Whiten v. Pilot Insurance Co.,  1
S.C.R. 595, 2002 SCC 18
Daphne Whiten Appellant/Respondent
Pilot Insurance Company Respondent/Appellant
The Insurance Council of Canada and
the Ontario Trial Lawyers Association Interveners
Indexed as: Whiten v. Pilot Insurance Co.
Neutral citation: 2002 SCC 18.
File No.: 27229.
2000: December 14; 2002: February 22.
Present: McLachlin C.J. and L’Heureux‑Dubé,
Gonthier, Major, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for ontario
Insurance – Insurer’s duty of good faith and fair
dealing – Insurer contesting fire insurance claim in bad faith – Whether policy
holder entitled to award of punitive damages __ Whether jury charge
adequate – Whether jury award of $1 million in punitive damages should be
Damages – Punitive damages – Insurer’s duty of good
faith and fair dealing – Insurer contesting fire insurance claim in bad faith __
Whether policy holder entitled to award of punitive damages __
Whether jury award of $1 million in punitive damages should be restored.
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
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.
By Binnie J.
Applied: Hill v.
Church of Scientology of Toronto,  2 S.C.R.
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By LeBel J. (dissenting on the appeal)
Ratych v. Bloomer,
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APPEAL and CROSS-APPEAL from a judgment of the Ontario
Court of Appeal (1999), 42 O.R. (3d) 641, 170 D.L.R. (4th) 280, 117 O.A.C. 201,
32 C.P.C. (4th) 3,  I.L.R. ¶ I-3659,  O.J. No. 237 (QL), allowing
in part the respondent’s appeal from a judgment of the Ontario Court (General
Division) (1996), 132 D.L.R. (4th) 568, 47 C.P.C. (3d) 229,  O.J. No. 227
(QL). Appeal allowed, LeBel J. dissenting. Cross-appeal dismissed.
Gary R. Will and Anil
Varma, for the appellant/respondent on cross-appeal.
Earl A. Cherniak,
Q.C., and Kirk F. Stevens, for the respondent/appellant on
Neil Finkelstein, Melanie L.
Aitken and Russell Cohen, for the intervener the Insurance Council
Robert B. Munroe, Andrew J.
Spurgeon and Thomas P. Connolly, for the intervener the Ontario
Trial Lawyers Association.
The judgment of McLachlin C.J. and L’Heureux‑Dubé,
Gonthier, Major, Binnie and Arbour JJ. was delivered by
Binnie J. – This case
raises once again the spectre of uncontrolled and uncontrollable awards of
punitive damages in civil actions. The jury was clearly outraged by the
high-handed tactics employed by the respondent, Pilot Insurance Company,
following its unjustified refusal to pay the appellant’s claim under a fire
insurance policy (ultimately quantified at approximately $345,000). Pilot
forced an eight-week trial on an allegation of arson that the jury obviously
considered trumped up. It forced her to put at risk her only remaining asset
(the insurance claim) plus approximately $320,000 in legal 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. Evidently concluding that the arson
defence from the outset was unsustainable and made in bad faith, the jury added
an award of punitive damages of $1 million, in effect providing the appellant
with a “windfall” that added something less than treble damages to her actual
out-of-pocket loss. The respondent argues that the award of punitive damages
is itself outrageous.
The appellant, Daphne Whiten, bought her home in Haliburton County,
Ontario, in 1985. Just after midnight on January 18, 1994, when she and her
husband Keith were getting ready to go to bed, they discovered a fire in the
addition to their house. They and their daughter, who had also been upstairs,
fled the house wearing only their night clothes. It was minus 18 degrees
Celsius. Mr. Whiten gave his slippers to his daughter to go for help and
suffered serious frostbite to his feet for which he was hospitalized. He was
thereafter confined to a wheelchair for a period of time. The fire totally
destroyed the Whitens’ home and its contents, including their few valuable
antiques and many items of sentimental value and their three cats.
The appellant was able to rent a small winterized cottage nearby for
$650 per month. Pilot made a single $5000 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 hostile and confrontational policy
which the jury must have concluded was calculated to force the appellant (whose
family was in very poor financial shape) to settle her claim at substantially
less than its fair value. The allegation that the family had torched its own home
was contradicted by the local fire chief, the respondent’s own expert
investigator, and its initial expert, all of whom said there was no evidence
whatsoever of arson. The respondent’s position, based on wishful thinking, was
wholly discredited at trial. Pilot’s appellate counsel conceded here and in
the Ontario Court of Appeal that there was no air of reality to the allegation
A majority of the Ontario Court of Appeal allowed the appeal in part and
reduced the punitive damage award to $100,000. In my view, on the exceptional
facts of this case, there was no basis on which to interfere with the jury
award. The award, though very high, was rational in the specific circumstances
disclosed in the evidence and within the limits that a jury is allowed to
operate. The appellant was faced with harsh and unreasoning opposition from an
insurer whose policy she had purchased for peace of mind and protection in just
such an emergency. The jury obviously concluded that people who sell peace of
mind should not try to exploit a family in crisis. Pilot, as stated, required
the appellant to spend $320,000 in legal costs to collect the $345,000 that was
owed to her. The combined total of $665,000 at risk puts the punitive damage
awards in perspective. An award of $1 million in punitive damages is certainly
at the upper end of a sustainable award on these facts but not beyond it. I
would allow the appeal and restore the jury award of $1 million in punitive
The facts surrounding the fire itself have already been briefly
mentioned. The origin of the fire was never discovered but everyone who
investigated the fire in the six months after it occurred concluded that it was
accidental. The first persons to investigate the fire were the fire chief and
firefighters called to the scene. The fire chief thought, and he was
eventually shown to be correct, that the fire was caused at a single point of
origin by a malfunctioning kerosene heater in the porch of the addition. This
was where the fire was first observed and also the area which had sustained the
most fire damage. The firefighters saw no evidence of arson and therefore they
did not request the Fire Marshal’s office to investigate.
Pilot retained an experienced independent insurance adjuster, Derek
Francis, to investigate the loss. Francis inspected the site and interviewed
the Whitens, who freely acknowledged that they had both been unemployed and had
financial difficulties. Francis also interviewed the firefighters about the
speed at which the fire spread, a key indicator of arson. Both the physical
evidence and the Whitens’ conduct satisfied Francis that the fire was
accidental and on February 3, 1994 he reported to Pilot that “there is no
suspicion of arson on behalf of the insureds or any members of their family”.
Francis made further investigations during which he determined that
although the Whitens’ mortgage payments were in arrears, refinancing was being
arranged. It appears that Pilot’s Senior Claims Examiner, Mr. Chris Porter,
was already moving towards the conclusion that the claim should be disputed
based on his suspicions of the family’s financial problems. In a letter dated
February 25, 1994, Francis wrote to Pilot:
As outlined in my 2nd report with the physical
evidence we have and the fact that the insured was attempting to arrange
financing through another source and pay off the existing mortgage, there is
little or no base [sic] to deny this claim. I certainly agree with your
train of thought and if we did not have the physical evidence and the
information from the insured’s solicitor that he was arranging financing for
the Whitens, then my recommendations would certainly be opposite to what they
are today. Unfortunately we must deal with the facts on hand and
proceed with the adjustment accordingly in my opinion. [Emphasis added.]
Pilot did not agree that “there is little or no base [sic] to
deny this claim”, although at that stage it had no evidence to support a
defence of arson. It refused to accept Francis’s recommendations and decided
to deny the claim. It did not tell Francis why it would not pay the claim and
Francis in turn did not advise the Whitens of what was happening.
Pilot requested the Insurance Crime Prevention Bureau, a body set up by
the insurance industry, to review the analysis of Pilot’s investigator. By
letter dated February 25, 1994, the Bureau reported that “we wouldn’t have a
leg to stand on as far as declining the claim”. Pilot, having asked for the
opinion, then apparently decided that the Bureau’s evaluator was not in fact
qualified to render an opinion. No one from Pilot testified as to why the
claims examiner, and subsequently Pilot’s Branch Manager, Mr. Steven Carter,
rejected this advice as well.
