COURT OF APPEAL FOR BRITISH COLUMBIA
Asselstine v. Manufacturers Life Insurance Co.,
2005 BCCA 292
E. Penney Asselstine
The Manufacturers Life Insurance Company and
The University of British Columbia
The Honourable Mr. Justice Donald
The Honourable Madam Justice Huddart
The Honourable Mr. Justice Lowry
N. P. Kent and J. A. Fishman
Counsel for the Appellants
F. R. C. Dorchester and E. G. Dorchester
Counsel for the Respondent
Place and Date of Hearing:
Vancouver, British Columbia
April 18 and 19, 2005
Place and Date of Judgment:
Vancouver, British Columbia
May 25, 2005
Reasons dissenting in part by:
The Honourable Mr. Justice Lowry
Written reasons by: (P. 23, para. 50)
The Honourable Mr. Justice Donald and the Honourable Madam Justice Huddart
Reasons for Judgment of the Honourable Mr. Justice Lowry:
 This action arose out of a claims agent’s rejection of an employee’s claim for long term disability insurance benefits. The trial judge granted judgment on the policy and awarded aggravated and punitive damages as well as increased costs against both the insurer and its agent: (2003), 17 B.C.L.R. (4th) 107, 2003 BCSC 1119. Several grounds are now advanced in support of an appeal. It is contended that the judge failed to find the facts necessary to support liability on the policy, the agent could not be liable in any event, the awards of aggravated and punitive damages are not supportable, and it was not open to the judge to award increased costs.
 I begin with an outline of the claim and the trial judgment and then address each of the grounds advanced in turn.
 Penny Asselstine is a registered nurse who was employed by the University of British Columbia (the “University”) in a research facility for several years. In March 1997, she was diagnosed to be suffering from Multiple Sclerosis (“MS”). She was then experiencing chronic fatigue and a loss of balance that affected her ability to walk. She took six weeks sick leave and then returned to work but was relieved of other than sedentary tasks. At the beginning of May, due only to a lack of funding, she was given notice that her position would be terminated effective the end of July. She negotiated a paid leave in lieu of working notice (her salary continued) and then some weeks later took a position as a doctor’s receptionist where she worked from mid-August until the end of the year by which time her health had deteriorated to the point that she was unable to work at all.
 The University has a disability insurance plan that provides long term disability benefits to employees who qualify. The University contracts with Manufacturers Life Insurance Company (“Manulife”) to administer the plan. To qualify for long term disability benefits an employee must establish that he or she became totally disabled while employed by the University. “Total disability” is defined in the policy as the inability to perform the duties of any occupation for which an employee is fitted by education, training, or experience. The employee must also establish that he or she was totally disabled for the “qualifying period”, a continuous six months. The University’s Department of Human Resources wrote to Manulife to assist Ms. Asselstine in initiating a claim for long term disability benefits in January and February 1998. It is common ground that, as pleaded, the decision as to whether the claim would be accepted or rejected rested with Manulife.
 Manulife declined Ms. Asselstine’s claim at the end of July 1998 on the basis that she was not totally disabled prior to the end of her employment with the University. The adjudicator of the claim was faced with conflicting medical opinions concerning Ms. Asselstine’s ability to work. Her treating physician until the end of July 1997, Dr. Paul Bratty, an eminent senior neurologist who had diagnosed her disease, maintained that Ms. Asselstine was able to work and he encouraged her to do so, albeit at a much reduced level of activity. Dr. John Hooge, also a neurologist of long experience who specializes in MS, started treating Ms. Asselstine in the fall of 1997. It was his opinion that her reported condition at the time she was diagnosed in March 1997 was such that she did not have the ability to do any work from then onwards. With the concurrence of Manulife’s consulting physician, the adjudicator relied on Dr. Bratty’s opinion as that of the treating physician at the material time in concluding that Ms. Asselstine was not totally disabled before her employment at the University ended. The adjudicator’s investigation and assessment of the claim was then governed accordingly.
 Ms. Asselstine appealed the rejection of her claim twice. She provided a further medical opinion in September 1998 from Dr. Stanley Hashimoto, another neurologist specializing in MS. He too was of the opinion that Ms. Asselstine’s reported symptoms were such that she did not have the ability to work after she was diagnosed with MS in March 1997. But the adjudicator maintained that Ms. Asselstine did not qualify for the benefits she sought.
