Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, 2002 SCC 18
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On appeal from the court of appeal for Ontario
The appellant and her husband discovered a fire in the addition to their house just after midnight in January 1994. They and their daughter fled the house wearing only their night clothes. It was minus 18 degrees Celsius. The husband gave his slippers to his daughter to go for help and suffered serious frostbite to his feet. The fire totally destroyed the home and its contents, including three cats. The appellant was able to rent a small winterized cottage nearby for $650 per month. The respondent insurer made a single $5,000 payment for living expenses and covered the rent for a couple of months or so, then cut off the rent without telling the family, and thereafter pursued a confrontational policy. The appellant’s family was in very poor financial shape. Ultimately this confrontation led to a protracted trial based on the respondent’s allegation that the family had torched its own home, even though the local fire chief, the respondent’s own expert investigator, and its initial expert all said there was no evidence whatsoever of arson. The respondent’s position was wholly discredited at trial and its appellate counsel conceded that there was no air of reality to the allegation of arson. The jury awarded compensatory damages and $1 million in punitive damages. A majority of the Court of Appeal allowed the appeal in part and reduced the punitive damages award to $100,000.
Held (LeBel J. dissenting on the appeal): The appeal should be allowed and the jury award of $1 million in punitive damages restored. The respondent’s cross-appeal against the award of any punitive damages should be dismissed.
Per McLachlin C.J. and L’Heureux‑Dubé, Gonthier, Major, Binnie and Arbour JJ.: The jury’s award of punitive damages, though high, was within rational limits. The respondent insurer’s conduct towards the appellant was exceptionally reprehensible. It forced her to put at risk her only remaining asset (the $345,000 insurance claim) plus $320,000 in costs that she did not have. The denial of the claim was designed to force her to make an unfair settlement for less than she was entitled to. The conduct was planned and deliberate and continued for over two years, while the financial situation of the appellant grew increasingly desperate. The jury evidently believed that the respondent knew from the outset that its arson defence was contrived and unsustainable. Insurance contracts are sold by the insurance industry and purchased by members of the public for peace of mind. The more devastating the loss, the more the insured may be at the financial mercy of the insurer, and the more difficult it may be to challenge a wrongful refusal to pay the claim.
The jury decided a powerful message of denunciation, retribution and deterrence had to be sent to the respondent and they sent it. The obligation of good faith dealing means that the appellant’s peace of mind should have been the respondent’s objective, and her vulnerability ought not to have been aggravated as a negotiating tactic. It is this relationship of reliance and vulnerability that was outrageously exploited by the respondent in this case.
An award of punitive damages in a contract case, though rare, is obtainable. It requires an “actionable wrong” in addition to the breach sued upon. Here, in addition to the contractual obligation to pay the claim, the respondent was under a distinct and separate obligation to deal with its policyholders in good faith. A breach of the contractual duty of good faith was thus independent of and in addition to the breach of contractual duty to pay the loss. The plaintiff specifically asked for punitive damages in her statement of claim and if the respondent was in any doubt about the facts giving rise to the claim, it ought to have applied for particulars.
The trial judge’s charge to the jury with respect to punitive damages should include words to convey an understanding of the following points: (1) Punitive damages are very much the exception rather than the rule, (2) imposed only if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour. (3) Where they are awarded, punitive damages should be assessed in an amount reasonably proportionate to such factors as the harm caused, the degree of the misconduct, the relative vulnerability of the plaintiff and any advantage or profit gained by the defendant, (4) having regard to any other fines or penalties suffered by the defendant for the misconduct in question. (5) Punitive damages are generally given only where the misconduct would otherwise be unpunished or where other penalties are or are likely to be inadequate to achieve the objectives of retribution, deterrence and denunciation. (6) Their purpose is not to compensate the plaintiff, but (7) to give a defendant his or her just desert (retribution), to deter the defendant and others from similar misconduct in the future (deterrence), and to mark the community’s collective condemnation (denunciation) of what has happened. (8) Punitive damages are awarded only where compensatory damages, which to some extent are punitive, are insufficient to accomplish these objectives, and (9) they are given in an amount that is no greater than necessary to rationally accomplish their purpose. (10) The jury should be told that while normally the state would be the recipient of any fine or penalty for misconduct, the plaintiff will keep punitive damages as a “windfall” in addition to compensatory damages. (11) Judges and juries in our system have usually found that moderate awards of punitive damages, which inevitably carry a stigma in the broader community, are generally sufficient. While the jury charge in this case was skeletal, it was upheld by the Court of Appeal (unanimous on this point) and, with hesitation, this Court should not allow the appeal on that ground.
As to quantum, the award of $1 million in punitive damages was more than this Court would have awarded, but was still within the high end of the range where juries are free to make their assessment.
Per LeBel J. (dissenting on the appeal): While the respondent’s bad faith in its handling of the claim, up to and during the trial, amply justifies awarding punitive damages, an award of $1 million – three times the compensation for loss of property – goes well beyond a rational and appropriate use of this kind of remedy. This case started as litigation based on a home insurance contract. The appellant suffered a loss and encountered obduracy and bad faith on the part of the respondent. There was no evidence that such conduct was a regular incident of the respondent’s way of running its business. Nor is such behaviour widespread in the Canadian insurance industry. The need for general deterrence here is far from clear. Concerns about industry practices should mainly be addressed through the appropriate regulatory and penal regimes, rather than through haphazard punitive damages awards.
The award fails the rationality test because its sole purpose is to punish bad faith and unfair dealing by the respondent. The award also fails the proportionality test because the punishment far exceeds whatever property or economic losses may have been caused by the non-performance of the contract. The Court of Appeal properly set the amount of punitive damages at a sum that is consistent with the nature and purpose of punitive damages in the law of torts. The amount appears reasonable and proportionate. It imposed significant punishment for the bad faith of the respondent without upsetting the proper balance between the compensatory and punitive functions of tort law. Predictability and consistency should be factored into situations where the nature of the damages suffered makes it difficult for a jury to determine a proper quantum. Setting punitive damages at amounts that do not significantly exceed the real economic loss would leave them in their proper place within the scheme of the law of torts. Where trials are held with a judge and jury, instructions on the range of awards would be useful. The jury should be instructed clearly that an award of general damages may also amount to all the punishment that is necessary in a given case.
The judgment of McLachlin C.J. and L’Heureux‑Dubé, Gonthier, Major, Binnie and Arbour JJ. was delivered by
1 BINNIE J.
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III. Analysis
36 Punitive damages are awarded against a defendant in exceptional cases for “malicious, oppressive and high-handed” misconduct that “offends the court’s sense of decency”: Hill v. Church of Scientology of Toronto, 1995 CanLII 59 (SCC), [1995] 2 S.C.R. 1130, at para. 196. The test thus limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour. Because their objective is to punish the defendant rather than compensate a plaintiff (whose just compensation will already have been assessed), punitive damages straddle the frontier between civil law (compensation) and criminal law (punishment).
37 Punishment is a legitimate objective not only of the criminal law but of the civil law as well. Punitive damages serve a need that is not met either by the pure civil law or the pure criminal law. In the present case, for example, no one other than the appellant could rationally be expected to invest legal costs of $320,000 in lengthy proceedings to establish that on this particular file the insurer had behaved abominably. Over-compensation of a plaintiff is given in exchange for this socially useful service.