In March 1994, Pilot’s Head Office, with nothing to go on except some
vague suspicions, instructed Francis to tell the landlord of the cottage that
the appellant was renting that it was no longer going to pay the rent. Francis
communicated this to the landlord but never told the appellant. We do not know
why there was no communication. It was the depth of winter. The respondent’s
Head Office made this decision with full knowledge that the Whitens were in
desperate financial circumstances.
Pilot then instructed Francis to pursue other inquiries about the fire.
Francis conducted these inquiries but still ruled out arson. On April 28,
1994, he confirmed his opinion to Pilot. In his reporting letter, he noted
that he had come upon the Whitens unannounced and unexpected at the scene of
the fire and found them sorting through the debris “trying to salvage anything
that might have been left as a result of the fire”. He observed the appellant
cleaning a small porcelain figure “with her fingers in an obvious attempt to
salvage this item”. He reported that he “felt this genuine concern to try and
see what could be salvaged now that the weather has afforded this opportunity [is]
out of character for someone who might be involved in a suspicious fire”.
After receiving Francis’s report of April 28, 1994, Pilot removed
Francis from the case and hired another adjuster, James Couch, who lived in
Owen Sound, a couple of hundred kilometres distant. At trial, no one on behalf
of Pilot testified as to why Pilot stopped using Francis.
Pilot also retained an engineering expert, Hugh Carter. His initial
report was made on January 28, 1994. In that report, he concluded that the
fire was accidental. He gave two further reports in which he stated the same
opinion. Carter then received a letter dated May 4, 1994 from the respondent’s
trial counsel, Donald Crabbe, which adverted to the arson theory:
One wonders whether the Whitens, even if they did
not set the fire, sat back and allowed it to achieve a level that was
convenient to them.
We need to be on top of this matter and to do it
quickly. The other side has retained a lawyer and they are making noises of
bad faith. The matter has to be revisited in its entirety, stripped down to
the bare facts and rebuilt.
Hugh Carter concluded that he may have been misunderstood. He requested
a meeting but did not get one at the time. The jury must have concluded that
he had not provided the opinion his client wanted to hear.
The statement of claim was issued on May 27, 1994. On June 7, 1994,
after a further site investigation, Carter did meet with Donald Crabbe and
after the meeting, he reclassified the fire as “suspicious, possibly
incendiary”. Pilot now concedes that Crabbe likely influenced Carter to change
In its factum before this Court, Pilot also conceded that in addition to
the Senior Claims Examiner and the Branch Manager, the latter’s “superior,
George Hamilton (assistant to the Vice-President in charge of claims), [was]
copied with all of the material on the file. Mr. Hamilton reported to Clifford
Jones, Executive Vice President and Secretary” (para. 17). The misconduct
was therefore not restricted to middle level management but was made known to
the directing minds of the respondent company.
The attitude of the respondent and its counsel is apparent from Crabbe’s
reporting letter dated June 9, 1994 to Pilot’s Chris Porter and Steven Carter
(Pilot’s Branch Manager), parts of which read as follows:
The bottom line is that we have moved considerably
with the upcoming engineer’s report towards successfully denying this claim.
We still need more evidence, but we moved significantly in the right direction
on June 7th.
It appears that all three people directing the respondent’s behaviour
were agreed that the “right direction” was to deny the claim despite the lack
of any evidence that the fire had been deliberately set. Crabbe continued:
In terms of the [appellant’s] punitive damage claim
arising from bad faith, this is a cloud with a silver lining. First of all, it
gives Hugh Carter a platform from which to discuss the evolution of his
opinion. . . . More importantly in this concept of “silver
lining” is that the claim renders admissible evidence as to the previous fires
in which the Whitens were involved, when otherwise there was a considerable
risk that the “similar fact” evidence would not be admitted as a significant
enough pattern had perhaps not been established.
The reference to the two “previous fires” was firstly to a fire that
occurred in a cottage owned by the Whitens’ son-in-law but rented out to a Mrs.
Titro and secondly to another fire in another house previously occupied by Mrs.
Titro. There was no apparent connection to the appellant or her family. At
the Court of Appeal, Pilot conceded that evidence about these two fires was
irrelevant and inadmissible. The reporting letter of June 9th continues:
You [Pilot] raise concerns that the other side has
hired competent counsel and, frankly, I would not have it any other way and
indeed it would be foolish to make any assumptions otherwise.
The jury must
have asked itself why an insurer dealing in good faith with a policy holder
would express “concern” to its own lawyer that she had hired competent
counsel. Crabbe continued:
What we know is that counsel for the Plaintiff is advancing a claim
based only on what the Plaintiff has told him. One can imagine the assertions
of innocence and the exclusion of any reference to material that might be
incriminating. I imagine the motivation was explored in terms of the
financially bad times the family had fallen upon, but beyond that, the fire and
all of its circumstances and the previous fires will not have been fully
disclosed, if at all, to opposing counsel. By the time all of this evidence is
disclosed, and coupled with the risk of a jury’s impression of it, competent
counsel will view advancing the matter to trial as risky and [he] should be
recommending a significant compromise, particularly in view of the fact that a
trial will take quite some time. [Emphasis added.]
It was never explained how the Whitens stood to profit from torching
their own home. The fair market value of their house was $157,000. The jury
allowed $160,000. The mortgage still had to be paid out of the proceeds,
leaving the appellant with only the existing equity in her home. Had the claim
been paid promptly, the only financial effect on the appellant would have been
to convert the roof over her family’s head into cash and oblige them to become
renters. Selling the house would have had more or less the same financial
impact. It defies common sense to think they would have risked so much —
including their daughter’s safety, all of their possessions and their cats —
for so little. Pilot now concedes (fairly, in my view) that the letter of June
9, 1994 “evinced an attitude which gave priority to Pilot’s interests at the
expense of a dispassionate and fair approach to the interests of Mrs. Whiten”.
Thereafter, Pilot retained a forensic engineer, a fire investigator and
a firefighter. Pilot did not disclose Francis’s exculpatory reports to any of
these individuals, but instead, through Donald Crabbe, furnished them with
information about the speed of the fire that the trial judge characterized as
misleading if not inaccurate. The firefighter insisted that the fire was
likely accidental but the other two experts gave opinions that provided some
support for an arson defence. One of them, Richard Kooren, based his opinion
on the existence of signs of a fire accelerant. Crabbe wrote on May 11, 1995:
Aside from the burn pattern under the washer, Richard Kooren sees
liquid accelerant burn patterns on the annex floor which are not innocent. However,
these observations are not made by [Pilot’s initial expert] Hugh Carter.
conceded at the Court of Appeal that these inculpatory opinions were influenced
The trial judge commented unfavourably about Crabbe’s role in this litigation.
He felt that his “enthusiasm for his client’s case appears to have caused him
to exceed the permissible limits which ought to confine a lawyer in the
preparation of witnesses”. At the Court of Appeal and in this Court, Pilot
conceded that these comments were justified, but added:
. . . Pilot, not its counsel, made the decision to deny the
claim and Pilot was fully aware, because it was a recipient of the letters, of
counsel’s “enthusiasm”. Pilot recognizes that it bears the responsibility for
The appellant was reinstated in her nursing position in July 1994 and
received about $40,000 in back pay in September 1994.
In the spring of 1995 the Whitens, in an attempt to satisfy Pilot that
they did not set the fire, offered to take a polygraph test administered by an
expert selected by Pilot. This was apparently accepted by the jury as a good
faith offer made to allay Pilot’s suspicions. Pilot refused, without giving
The Whitens lived in a small community. People were aware that their
home was not being rebuilt because the insurer was alleging arson. The stigma
persisted. Pilot continued to allege arson throughout the trial. Pilot now
concedes that the evidence as a whole unequivocally demonstrates that the fire
II. Judicial History
Ontario Court (General Division) (1996), 132 D.L.R. (4th) 568
This action was tried before Matlow J. and a jury. His instruction to
the jury on the issue of punitive damages was skeletal but occasioned no
objection from either counsel:
And finally, if you determine that Pilot’s defence
of arson failed and that Pilot breached the provision of the policy of
insurance by denying the plaintiff’s claim, you must then go on to determine
whether the plaintiff is entitled, as well, to recover punitive damages.
