Psychological Injury Claims

Psychological Injury Claims

June 2011    |    By Craig Harris

 The alarming rise of psychological injury claims has provided a wake-up call to insurance companies’ claims departments. Many insurers are trying to figure out the veracity of these claims and whether they merit compensation. As some lawyers and insurers contend: it is a fuzzy line to determine the truth of psychiatric disorders when it comes to auto insurance and personal injury claims.

More and more physical injury claims are accompanied by associated allegations of psychological or psychiatric impairment, particularly anxiety, stress and depression disorders. In fact, in many cases it is the psychological injury that forms the basis of the claim for compensation.

In the legal arena, the courts have rendered judgments in several of these cases, but there is still uncertainty as questions emerge about which psychological-related claims are compensable and which are not. What is a “recognized” psychiatric impairment? How “reasonably foreseeable” was the psychiatric injury caused to a plaintiff? What is expected of the average citizen’s state of mind or “fortitude and robustness?”

In the accident benefits sphere, particularly in Ontario, psychological injury claims have jumped significantly in the past ten years, according to sources. While hard evidence is scattered across multiple insurance company claim files, many say there is a clear trend towards more psychological injury cases.

“Without doubt, the frequency of these claims has been increasing in recent years,” says lawyer Lee Samis, principal of Samis & Company Barristers & Solicitors. “My sense is that this increase in activity is largely related to changes in the Ontario automobile injury compensation models. Successive reforms have increased the economic incentives associated with these types of claims.“

“Clearly, there are legitimate psychological injuries that arise out of car accidents,” says Lisa Fazzari, claims technical advisor for accident benefits at The Economical Insurance Group. “Yet, we have so many claimants who are in accidents that result in $300 damage to their cars’ bumpers, and there is a psychological injury claim. Often it is for post-traumatic stress. I thought the diagnosis for post-traumatic stress was a bit more stringent than that. We have soldiers coming back from Afghanistan who don’t necessarily have that diagnosis.”

Lawyer Kadey Schultz, a civil litigation specialist with Hughes Amys Barristers & Solicitors, attributes the spike in psychological injury claims to a broader cultural trend. “In the last ten years, I have seen more of a shift towards psychological complaints being the basis of the claim for disability. I think this is also a societal shift – you are seeing more pharmaceutical companies advertising for anti-depressants and anti-anxiety medications,” she says. “There is more association of direct physical pain with these symptoms. So why wouldn’t this move into the area of insurance, litigation and compensation?”

One of the clear challenges with psychological claims is the cause and scope of the disorder in question. “The problem lies in the subjective nature of the injuries,” notes Fazzari. “A fracture you can see on an X-ray; with psychological claims, it really comes down to a psychiatrist or psychologist saying, ‘you have to trust what I’m saying.’ From my standpoint, it is difficult to know how objective these assessments are.”

“Many (psychological claims) involve multiple causes and overlapping impairments,” Samis explains. “Prior susceptibility is very often an issue. The heavy reliance on self reporting makes this area vulnerable to magnification, embellishment or fraud.”

On the tort side, the courts have attempted to impart some clarity to the kinds of psychological claims that will be compensable through negligence. One landmark case heard by the Supreme Court of Canada was Mustapha v. Culligan (2008), the so-called “fly in the water bottle” lawsuit. Waddah “Martin” Mustapha had discovered a fly in his water cooler, supplied by Culligan. He claimed psychological trauma, including nervous shock and depression, and was originally successful when a trial judge awarded him $341,000 in damages. Culligan appealed and the Ontario Court of Appeal dismissed the case. The plaintiff then appealed to the Supreme Court of Canada, which released its judgment in May 2008.

While the Supreme Court dismissed the appeal, it did find that Culligan owed a duty of care to Mustapha and that there was a breach of duty. It also stated that the plaintiff did suffer legitimate psychological damage. However, the Supreme Court held that “the law expects reasonable fortitude and robustness of its citizens and will not impose liability for the exceptional frailty of certain individuals.” It also ruled that Culligan could not be found liable as the company could not have “reasonably foreseen” the psychiatric injury suffered by the customer.

The Supreme Court judgment was lauded by many legal professionals for its common sense approach. More recent rulings, however, have clouded the issue.