38 Nevertheless, the hybrid nature of punitive damages offends some jurists who insist that legal remedies should belong to one jurisprudential field or the other. That is one major aspect of the controversy, often framed in the words of Lord Wilberforce’s comments, dissenting, in Cassell & Co. v. Broome, [1972] A.C. 1027 (H.L.), at p. 1114:
It cannot lightly be taken for granted, even as a matter of theory, that the purpose of the law of tort is compensation, still less that it ought to be, an issue of large social import, or that there is something inappropriate or illogical or anomalous (a question-begging word) in including a punitive element in civil damages, or, conversely, that the criminal law, rather than the civil law, is in these cases the better instrument for conveying social disapproval, or for redressing a wrong to the social fabric, or that damages in any case can be broken down into the two separate elements. As a matter of practice English law has not committed itself to any of these theories: it may have been wiser than it knew.
39 A second major aspect of the controversy surrounding punitive damages is related to the quantum. Substantial awards are occasionally assessed at figures seemingly plucked out of the air. The usual procedural protections for an individual faced with potential punishment in a criminal case are not available. Plaintiffs, it is said, recover punitive awards out of all proportion to just compensation. They are subjected, it is said, to “palm tree justice”: Cassell, supra, at p. 1087. They are handed a financial windfall serendipitously just because, coincidentally with their claim, the court desires to punish the defendant and deter others from similar outrageous conduct. Defendants on the other hand say they suffer out of all proportion to the actual wrongs they have committed. Because the punishment is tailored to fit not only the “crime” but the financial circumstances of the defendant (i.e., to ensure that it is big enough to “sting”), defendants complain that they are being punished for who they are rather than for what they have done. The critics of punitive awards refer in terrorem to the United States experience where, for example, an Alabama jury awarded $4 million in punitive damages against a BMW dealership for failure to disclose a minor paint job to fix a cosmetic blemish on a new vehicle in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996). In 1994, a jury in New Mexico awarded 81-year-old Stella Liebeck $160,000 in compensatory damages and $2.7 million in punitive damages against McDonald’s Restaurants for burns resulting from a spilled cup of coffee, notwithstanding that she tried to open the cup while balancing it on her lap in the passenger seat of a car (Liebeck v. McDonald’s Restaurants, P.T.S., Inc., 1995 WL 360309 (D. N.M.)). Critics of punitive damages warn against an “Americanization” of our law that, if adopted, would bring the administration of justice in this country into disrepute.
40 These are serious concerns, but in fact, the punitive damage controversies have little if anything to do with Americanization of our law. Jury awards of punitive damages in civil actions have a long and important history in Anglo-Canadian jurisprudence. They defy modern attempts at neat classification of remedies. The jury is invited to treat a plaintiff as a public interest enforcer as well as a private interest claimant. Almost 240 years ago, government agents broke into the premises of a Whig member of Parliament and pamphleteer, John Wilkes, to seize copies of a publication entitled The North Briton, No. 45, which the Secretary of State regarded as libellous. Lord Chief Justice Pratt (later Lord Camden L.C.) on that occasion swept aside the government’s defence. “If such a [search] power is truly invested in a Secretary of State”, he held, “and he can delegate this power, it certainly may affect the person and property of every man in this kingdom, and is totally subversive of the liberty of the subject”. As to punitive damages, he affirmed that:
[A] jury have it in their power to give damages for more than the injury received. Damages are designed not only as a satisfaction to the injured person, but likewise as a punishment to the guilty, to deter from any such proceeding for the future, and as a proof of the detestation of the jury to the action itself.
(Wilkes v. Wood (1763), Lofft. 1, 98 E.R. 489 (K.B.), at pp. 498-99)
41 Long before the days of Lord Pratt C.J., the related idea of condemning a defendant to a multiple of what is required for compensation (in the present appeal, as stated, the punitive damages were roughly triple the award of compensatory damages) reached back to the Code of Hammurabi, Babylonian law, Hittite law (1400 B.C.), the Hindu Code of Manu (200 B.C.), ancient Greek codes, the Ptolemaic law in Egypt and the Hebrew Covenant Code of Mosaic law (see Exodus 22:1 “If a man shall steal an ox, or a sheep, and kill it, or sell it; he shall restore five oxen for an ox, and four sheep for a sheep”). Roman law also included provisions for multiple damages. Admittedly, in these early systems, criminal law and civil law were not always clearly differentiated. The United States Supreme Court in BMW, supra, referred at p. 581 to “65 different enactments [in English statutes] during the period between 1275 and 1753 [that] provided for double, treble, or quadruple damages”.
42 Even in terms of quantum, the use of punitive damages in the eighteenth century was aggressive. In Huckle v. Money (1763), 2 Wils. K.B. 206, 95 E.R. 768, the journeyman Huckle (who had actually printed the pamphlet The North Briton, No. 45 at issue in Wilkes, supra) won a cause of action for trespass, assault and false imprisonment and received 300 pounds in damages from the jury despite the comfortable and short six-hour duration of his confinement. The government’s motion for a new trial on the basis that the award was “outrageous” was denied, even though actual damages totalled only 20 pounds (i.e., a multiplier of 15) (p. 768). The Lord Chief Justice, in introducing the expression “exemplary damages”, thought there was no precedent for judges “intermeddling” with damages awarded by juries.
43 The three objectives identified by Lord Chief Justice Pratt, in Wilkes, supra – punishment, deterrence and denunciation (“proof of the detestation”) – are with us still, even though some scholarly critics have argued that these rationales “have very particular and divergent implications” that occasionally wind up undermining each other: B. Chapman and M. Trebilcock, “Punitive Damages: Divergence in Search of a Rationale” (1989), 40 Ala. L. Rev. 741, at p. 744. No doubt, as a matter of language, the word “punishment” includes both retribution and denunciation, and the three objectives should perhaps better be referred to as retribution, deterrence and denunciation.
44 The notion of private enforcers (or “private Attorneys General”), particularly where they act for personal gain, is worrisome unless strictly controlled. Thus, while the availability of punitive damages in Canada was affirmed early on by this Court in Collette v. Lasnier (1886), 13 S.C.R. 563, a patent case, they were not widely awarded until the 1970s. Since then the awards have multiplied in number and escalated in amount. A report on punitive damages by the Ontario Law Reform Commission, issued in 1991, which examined research begun in 1989, predicted limited and principled development in the law of punitive damages in Canada: Ontario Law Reform Commission, Report on Exemplary Damages (1991), at pp. 93 and 98. By 1998, the report’s research director, Dean Bruce Feldthusen, conceded that the law was “certainly developing quite differently in Canada than one would have predicted only a short time ago” and that “many of the doctrinal pillars on which the Report’s predictions of limited and principled development in the law governing punitive damages were based have since cracked or collapsed”: B. Feldthusen, “Punitive Damages: Hard Choices and High Stakes”, [1998] N.Z. L. Rev. 741, at p. 742. Contrary to expectations, the awards were much larger, more frequent, appeared to rely more often on the defendant’s wealth in support, and included more high profile jury awards. The kinds of causes of action had expanded; punitive damages were the “norm” and had “proliferated” in actions in sexual battery, were now “clearly available” for breach of fiduciary duty, and “persisted” in contract actions. Prior criminal convictions, he concluded, no longer automatically barred punitive awards. He added, “[p]erhaps most significantly, the courts seem to have accepted general deterrence, not retributive punishment, as the dominant purpose behind punitive damage awards in a number of important decisions” (p. 742).
45 This Court more recently affirmed a punitive damage award of $800,000 in Hill, supra. On that occasion some guidelines were set out to keep this remedy within reasonable limits. The Court on this occasion has an opportunity to clarify further the rules governing whether an award of punitive damages ought to be made and if so, the assessment of a quantum that is fair to all parties.
46 It is convenient at this point to note how other common law jurisdictions have addressed the problem of disproportionate awards of punitive damages.