Punitive damages can be awarded in certain circumstances to serve as a
punishment. In this case, depending on your finding of fact, punitive damages
can be awarded to deter Pilot and other insurers from engaging in improper
conduct in dealing with the claims of their insureds.
Punitive damages, unlike the other types of damages
claimed in this case, are not intended to compensate the plaintiff for her
loss. If they are awarded, they will constitute a windfall for the plaintiff
and a penalty for Pilot.
Before you may properly make an award of punitive
damages, Pilot’s defence of arson must fail and you must be satisfied that the
plaintiff has proven that Pilot failed to deal with her claim in good faith and
instead dealt with this in a malicious, high-handed, arbitrary or capricious
manner, and that Pilot’s conduct warrants the imposition of a penalty.
After the charge, the jury returned with the following question:
Dear Justice Matlow, we are having difficulty in agreements pertaining
to assessing the amount of the claim for punitive damages. Would you be able
to provide us some guidelines to help us arrive at a consensus. Thank you, the
Counsel were consulted and agreed with each other that no dollar amounts
should be mentioned. Pilot’s counsel told the trial judge, “in terms of
suggesting amounts or anything, I think it ought not to occur”. In these
circumstances, the trial judge responded to the jury by repeating that punitive
damages were in their discretion:
Members of the jury, I have considered the question that you sent to me
and I don’t know that I can really be of all that much help to you. All that I
can say to you is that punitive damages are in the discretion of the jury. You
have to be fair and reasonable to both sides, and apart from that, there’s not
much more or anything more that I can tell you. It is not surprising that it
is difficult to arrive at a consensus. I urge you to keep talking to each
other and endeavour to find what that magic figure should be.
The jury awarded $318,252.32 in compensatory damages and $1 million in
punitive damages. In his endorsement granting judgment in accordance with the
jury’s verdict, Matlow J. awarded pre-judgment interest and costs on a
solicitor and own client scale, his intention being “to provide for the
plaintiff’s fullest possible indemnification for her reasonable costs of this
action” (p. 570). (The appellant’s costs were ultimately fixed at
Matlow J. then made a number of observations about the jury’s award of
punitive damages. He said that although it was “very high and perhaps without
precedent, [it] is not perverse but is entirely reasonable in light of all of
the evidence” (p. 572). He noted that the defendant continued to deny the
claim even after its own adjuster recommended that it be paid. “[T]he
defendant relied on a few suspicious circumstances that were later clarified
adequately by the plaintiff in order to press on with an ill-founded defence”
(p. 572). “As a result, the plaintiff, who was already in poor financial
condition, was required to endure the indignity of having to make temporary
living arrangements without the benefit of the insurance coverage for which she
had paid premiums to the defendant” (p. 572). She was also required to
undertake litigation to secure the relief to which she was entitled, including
a trial which took approximately two months to complete. “In light of the
defendant’s admission that its net worth was approximately $231 million, I
cannot take issue with the jury’s conclusion that a very substantial award for
punitive damages was required to punish the defendant and to effectively send
the implied reminder to the defendant and to other insurers that they owe their
insureds a duty of good faith in responding to claims made under policies of
insurance issued by them” (p. 572).
Ontario Court of Appeal (1999), 42 O.R. (3d) 641
(1) Laskin J.A. (dissenting in part)
On the issue of punitive damages, Laskin J.A. noted that in Vorvis v.
Insurance Corp. of British Columbia,  1 S.C.R. 1085, and again in Wallace
v. United Grain Growers Ltd.,  3 S.C.R. 701, this Court held that in
a breach of contract case, punitive damages were only available if, apart from
the breach sued upon, the defendant has committed an “independent actionable
wrong”. Pilot argued that a breach of its duty of good faith was no more than
another breach of the same contractual obligations. Laskin J.A. rejected this
argument. He said the “obligation to act in good faith is separate from the
insurer’s obligation to compensate its insured for a loss covered by the
policy” (p. 650). In his view, breach of the former “is a separate or independent
wrong from the wrong for which compensation is paid” (p. 650). He said
that if the decision in Vorvis makes it necessary he “would be prepared
to hold that an insure[r] has a duty in tort of good faith towards its
insureds” (p. 652), a position taken by some Australian and American
courts. In his view “[t]here was overwhelming evidence in this case from which
the jury could reasonably conclude that Pilot’s handling of the Whitens’ claim
was so malicious or vindictive or so reprehensible or high-handed that an award
of punitive damages was warranted” (p. 653).
With respect to the $1 million quantum, Laskin J.A. rejected Pilot’s
submissions that the jury likely inflated the award because of errors made by
the trial judge in his charge, or that in any event, the award was much too
high. While the award of $1 million was high, the jury’s decision was entitled
to deference reinforced in this case by the trial judge’s endorsement of the
award as “entirely reasonable”. In Laskin J.A.’s view, Pilot’s conduct
was “exceptionally reprehensible”. The deterrence objective is particularly
important in first party insurance cases given the vast number of claims
handled by insurers every year. Moreover, to be meaningful, an award of
punitive damages “must sting”; it must not be perceived as a mere licence fee
or as a cost of doing business. Both courts and legislatures, in recent years,
have increased the amount of fines for companies which act irresponsibly or
contrary to the public interest. This trend reflects an acknowledgement that
“larger fines are needed to deter and punish companies for socially
unacceptable behaviour” (p. 661).
(2) Finlayson J.A. (Catzman J.A. concurring)
Finlayson J.A. agreed with Laskin J.A.’s reasons and conclusions on the
first issue, namely, whether Ms. Whiten was entitled to an award of punitive
damages. However, he did not agree with Laskin J.A. that the $1 million
award was not excessive. Finlayson J.A. said that, while he was “not
entirely happy with the trial judge’s charge to the jury” (p. 661), he did
not propose to justify his intervention on any other basis than his belief that
the award “is simply too high” (p. 661).
Finlayson J.A. reviewed the facts of and awards made in other cases to
illustrate his concern about quantum. In all of these cases, the defendant
insurer was found to have acted unacceptably; in some the plaintiff received
solicitor‑client costs; in others he or she did not. None of the awards
exceeded $50,000. The cases relied upon by the plaintiff went beyond bad faith
and reflected the courts’ concern with “objectionable corporate policies”
(p. 663). Moreover, in three of these cases the trial judge emphasized
the need to force tortfeasors to disgorge profits flowing from their actions
(pp. 661-65). In the case at bar, according to Finlayson J.A., there
was no evidence that Pilot’s unacceptable conduct “was the product of a
corporate strategy” (p. 665) nor did it profit from its actions. “Rather,
it appears to have been an isolated instance for which the appellant’s trial
counsel should take full responsibility, both for the manner in which the claim
was processed and because of the way that the trial was conducted. This
certainly was the view of the trial judge” (p. 665).
In the view of Finlayson J.A., an award of $100,000 would act as a
sufficient deterrent to this and other insurers and would cause the former to
take the steps necessary to ensure that “in future it is properly apprised of
the nature and kind of the defence its claims adjusters and counsel are
advancing” (p. 666).
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,
 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).
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.
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,
 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.
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
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.
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
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.
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.
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”,  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).
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
It is convenient at this point to note how other common law
jurisdictions have addressed the problem of disproportionate awards of punitive
In Rookes v. Barnard,  A.C. 1129, and Cassell, supra,
the House of Lords sought to significantly limit the availability of punitive
damages. In Lord Devlin’s leading speech in Rookes, he
distinguished “exemplary” (punitive) and “aggravated” (compensatory) damages
and classified many purportedly punitive awards in the law books as disguised
compensation. Second, he reduced the availability of punitive damages to two
common law categories of causes of action, namely (1) “oppressive, arbitrary,
or unconstitutional action by the servants of the government” (p. 1226)
and (2) where the defendant’s conduct is calculated to make a profit. To these
he added a third permissible category where punitive damages have express
statutory authorization. Since Rookes was decided, the categories test
has persisted despite various academic and judicial assaults, but later cases
have somewhat loosened the categories’ application (by, for example, including
police wrongdoing in category one). More recently, in June of last year, the
House of Lords opened up the categories themselves to further evolution: Kuddus
v. Chief Constable of Leicestershire Constabulary,  3 All E.R. 193.