 Ms. Asselstine subsequently commenced this action against the University and Manulife alleging bad faith and claiming specific performance of the insurance contract or damages for breach of contract as well as aggravated and punitive damages.
The Trial Judgment
 The action was tried over the course of three weeks. The evidence of the 20 witnesses that testified, both medical and lay witnesses, focused largely on Ms. Asselstine’s ability to work prior to the end of her employment with the University and thereafter, as well as the way in which her claim had been investigated and assessed by Manulife. The reasons for judgment run to 83 pages. After undertaking a comprehensive review and commenting on the evidence of many of the witnesses, and stating the positions advanced by the parties, the judge concluded:
 In my view, this plaintiff has established the necessary eligibility for her claim of total disability on the insurance benefits which she had with UBC. The defendants failed to deal with Ms. Asselstine in good faith, and further, this is a situation where both punitive and aggravated damages should lie.
 The judge then proceeded to discuss the way the claim was investigated and assessed by Manulife. She was highly critical of the adjudicator’s reliance on Dr. Bratty’s opinion over the other medical evidence that was available, although she did not undertake any analysis of why the other medical evidence was to be preferred. She saw in the assessment an unjustified disregard for the opinions of Dr. Hooge and Dr. Hashimoto attributable to a “steadfast” refusal to consider evidence after July 1997 which was “unfair and inappropriate”. The judge was equally critical of the failure to obtain proper information from Ms. Asselstine and of selective information the adjudicator sent to an occupational therapist to obtain an opinion on the kind of employment available to a person who was disabled to the extent Dr. Bratty said Ms. Asselstine was at the material time. The judge was critical of the reliance the adjudicator then placed on what the judge viewed as a flawed occupational report in order to reject the claim.
 Finally, the judge found that the adjudicator and her immediate superior, with whom she had consulted on the claim, failed to apply the correct legal test for total disability, although the judge did not say what test had been applied nor did she explain how, given the medical opinion the adjudicator relied upon, a different legal test would have led to the claim being accepted. In broad terms, the judge considered that Ms. Asselstine had been viewed with suspicion, her self-reporting had been deemed suspect, information that tended to support her claim had been ignored, and her claim had been wrongly rejected throughout despite what the judge viewed as compelling medical evidence regarding her condition. The judge concluded:
 I find there has been a clear breach of good faith. The defendants clearly failed to assess the plaintiff’s claim in a balanced and reasonable manner and failed to act fairly in dealing with it. Consequently, an award of aggravated as well as punitive damages must be considered.
 The judge then awarded Ms. Asselstine $35,000 in aggravated damages and $150,000 in punitive damages. She subsequently awarded Ms. Asselstine increased costs of the action.
Liability on the Policy
 The judge made no clear finding that Ms. Asselstine was totally disabled before her employment with the University ended, or that she was totally disabled for the qualifying six weeks. She made no determination of when Ms. Asselstine became totally disabled. The judge did say that during April and May 1997 Ms. Asselstine “could not function” so it can be accepted that she was totally disabled then, but the qualifying period is said to be significant because from mid-August until December 1997 Ms. Asselstine was working as a receptionist such that she could not be said to be totally disabled within the meaning of the policy.
 However, the judge did conclude that Ms. Asselstine had established eligibility for total disability benefits. It is implicit in that conclusion that she found Ms. Asselstine to be totally disabled prior to the end of her employment with the University and totally disabled for the requisite six months qualification period even though Ms. Asselstine was working as a receptionist. Total disability does not mean that a person cannot physically perform an employment function, but only that he or she should not be performing the function when a physical condition renders it unreasonable that it be undertaken: Paul Revere Life Insurance Co. v. Sucharov,  2 S.C.R. 541. There was evidence in the opinions of Dr. Hooge and Dr. Hashimoto that support the conclusion that Ms. Asselstine was totally disabled as required to establish eligibility for long term benefits in the sense that she ought not to have been working after March 1997 when she was diagnosed with MS.
The Liability of Manulife
 Manulife contends that it can have no liability to Ms. Asselstine. It was not the insurer. It contracted with the University to undertake the administration of the disability insurance plan as an agent. Indeed the policy upon which Ms. Asselstine sues actually provides that “no legal action for the recovery of any claim may be brought against [Manulife].”