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F. Conclusions from the Comparative Survey
66 For present purposes, I draw the following assistance from the experience in other common law jurisdictions which I believe is consistent with Canadian practice and precedent
67 First, the attempt to limit punitive damages by “categories” does not work and was rightly rejected in Canada in Vorvis, supra, at pp. 1104-6. The control mechanism lies not in restricting the category of case but in rationally determining circumstances that warrant the addition of punishment to compensation in a civil action. It is in the nature of the remedy that punitive damages will largely be restricted to intentional torts, as in Hill, supra, or breach of fiduciary duty as in M. (K.) v. M. (H.), 1992 CanLII 31 (SCC), [1992] 3 S.C.R. 6, but Vorvis itself affirmed the availability of punitive damages in the exceptional case in contract. In Denison v. Fawcett, 1958 CanLII 119 (ON CA), [1958] O.R. 312, the Ontario Court of Appeal asserted in obiter that on proper facts punitive damages would be available in negligence and nuisance as well. In Robitaille v. Vancouver Hockey Club Ltd. (1981), 1981 CanLII 532 (BC CA), 124 D.L.R. (3d) 228, the British Columbia Court of Appeal awarded punitive damages in a negligence case on the principle that they ought to be available whenever “the conduct of the defendant [was] such as to merit condemnation by the [c]ourt” (p. 250). This broader approach seems to be in line with most common law jurisdictions apart from England.
68 Second, there is a substantial consensus that coincides with Lord Pratt C.J.’s view in 1763 that the general objectives of punitive damages are punishment (in the sense of retribution), deterrence of the wrongdoer and others, and denunciation (or, as Cory J. put it in Hill, supra, at para. 196, they are “the means by which the jury or judge expresses its outrage at the egregious conduct”).
69 Third, there is recognition that the primary vehicle of punishment is the criminal law (and regulatory offences) and that punitive damages should be resorted to only in exceptional cases and with restraint. Where punishment has actually been imposed by a criminal court for an offence arising out of substantially the same facts, some jurisdictions, such as Australia and New Zealand, bar punitive damages in certain contexts (Gray, supra; Daniels, supra), but the dominant approach in other jurisdictions, including Canada, is to treat it as another factor, albeit a factor of potentially great importance. (Buxbaum (Litigation guardian of) v. Buxbaum, [1997] O.J. No. 5166 (QL) (C.A.); Glendale v. Drozdzik (1993), 1993 CanLII 6867 (BC CA), 77 B.C.L.R. (2d) 106 (C.A.); Pollard v. Gibson (1986), 1 Y.R. 167 (S.C.); Joanisse v. Y. (D.) (1995), 1995 CanLII 2783 (BC SC), 15 B.C.L.R. (3d) 224 (S.C.); Canada v. Lukasik (1985), 1985 CanLII 1146 (AB QB), 18 D.L.R. (4th) 245 (Alta. Q.B.); Wittig v. Wittig (1986), 1986 CanLII 3081 (SK QB), 53 Sask. R. 138 (Q.B.)) The Ontario Law Reform Commission, supra, recommended that the “court should be entitled to consider the fact and adequacy of any prior penalty imposed in any criminal or other similar proceeding brought against the defendant” (p. 46).
70 Fourth, the incantation of the time-honoured pejoratives (“high-handed”, “oppressive”, “vindictive”, etc.) provides insufficient guidance (or discipline) to the judge or jury setting the amount. Lord Diplock in Cassell, supra, at p. 1129, called these the “whole gamut of dyslogistic judicial epithets”. A more principled and less exhortatory approach is desirable.
71 Fifth, all jurisdictions seek to promote rationality. In directing itself to the punitive damages, the court should relate the facts of the particular case to the underlying purposes of punitive damages and ask itself how, in particular, an award would further one or other of the objectives of the law, and what is the lowest award that would serve the purpose, i.e., because any higher award would be irrational.
72 Sixth, it is rational to use punitive damages to relieve a wrongdoer of its profit where compensatory damages would amount to nothing more than a licence fee to earn greater profits through outrageous disregard of the legal or equitable rights of others.
73 Seventh, none of the common law jurisdictions has adopted (except by statute) a formulaic approach, as advocated by the intervener the Insurance Council of Canada in this appeal, such as a fixed cap or fixed ratio between compensatory and punitive damages. The proper focus is not on the plaintiff’s loss but on the defendant’s misconduct. A mechanical or formulaic approach does not allow sufficiently for the many variables that ought to be taken into account in arriving at a just award.
74 Eighth, the governing rule for quantum is proportionality. The overall award, that is to say compensatory damages plus punitive damages plus any other punishment related to the same misconduct, should be rationally related to the objectives for which the punitive damages are awarded (retribution, deterrence and denunciation). Thus there is broad support for the “if, but only if” test formulated, as mentioned, in Rookes, supra, and affirmed here in Hill, supra.
75 Ninth, it has become evident that juries can and should receive more guidance and help from the judges in terms of their mandate. They should be told in some detail about the function of punitive damages and the factors that govern both the award and the assessment of a proper amount. Juries should not be thrown into their assignment without any help, then afterwards be criticized for the result.
76 Tenth, and finally, there is substantial consensus (even the United States is moving in this direction) that punitive damages are not at large (as pointed out by Cory J. in Hill, supra, at para. 197) and that an appellate court is entitled to intervene if the award exceeds the outer boundaries of a rational and measured response to the facts of the case.
77 With the benefit of these general principles, I now turn to the specific issues raised by this appeal.
(1) Punitive Damages for Breach of Contract
78 This, as noted, is a breach of contract case. In Vorvis, supra, this Court held that punitive damages are recoverable in such cases provided the defendant’s conduct said to give rise to the claim is itself “an actionable wrong” (p. 1106). The scope to be given this expression is the threshold question in this case, i.e., is a breach of an insurer’s duty to act in good faith an actionable wrong independent of the loss claim under the fire insurance policy? Vorvis itself was a case about the employer’s breach of an employment contract. This is how McIntyre J. framed the rule at pp. 1105-6:
When then can punitive damages be awarded? It must never be forgotten that when awarded by a judge or jury, a punishment is imposed upon a person by a Court by the operation of the judicial process. What is it that is punished? It surely cannot be merely conduct of which the Court disapproves, however strongly the judge may feel. Punishment may not be imposed in a civilized community without a justification in law. The only basis for the imposition of such punishment must be a finding of the commission of an actionable wrong which caused the injury complained of by the plaintiff. [Emphasis added.]
This view, McIntyre J. said (at p. 1106), “has found approval in the Restatement on the Law of Contracts 2d in the United States”, which reads as follows:
Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable. [Emphasis added.]
Applying these principles in Vorvis, McIntyre J. stated, at p. 1109:
Each party had the right to terminate the contract without the consent of the other, and where the employment contract was terminated by the employer, the appellant was entitled to reasonable notice of such termination or payment of salary and benefits for the period of reasonable notice. The termination of the contract on this basis by the employer is not a wrong in law and, where the reasonable notice is given or payment in lieu thereof is made, the plaintiff — subject to a consideration of aggravated damages which have been allowed in some cases but which were denied in this case — is entitled to no further remedy . . . . [Emphasis added.]
Wilson J., with whom L’Heureux-Dubé J. concurred, dissented. She did not agree “that punitive damages can only be awarded when the misconduct is in itself an ‘actionable wrong’”. She stated, at p. 1130:
In my view, the correct approach is to assess the conduct in the context of all the circumstances and determine whether it is deserving of punishment because of its shockingly harsh, vindictive, reprehensible or malicious nature. Undoubtedly some conduct found to be deserving of punishment will constitute an actionable wrong but other conduct might not.