The attempt in Rookes to narrow the availability of punitive
damages by a categorical approach, has been criticized in both academic and
judicial forums. The Court of Appeal in England attempted to undermine the new
doctrine in Broome v. Cassell & Co.,  2 Q.B. 354; however, the
attempt was crushed on further appeal of its decision to the House of Lords,
 A.C. 1027. The Law Commission for England and Wales concluded recently
that the limitations comported neither with “sound principle” nor “sound
policy” (Report 247, Aggravated, Exemplary and Restitutionary Damages
(1997), at para 1.2). Canada, Australia, New Zealand, and Ireland have all
explicitly rejected the “category” approach of Rookes: Vorvis, supra,
at pp. 1104-6; Uren v. John Fairfax & Sons Pty. Ltd. (1966),
117 C.L.R. 118 (Austl. H.C.); Taylor v. Beere,  1 N.Z.L.R. 81
(C.A.); Conway v. Irish National Teachers’ Organisation,  11
I.L.R.M. 497 (S.C.). Category one has been criticized on the grounds that
corporations and individuals can exercise enormous power in an outrageous way
just as governmental actors do. Criticisms have been especially vigorous
against category two which strikes many as illogical. Commentators wonder why
conduct motivated by economic profit is punished while that inspired “only” by
malice escapes. (Lord Nicholls lends support to both these views in Kuddus,
supra, at paras. 66-67; see also Taylor J. in Uren, supra,
at pp. 132-39; and Richardson J. in Taylor, supra, at
The study of punitive damages by the Law Commission for England and
Wales was extensive, first seeking public consultation with two papers in 1993
and 1995, and finally reporting in 1997. It recommended that punitive damages
should be retained and expanded, while also emphasizing that punitive damage
awards should be “consistent, moderate and proportionate” (Part 5, at
para. 82). The Law Commission was guided by five principles in
formulating their specific recommendations for punitive damages (Part. 1,
at para. 17):
First, exemplary damages should be an exceptional remedy,
rarely-awarded and reserved for the most reprehensible examples of civil
wrongdoing which would otherwise go unpunished by the law. Secondly, their
availability (and assessment) must be placed on a clear, principled basis. Thirdly,
although flexibility is necessary, unnecessary uncertainty as to the
availability and assessment of the remedy must be avoided. Fourthly,
defendants must not be unfairly prejudiced. Fifthly, the impact on the
administration and funding of civil justice should not be adverse.
proposals have not yet been accepted by the U.K. Parliament which is said to be
awaiting further judicial development of the law in that country: House of
Commons, Written Answers to Questions, November 9, 1999, col. 502.
At the present time, the English courts are developing a variety of
principles and guidelines to control the award of punitive damages: Halsbury’s
Laws of England (4th ed. 1998), vol. 12(1), at paras. 1115-17; McGregor
on Damages (16th ed. 1997), at paras. 461-70; Law Commission for England
and Wales, supra, Part IV. Some of these are substantive and some are
procedural. In substantive terms, it is now well established that the
plaintiff and not somebody else must be the victim of the defendant’s wrongful
conduct; restraint should be exercised in the award of punitive damages; and
punitive damages should be awarded under the Rookes approach “if, but
only if” compensatory damages are inadequate to punish the defendant (which
means that punitive damages are a “topping up” award and a remedy of last
resort). Relevant factors include the reprehensibility of the defendant’s
conduct; the existence of multiple plaintiffs or multiple defendants; the
defendant’s good faith; and whether the defendant has already been punished
under criminal law (this may be an absolute bar). The parties’ means are
relevant to the assessment.
In terms of procedure, the English courts have made important changes.
In John v. MGN Ltd.,  Q.B. 586, the Court of Appeal ruled that a
jury’s attention can be directed to previous awards that the Court of Appeal
has either approved or substituted for a jury award as well as to compensatory
damage scales. The Court of Appeal also approved the practice of judges and
counsel indicating an appropriate award level. The Court of Appeal felt that
the process of mentioning figures, “far from developing into an auction”, would
“induce a mood of realism” on both sides (p. 615). In Thompson v. Commissioner
of Police of the Metropolis,  2 All E.R. 762, the Court of
Appeal went further still and approved “guideline” brackets for both
compensatory and punitive damages. The Court of Appeal set down general
guiding principles, and minimum and ceiling amounts specific to the cause of
action at issue, thus permitting brackets in the consideration of punitive
damages claims. The Court of Appeal’s guiding principles for jury instruction
included (1) the familiar “if, but only if” test; (2) pointing out that
aggravated damages, because they compensate for injuries due to outrageous
defendant behaviour, already include a measure of punishment, albeit
incidental; (3) punitive damages are a “windfall” to the plaintiff; and (4)
punitive damages against a public authority may mean that the sums are not
available to be spent on behalf of the general public (i.e., punitive damages
against the state come at the general public’s expense) (p. 776). In the
specific case of an action of a malicious prosecution and false imprisonment
against police, for example, the Court of Appeal selected brackets (to be
adjusted for inflation) for the punitive damages that are “unlikely to be less
than £5,000” as otherwise the conduct probably does not justify any punitive
damages award. The “conduct must be particularly deserving of condemnation for
an award of as much as £25,000 to be justified and the figure of £50,000 should
be regarded as the absolute maximum, involving directly officers of at least
the rank of superintendent” (p. 776). The Court of Appeal in Thompson
also observed that a useful rule of thumb is that the total sum of damages
(including punitive damages) should not exceed three times the basic
compensatory damages (p. 777).
The High Court of Australia takes the view that the purposes of punitive
damages are (1) deterrence of the wrongdoer, “other like-minded persons”, and
generally of “conduct of the same reprehensible kind”; and (2) the social
function of “teach[ing] a wrong-doer that tort does not pay” (Lamb v.
Cotogno (1987), 164 C.L.R. 1, at p. 10; XL Petroleum (N.S.W.) Pty.
Ltd. v. Caltex Oil (Australia) Pty. Ltd. (1985), 155 C.L.R. 448, at
p. 471, per Brennan J.). Punitive damages “serve to mark the
court’s condemnation” and “disapprobation” of the defendant’s behaviour (Lamb,
supra, at pp. 10 and 13). Punitive damages require something more
than a jury’s “mere disapproval” of the defendant’s conduct (Uren, supra,
at p. 153). The High Court has endorsed moderation and proportion in
punitive awards; proportionality is relative to the circumstances of the case,
and there is “no necessary proportionality” between the assessment of
compensatory and punitive damages (XL Petroleum (N.S.W.) Pty., supra,
per Gibbs C.J., at p. 463, and Brennan J., at
p. 471; Lamb, supra).
In 1966 in the companion cases of Uren, supra, and Australian
Consolidated Press Ltd. v. Uren (1966), 117 C.L.R. 185, the High Court
declined to adopt Rookes’s “categories” of restrictions on punitive
damage awards. Punitive damages are available for “conscious wrongdoing in
contumelious disregard of another’s rights” (Whitfeld v. De Lauret & Co.
(1920), 29 C.L.R. 71 (Austl. H.C.), at p. 77, per Knox
C.J.). Punitive damages are awarded “rarely” but in a wider range of torts
than those prescribed in Rookes, supra. They are most
commonly awarded for intentional torts but their availability is not precluded
merely because the cause of action is framed in negligence if the wrongdoing is
wanton, reckless or outrageous (Gray v. Motor Accident Commission
(1998), 196 C.L.R. 1 (Austl. H.C.), at pp. 9 and 28; Lamb, supra).
Thus punitive damages have been awarded for trespass to chattels, trespass to
land, trespass to the person, deceit, reckless negligence, and defamation (Gray,
supra, at pp. 27-28); and see generally, Halsbury’s Laws of
Australia (1995), vol. 9, 1995, “Damages”, at paras. 135-505.
The defendant’s misconduct, and not the cause of action, thus governs the
availability of punitive damages.