 The judge drew no distinction between the University and Manulife for the purposes of liability. She did not say why. In her pleadings, Ms. Asselstine did not distinguish between the two defendants in the relief she sought, but she did allege that the University was the insurer and that Manulife was its agent for the purposes of administering the policy. As the judge noted, in arguing Ms. Asselstine’s case, counsel maintained that the relationship between the University and Manulife was one of principal and agent. There appears to be nothing in either the pleadings of the University and Manulife or in the position they took at trial that could be said to be consistent with their having accepted that there was no distinction to be drawn between them in terms of any liability either might have to Ms. Asselstine. They were jointly represented, but that is only indicative of their having a common interest in defending the action against them.
 There appears to be no basis on which it could be said that the University and Manulife ever conceded that they were to be treated as one and the same for the purpose of liability or, for that matter, that one was liable for the conduct of the other beyond the legal liability a principal has for the conduct of its agent. Yet even though Manulife acted only as the University’s agent, it was held liable in contract for the long term disability benefits, aggravated damages, punitive damages, and increased costs.
 Manulife was not party to any contract with Ms. Asselstine. The action against it must be dismissed.
 It is contended that the award of aggravated damages, $35,000, is inordinately high. It is accepted that awards of aggravated damages are now commonplace whenever claims for benefits on what are characterized as “peace of mind contracts”, like long term disability insurance policies, are wrongly denied. The award provides compensation for mental distress which will usually be a consequence of a breach of contracts of that kind, but it is said that the award in this case is 75% greater than any award in the courts of this province in cases like this. Awards for mental distress have generally been between $10,000 and $20,000: Warrington v. Great-West Life Assurance Co. (1996), 139 D.L.R. (4th) 18 (B.C.C.A.); Eddie v. Unum Life Insurance Co. of America (1999), 66 B.C.L.R. (3d) 1 (B.C.C.A.); Evans v. Crown Life Insurance Co. (1996), 25 B.C.L.R. (3d) 234 (B.C.S.C.); Fidler v. Sunlife Assurance Co. of Canada (2004), 239 D.L.R. (4th) 547, 2004 BCCA 273, leave to appeal to the Supreme Court of Canada granted,  S.C.C.A. No. 335. The contention is that the award cannot be supported and must be reduced.
 The judge did not say that she considered the circumstances of this case justified an unusually high award and it is not clear whether she was aware of how much greater the award is than the awards in similar cases. She cited no authority but said she had reviewed the authority cited to her. The judge was clearly intent on compensating Ms. Asselstine for having suffered what the judge described as “increased anxiety, mental, emotional and financial stress” as a result of the wrongful rejection of the claim. The judge emphasized the impact of the time that has elapsed, the financial strain and uncertainty, and the protracted litigation on Ms. Asselstine when, by virtue of her disease, she has been particularly weak and vulnerable.
 I question whether this case warrants an award of aggravated damages that is 75% greater than awards of that kind in similar cases. The award should not be seen as an upward trend in such damages justifying increased awards. But that said, I do not consider the amount of $15,000 beyond what appears to be the upper end of awards of aggravated damages in cases of this kind to be so great that this Court should interfere with what the judge who tried the case found to be appropriate compensation for Ms. Asselstine.
 The University maintains that there was no conduct associated with the rejection of Ms. Asselstine’s claim for long term disability benefits that justifies an award of punitive damages against it. By cross-appeal, Ms. Asselstine contends that the award of $150,000 is not great enough and ought to be substantially increased.
 As the Supreme Court of Canada has made clear first in Vorvis v. Insurance Corp. of British Columbia,  1 S.C.R. 1085, a case of an employee’s wrongful dismissal, and then in Whiten v. Pilot Insurance Co.,  1 S.C.R. 595, a case of the wrongful rejection of an insurance claim, punitive damages can be awarded where there has been a breach of a contract if there has been conduct that is deserving of such an award. However, before an award of punitive damages is made, there must have been an “independent actionable wrong”. Where it exists, a breach of good faith will constitute the requisite independent wrong when an insurance claim has been wrongly rejected. That is because a breach of good faith is independent of and in addition to the breach of a duty to pay the loss: Whiten at para. 79.