79 In the case at bar, Pilot acknowledges that an insurer is under a duty of good faith and fair dealing. Pilot says that this is a contractual duty. Vorvis, it says, requires a tort. However, in my view, a breach of the contractual duty of good faith is independent of and in addition to the breach of contractual duty to pay the loss. It constitutes an “actionable wrong” within the Vorvis rule, which does not require an independent tort. I say this for several reasons.
80 First, McIntyre J. chose to use the expression “actionable wrong” instead of “tort” even though he had just reproduced an extract from the Restatement which does use the word tort. It cannot be an accident that McIntyre J. chose to employ a much broader expression when formulating the Canadian test.
81 Second, in Royal Bank of Canada v. W. Got & Associates Electric Ltd., 1999 CanLII 714 (SCC), [1999] 3 S.C.R. 408, at para. 26, this Court, referring to McIntyre J.’s holding in Vorvis, said “the circumstances that would justify punitive damages for breach of contract in the absence of actions also constituting a tort are rare” (emphasis added). Rare they may be, but the clear message is that such cases do exist. The Court has thus confirmed that punitive damages can be awarded in the absence of an accompanying tort.
82 Third, the requirement of an independent tort would unnecessarily complicate the pleadings, without in most cases adding anything of substance. Central Trust Co. v. Rafuse, 1986 CanLII 29 (SCC), [1986] 2 S.C.R. 147, held that a common law duty of care sufficient to found an action in tort can arise within a contractual relationship, and in that case proceeded with the analysis in tort instead of contract to deprive an allegedly negligent solicitor of the benefit of a limitation defence. To require a plaintiff to formulate a tort in a case such as the present is pure formalism. An independent actionable wrong is required, but it can be found in breach of a distinct and separate contractual provision or other duty such as a fiduciary obligation.
83 I should add that insurance companies have also asserted claims for punitive damages against their insured for breach of the mutual “good faith” obligation in insurance contracts. In Andrusiw v. Aetna Life Insurance Co. of Canada (2001), 289 A.R. 1 (Q.B.), the court awarded $20,000 in punitive damages against an Aetna policy holder in addition to an order for the repayment of $260,000 in disability payments. The insurance company was not required to identify a separate tort to ground its claim for punitive damages. In that case it was the misconduct of the policy holder, not the insurance company, that was seen as such a marked departure from ordinary standards of decent behaviour as to invite the censure of punitive damages, per Murray J. at paras. 84-85:
This leaves the question of whether or not the plaintiff’s conduct was so reprehensible and high-handed that he should be punished for his behaviour. Counsel for the defendant makes the point that the plaintiff embarked on a deliberate course of conduct to misrepresent facts to the defendant in order to continue to collect disability benefits. If the only consequence of this behaviour is forfeiture of his claim then in effect he is no worse off than if he had been truthful in the first place and deterrence which is one of the objects of granting punitive damages is given no effect.
A great deal has been made in the case law, to which this court was referred, of the fact that insurers vis-à-vis their insureds are in a superior bargaining position and one which places the insureds in positions of dependency and vulnerability. Equally, insurers must not be looked upon as fair game. It is a two-way street founded upon the principle of utmost good faith arising from the very nature of the contract. Thus, it is appropriate that punitive damages be awarded and I do so in the sum of $20,000.00.
I refrain from any comment on the correctness of this award, but to those who subscribe to “the sting” approach to punitive damages, I pose the question whether an award of $20,000 against a cheating policy holder in the Aetna case has at least as much “sting”, or possibly more, than the award of $1 million against Pilot in this case.
(2) Was the Claim for Punitive Damages Properly Pleaded?
84 The respondent says that even if a separate claim arising under the insurance contract could provide the basis for punitive damages, none was pleaded in this case.
85 In other words, while “punitive and exemplary damages” are explicitly requested in para. 13 of the statement of claim, the material facts necessary for the grant of such an award are not spelled out in the body of the pleading. Further, the respondent in its cross-appeal says that even if the plaintiff has established an “independent actionable wrong”, she failed to prove any separate and distinct damage flowing from it. The appellant thus failed, Pilot says, to meet the Vorvis requirements and her claim for punitive damages ought to have been dismissed.
86 There is some case law that says a claim for punitive damages need not be specifically pleaded as it is included conceptually in a claim for general damages: Edwards v. Harris-Intertype (Canada) Ltd. (1983), 1983 CanLII 1611 (ON SC), 40 O.R. (2d) 558 (H.C.), aff’d (1984), 1984 CanLII 2070 (ON CA), 9 D.L.R. (4th) 319 (Ont. C.A.); Grenn v. Brampton Poultry Co. (1959), 18 D.L.R. (2d) 9 (Ont. C.A.), Starkman v. Delhi Court Ltd. (1960), 24 D.L.R. (2d) 152 (Ont. H.C.), aff’d (1961), 1961 CanLII 195 (ON CA), 28 D.L.R. (2d) 269 (Ont. C.A.); Gastebled v. Stuyck (1973), 12 C.P.R. (2d) 102 (F.C.T.D.), aff’d (1974), 15 C.P.R. (2d) 137 (F.C.A.); Paragon Properties Ltd. v. Magna Envestments Ltd. (1972), 1972 ALTASCAD 8 (CanLII), 24 D.L.R. (3d) 156 (Alta. S.C., App. Div.). In my view, the suggestion that no pleading is necessary overlooks the basic proposition in our justice system that before someone is punished they ought to have advance notice of the charge sufficient to allow them to consider the scope of their jeopardy as well as the opportunity to respond to it. This can only be assured if the claim for punitive damages, as opposed to compensatory damages, is not buried in a general reference to general damages. This principle, which is really no more than a rule of fairness, is made explicit in the civil rules of some of our trial courts. For example, in Saskatchewan the Queen’s Bench Rules require that claims for punitive damages be expressly pleaded and specify the misconduct which is claimed to give rise to such damages (Rieger v. Burgess, 1988 CanLII 209 (SK CA), [1988] 4 W.W.R. 577 (Sask. C.A.); Lauscher v. Berryere (1999), 1999 CanLII 12242 (SK CA), 172 D.L.R. (4th) 439 (Sask. C.A.)). Rule 25.06(9) of the Ontario Rules of Civile Procedure also has the effect of requiring that punitive damages claims be expressly pleaded. It is quite usual, of course, for the complexion of a case to evolve over time, but a pleading can always be amended on terms during the proceedings, depending on the existence and extent of prejudice not compensable in costs, and the justice of the case.
87 One of the purposes of a statement of claim is to alert the defendant to the case it has to meet, and if at the end of the day the defendant is surprised by an award against it that is a multiple of what it thought was the amount in issue, there is an obvious unfairness. Moreover, the facts said to justify punitive damages should be pleaded with some particularity. The time-honoured adjectives describing conduct as “harsh, vindictive, reprehensible and malicious” (per McIntyre J. in Vorvis, supra, p. 1108) or their pejorative equivalent, however apt to capture the essence of the remedy, are conclusory rather than explanatory.
88 Whether or not a defendant has in fact been taken by surprise by a weak or defective pleading will have to be decided in the circumstances of a particular case.
89 In this case, the plaintiff specifically asked for punitive damages in her statement of claim and if the respondent was in any doubt about the facts giving rise to the claim, it ought to have applied for particulars and, in my opinion, it would have been entitled to them.
90 However, the respondent did not apply for particulars, and I think there is sufficient detail in the statement of claim to show that its failure to do so was not a self-inflicted injustice. There was no surprise except perhaps as to the quantum, which resulted in an amendment of the statement of claim at trial. Quite apart from the advance notice that she was seeking punitive damages (para. 1(e)), the appellant specifically pleaded the basis for the independent “actionable wrong” in para. 10:
- The Plaintiff pleads an implied term of the insurance contract was a covenant of good faith and fair dealings which required the Defendant, Pilot Insurance Company to deal fairly and in good faith in handling the claim of the Plaintiff.