With respect to the potential duplication of the punitive function of
the criminal law, the High Court has ruled that the “infliction of substantial
punishment for what is substantially the same conduct as the conduct which is
the subject of the civil proceeding” bars the award of punitive damages (Gray,
supra, at p. 14). The dissent on this point by
Callinan J. is closer to the Canadian position at pp. 50-51:
The fact of the imposition of punishment and its
extent and impact on the defendant will always be relevant factors, probably on
most occasions the major and decisive factors. They may not however be
conclusive ones for all cases. . . . A court would also be entitled
to take into account that lesser punishments may have been, or might be imposed
as a consequence of the acceptance of a lesser plea, the availability (for what
might be sound policy reasons in and for the purposes of the criminal law) of a
small penalty only, the desirability of the less condemnatory process by way of
civil rather than criminal proceedings, the need to encourage compliance with
the law, and the fact that the possibility of any criminal sanction is
Punitive damages in tort have always been part of New Zealand’s common
law and have been recognized repeatedly by its Supreme Court and Court of
Appeal. See, for example, M‘Comb v. Low (1873), 1 N.Z. Jur. 49 (punitive
damages award in malicious prosecution). After Rookes, supra,
New Zealand affirmed the judicial power to mark high-handed and heinous conduct
in contumelious disregard of another’s rights through the award of punitive
damages without limitation to Rookes’s narrow categories (Taylor,
supra; Donselaar v. Donselaar,  1 N.Z.L.R. 97 (C.A.); and Daniels
v. Thompson,  3 N.Z.L.R. 22 (C.A.)).
The New Zealand courts have permitted punitive damage awards in a wide
range of causes of action in both common law and equity (Cook v. Evatt (No.
2),  1 N.Z.L.R. 676 (H.C.)) and for both intentional and
unintentional defendant conduct: see, for example, McLaren Transport Ltd. v.
Somerville,  3 N.Z.L.R. 424 (H.C.) (negligence); Aquaculture Corp.
v. New Zealand Green Mussel Co.,  3 N.Z.L.R. 299 (C.A.) (breach of
confidence); Coloca v. B.P. Australia Ltd.,  2 V.R. 441 (S.C.)
(negligence); L. v. Robinson,  3 N.Z.L.R. 499 (H.C.)
(negligence). Punitive damages for negligence causing personal injury, while
rare, may be awarded if, but only if, the level of negligence is “so high that
it amounts to an outrageous and flagrant disregard for the plaintiff’s safety,
meriting condemnation and punishment” (McLaren Transport, supra,
at p. 434, per Tipping J.; Ellison v. L.,  1 N.Z.L.R.
New Zealand’s situation is somewhat complicated by its extensive
statutory scheme of no-fault benefits to compensate personal injuries from
accidents in lieu of compensatory damages. However, even here the New Zealand
Court of Appeal has held that the legislation does not bar the award of
punitive damages for the defendant’s related misconduct because the respective
functions are different: the benefits under no-fault legislation compensate the
victim for his or her loss without punishing the defendant, while punitive
damages punish and deter the wrongdoer and are based on the quality of the
defendant’s conduct (Donselaar, supra; McLaren Transport,
supra; Auckland City Council v. Blundell,  1 N.Z.L.R. 732; Green
v. Matheson,  3 N.Z.L.R. 564; McKenzie v. Attorney-General,
 2 N.Z.L.R. 14). Punitive damages awards are a “serious and exceptional
remedy” (Donselaar, supra, at p. 107). They are reserved
for truly outrageous conduct where the other remedies that the defendant must
bear will fall short of an adequate punishment (Dunlea v. Attorney-General,
 3 N.Z.L.R. 136 (C.A.); Ellison, supra; Blundell, supra;
Aquaculture Corp., supra; Cook, supra). The
marking out and punishment of outrageous conduct can be achieved by a
relatively modest penalty that is fairly and reasonably commensurate with the
gravity of the conduct being condemned (Daniels, supra; Ellison,
supra; Blundell, supra). Civil actions should be stayed
until criminal actions are concluded or until it is clear that they will not be
instituted (W. v. W.,  2 N.Z.L.R. 1 (P.C.)). Professional
disciplinary sanctions against a defendant are a “factor” but not a decisive
bar against the award of punitive damages (Robinson, supra).
In Ireland, punitive damages are said to arise from the nature of the
wrong that has been committed or the manner of its commission and are intended
to punish the defendant for outrageous conduct, deter the defendant and others
from such conduct in the future, and “to mark the court’s particular
disapproval of the defendant’s conduct in all the circumstances of the case and
its decision that it should publicly be seen to have punished the defendant for
such conduct” (Conway, supra, at p. 503, per
Finlay C.J.). Ireland does not follow the categorical approach set out in
Irish courts also emphasize the need for moderation and restraint in the
award of punitive damages. The Irish Supreme Court has recognized that the
power to award punitive damages is a “weapon” that can be used both in defence
of, and against, liberty, and that punitive damages are a “drastic, although
essential, rule grounded on public policy” (Conway, supra, at
p. 512, per Griffin J.; Cooper v. O’Connell, No. 85/90-96,
1997 Ireland S.C. Lexis, June 5, 1997, at p. 8, per Keane J.). As a
general principle, punitive damages are not awarded if the amount of
compensatory damages constitutes a sufficient public disapproval of and
punishment for the particular form of the wrongdoing. See generally, Ireland,
Law Reform Commission, Consultation Paper on Aggravated, Exemplary and
Restitutionary Damages (1998).
Punitive damages have not lacked for critics in the United States.
However, in response to those critics who questioned “the propriety of this
doctrine”, the Supreme Court pointed to its history: “[I]f repeated judicial
decisions for more than a century are to be received as the best exposition of
what the law is, the question will not admit of argument” (Day v. Woodworth,
54 U.S. (13 How.) 363 (1851), at p. 371). Nevertheless, as early as 1872,
Foster J. of the New Hampshire Supreme Court surveyed the American and
English precedents in Fay v. Parker, 53 N.H. 342 (1872), and, at
p. 382, uttered a much-quoted condemnation calling punitive damages a
“monstrous heresy” and an “unsightly and an unhealthy excrescence, deforming
the symmetry of the body of the law”.
For practical rather than such theoretical reasons, numerous pieces of
state and federal legislation now add a variety of controls, ranging from
elimination of punitive damages, elimination of punitive damages in certain
causes of action, caps, ratios, and diversion of portions of the money (or
“kickers”) to public funds so the total amount of compensation does not go to
the plaintiff. The most common form of intervention has been to cap the
punitive damages at three times the compensatory award. Additionally, there
are constitutional limitations (both federal and state) on the awards of
punitive damages (see generally L. L. Schlueter and K. R. Redden, Punitive
Damages (4th ed. 2000), vol. 1, c. 3).
The standard of behaviour required to trigger an award of punitive
damages in the United States is usually formulated in the epithets (malicious,
high-handed, oppressive, outrageous, etc.) familiar to Canadian courts.
In the absence of statutory intervention, the appellate courts in the
United States impose a measure of discipline usually based on constitutional
due process considerations. In BMW, supra, the Alabama trial
jury awarded punitive damages of $4 million. The Alabama appellate court
substituted an award of $2 million, which the U.S. Supreme Court quashed as so
“grossly excessive” as to be unconstitutional. In its view, BMW’s conduct was
not particularly reprehensible and there was an unacceptable ratio of 500:1
between the punitive damages and the actual harm. The issue of quantum was
remitted to the Alabama courts and Dr. Gore’s roller coaster ride in the courts
terminated in $50,000 in punitive damages: BMW of North America, Inc. v.