 An obligation to exercise good faith is implied in contracts of insurance. It requires an insurer to assess claims promptly and fairly. In 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd's of London (2000), 184 D.L.R. (4th) 687 (Ont. C.A.), the obligation was described as follows:
 The relationship between an insurer and an insured is contractual in nature. The contract is one of utmost good faith. In addition to the express provisions in the policy and the statutorily mandated conditions, there is an implied obligation in every insurance contract that the insurer will deal with claims from its insured in good faith: Whiten v. Pilot Insurance Co. (1999), 42 O.R. (3d) 641, 170 D.L.R. (4th) 280 (Ont. C.A.). The duty of good faith requires an insurer to act both promptly and fairly when investigating, assessing and attempting to resolve claims made by its insureds.
 The application of the principle laid down in Whiten and Vorvis was discussed by Finch C.J.B.C. in Fidler:
 There is no doubt that to support an award of punitive damages in an action for breach of contract there must be an "independent actionable wrong": Whiten, supra, paras. 78-79; Vorvis, supra, at pp. 1105-06. An insured's breach of the duty of good faith is an actionable wrong independent of a breach of the contractual duty to pay and can form the basis of a claim for punitive damages. I therefore accept the premise that, unless there was reversible error in the trial judge's finding of no bad faith conduct, the claim for punitive damages must fail.
 The focus of this claim is the defendant's conduct. The first question is whether Sun Life breached the duty of good faith it owed to Ms. Fidler. If Sun Life did breach that duty, the next question is whether its breach amounts to conduct that departs to such a marked degree from ordinary standards of decent behaviour as to require a penalty beyond any others the defendant may suffer because of it....
 Thus, it is not every breach of good faith that will give rise to an award of punitive damages. It is first necessary to consider whether the insurer has been delinquent or has conducted the assessment of a claim in a manner that was unfair to the insured. If so, the insurer will have breached the implied obligation of good faith and will be liable to compensate the insured for any consequential damages that may have been suffered. It is then necessary to consider whether the insurer’s conduct is so egregious that an award of punitive damages is warranted.
 On this appeal, the University first attempts to argue that it owed no obligation to exercise good faith. This is said to be because the University simply facilitated the development of what was a self-funded plan for its employees, taking no part in its administration which was contracted to Manulife. But the University pleads that it was the insurer and that it retained the liability for disability benefits. The case was tried on that basis and the University cannot now back away from the position it took in that regard at trial. As an insurer, it owed Ms. Asselstine an obligation to assess her claim promptly and fairly. It would seem to follow that it is liable to compensate her for any damages she suffered as a consequence of a breach of its obligation, even though committed by its agent Manulife. There is, however, no loss which Ms. Asselstine claimed and proved that is not being compensated if she is adjudged entitled to her benefits and awarded aggravated damages. A breach of the obligation of good faith is significant in this case only because it opens the door to the consideration of an award of punitive damages.
 The University then argues with some force that the conduct of the adjudicator was not indicative of bad faith in any event. It contends that the adjudicator was faced with conflicting information about Ms. Asselstine’s condition and her ability to work during the material time, and at worst Manulife can be said to have exercised bad judgment in assessing the claim. That, it is said, does not amount to bad faith. I do not, however, consider it necessary to address the argument for the disposition of the appeal.
 If it is assumed that the judge made no error in finding that there was bad faith on the part of the adjudicator in the assessment of Ms. Asselstine’s claim, the question becomes whether the judge erred in awarding punitive damages against the University.
 The judge said that she considered that an award of punitive damages was appropriate to deter the defendants, the University and Manulife, and others in similar positions from “exploiting the vulnerability of insureds” who are entirely dependent on them when disasters strike. She said the conduct toward Ms. Asselstine was “unacceptable and unfair”. She concluded:
 … The defendants, and insurance companies generally, cannot expect to be able to disregard compelling medical and other information while placing undue emphasis on evidence aligned only with their interests; and rely on a report based on flawed premises generated and selectively disclosed by them, meanwhile steadfastly maintaining an unsupportable position, and be seen as balancing fairly the interests of both the insured and the insurer. I award punitive damages here as a reminder that it is not in the economic interest of the insurer to engage in similar conduct in future similar situations.
 The whole of the judge’s rationale for awarding punitive damages pertained to the conduct of Manulife, but Manulife was no more than the agent of the University. At one point in her judgment, the judge was critical of the University for the way it handled the termination of Ms. Asselstine’s employment. Ms. Asselstine was required to sign a standard form of release to obtain the paid leave in lieu of working notice she sought. The judge understood that she had not been represented. But Ms. Asselstine was in fact represented by the Association of Administrative and Professional Staff of which she was a member at the University throughout the termination process and, in particular, with respect to the release. There was nothing in relation to the termination of her employment that could possibly give rise to an award of punitive damages, and I do not understand the judge to have suggested otherwise. The release was pleaded to have compromised Ms. Asselstine’s claim, but it was only raised, and then unsuccessfully, in the course of the litigation. It had nothing to do with the rejection of her claim for long term disability benefits.