91 The appellant also pleaded that Pilot’s manner of dealing with her claim had created “hardship” of which “the Defendants, through their agents and employees always had direct and ongoing knowledge” (para. 8). In para. 14 she pleaded that “as a result of the actions of the Defendants, the Plaintiff has suffered and continues to suffer great emotional stress” (although there was no claim for aggravated damages). The respondent specifically denied acting in bad faith (Statement of Defence and Counterclaim of the Defendant, at para. 6). The statement of claim was somewhat deficient in failing to relate the plea for punitive damages to the precise facts said to give rise to the outrage, but Pilot was content to go to trial on this pleading and I do not think it should be heard to complain about it at this late date.
92 As to the respondent’s objection that the pleading does not allege separate and distinct damages flowing from the independent actionable wrong, the respondent’s argument overlooks the fact that punitive damages are directed to the quality of the defendant’s conduct, not the quantity (if any) of the plaintiff’s loss. As Cory J. observed in Hill, supra, at para. 196, “[p]unitive damages bear no relation to what the plaintiff should receive by way of compensation. Their aim is not to compensate the plaintiff, but rather to punish the defendant. It is the means by which the jury or judge expresses its outrage at the egregious conduct of the defendant”. In any event, there is a good deal of evidence of emotional stress and financial cost over and above the loss that would have been incurred had the claim been settled in good faith within a reasonable time.
(3) Was the Jury Charge Adequate?
93 The respondent argues that the trial judge did not give the jury adequate guidance on how to assess punitive damages. There is considerable merit in this submission. The judge’s charge on this point was skeletal. It is my view, for the reasons already discussed, that the charge on punitive damages should not be given almost as an afterthought but should be understood as an important source of control and discipline. The jurors should not be left to guess what their role and function is.
94 To this end, not only should the pleadings of punitive damages be more rigorous in the future than in the past (see para. 87 above), but it would be helpful if the trial judge’s charge to the jury included words to convey an understanding of the following points, even at the risk of some repetition for emphasis. (1) Punitive damages are very much the exception rather than the rule, (2) imposed only if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour. (3) Where they are awarded, punitive damages should be assessed in an amount reasonably proportionate to such factors as the harm caused, the degree of the misconduct, the relative vulnerability of the plaintiff and any advantage or profit gained by the defendant, (4) having regard to any other fines or penalties suffered by the defendant for the misconduct in question. (5) Punitive damages are generally given only where the misconduct would otherwise be unpunished or where other penalties are or are likely to be inadequate to achieve the objectives of retribution, deterrence and denunciation. (6) Their purpose is not to compensate the plaintiff, but (7) to give a defendant his or her just desert (retribution), to deter the defendant and others from similar misconduct in the future (deterrence), and to mark the community’s collective condemnation (denunciation) of what has happened. (8) Punitive damages are awarded only where compensatory damages, which to some extent are punitive, are insufficient to accomplish these objectives, and (9) they are given in an amount that is no greater than necessary to rationally accomplish their purpose. (10) While normally the state would be the recipient of any fine or penalty for misconduct, the plaintiff will keep punitive damages as a “windfall” in addition to compensatory damages. (11) Judges and juries in our system have usually found that moderate awards of punitive damages, which inevitably carry a stigma in the broader community, are generally sufficient.
95 These particular expressions are not, of course, obligatory. What is essential in a particular case will be a function of its particular circumstances, the need to emphasize the nature, scope and exceptional nature of the remedy, and fairness to both sides.
96 The trial judge should keep in mind that the standard of appellate review applicable to punitive damages ultimately awarded, is that a reasonable jury, properly instructed, could have concluded that an award in that amount, and no less, was rationally required to punish the defendant’s misconduct, as discussed below.
97 If counsel can agree on a “bracket” or “range” of an appropriate award, the trial judge should convey these figures to the jury, but at the present time specific figures should not be mentioned in the absence of such agreement (Hill, supra, per Cory J., at paras. 162-63). (This prohibition may have to be reexamined in future, based on further experience.) Counsel should also consider the desirability of asking the trial judge to advise the jury of awards of punitive damages made in comparable circumstances that have been sustained on appeal.
98 The foregoing suggestions are put forward in an effort to be helpful rather than dogmatic. They grow out of the observation in Hill that punitive damages are not “at large” (para. 197). Unless punitive damages can be approached rationally they ought not to be awarded at all. To the extent these suggestions are considered useful, they will obviously have to be both modified and elaborated to assist the jury on the facts of a particular case. The point, simply, is that jurors should not be left in any doubt about what they are to do and how they are to go about it.
99 It is evident that I am suggesting a more ample charge on the issue of punitive damages than was given in this case. Finlayson J.A. said that he was “not entirely happy with the trial judge’s charge to the jury on the issue of punitive damages” (p. 661), and Laskin J.A. agreed that “[t]he trial judge might have given the jury more help than he did” (p. 656). However, both Finlayson and Laskin JJ.A. agreed that the jury charge covered the essentials, however lightly. This conclusion is reinforced by the fact that no objection was made by either counsel. With some hesitation, I agree with the Court of Appeal, unanimous on this point, that in the circumstances this ground of appeal should be rejected.
(4) Reviewing the Jury Award
(a) Whether the Award of Punitive Damages in This Case was a Rational Response to the Respondent’s Misconduct
100 The applicable standard of review for “rationality” was articulated by Cory J. in Hill, supra, at para. 197:
Unlike compensatory damages, punitive damages are not at large. Consequently, courts have a much greater scope and discretion on appeal. The appellate review should be based upon the court’s estimation as to whether the punitive damages serve a rational purpose. In other words, was the misconduct of the defendant so outrageous that punitive damages were rationally required to act as deterrence?
101 The “rationality” test applies both to the question of whether an award of punitive damages should be made at all, as well as to the question of its quantum.
102 The respondent claims that an insurer is entirely within its rights to thoroughly investigate a claim and exercise caution in evaluating the circumstances. It is not required to accept the initial views of its investigators. It is perfectly entitled to pursue further inquiries. I agree with these points. The problem here is that Pilot embarked on a “train of thought” as early as February 25, 1994 (see para. 7 above) that led to the arson trial, with nothing to go on except the fact that its policy holder had money problems.
103 The “train of thought” mentioned in the letter to Pilot from Derek Francis kept going long after the requirements of due diligence or prudent practice had been exhausted. There is a difference between due diligence and wilful tunnel vision. The jury obviously considered this case to be an outrageous example of the latter. In my view, an award of punitive damages (leaving aside the issue of quantum for the moment) was a rational response on the jury’s part to the evidence. It was not an inevitable or unavoidable response, but it was a rational response to what the jury had seen and heard. The jury was obviously incensed at the idea that the respondent would get away with paying no more than it ought to have paid after its initial investigation in 1994 (plus costs). It obviously felt that something more was required to demonstrate to Pilot that its bad faith dealing with this loss claim was not a wise or profitable course of action. The award answered a perceived need for retribution, denunciation and deterrence.
104 The intervener, the Insurance Council of Canada, argues that the award of punitive damages will over-deter insurers from reviewing claims with due diligence, thus lead to the payment of unmeritorious claims, and in the end drive up insurance premiums. This would only be true if the respondent’s treatment of the appellant is not an isolated case but is widespread in the industry. If, as I prefer to believe, insurers generally take seriously their duty to act in good faith, it will only be rogue insurers or rogue files that will incur such a financial penalty, and the extra economic cost inflicted by punitive damages will either cause the delinquents to mend their ways or, ultimately, move them on to lines of work that do not call for a good faith standard of behaviour.
