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Punitive damage awards in property loss cases could exceed $1M

While the appellate courts have taken the view that $1 million is the “rough upper limit” on punitive damage awards in Canada, that may soon change, says Toronto personal injury lawyer Gary Will.

A 2002 case successfully argued by Will at the Supreme Court of Canada that led to the $1-million award may lead to higher future punitive damage awards if bad-faith practices have a broader impact on policyholders, writes the managing partner of Will Davidson LLP in a paper he recently presented to lawyers at an Osgoode continuing legal education program.

“Eventually there will be a case of exceptionally reprehensible conduct on the part of an insurance company who is a repeat offender and where the conduct of the insurer has affected policyholders beyond the specific plaintiff in the case,” Will says in the paper.

“In that particular event, a punishment in excess of $1 million will be rationally required and the appellate courts will need to re-adjust their current thinking as to the appropriate level of punitive damages.”

Ultimately, such an award may need to be decided by the Supreme Court of Canada, he says.

Will's case dealt with a 1994 fire that destroyed a home and all of its contents. While the homeowners claimed for the loss under their insurance policy, the insurer refused to pay because it alleged arson. This allegation came despite conflicting reports from an adjuster, expert engineer, investigative agency and the fire chief that the fire was accidental.

The company — which disputed the punitive damage award — eventually conceded the evidence pointed to an accidental fire, according to the court decision.

In Will’s paper, titled “Aggravated and Punitive Damage Awards in Fire and Property Loss Cases: Where the Law Stands Now,” he outlines the factors used by the courts to determine how much should be awarded in punitive damages. Aggravated damages, he notes, are more frequently sought and easier to obtain.

Will — who also spoke to law students at Queen's University law faculty which included a guest appearance by the plaintiff in the case — says trial judges have expressed concern over insurance companies that “employ unfair tactics” resulting in long delays. They also consider how some past punitive damage awards failed to deter the insurance industry, he writes.

While damage awards in such cases have ranged from $50,000 to $4.5 million in recent years, most of the higher-end awards are appealed.

“In virtually every sizeable punitive damage verdict an appeal is predictable,” he writes. “The appellate courts across the country have exercised a gatekeeper function for punitive damages and have vacated a number of the larger awards either on the basis that an award was not merited or, more frequently, on the basis that the award by the judge or jury was excessive.”

The Insurance Bureau of Canada has lobbied for a cap on damages but the Supreme Court rejected that, Will writes.

A case involving “institutional bad faith practices” could attract a higher award than $1 million, he suggests.

Still, he says, the judge outlined several useful factors to help determine the appropriate award. 

Firstly, it should be “proportionate to the blameworthiness of the defendant’s conduct,” meaning that worse conduct would potentially merit a higher award. The level of “blameworthiness” may be influenced by factors including whether the conduct was planned or deliberate, what the intent and motive was, and whether the defendant persisted in “outrageous conduct” over a long period of time.

“If the defendant deliberately delays the assessment of the merits of the claim, evidence of this should be presented at trial,” he writes.

Other factors that influence the “blameworthiness” are: whether there was an attempt to cover up the misconduct; whether the defendant was aware what they were doing was wrong; whether they profited from the misconduct; and whether there was a “deeply personal” interest violated by the misconduct.

Further considerations in the potential award include: whether it is proportionate to the plaintiff’s vulnerability; whether it is proportionate to the need for deterrence; and whether it is comparable to other penalties for similar misconduct. Finally, the court should consider if the award is proportionate to the advantage wrongfully gained by the defendant, and whether the award is rational.

There is no reason not to expect a punitive damage award in the range of $1 million for “truly malicious, reprehensible conduct,” Will writes.

“If, in addition to such malicious, reprehensible conduct, you are able to establish systemic conduct on the part of the insurer, together with profitability to the insurer as a result of this misconduct, damages could be assessed at much greater figures.”

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