 Thus, the question that this ground of appeal requires be addressed is whether there is any legal basis upon which the University can be burdened with an award of punitive damages for the conduct of its agent. It is a question the judge did not address because she treated the University and Manulife as one for the purposes of liability, and it is a question that does not appear to have been considered directly in Canadian jurisprudence.
 In addressing the question, it is, of course, of particular importance that the purpose of an award of punitive damages be borne in mind. McLachlin J. (now C.J.) put it succinctly in her largely concurring judgment on awarding such damages for a doctor having taken sexual advantage of his patient in Norberg v. Wynrib,  2 S.C.R. 226 at 299:
Punitive damages are awarded, not for the purpose of compensating the victim for her loss, but with a view to punishing the wrongdoer and deterring both him and others from engaging in similar conduct in the future.
 In Vorvis, McIntyre J. discussed the rationale for an award of punitive damages and the circumstances where such damages can be awarded. At page 1107 he wrote:
In my view, while it may be very unusual to do so, punitive damages may be awarded in cases of breach of contract. It would seem to me, however, that it will be rare to find a contractual breach which would be appropriate for such an award.
McIntyre J. distinguished circumstances where there has been the commission of a tort, explaining that the only link between the parties defining their rights and obligations is the contract. He then said:
This distinction will not completely eliminate the award of punitive damages but it will make it very rare in contract cases.
Moreover, punitive damages may only be awarded in respect of conduct which is of such nature as to be deserving of punishment because of its harsh, vindictive, reprehensible and malicious nature. I do not suggest that I have exhausted the adjectives which could describe the conduct capable of characterizing a punitive award, but in any case where such an award is made the conduct must be extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment....
 As the goal of punitive damages is to punish a defendant for malicious conduct and to deter such conduct generally, it would seem unjust and ineffective to hold an innocent principal liable for punitive damages solely on the basis of the conduct of its agent. S.M. Waddams supports this view in his text, The Law of Damages, 2d ed. (Toronto: Canada Law Book, 1991) at p. 11-25 (looseleaf, updated to October, 2004), at page 11-25:
The question of the liability of a principal or employer for the exemplary damages awarded against an agent or employee has been little discussed by the English or Canadian writers… From the point of view of the considerations of justice … there would seem to be no justification for punishing the principal for the agent’s misconduct.
 Assistance can be taken from cases where punitive damages have been considered in the context of an employer-employee relationship.
 In this Court, the question of whether punitive damages can be awarded against an employer for the actions of an employee was considered in W.R.B. v. Plint (2003), 235 D.L.R. (4th) 60, 2003 BCCA 671. The action arose out of abuse inflicted on children by the staff of a residential school. It was recognized that punitive damages may be awarded against an employer when it is shown that the employee, whose conduct is at issue, was the directing mind of the employer’s business. However, an award of punitive damages against the Crown based on the Crown being liable for its employee’s conduct was rejected.
 The Federal Court of Appeal’s decision in Peeters v. Canada (1993), 108 D.L.R. (4th) 471 contains a useful review of academic writing on the lack of any justification for holding the wholly innocent employer liable for punitive damages for the egregious conduct of its employee. The decision was rendered on an appeal from a judgment holding the Crown liable for punitive damages for the conduct of prison guards who had viciously beaten a subdued prisoner while he was being transported to hospital in an ambulance following a prison riot that he had instigated. The award of punitive damages was upheld on the basis that the guards had not been properly trained in the use of force. Proceeding on what was said to be a tabula rasa on which to write, guidance was taken from the American Law Institute’s proposal on punitive damages in the Restatement of the Law, Second -- Torts 2d (St. Paul, Minn.: American Law Institute Publishers,1979):
909. Punitive Damages Against a Principal
Punitive damages can properly be awarded against a master or other principal because of an act by an agent if, but only if,
(a) the principal or a managerial agent authorized the doing and the manner of the act, or
(b) the agent was unfit and the principal or a managerial agent was reckless in employing or retaining him, or
(c) the agent was employed in a managerial capacity and was acting in the scope of employment, or
(d) the principal or a managerial agent of the principal ratified or approved the act.