105 The Ontario Court of Appeal was unanimous that punitive damages in some amount were justified and I agree with that conclusion. This was an exceptional case that justified an exceptional remedy. The respondent’s cross-appeal will therefore be dismissed.
106 We now come to the issue of quantum.
(b) Whether the Jury’s Award of $1 Million in Punitive Damages Should Be Restored
107 In Hill, supra, Cory J., while emphasizing the overriding obligation of rationality, also recognized that the jury must be given some leeway to do its job. The issue of punitive damages, after all, is a matter that has been confided in the first instance to their discretion. Thus, to be reversed, their award of punitive damages must be “so inordinately large as obviously to exceed the maximum limit of a reasonable range within which the jury may properly operate” (para. 159). Putting these two notions together, the test is whether a reasonable jury, properly instructed, could have concluded that an award in that amount, and no less, was rationally required to punish the defendant’s misconduct.
108 This test provides an appellate court with supervisory powers over punitive damages that are more interventionist than in the case of other jury awards of general damages, where the courts may only intervene if the award is “so exorbitant or so grossly out of proportion [to the injury] as to shock the court’s conscience and sense of justice” (Hill, supra, at para. 159; Walker v. CFTO Ltd. (1987), 1987 CanLII 126 (ON CA), 59 O.R. (2d) 104 (C.A.)). In the case of punitive damages, the emphasis is on the appellate court’s obligation to ensure that the award is the product of reason and rationality. The focus is on whether the court’s sense of reason is offended rather than on whether its conscience is shocked.
109 If the award of punitive damages, when added to the compensatory damages, produces a total sum that is so “inordinately large” that it exceeds what is “rationally” required to punish the defendant, it will be reduced or set aside on appeal.
110 An award that is higher than required to fulfil its purpose is, by definition, irrational. The more difficult task is to determine what is “inordinate”. Here, I think, the Court must come to grips with the issue of proportionality.
111 I earlier referred to proportionality as the key to the permissible quantum of punitive damages. Retribution, denunciation and deterrence are the recognized justification for punitive damages, and the means must be rationally proportionate to the end sought to be achieved. A disproportionate award overshoots its purpose and becomes irrational. A less than proportionate award fails to achieve its purpose. Thus a proper award must look at proportionality in several dimensions, including:
(i) Proportionate to the Blameworthiness of the Defendant’s Conduct
112 The more reprehensible the conduct, the higher the rational limits to the potential award. The need for denunciation is aggravated where, as in this case, the conduct is persisted in over a lengthy period of time (two years to trial) without any rational justification, and despite the defendant’s awareness of the hardship it knew it was inflicting (indeed, the respondent anticipated that the greater the hardship to the appellant, the lower the settlement she would ultimately be forced to accept).
113 The level of blameworthiness may be influenced by many factors, but some of the factors noted in a selection of Canadian cases include:
(1) whether the misconduct was planned and deliberate: Patenaude v. Roy (1994), 1994 CanLII 6107 (QC CA), 123 D.L.R. (4th) 78 (Que. C.A.), at p. 91;
(2) the intent and motive of the defendant: Recovery Production Equipment Ltd. v. McKinney Machine Co. (1998), 1998 ABCA 239 (CanLII), 223 A.R. 24 (C.A.), at para. 77;
(3) whether the defendant persisted in the outrageous conduct over a lengthy period of time: Mustaji v. Tjin (1996), 1996 CanLII 1907 (BC CA), 30 C.C.L.T. (2d) 53 (B.C.C.A.), Québec (Curateur public) v. Syndicat national des employés de l’Hôpital St-Ferdinand (1994), 1994 CanLII 6112 (QC CA), 66 Q.A.C. 1, Matusiak v. British Columbia and Yukon Territory Building and Construction Trades Council, [1999] B.C.J. No. 2416 (QL) (S.C.);
(4) whether the defendant concealed or attempted to cover up its misconduct: Gerula v. Flores (1995), 1995 CanLII 1096 (ON CA), 126 D.L.R. (4th) 506 (Ont. C.A.), at p. 525, Walker v. D’Arcy Moving & Storage Ltd. (1999), 1999 CanLII 2808 (ON CA), 117 O.A.C. 367 (C.A.), United Services Funds (Trustees) v. Hennessey, [1994] O.J. No. 1391 (QL) (Gen. Div.), at para. 58;
(5) the defendant’s awareness that what he or she was doing was wrong: Williams v. Motorola Ltd. (1998), 1998 CanLII 5023 (ON CA), 38 C.C.E.L. (2d) 76 (Ont. C.A.), and Procor Ltd. v. U.S.W.A. (1990), 1990 CanLII 6637 (ON SC), 71 O.R. (2d) 410 (H.C.), at p. 433;
(6) whether the defendant profited from its misconduct: Claiborne Industries Ltd. v. National Bank of Canada (1989), 1989 CanLII 183 (ON CA), 69 O.R. (2d) 65 (C.A.);
(7) whether the interest violated by the misconduct was known to be deeply personal to the plaintiff (e.g., professional reputation (Hill, supra)) or a thing that was irreplaceable (e.g., the mature trees cut down by the real estate developer in Horseshoe Bay Retirement Society v. S.I.F. Development Corp. (1990), 66 D.L.R. (4th) 42 (B.C.S.C.)); see also Kates v. Hall (1991), 1991 CanLII 1127 (BC CA), 53 B.C.L.R. (2d) 322 (C.A.). Special interests have included the reproductive capacity of the plaintiff deliberately sterilized by an irreversible surgical procedure while the plaintiff was confined in a provincial mental institution, although no award of punitive damages was made on the facts (Muir v. Alberta, 1996 CanLII 7287 (AB QB), [1996] 4 W.W.R. 177 (Alta. Q.B.)); the deliberate publication of an informant’s identity (R. (L.) v. Nyp (1995), 25 C.C.L.T. (2d) 309 (Ont. Ct. (Gen. Div.)). In Weinstein v. Bucar, [1990] 6 W.W.R. 615 (Man. Q.B.), the defendant shot and killed plaintiffs’ three companion and breeding German Shepherds who had merely wandered onto the defendant’s property from a neighbouring yard. Here the “property” was sentimental, not replaceable, and, unlike the trees, themselves sentient beings.
(ii) Proportionate to the Degree of Vulnerability of the Plaintiff
114 The financial or other vulnerability of the plaintiff, and the consequent abuse of power by a defendant, is highly relevant where there is a power imbalance. In Norberg v. Wynrib, 1992 CanLII 65 (SCC), [1992] 2 S.C.R. 226, for example, speaking of a physician who had used his access to drugs to purchase sex from a female patient, McLachlin J. (as she then was) stated, at p. 276:
Society has an abiding interest in ensuring that the power entrusted to physicians by us, both collectively and individually, not be used in corrupt ways . . . .
A similar point was made by Laskin J.A. in the present case (at p. 659):
[V]indicating the goal of deterrence is especially important in first party insurance cases. Insurers annually deal with thousands and thousands of claims by their insureds. A significant award was needed to deter Pilot and other insurers from exploiting the vulnerability of insureds, who are entirely dependent on their insurers when disaster strikes.
115 I add two cautionary notes on the issue of vulnerability. First, this factor militates against the award of punitive damages in most commercial situations, particularly where the cause of action is contractual and the problem for the court is to sort out the bargain the parties have made. Most participants enter the marketplace knowing it is fuelled by the aggressive pursuit of self-interest. Here, on the other hand, we are dealing with a homeowner’s “peace of mind” contract.