Gore, 701 So.2d 507 (Ala. 1997). In the case of Liebeck, supra,
the jury’s award of $2.7 million in punitive damages for a hot coffee burn
was reduced to $480,000 by the trial judge, and the parties settled the case
The United States Supreme Court has consistently rejected the suggestion
of a mechanical or “mathematical formula” or “bright line” for determining
whether a punitive damage award is constitutional. In the 1991 case of Pacific
Mutual Life Insurance Co. v. Haslip, 499 U.S. 1 (1991), Blackmun J.,
for the majority, concluded that punitive damages were not per se
unconstitutional and held that the punitive damages award in that case, though
“close to the line” (p. 23), did not violate due process despite being a
multiple of four times the compensatory damages and much exceeding the amount
set by state legislation for insurance fraud. The court approved the
relatively loose instructions to the jury in that case. O’Connor J. in
dissent, at p. 51, objected to the lack of more specific direction. She
instead proposed standards that would include factors such as (1) whether the
punitive award had a reasonable relationship to the harm; (2) the defendant’s
conduct, including any cover-ups, length of conduct and patterns of similar
conduct; (3) the defendant’s profits; (4) the criminal sanctions against the
defendant; (5) the litigation costs; (6) the defendant’s financial means; and
(7) other civil actions against the defendant for the same conduct. (The
reference to “(5) litigation costs” reflects the fact that in the United States
even successful plaintiffs will generally have to bear their own costs.)
In Honda Motor Co. v. Oberg, 512 U.S. 415 (1994), the court again
emphasized the need for rationality. Then in TXO Production Corp. v.
Alliance Resources Corp., 509 U.S. 443 (1993), it held that even a
“dramatic disparity” (p. 462) between the actual and punitive award is not a
controlling factor, in part because the magnitude of the potential harm to the
intended victim and the possible harm to other victims if the conduct were not
deterred are important considerations. (In that case, punitive damages were
about ten times the compensatory damages.) The most recent decision by the
U.S. Supreme Court on punitive damage awards was handed down in May 2001 in Cooper
Industries, Inc. v. Leatherman Tool Group, Inc., 121 S.Ct. 1678 (2001). Cooper
Industries held that the courts of appeal should apply a de novo,
rather than abuse of discretion, standard when reviewing district court
determinations of the constitutionality of punitive damages awards. The court
again emphasized that, while the constitutional line is “inherently imprecise”
(p. 1684) for assessing whether punishments are grossly disproportionate
to the gravity of the misconduct, the three factors from BMW (1996), supra,
provide “guideposts” (p. 605): (1) the degree of the defendant’s
reprehensibility or culpability; (2) the relationship between the penalty and
the harm or potential harm to the victim caused by the defendant’s actions; and
(3) civil or criminal penalties imposed in other cases for comparable
Conclusions from the Comparative Survey
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.
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.),
 3 S.C.R. 6, but Vorvis itself affirmed the availability of
punitive damages in the exceptional case in contract. In Denison v. Fawcett,
 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), 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.
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”).
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,  O.J.
No. 5166 (QL) (C.A.); Glendale v. Drozdzik (1993), 77 B.C.L.R. (2d) 106
(C.A.); Pollard v. Gibson (1986), 1 Y.R. 167 (S.C.); Joanisse v.
Y. (D.) (1995), 15 B.C.L.R. (3d) 224 (S.C.); Canada v. Lukasik
(1985), 18 D.L.R. (4th) 245 (Alta. Q.B.); Wittig v. Wittig (1986), 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).
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.
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.
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.
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.
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.
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.
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.
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
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
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.]
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.]
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.]
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.
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
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
Second, in Royal Bank of Canada v. W. Got & Associates Electric
Ltd.,  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
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,  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.
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
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
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.
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.
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), 40 O.R. (2d)
558 (H.C.), aff’d (1984), 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), 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), 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,  4 W.W.R. 577
(Sask. C.A.); Lauscher v. Berryere (1999), 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.
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.
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
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.
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:
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
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.
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?
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.
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.
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.
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
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.
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.
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
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?
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
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
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.
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.
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.
We now come to the issue of quantum.
(b) Whether the Jury’s Award of $1 Million in
Punitive Damages Should Be Restored
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.
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), 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.
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.
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
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
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).
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), 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), 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), 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), 66 Q.A.C. 1, Matusiak
v. British Columbia and Yukon Territory Building and Construction Trades
Council,  B.C.J. No. 2416 (QL) (S.C.);
(4) whether the defendant concealed
or attempted to cover up its misconduct: Gerula v. Flores (1995), 126
D.L.R. (4th) 506 (Ont. C.A.), at p. 525, Walker v. D’Arcy Moving &
Storage Ltd. (1999), 117 O.A.C. 367 (C.A.), United Services Funds
(Trustees) v. Hennessey,  O.J. No. 1391 (QL) (Gen. Div.), at
(5) the defendant’s awareness that
what he or she was doing was wrong: Williams v. Motorola Ltd. (1998),
38 C.C.E.L. (2d) 76 (Ont. C.A.), and Procor Ltd. v. U.S.W.A. (1990), 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), 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), 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, 
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,  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
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,  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
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
[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.
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.
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
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
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
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.
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.
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
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
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
(vi) Proportionate to the Advantage
Wrongfully Gained by a Defendant from the Misconduct
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
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 ( 3 F.C. 40).
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
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
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.
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.
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.
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.
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.
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.
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.
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).
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.
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,  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.
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
. . . 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’
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”.
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
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.
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
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
The following are the reasons delivered by
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.
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.
Punitive Damages and the Functions of Tort Law
In this case, the plaintiff took action in order to claim compensation
for a loss of about $345,000 under a residential and home insurance policy.
The plaintiff did not ask for aggravated damages, but sought punitive damages.
At the end of the trial, she was awarded the full amount of her actual loss,
her costs on a solicitor‑client basis and punitive damages amounting to
about three times her losses.
Tort law fulfills diverse functions. While deterrence and denunciation
both still play a role, since it broke away from criminal law in the Middle
Ages, in its core function, tort law has been compensatory or corrective. (See
A. M. Linden, Canadian Tort Law (6th ed. 1997), at pp. 4-7.)
The purpose of this part of our legal system remains to make good the
loss suffered, no less, no more:
The general principles underlying our system of
damages suggest that a plaintiff should receive full and fair compensation,
calculated to place him or her in the same position as he or she would have
been had the tort not been committed, in so far as this can be achieved by a
(Ratych v. Bloomer,  1 S.C.R. 940, at p. 981, per
McLachlin J. (as she then was); see also Jacobi v. Griffiths,  2
S.C.R. 570, at para. 70, per Binnie J.)
The award of punitive damages in discussion here leads us far away from
this principle. It tends to turn tort law upside down. It transmogrifies what
should have remained an incident of a contracts case into the central issue of
the dispute. The main purpose of the action becomes the search for punishment,
not compensation. Perhaps, at some time in the future, this will be viewed as
part of a broad intellectual and social movement of privatization of criminal
justice, consonant with the general evolution of society. For the time being,
without using in terrorem arguments, such an award has a potential to
alter significantly what would appear to have been the proper function of tort
It would be useless, within the limits of these reasons, to review the
controversies surrounding punitive damages. Whatever the doubts raised at
times by academic or judicial opinion about their place in the law of torts,
Canadian tort law now accepts that a private action in torts may give rise, in
the proper cases, to an award of punitive damages. They may even be awarded in
a contracts case, provided an independent actionable wrong is made out. (See Vorvis
v. Insurance Corp. of British Columbia,  1 S.C.R. 1085, at p. 1104;
Wallace v. United Grain Growers Ltd.,  3 S.C.R. 701, at para. 79, per
The use of this remedy appears to be flexible. Nevertheless, if
necessary, punitive damages must be granted and assessed in such a way that
they serve rational purposes and represent a proportionate response to the
behaviour of defendants and the harm caused. Also, as can be seen in this
case, when the matter comes up before a civil jury, jurors must be instructed
properly as to the nature and purposes of punitive damages and the conditions
under which they may be awarded.
Rationality and Proportionality
I agree with Binnie J. on the core principles governing the award of
punitive damages. The key considerations remain the rationality and
proportionality of the award. The concept of rationality remains grounded in
the nature of tort law, its historical development and the functions it is now
playing in modern society. First and foremost, the assessment of damages
should not lead, in some cases, to a confusion of criminal law and private law
principles, given that punitive damages and criminal punishment target
primarily the conduct of the respondent or accused and are not primarily
concerned with making good the loss or harm suffered by victims. The main
concern of punitive damages remains the preservation of public order, and the
assuaging of such harm as may have been done to the public good and to the
At a time when the King’s writ did not always run throughout the realm,
losses or harm to a person or property were made good by punishment or
alternative measures, which were usually payment or compensation. For example,
in early Anglo-Saxon England, the law knew very few strictly capital crimes.