 The conclusion drawn was that punitive damages cannot be awarded against an employer who is entirely blameless (at 480-481):
In this proposal the American Law Institute, like the Canadian authors I have cited, comes down on the side of an award of punitive damages against an employer only where there is some kind of complicity on the part of the employer. This complicity may be direct, as where the doing and the manner of the servant's act was authorized (s-s. (a)) or subsequently ratified (s-s. (d)), or was at a managerial level such that the act must be taken to have been the act of the employer (s-s. (c)). Responsibility may also be indirect, such as where the employer recklessly employed an unfit person (s-s. (b)).
In my opinion, the last-mentioned category of indirect responsibility is too narrowly drawn. The employer ought equally to be responsible in punitive damages where the employee's training is inadequate for the task assigned and this lack of training is found to be relevant to the tort committed. Such a factor may not, perhaps, be so important in the case of a private employer as in that of a government, which has, for example, employees who are specifically trained to use force as part of their employment.
That being said, and taking the Restatement's examples as illustrative rather than definite, I am inclined to the view that, for the awarding of punitive damages against an employer, there must have been at least some form or some degree of complicity or blameworthiness on the part of the employer. …
If, as I am convinced, punitive damages must ultimately be justified on the basis of deterrence, there can be no possibility of a deterrent effect if there is no complicity by employers against whom punitive awards are sought. I am therefore led to the conclusion that an employer’s complicity in the tortious situation must be established by a plaintiff before punitive damages can be awarded against that employer.
 The conclusion reached in Peeters as to the principles that should govern an award of punitive damages against an employer does not appear to have been addressed by any other appellate court, save that, in G.B.R. v. Hollet (1996), 139 D.L.R. (4th) 260, the Nova Scotia Court of Appeal declined to endorse the qualification given to the Restatement or the way the qualification was applied in Peeters. Indeed, the result in Peeters is criticized by Professor Waddams at page 11-26 of his text:
The Federal Court of Appeal conceded that the plaintiff must establish some degree of fault on the part of the Crown as employer, but held that lack of adequate training was sufficient for this purpose. It is submitted that this result cannot be justified on the general principles of exemplary damages. The effect is to punish the employer for what is at best negligence.
 In G.B.R., the Nova Scotia Court of Appeal divided over whether the failure of senior officials of a government department to discharge a counsellor of a school for juvenile delinquents who was the subject of complaints justified an award of punitive damages against the Crown for sexual abuse that was later inflicted by the counsellor on a young girl at the school. The court was, however, unanimous in concluding that some measure of blameworthiness was essential to an award of punitive damages against an employer for the conduct of its employee.
 The decision of the Saskatchewan Court of Queens Bench in M.A. v. Canada (Attorney General) (2001),  5 W.W.R. 686, arising out of residential school abuse, contains a comprehensive review of the authorities leading to the conclusion that some measure of blameworthiness must be evident on the part of an employer that is held liable in punitive damages for the conduct of its employee.
 The case law does not specifically address punitive damages in the context of a principal and agent relationship, but I consider the comments made in relation to the employer-employee relationship to be applicable. The American Law Institute’s proposal appears to me to provide a useful statement of the principles that should govern the award of punitive damages against a principal.
 Punitive damages are not to be awarded against a principal for the egregious misconduct of an agent on a purely vicarious basis. Such damages are intended to punish misconduct and to serve as a deterrent. To award them against an entity like a university that has not itself acted in an egregious, malicious, or high-handed manner is at odds with the whole rationale of punitive damages as recognized in the authorities. The circumstances that warrant an award of punitive damages in contract cases are rare; punishing a litigant when it is guilty of no misconduct that the punishment will deter cannot be justified. It has no legal basis.
 I consider the futility of awarding punitive damages in this case is particularly well illustrated by the circumstances. The reason the judge gave for the award was that the defendants had acted in their own interests in assessing Ms. Asselstine’s claim by disregarding compelling medical and other information about her condition and relying on a flawed report for which they were responsible. The conduct of which she was critical was that of Manulife. But Manulife had no interest in whether the claim was accepted or rejected – at least no financial interest – and there is no reason whatsoever to conclude that Manulife acted as it did to deny Ms. Asselstine benefits to which she was entitled because it was in some way encouraged to do so by the University. That is not even suggested. In fact, it was the University that assisted Ms. Asselstine in initiating her claim and she is hard-pressed indeed to suggest any motivation there may have been to exploit her vulnerability, to use the judge’s words.