116 Second, it must be kept in mind that punitive damages are not compensatory. Thus the appellant’s pleading of emotional distress in this case is only relevant insofar as it helps to assess the oppressive character of the respondent’s conduct. Aggravated damages are the proper vehicle to take into account the additional harm caused to the plaintiff’s feelings by reprehensible or outrageous conduct on the part of the defendant. Otherwise there is a danger of “double recovery” for the plaintiff’s emotional stress, once under the heading of compensation and secondly under the heading of punishment.
(iii) Proportionate to the Harm or Potential Harm Directed Specifically at the Plaintiff
117 The jury is not a general ombudsman or roving Royal Commission. There is a limited role for the plaintiff as private attorney general. It would be irrational to provide the plaintiff with an excessive windfall arising out of a defendant’s scam of which the plaintiff was but a minor or peripheral victim. On the other hand, malicious and high-handed conduct which could be expected to cause severe injury to the plaintiff is not necessarily excused because fortuitously it results in little damage.
(iv) Proportionate to the Need for Deterrence
118 The theory is that it takes a large whack to wake up a wealthy and powerful defendant to its responsibilities. The appellant’s argument is that the punitive damages award of $1 million represents less than one half of one percent of Pilot’s net worth. This is a factor, but it is a factor of limited importance.
119 A defendant’s financial power may become relevant (1) if the defendant chooses to argue financial hardship, or (2) it is directly relevant to the defendant’s misconduct (e.g., financial power is what enabled the defendant Church of Scientology to sustain such an outrageous campaign for so long against the plaintiff in Hill, supra), or (3) other circumstances where it may rationally be concluded that a lesser award against a moneyed defendant would fail to achieve deterrence.
120 Deterrence is an important justification for punitive damages. It would play an even greater role in this case if there had been evidence that what happened on this file were typical of Pilot’s conduct towards policyholders. There was no such evidence. The deterrence factor is still important, however, because the egregious misconduct of middle management was known at the time to top management, who took no corrective action.
121 The fact the respondent’s assets of $231 million were mentioned to the jury in this case was unhelpful. Pilot was obviously a substantial corporation. Disclosure of detailed financial information before liability is established may wrongly influence the jury to find liability where none exists (i.e., the subliminal message may be “What’s a $345,000 insurance claim to a $231 million company?”). Moreover, pre-trial discovery of financial capacity would unnecessarily prolong the pre-trial proceedings and prematurely switch the focus from the plaintiff’s claim for compensation to the defendant’s capacity to absorb punishment. In any event, the court should hesitate to attribute anthropomorphic qualities to large corporations (i.e., the punishment should “sting”).
122 Where a trial judge is concerned that the claim for punitive damages may affect the fairness of the liability trial, bifurcated proceedings may be appropriate. On the facts of this case, no harm was done by the procedure followed, including the mention of the $231 million figure.
(v) Proportionate, Even After Taking Into Account the Other Penalties, Both Civil and Criminal, Which Have Been or Are Likely to Be Inflicted on the Defendant for the Same Misconduct
123 Compensatory damages also punish. In many cases they will be all the “punishment” required. To the extent a defendant has suffered other retribution, denunciation or deterrence, either civil or criminal, for the misconduct in question, the need for additional punishment in the case before the court is lessened and may be eliminated. In Canada, unlike some other common law jurisdictions, such “other” punishment is relevant but it is not necessarily a bar to the award of punitive damages. The prescribed fine, for example, may be disproportionately small to the level of outrage the jury wishes to express. The misconduct in question may be broader than the misconduct proven in evidence in the criminal or regulatory proceeding. The legislative judgment fixing the amount of the potential fine may be based on policy considerations other than pure punishment. The key point is that punitive damages are awarded “if, but only if” all other penalties have been taken into account and found to be inadequate to accomplish the objectives of retribution, deterrence, and denunciation. The intervener, the Insurance Council of Canada, argues that the discipline of insurance companies should be left to the regulator. Nothing in the appeal record indicates that the Registrar of Insurance (now the Superintendent of Financial Services) took an interest in this case prior to the jury’s unexpectedly high award of punitive damages.
(vi) Proportionate to the Advantage Wrongfully Gained by a Defendant from the Misconduct
124 A traditional function of punitive damages is to ensure that the defendant does not treat compensatory damages merely as a licence to get its way irrespective of the legal or other rights of the plaintiff. Thus in Horseshoe Bay Retirement Society, supra, a real estate developer cut down mature trees on the plaintiff’s property to improve the view from neighbouring lots which it was developing for sale. The defendant appeared to have calculated that enhanced prices for its properties would exceed any “compensation” that it might be required to pay to the plaintiff. Punitive damages of $100,000 were awarded to reduce the profits and deter “like-minded” developers (p. 50). For a similar case, see Nantel v. Parisien (1981), 18 C.C.L.T. 79 (Ont. H.C.), per Galligan J., at p. 87, “. . . the law would say to the rich and powerful, ‘Do what you like, you will only have to make good the plaintiff’s actual financial loss, which compared to your budget is negligible’”. In Claiborne Industries, supra, an award of punitive damages was made against the defendant bank in an amount sufficient to ensure that it did not profit from its outrageous conduct (p. 106).
125 On the other hand, care must be taken not to employ the “wrongful profit” factor irrationally. Thus, in Lubrizol Corp. v. Imperial Oil Ltd. (1994), 84 F.T.R. 197, the court ordered the defendant to account to the plaintiff for all profits gained by infringing the plaintiff’s patent, with interest, then added $15 million in punitive damages (without waiting for the profits to be ascertained) because, per Cullen J., “[t]he volume of [patented] product sold, although not quantified, must be enormous” and the defendant was “a large corporation with annual sales of 10 billion dollars” (p. 209). The duplicative remedies thus relieved the defendant of the profit twice, once through the accounting remedy and a second time (at least in part) through an award of punitive damages. The trial judge’s approach was reversed on appeal (1996 CanLII 4042 (FCA), [1996] 3 F.C. 40).
126 In the present case, the effort to force the appellant into a disadvantageous settlement having failed, it is not alleged that the respondent profited from its misconduct.
(5) The Usefulness of Ratios
127 The respondent and its supporting intervener suggest that an award of $1 million in punitive damages is out of line because compensatory damages were ultimately assessed only at about $345,000. The result, they argue, is an improper ratio. It is apparent from what has already been said, however, that proportionality is a much broader concept than the simple relationship between punitive damages and compensatory damages. That relationship, moreover, is not even the most relevant because it puts the focus on the plaintiff’s loss rather than where it should be, on the defendant’s misconduct. If a ratio is to be used what should the ratio measure? The fact that compensatory damages are quantified in dollars and cents is temptingly useful, but wholly inadequate, for example, in a case where outrageous misconduct has fortuitously (and fortunately) resulted in a small financial loss. Potential, as well as actual, harm is a reasonable measure of misconduct, and so are the other factors, already mentioned, such as motive, planning, vulnerability, abuse of dominance, other fines or penalties, and so on. None of these features are captured by the ratio of punitive damages to compensatory damages. Adoption of such a ratio, while easy to supervise, would do a disservice to the unavoidable complexity of the analysis. It would in fact undermine the nuanced principles on which the concept of punitive damages has been justified. There is no doubt at all that evaluation of outrageous conduct in terms of dollars and cents is a difficult and imprecise task, but so is evaluating the worth of a cracked skull, a lost business opportunity or a shattered reputation. Yet all these things are done every day in the courts in the calculation of compensatory damages without resort to formulae or arbitrary rules such as ratios.
(6) Conclusion on “Rationality”
128 I would not have awarded $1 million in punitive damages in this case but in my judgment the award is within the rational limits within which a jury must be allowed to operate. The award was not so disproportionate as to exceed the bounds of rationality. It did not overshoot its purpose. I have already outlined the reasons why I believe this to be the case.