In most cases, two sets of punishment were available. On the one hand, the law
allowed for a system of revenge. The victim, when possible, or the kin, would
exact retribution on something like an “eye for an eye” principle. On the
other hand, it was often seen as undesirable to permit blood feuds to go on
endlessly. Thus there emerged a system of compensation by which crimes could
be atoned for, by paying a victim or the victim’s kin some sum, dependent upon
the type of act committed and the class or status of the victim. These sums
were even codified and often known as wergeld or blood money. (See C. Hibbert,
The Roots of Evil: A Social History of Crime and Punishment (1963), at
pp. 3-5; W. J. V. Windeyer, Lectures on Legal History (2nd ed. rev.
1957), at p. 17.) During the Middle Ages, a clear distinction was drawn
between pleas of the Crown which gave rise to a criminal law action and common
pleas which were actions for damages. The merger of criminal law and the law
of civil responsibility thus came to an end. (See Windeyer, supra, at
p. 63.) One branch of the law aimed at punishment and preservation of the
public; the other sought to make good losses suffered by the victim of some
specific tort. Since then, in the common law, tort law has been viewed
primarily as a mechanism of compensation. Its underlying organizing structure
remains grounded in the principle of corrective justice, although policy
concerns may play at times a considerable part in determining the outcome of a
particular case, as, for example, in actions based on the tort of negligence.
(See, for example, Edwards v. Law Society of Upper Canada,  3
S.C.R. 562, 2001 SCC 80; Cooper v. Hobart,  3 S.C.R. 537, 2001 SCC
79; Kamloops (City of) v. Nielsen,  2 S.C.R. 2.)
A private tort action usually focusses on undoing the wrong perpetrated
by a specific defendant against a particular plaintiff. For this reason, in
the law of tort, “[p]roof of negligence in the air, so to speak, will not do”
(Pollock, Torts, 11th ed., p. 455, quoted in Palsgraf v. Long Island
R. Co., 162 N.E. 99 (N.Y. 1928), per Cardozo C.J.). The liability
of the defendant and the right of recovery of the plaintiff do not exist
independently. In this respect, an obligation arising out of torts remains as
relational as in the law of contracts: “not only must the contractually bound
defendant perform the promised act, but that performance is owed to a
particular plaintiff” (E. Weinrib, The Idea of Private Law (1995),
at p. 52).
Given the relational nature of the wrong committed by this defendant
against the plaintiff, the remedies chosen by the court must remain consistent
with this basic characteristic. The defendant must pay damages to the plaintiff
in order to undo, inasmuch as can be done, the wrong caused. This principle
governs the assessment of the quantum of damages as a rule. Within the limits
set by principles of legal policy or by such conditions as specific torts may
attach to their recovery, damages should correspond to the amount required to
put the plaintiff in the position he or she would have been in, but for the
wrong committed by the defendant. This principle of corrective justice will be
implemented more easily in situations where a loss is fairly easy to
ascertain. In other fields of the law, compensation remains at best an
approximation, grounded, as it must often be, on a reasonable guess as to the
nature or extent of the impact of a particular wrong. In the case of personal
injury, the problem is well known but has defied just about every effort to
find clear and logical solutions. Even in such cases, the concern remains the
same. If the ultimate goal of perfect justice remains beyond the reach of the
courts, tort law seeks to compensate as fully as possible an actual loss caused
by a specific defendant to a particular plaintiff.
In the development of the principles governing the compensation of
economic loss, the analytical methods adopted by the Court since Canadian
National Railway Co. v. Norsk Pacific Steamship Co.,  1 S.C.R.
1021, reflect the relational nature of torts at common law. The concern to
control recovery through the concepts of proximity and foreseeability signals
the importance of this key principle that tort law is not grounded in
responsibility at large to society or to indeterminate classes of plaintiffs,
but on obligations to compensate adequately victims standing in a close enough
relationship with a tortfeasor.
By reason of the relational nature of private tort law, punitive damages
do not fit easily into its overall scheme, such as it may be. They are
considered at a point in a suit when, in principle, the complainant has
suffered a wrong but has been granted compensation as complete as the law
allows in order to put him or her back in his or her former position. Hence,
punitive damages come on top of everything else and carry no particular price
tag. At the same time, an award of punitive damages may reflect broader and
different societal concerns. These concerns reflect their position in the law:
they are designed to punish, not to compensate. An award of compensatory
damages may, in a way, punish the defendant due to the very fact that he or she
has been found in breach of some legal duty, that he or she is ordered to
indemnify a plaintiff and that he or she has had to go through the
inconvenience of a trial and also sometimes the humiliation of adverse
publicity attached to legal action. Indeed, by itself, an award of general
damages may be punishment enough. It does not mean, though, that an action is
primarily punishment: the compensatory nature of the claim remains. Punitive damages
differ strikingly from all other damages as the sole reason for awarding them
is to punish, as Professor Feldthusen has pointed out. Even aggravated damages
differ in this respect from punitive damages (see B. Feldthusen, “Recent
Developments in the Canadian Law of Punitive Damages” (1990), 16 Can. Bus.
Aggravated damages served the traditional corrective purpose of the
common law: to make the plaintiff whole for injuries to interests that are not
properly compensable by ordinary damages. Punitive damages target not loss,
but conduct. (See Vorvis, supra, at pp. 1098-99; Hill
v. Church of Scientology of Toronto,  2 S.C.R. 1130, at para. 196.)
The defendant’s wrong must then be considered directly and separately in order
to assess its severity and, accordingly, the appropriate degree of punishment.
The other forms of damages look to the loss of the plaintiff, but punitive
damages refer essentially to the degree of culpability of the defendant’s
The difficulties inherent in the nature of punitive damages have given
rise to doubts as to their proper place in the law of torts. Some critics have
indeed opined that they have no place in the proper structure of tort law,
equating it with some form of “palm tree justice”. (See Cassell & Co.
v. Broome,  A.C. 1027 (H.L.), at p. 1087, per Lord Reid.)
Under the pine trees of this country, as we know, punitive damages have found a
place in the law of torts. Nevertheless, as with any legal institution,
punitive damages must address some identifiable purpose and concern in order to
define their proper role. An overriding objective of general deterrence
remains problematic, if punitive damages are to remain a useful incident of
tort law. Otherwise, their use may turn some parts of the law of tort into a
sort of private criminal law, devoid of all the procedural and evidentiary
constraints which have come to be associated with the criminal justice system.