One example is Frazer v. Haukioja (2010). In this case, Grant Frazer lost control of his motorcycle and suffered injuries to both ankles. Dr. Haukioja initially diagnosed a left ankle fracture and a soft tissue injury to the right ankle. However, weeks later a radiologist examined the plaintiff’s x-rays and discovered a talar fracture in the right ankle. Although Dr. Haukioja discussed the results with the radiologist that day, he did not communicate the results to Frazer until a follow-up appointment six weeks later. At that time, he described the right ankle fracture as “tiny, barely visible and not requiring any further treatment.” However, Frazer, obtained information from two other doctors indicating the fracture was more serious.

When Frazer realized the full extent of his injuries, he became focused on Dr. Haukioja’s alleged misdiagnosis and the delay in informing him of the injury’s severity. Frazer saw a psychiatrist, who found that Frazer suffered from an anxiety disorder with features of panic disorder.

A trial judge found Frazer’s psychiatric diagnosis was the result of Dr. Haukioja's failure to properly treat his patient. Frazer was awarded more than $2.6 million in damages and costs. The doctor appealed to the Ontario Court of Appeal, which upheld the original ruling in its judgment released in April 2010.

Several sources say that the legal tests involved in these cases revolve around negligence issues – whether there was a breach of duty and whether causation was established (the “but for” test and reasonable foreseeability). Other factors are whether the injury suffered was a recognized psychiatric impairment and if the injury would be expected of an individual with reasonable robustness and fortitude. However, these rules are interpreted on a case-by-case basis, lending some unpredictability in interpretation of negligence for psychiatric injury.

“I perceive that there is some desire from the courts to limit the nature of the claims that will receive compensation, whether by measurement of compensation in relation to ‘reasonably robust’ victims or by limiting compensation to ‘recognized’ impairments,” says Samis. “These concepts are helpful as far as they go, but they are far from being clear rules. There is a realm of psychological injuries that are compensable, and those that are not. In many cases, it is up to insurance companies, lawyers and medical experts to determine this.”

“In cases where there is compelling evidence and a credible claimant, there is often a favourable ruling on psychiatric injury,” notes Schultz. “I think this is true even over and above the opinions of medical experts. It really comes down to the claimant – it is a subjective test based on the plaintiff’s credibility.”

On the accident benefits side of auto insurance, insurance companies and lawyers have seen a significant rise in the number of psychological injury claims, especially in Ontario. Successive reforms of the Ontario auto insurance product have created rich treatment and compensations plans, resulting in more incentives for these types of claims, according to Fazzari and other sources.

“If you look at the rate of psychological claims by jurisdiction, it doesn’t make sense,” Fazzari notes. “I work with claims across the country and the numbers in Alberta and Atlantic Canada are not nearly the same as in Ontario. Does that mean there are fewer psychological injuries in those jurisdictions, or that more health care practitioners are diagnosing these in Ontario?”

Fazzari cites as an example the active response of the Ontario Psychological Association to the Ontario auto insurance reforms introduced September 1, 2010. That response came in the form of a 100-page treatment guideline for related psychological injuries. “In what other province or even state in the U.S. would you get that kind of reaction?” she says. “We track psychological treatment dollars paid and it has increased. In many cases, it is not about the claimant per se, but the stakeholders who can assess and then bill for treatment.”

Others have noticed a condensed time period for the filing of psychological claims. “One thing we have seen on the AB side is the early claims for psychological injury; the initial claim for anxiety or depression comes in 2-3 weeks after the accident,” says Schultz. “This is alarming. Normally, you wouldn’t see that develop until after a period of time. That can really trigger how insurance companies have to deal with this.”

In fact, many argue that adjusters and insurance company claims handlers have to deal with psychological claims in a different and much more proactive manner. “It is naïve for insurers to think that they can address psychological claims using the same tools that are used for physical injury claims,” Samis contends. “It’s a different set of challenges, and requires different skills.”

One of the first steps in any psychological claim is more closely understanding the history and situation of the claimant, as well as the severity of the accident.

“Handling these claims really comes down to best practices,” says Schultz. “One thing you have to do at the start is what we call ‘front-loading’ the claim file. That is gathering relevant information about pre-existing mental health issues of the claimant before the accident. This gives the adjuster a broader understanding of the claimant and the situation.”

