parts of a report that help the insurer and ignoring the parts that do not.
  • Unreasonable demands or delay — repeated requests for the same information, or dragging out a decision while benefits go unpaid.
  • Relying on a paper review that never grapples with the treating specialists’ findings.

Any one of these might be defensible in isolation. The concern is when they combine into a process that looks designed to find a reason to say no rather than to reach a fair answer.

What Ontario’s largest LTD punitive-damages award teaches

The leading recent example is Baker v. Blue Cross Life Insurance Company of Canada. In 2023 the Ontario Court of Appeal upheld a jury’s award of $1.5 million in punitive damages against a long-term disability insurer — reported as the largest Canadian LTD punitive-damages award. The award was grounded in findings that the insurer had ignored medical evidence that contradicted its position and had relied on lengthy surveillance to support cutting off benefits.

The message is narrower and more useful than “every denial leads to a large award.” When an insurer disregards the medical evidence and builds its decision on surveillance rather than the full record, courts can and do treat that conduct as worthy of punishment on top of the benefits owed.

The case remains a reference point for bad-faith discussions in 2026. Its practical lesson is not that every denial leads to a large award — it does not. The message is narrower and more useful: when an insurer disregards the medical evidence and builds its decision on surveillance rather than the full record, courts can and do treat that conduct as worthy of punishment on top of the benefits owed.

How punitive damages work

It helps to separate the different things a court can award in an LTD dispute:

Type of award What it is for
The disability benefits The money you were owed under the policy, often as a lump sum plus ongoing payments.
Aggravated / mental-distress damages Compensation for the added stress and hardship caused by how the claim was handled.
Punitive damages Not compensation — these punish and deter conduct that is a marked departure from decent standards, such as bad-faith claims handling.
Costs and interest Amounts that may be added depending on the outcome and how the case ran.

Punitive damages are exceptional. They are reserved for conduct the court considers high-handed, malicious, or a serious abuse of the insurer’s position — not for an honest but mistaken denial. Because they are exceptional, no one can promise them in any given case, and the amount depends entirely on the facts.

What claimants can do to protect themselves

You cannot control how an insurer behaves, but you can build a clear record. Steps that often help:

  • Keep every letter and email from the insurer, including denial letters and requests for information.
  • Ask your doctors to document your limitations clearly and in their own words — how your condition affects the specific work you do.
  • Respond to reasonable requests, and keep a dated note of what you sent and when.
  • Note delays and repeated demands, which can matter later if bad faith is alleged.
  • Get the policy and understand the definition of disability that applies to you (it often changes after two years).
  • Get advice early — before deadlines pass and while the record can still be shaped.

Watch your deadlines. LTD claims can be affected by both the policy’s own time limits and Ontario’s general two-year limitation period, and they can be shorter than people expect. Confirm the deadline that applies to you rather than assuming.

Key takeaways

  • Insurers owe a duty of good faith to handle LTD claims fairly and honestly.
  • A wrong denial is not automatically bad faith — bad faith is about unfair conduct, like ignoring medical evidence or misusing surveillance.
  • Baker v. Blue Cross (Ont. C.A., 2023) upheld a $1.5 million punitive award, reported as Canada’s largest LTD punitive-damages award, and still shapes 2026 practice.
  • Punitive damages punish conduct; they are exceptional and never guaranteed.
  • Keep records, get clear medical documentation, and mind short deadlines.

Frequently asked questions

The insurer denied my claim. Does that mean it acted in bad faith?

Not necessarily. Insurers are entitled to deny claims that genuinely do not qualify. Bad faith is about the process — for example, disregarding your doctors’ evidence or relying unfairly on surveillance. Whether that happened depends on the facts of your file.

Can I count on punitive damages if I win?

No. Punitive damages are exceptional and are awarded only where the insurer’s conduct is a serious departure from fair standards. Many successful LTD claims recover the benefits owed without any punitive award. No one can promise them.

Is surveillance allowed?

Insurers can lawfully conduct surveillance. The concern arises when they rely on short clips of good moments, out of context, while ignoring the fuller medical picture. Courts have criticized that kind of one-sided reliance.

How long do I have to act?

It depends on your policy and on Ontario’s general two-year limitation period, and the applicable deadline can be shorter than you expect. Because missing it can end your claim, it is wise to confirm your specific deadline early.

If your long-term disability benefits have been denied or cut off and you are worried the insurer is not treating you fairly, Azimi Law is happy to review your denial letters and policy, explain how the good-faith duty applies, and walk you through your options and deadlines. Reaching out to ask carries no obligation.