 It may be that Manulife’s assessment of the claim was not conducted fairly and gave rise to a breach of good faith, but even if the adjudicator’s conduct could in some way be said to give rise to the exceptional circumstances where the law permits an award of punitive damages, there is no justification for such an award being made against the University. No purpose is to be served by punishing the University for the conduct of its agent.
 It is contended that it was not open to the judge to award increased costs because Appendix B to the Rules of Court, that provided for increased costs, was amended in 2002 as follows:
7 (3) No order for increased costs may be made after July 1, 2002.
 As the judge discussed in the reasons for judgment she gave, (2004), 12 C.C.L.I. (4th) 151, 2004 BCSC 725, decisions of the trial court conflicted as to whether in some circumstances increased costs could be awarded despite the amendment. This Court, sitting as the Yukon Court of Appeal, had the opportunity to resolve the conflict in Trans North Turbo Air Ltd. v. North 60 Petro Ltd., 2004 YKCA 9 . It was held that, subject to one possible exception which has no application here, increased costs could not be awarded after July 1, 2002. It follows that the judge’s award in this case must be set aside.
 I would allow the appeal and dismiss the cross-appeal. I would set aside the order that is the subject of the appeal and substitute an order for judgment against the University requiring that it cause the long term disability benefits claimed by Ms. Asselstine under the disability insurance plan to be paid to her together with aggravated damages of $35,000 and costs of the proceedings in the Supreme Court on Scale Four, with the action against Manulife being dismissed.
 Given that success on the appeal has been to some extent divided, I would grant the parties leave to make written submissions with respect to the costs of the appeal and the cross-appeal if they cannot be agreed.
“The Honourable Mr. Justice Lowry”
Reasons for Judgment of the Honourable Mr. Justice Donald and the Honourable Madam Justice Huddart:
 The principal issue in this appeal is the punitive damage award of $150,000 against both defendants.
 Having had the privilege of reading Mr. Justice Lowry's reasons for judgment in draft we find ourselves in agreement with him that:
1. The judgment against Manufacturers Life Insurance Company ("Manulife") should be set aside.
2. The finding of liability under the policy and the award of aggravated damages should not be disturbed.
3. Increased costs were not available and an award of costs at Scale 4 should be substituted.
However, contrary to Mr. Justice Lowry's view, we would uphold the punitive damage award. We would also dismiss the cross appeal for a greater amount of punitive damages.
 We do not, with due respect for the contrary opinion, think it follows that because there was no cause of action against Manulife the University of British Columbia ("University") cannot be assessed punitive damages.
 Because of the way the defendants pleaded and conducted their defences we can find no meaningful separation dividing the conduct of principal and agent. Manulife adjudicated the claim for the University and they treated the actions of one as that of the other. It is as though an in-house administrator managed the claim. In that case it would make no sense for the University to say it is immune from punitive damages for the conduct of an employee acting in the course and scope of her employment.
 The defendants filed joint pleadings and engaged the same solicitor and counsel throughout the action. They pleaded in their amended statement of defence:
18. UBC and Manulife specifically deny paragraph 10 of the Plaintiff's Amended Statement of Claim, and say that, at all material times they acted in good faith, reasonably, and in accordance with the provisions of the ASO Plan, having regard to the medical and other evidence that was available to them, and that the mere denial of the Plaintiff's claim for total disability benefits, because of the provisions of the ASO Plan, is not an act of bad faith, and that there is no requirement on UBC to subordinate its legitimate economic and contractual interests to those of the Plaintiff.
 We are told that at trial neither defendant advanced a position which would distinguish them as to their respective liabilities. In particular, the point taken by our learned colleague on the absence of vicarious liability for punitive damages of an agent was not presented below.
 As a result of the defendants' approach the plaintiff was unable to prepare a case to meet this point. Had the plaintiff known that the University intended to distance itself from Manulife's conduct for any reason she could have investigated the working relationship between the defendants and led whatever evidence she discovered to establish common responsibility for breach of the good faith obligation. On the pleadings and the conduct of the defence, the plaintiff had in our view every reason to believe that joint responsibility was not a contested issue.