The Context of the Award of Punitive Damages
At this point, I must turn from principle to some particular facts of
this case. I will try to identify which broad social purpose could be
addressed by a large punitive damages award. This case started as litigation
based on a home insurance contract. The insured had the misfortune to run
across what might be characterized as the insurer from hell. Far from finding
peace of mind and receiving a settlement in a fair and diligent manner, the claimant
faced obduracy and bad faith. No evidence has been offered, though, that such
conduct was a regular incident of Pilot Insurance’s way of running its
business. It looks more like a rogue file mishandled by an overeager manager,
aided and abetted by counsel who seemed to have misunderstood the nature of
his duties as an officer of the court and as a member in good standing of the
Law Society of Upper Canada. Indeed, what is referred to at para. 16, in the
reasons of my colleague, as a concession in respondent’s factum that the upper
management of the insurer was fully apprised of what was going on in the Whiten
file, describes a line of reporting authority. Neither the so‑called
concession nor the evidence referred to in para. 17 of Pilot’s factum
establishes that the upper management of the company had acquired actual
knowledge of the mishandling of the Whiten claim by its local manager and the
lawyer he had retained. In addition, no suggestion has been made that such
behaviour is widespread in the insurance industry in Ontario or elsewhere in
What, then, are the purposes of an award of punitive damages in this
context? Once the purposes are determined, what should be a reasonable and
proportionate award? Some might think that the prospect of punitive damages
could perhaps strike fear into the hearts of cold-blooded bean counters lurking
somewhere in the basement of insurance companies’ head offices. The terrible
swift sword of the law might draw blood from a company used to turning a blind
eye to abuses by its middle managers. In the absence of evidence about the
flaws of the entrepreneurial culture of Pilot Insurance, the situations or the
particular evils rampant in the insurance industry, if any, what is left is a desire
to punish adequately acts of bad faith and unfair dealing by a manager and
counsel of an insurance company. (As my colleague indicates, this remark does
not apply to counsel who represented Pilot in the Court of Appeal and in this
In this case, the sole narrow purpose of an award for punitive damages
appears to be the punishment of the bad faith of the insurer in the discharge
of its duties under what should be a good faith contract on both sides. The
insurer must compensate in a timely manner. It has the right, even the duty,
to investigate claims, but must do so fairly and diligently. For his or her
part, the insured must file his or her claims promptly and assess his or her
losses as accurately as he or she can. Given the nature of the contract, bad
faith may constitute an actionable wrong and attract the sting of punitive
damages. The challenge remains to assess them properly, in a manner consistent
with the basic purposes of tort law. In the present appeal, an award of
damages must reflect first of all the narrow objective defined by the facts of
this case; as well, it must also reflect the relational nature of tort law,
although, at times, such an award may be viewed as a deterrent to others. (See
Hill, supra, at para. 196, per Cory J.; Vorvis,
supra, at p. 1108, per McIntyre J.) But the need for general
deterrence is far from clear in the present case. The requirement of a proper
connection between award and conduct requires a close fit between the amount of
the award and the misbehaviour of the respondent. An important consideration
remains the nature of the dispute, which arose in the context of a contractual
relationship concerning well-defined economic interests and not with respect to
moral or dignity interest as in the case of an action for defamation. In
addition, concerns about industry practices should mainly be addressed through
the appropriate regulatory and penal regimes, rather than through haphazard
punitive damages awards. (See Ontario Law Reform Commission, Report on
Exemplary Damages (1991), at p. 37.)
In the case of disputes concerning damage to property or economic
interests, the retributive aspect of the law should not play a major role in
litigation. Granting an indemnity of about three times the compensation for
loss of property under an insurance policy fulfills no rational function.
Despite the moral satisfaction we may derive from giving a good whack to an
insurance company and some misguided middle managers, the verdict of the jury
does not much advance the case of sound and fair management in the insurance
industry. The award fails the rationality test because its sole purpose
remains to punish adequately bad faith and unfair dealing by employees of Pilot
and its counsel. It does not address any widespread practice in the insurance
industry. It does not pretend to effect a disgorgement of unfairly acquired
profit. The punishment far exceeds whatever property or economic losses may
have been caused by the nonperformance of the contract. In such cases, the
criterion of proportionality requires that the use of punitive damages remain
carefully controlled and that punitive damages should not significantly exceed
the amount of damages to property, or economic interests, including aggravated damages,
if any are claimed.
4. Control of Awards
While Canadian courts have not imposed formal caps on punitive damages,
the discretionary nature of such awards and the difficulties of setting amounts
in a rational manner indicate that proper instructions should be given to
juries about factors and methods to be used in the difficult task of assessing
punitive damages. In my respectful view, that is exactly the concern that the
Ontario Court of Appeal attempted to address. Finlayson J.A. not only found
that the award was too high, but that it was so high as to be unreasonable and
to require interference by the Court of Appeal. The majority adopted a figure
which appears reasonable and proportionate. It imposed significant punishment
for the bad faith of Pilot without upsetting the proper balance between the
compensatory and punitive functions of tort law.
Moreover, flexibility and discretion are not the only values at stake in
the development of legal rules in the law of damages. Some degree of
predictability and consistency should also be factored into situations where
the nature of the damages suffered makes it difficult for a jury to determine a
proper quantum, as in the case of non-monetary losses and personal injury
litigation. In this area, it should be remembered that our Court deemed it
necessary to impose formal caps or a “bright line”. In the 1978 trilogy Andrews
v. Grand & Toy Alberta Ltd.,  2 S.C.R. 229; Thornton v.
Board of School Trustees of School District No. 57 (Prince George), 
2 S.C.R. 267; and Arnold v. Teno,  2 S.C.R. 287, at p. 334, the
Court set a cap of $100,000 for damages which were intended as restitution for
non-monetary losses after adjustment for inflation; our Court has kept this cap
in place ever since. Indeed, in 1995, Sopinka J. wrote that the “trilogy has
imposed as a rule of law a legal limit to non-pecuniary damages”. (See ter
Neuzen v. Korn,  3 S.C.R. 674, at para. 114.) In Andrews, supra,
at p. 261, Dickson J.) (as he then was) found that some kind of fair and
reasonable limit should be imposed given the difficulty of putting a price on
[T]he problem here is qualitatively different from that of pecuniary
losses. There is no medium of exchange for happiness. There is no market for
expectation of life. The monetary evaluation of non-pecuniary losses is a
philosophical and policy exercise more than a legal or logical one. The award
must be fair and reasonable, fairness being gauged by earlier decisions; but
the award must also of necessity be arbitrary or conventional. No money can
provide true restitution.
(See also Arnold, supra, at p. 331, per Spence J.)
In the end, imposing limits on such claims was not viewed as working an
injustice on claimants. Setting punitive damages at amounts which do not
exceed significantly the real economic loss, where the loss suffered concerns
mainly property and economic interests, would leave them in their proper place
within the scheme of the law of torts. At the same time, this approach would
avoid undermining the structure of the law of torts and its core function.
of the Jury
In the circumstances of this case, the fact that the award was made by a
jury does not make it more immune to appellate review; as appears from the
record, the jurors were themselves uncomfortable with the problem of
determining the proper quantum of punitive damages. They sought further
instructions, but the trial judge left them with the “skeletal instructions”
given during the charge. Hence, they ended up with an award which my
colleague would not have given, and which he says stands at the outer limits of
the reasonable, but within it. The Court of Appeal did only its duty when it
reviewed this award. A verdict which breaches the requirements of
proportionality and rationality required appellate review.
Some problems may arise also from aspects of the practice followed at
trial. According to the present Ontario practice, if one counsel objects, the
presiding judge will not instruct the jury as to the range of awards save in
the case of personal injuries. (Courts of Justice Act, R.S.O. 1990, c.
C.43, s. 118; Holmested and Watson: Ontario Civil Procedure
(loose-leaf ed.), vol. 1, at p. CJA-242; Caron v. Chodan Estate (1992),
58 O.A.C. 173, at p. 175, per Arbour J.A. (as she then was); P. G.
Vogel, Cohen Melnitzer’s Civil Procedure in Practice (loose-leaf ed.),
vol. 1, at p. 12-20; Gray v. Alanco Developments Ltd.,  1 O.R. 597
(C.A.); Howes v. Crosby (1984), 45 O.R. (2d) 449 (C.A.).)
The problems that occurred in the present case demonstrate that some
sort of instruction on the range of punitive damages awards, even without
counsel’s agreement, would have been useful. Without removing the jury’s
discretion, it would at least communicate to them some idea of past figures and
of guidelines that may be found in appellate or Supreme Court of Canada
judgments. They should also be instructed clearly that an award of general
damages may also amount to all the punishment that is necessary in a given
case. Failing this, and in the absence of a proper application of the
rationality and proportionality criteria, problematic awards are bound to
happen. Courts should take care that they do not alter the nature of tort law
by turning the focus of civil litigation away from compensation of a claim to
punishment of defendants.
For these reasons, I would dismiss the appeal without costs and the
cross-appeal with costs.
Appeal allowed with costs, LeBel J.
dissenting. Cross-appeal dismissed with costs.
Solicitors for the appellant/respondent on
cross-appeal: MacMillan Rooke Boeckle, Toronto.
Solicitors for the respondent/appellant on
cross-appeal: Lerner & Associates, Toronto.
Solicitors for the intervener the Insurance Council of
Canada: Davies, Phillips & Vineberg, Toronto.
Solicitors for the intervener the Ontario Trial Lawyers
Association: Ross & McBride, Hamilton.