Schultz adds that insurers should also consider the appropriate use of surveillance if there are inconsistencies in a psychological claim. “In many cases, claimants say they are too depressed to shop or too anxious to drive a car,” she observes. “ Working together with a private investigator, insurers can use surveillance as an appropriate option.”

In addition, an insurer can request an examination under oath under section 33 in Ontario, which allows for a formal statement to betaken under some conditions. Issues such as the nature of the injury, the type of compensation and whether or not any psychological assessment has taken place can be verified through this examination. “This can show the claimant that the insurer is paying close attention,” Fazzari notes.

Fazzari adds that insurers must often scrutinize where the claim originates from in an auto accident injury. “Unfortunately, we have seen a number of assessment and treatment ‘mills,’ particularly in Toronto,” she says. “It is a reality we have to monitor closely. In some cases, virtually every claimant has a psychological disorder and thus an assessment is required. In other cases, the initial contact for a treatment plan is from the psychologist.”

Under the new Ontario Minor Injury Guideline regulations, a $2,000 cap on assessments is helping to limit the costs that insurers will incur for psychological claims, according to Fazzari. “The regulations have put a cap on assessments and we get some flack, but we say the cap is the cap,” she notes. “If the same kinds of psychological assessments can be done for workers compensation and private disability insurers at a reasonable cost, clearly they can be done for auto insurers.”

Others are skeptical about the cap’s impact on the quality of assessments. “It (the cap) presents a big challenge to get a thorough report at that price,” argues Schultz. “I am a big believer in: ‘you get what you pay for.’”

The limitations could push accident benefits psychological claims into tort claims, a trend many observers have noted in physical injury claims as well. “If the claims move to tort, we may just be paying out of a different bucket,” Fazzari says. “The main advantage, however, is that is would get rid of the fraud aspect in some of these claims.”

In most psychological claims, especially in tort, the opinions of medical experts are required, whether for examinations, reports or testimony. Medical reports from experts representing the defendant may be used to minimize damages, prove no breach of standards or demonstrate no causation.

“Tort is different because it is a longer process,” Schultz says. “Normally, you would get a statement of claim and often you would not get defence medical examinations until after the examination for discovery. That could be two or three years later.” In this area, there are many concerns about the heightened costs of medical expert reports and examinations, particularly in specialized fields such as neuropsychiatry.

“Insurance companies, lawyers and judges are trying to understand the information in a psychological injury case, but in many instances they feel they are not in a position to judge. So they rely on medical experts,” Samis notes. “In an ideal world, you would have an impartial expert that produces a high-quality report at a reasonable cost. That is not always the case in the real world. There is a huge escalation in both what is expected to be in the report and how much it costs. And there doesn’t seem to be much dampening of this in the future.”

Sources say there are many factors that should be considered when retaining a medical expert, including identifying the specific purposes or situation where an expert is required (i.e. to rebut plaintiff’s expert, establish no causation, etc.), selecting the right expert (reputation, technical expertise, impartiality), evaluating timing considerations (i.e. sequencing of experts and/or reports), instructing experts and controlling costs.

Whether the psychological injury claim at hand is for accident benefits or tort in an auto accident or even for a personal injury, sources say insurers should be able to use effective claims handling techniques to distinguish between legitimate disorders and exaggerated psychiatric injuries.

“I want to stress that there are legitimate psychological injuries,” Fazzari reiterates. “But this should not be the case for as many claimants as we are seeing. The number of these types of claims should be fewer and farther between.”

Please note a version of this trends paper has previously been published in an industry publication.

ADVANTAGE Monthly trends papers

This paper is part of an open online library of ADVANTAGE Monthly trends papers, published by the CIP Society for the benefit of its members and of the p&c insurance industry. The trends papers provide a detailed analysis of emerging trends and issues, include context and impact, and commentary from experts in the field.

The CIP Society represents more than 18,000 graduates of the Insurance Institute’s Fellowship (FCIP) and Chartered Insurance Professional (CIP) programs. As the professionals’ division of the Insurance Institute of Canada, the Society’s mission is to advance the education, experience, ethics and excellence of our members. The Society provides a number of programs that promote the CIP and FCIP designations, continuous professional development, professional ethics, mentoring, national leaderships awards, and research on the issues impacting the p&c insurance industry in Canada.