 While it is true, as our colleague has found, that no privity of contract exists between Manulife and the plaintiff, and that the plaintiff did not plead a tort against Manulife and therefore there is no legal basis for the judgment against Manulife, nevertheless the University cannot shift its ground on appeal in order to dodge responsibility for Manulife's conduct. In a very real sense the University accepted that Manulife's actions were the University's actions and must now live with that position. Were it otherwise the plaintiff would suffer significant prejudice.
 In the result we do not think the record provides a basis for our colleague's comprehensive and scholarly analysis as to the principal's exposure to punitive damages for the conduct of his agent.
 We turn then to the defendants' argument that the behaviour, as characterized by the trial judge, did not rise to the level required for the imposition of punitive damages.
 In her reasons the trial judge correctly instructed herself on the law and in that regard made specific reference to the leading case of Whiten v. Pilot Insurance Co.,  1 S.C.R. 595, 2002 SCC 18. She found bad faith and gave cogent reasons for doing so. She accepted Whiten's dictum that punitive damages should, in her words, "be resorted to only in exceptional cases" (reasons for judgment, para. 210). She found this to be an exceptional case. As we read the whole of her judgment we think the judge was moved by the indifference of the defendants to the predicament of the plaintiff. The plaintiff was struggling with a terrible disease not knowing whether she would have enough to live on. Although the judge did not use highly charged language (e.g. "egregious, harsh, vindictive, reprehensible, malicious") to describe the breach of good faith, we are satisfied that she thought the adjudication of this claim was sufficiently reprehensible within the meaning of the authorities to warrant punitive damages. How does one measure the gravity of misconduct? It is surely a matter of judgment best left to the judge of the facts. In our opinion we must defer to the judge's impression of the evidence and accordingly we would not interfere with her conclusion that punitive damages are warranted. On the facts of this case, their purpose is to deter decision-making that departed to a marked degree from the standards an ordinary person would anticipate in obtaining disability insurance, and to educate the insurer in that regard.
 The more difficult question in this case is whether an award of $150,000.00 and "no less, was rationally required to punish the defendant's misconduct": Whiten, supra, at para. 107.
 Because punitive damages, unlike compensatory damages, have no natural limit, determining what amount is necessary to rationally accomplish their purpose will always involve an element of informed judgment on the part of the trier of fact. The Supreme Court recognized this proposition in Whiten, supra, when a jury's verdict was being subjected to a review for rationality. In our view, the same test must apply to a review of a trial judge's award.
 The award is substantial, on the high side of what seems proportionate to the blameworthiness of the defendants' conduct viewed without regard to its effect on the plaintiff, particularly where there is no evidence of any gain to either defendant. But when consideration is given to the vulnerability of the plaintiff and the harm she would have suffered if she had not had recourse to the court for redress of what the trial judge found and we agree is a serious lack of good faith in the assessment of her application, we cannot say it crosses the line. Just as we would not disturb the finding that punitive damages are appropriate in this case we would not reduce the assessment. So much depends on the trial judge's appreciation of the evidence. Here the judge was concerned that disability insurers understand the law will not countenance bad faith administration of their policies.
 We would dispose of the cross appeal on the same reasoning. Perhaps the plaintiff's strongest argument for an increase is that the trial judge may have had increased costs in mind when fixing the punitive damages. The theory is that, in an endeavour to make the plaintiff whole, the trial judge wanted to provide an overall remedy that encompassed the plaintiff's legal fees. If increased costs are not available, and we agree with Mr. Justice Lowry that they are not, then more is needed to achieve a make whole remedy. The proposal is to augment the punitive damages to achieve that aim.
 We think that proposal makes the concept of punitive damages work too hard. It mixes compensation and punitive goals. In our view punitive damages should not be used to cure perceived deficiencies in the scheme of costs. We would dismiss the cross appeal.
 Further, on the matter of costs we agree, as mentioned, that the order of increased costs cannot stand. Against the possibility she was wrong in giving increased costs the trial judge said she would have awarded costs at Scale 5. The plaintiff urges that alternative upon us. Scale 5 in Appendix B of the Rules, "is for matters of unusual difficulty or importance", while Scale 4, "is for matters of more than ordinary difficulty or importance". We do not think it is reasonably possible to say that the level of difficulty of importance in this case is higher than Scale 4.
“The Honourable Mr. Justice Donald”
“The Honourable Madam Justice Huddart “