129 The jury followed the “if, but only if” model, i.e., punitive damages should be awarded “if, but only if” the compensatory award is insufficient. The form and order of the questions put to the jury required them first of all to deal with compensation for the loss of the plaintiff’s house (replacement or cash value), its contents, and any increase in her living and moving expenses. Only after those matters had been dealt with was the jury instructed to turn their minds to a final question on punitive damages. They were clearly aware that compensatory damages might well be sufficient punishment to avoid a repetition of the offence and a deterrent to others. In this case, the jury obviously concluded that the compensatory damages ($345,000) were not sufficient for those purposes. It was no more than the respondent had contractually obligated itself to pay under the insurance policy. In this case, the power imbalance was highly relevant. Pilot holds itself out to the public as a sure guide to a “safe harbour”. In its advertising material it refers to itself as “Your Pilot” and makes such statements as:
At Pilot Insurance Company, guiding people like you into safe harbours has been our mission for nearly 75 years.
Insurance contracts, as Pilot’s self-description shows, are sold by the insurance industry and purchased by members of the public for peace of mind. The more devastating the loss, the more the insured may be at the financial mercy of the insurer, and the more difficult it may be to challenge a wrongful refusal to pay the claim. Deterrence is required. The obligation of good faith dealing means that the appellant’s peace of mind should have been Pilot’s objective, and her vulnerability ought not to have been aggravated as a negotiating tactic. It is this relationship of reliance and vulnerability that was outrageously exploited by Pilot in this case. The jury, it appears, decided a powerful message of retribution, deterrence and denunciation had to be sent to the respondent and they sent it.
130 The respondent points out that there is no evidence this case represents a deliberate corporate strategy as opposed to an isolated, mishandled file that ran amok. This is true, but it is also true that Pilot declined to call evidence to explain why this file ran amok, and what steps, if any, have been taken to prevent a recurrence.
131 The respondent also argues that at the end of the day, it did not profit financially from its misbehaviour. This may also be true, but if so, that result was not for want of trying. The respondent clearly hoped to starve the appellant into a cheap settlement. Crabbe’s letter of June 9, 1994, quoted earlier, suggests as much. That it failed to do so is due in no small part to appellant’s counsel who took a hotly contested claim into an eight-week jury trial on behalf of a client who was effectively without resources of her own; and who obviously could have been starved into submission but for his firm’s intervention on her behalf.
132 While, as stated, I do not consider the “ratio” test to be an appropriate indicator of rationality, the ratio of punitive damages to compensatory damages in the present case would be either a multiple of three (if only the insurance claim of $345,000 is considered) or a multiple of less than two (if the claim plus the award of solicitor‑client costs is thought to be the total compensation). Either way, the ratio is well within what has been considered “rational” in decided cases.
133 The majority opinion of the Ontario Court of Appeal recognized that punitive damages are not “at large” and appellate courts have “much greater scope and discretion on appeal” than they do in the case of general damages (Hill, supra, at para. 197). If the court considers the award or its quantum to be irrational, it is its duty to interfere.
134 This was the view taken by the majority judgment of Finlayson J.A. The appellant complains that Finlayson J.A. applied a standard of “simply too high” (p. 661). It is true that he thought the award was too high, but that observation must be understood in light of other comments made in the course of his reasons. Finlayson J.A. concluded there was “no justification for such a radical departure from precedent” (pp. 661-62), which revealed awards in the range of $7,500 to $15,000. In his view, an appropriate figure for quantum requires a “balancing of factors such as those enumerated by Blackmun J.” (p. 667) in Pacific Mutual Life Insurance, supra. Finlayson J.A. looked at “the degree of reprehensibility of the defendant’s conduct” (p. 666) and concluded that “[t]his case does not demonstrate that there was such insidious, pernicious and persistent malice as would justify an award of this magnitude” (p. 666).
135 With respect to precedent, it must be remembered that the respondent’s trial counsel objected to any range or “bracket” of appropriate figures being given to the jury. Had the jury been given the information, it may have influenced their views. The respondent itself appears to have been unimpressed by the size of prior awards of punitive damages. In its factum, commenting on Crabbe’s letter of June 9, 1994, counsel states, “However, it should also be noted that Mr. Crabbe was clearly attempting to allay Pilot’s concern about the Whiten’s bad faith claim at a time when punitive damage awards against insurers were in the range of $7,500.00 – $15,000.00.” Pilot’s concern may have been easy to allay when the expected exposure to punitive damages was only $15,000.
136 The respondent objects that, prior to this judgment, the highest previous award in an insurer bad faith case was $50,000. However, prior to the $800,000 award of punitive damages upheld in Hill, supra, the highest award in punitive damages in a libel case in Canada was $50,000: Westbank Band of Indians v. Tomat, [1989] B.C.J. No. 1638 (QL) (S.C.). One of the strengths of the jury system is that it keeps the law in touch with evolving realities, including financial realities.
137 Finlayson J.A.’s central point was the need to pay close attention to the “balancing of factors” (p. 667), and in particular, the “reprehensibility of the defendant’s conduct” (p. 666). There was evidence to support the view expressed by Finlayson J.A., but there was also evidence to support the contrary view of Laskin J.A., in dissent (at p. 659):
. . . Pilot acted maliciously and vindictively by maintaining a serious accusation of arson for two years in the face of the opinions of an adjuster and several experts it had retained that the fire was accidental. It abused the obvious power imbalance in its relationship with its insured by refusing to pay a claim that it knew or surely should have known was valid, and even by cutting off rental payments on the Whiten’s rented cottage. It took advantage of its dominant financial position to try to force the Whitens to compromise or even abandon their claim. Indeed, throughout the nearly two years that the claim was outstanding, Pilot entirely disregarded the Whitens’ rights.
138 It seems to me, with respect, that this disagreement among very senior appellate judges turns on precisely the factual issues and inferences that were remitted to the jury for its determination. I would hesitate to characterize the considered opinion of any experienced and learned appellate judge as not only wrong but “irrational”.
139 Moreover, the trial judge, who sat through the evidence, went out of his way to comment that the award, while high, was reasonable. It was rational. He then added to Pilot’s burden an award of over $320,000 in solicitor‑client costs.
140 Having accepted with some hesitation the adequacy of the trial judge’s instructions to the jury, and there being no convincing demonstration that the jury’s subsequent imposition and assessment of punitive damages were irrational, I would affirm the award of punitive damages.
- Conclusion
141 I would allow the appeal and restore the jury award of $1 million in punitive damages, with costs in this Court on a party‑and‑party basis.
142 The respondent’s cross-appeal against the award of any punitive damages is dismissed with costs to the appellant, also on a party‑and‑party basis.
The following are the reasons delivered by
143 LEBEL J. (dissenting on the appeal) – This case raises important issues about the proper functions of tort law, the role of punitive damages within it and the control of jury awards. In the end, I respectfully disagree with Binnie J.’s reasons and proposed disposition of the appeal. Although I agree that the bad faith of the Pilot Insurance Company (“Pilot” or “Pilot Insurance”) in its handling of the claim, up to and during the trial, amply justifies awarding punitive damages, an award of $1 million goes well beyond a rational and appropriate use of this kind of remedy, especially in what began as a problem of contract law. The majority of the Court of Appeal for Ontario set the amount of punitive damages at a sum which was consistent with the nature and purpose of punitive damages in the law of torts and had sufficient reasons to interfere with the jury’s verdict. I find myself in substantial agreement in this respect with Finlayson J.A.’s reasons in the Court of Appeal.
144 In these reasons, I will not attempt a full review of the facts that gave rise to this litigation. My colleague has made a careful review of them and I will refer to them only inasmuch as may be required by some particular aspect of this appeal.
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Source: Canadian Legal Information Institute: www.canlii.org