The insurance company’s literature promised “guiding people like you
into safe harbours has been our mission for nearly 75 years.”
For one impoverished Ontario family that promise proved to be hollow
and led to an eight year legal battle that finally ended in the Supreme
Court earlier this year. The company had undertaken a strategy to
deliberately deny a claim in the hopes the claimants would settle for
less than full value of the claim.
The facts were straightforward. The Whitens had insured their home and
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contents with Pilot Insurance. A fire started late at night Jan. 18,
1994, and destroyed the whole house. The cause of the fire was never
conclusively determined, but the fire chief thought it was caused by a
malfunctioning kerosene heater.
An independent investigator hired by the company concluded the fire
was accidental. The company hired other investigators. The
Insurance Crime Prevention Bureau reported “we wouldn’t have a leg to
stand on as far as declining the claim.” An engineer retained by the
company came to the same conclusion. In spite of the various reports,
the insurance company’s managers and lawyers concluded the claim should
be denied.
The Whitens were both unemployed at the time of the fire, were facing
financial problems and were in arrears on their mortgage. They lived in
a small town and people were aware that their home was not being
rebuilt because the insurance company was alleging arson. In the words
of the court,
“the stigma persisted.”
The Whitens were forced to sue and the case was heard by a jury, which
is rare in civil cases. The jury allowed the Whitens’ claim, awarding
them $318,252.32 plus punitive damages of $1 million to punish the
company. The Whittens were also awarded court costs of approximately
$320,000.
Punitive damages are not automatic in civil cases. They are awarded
when the defendant’s conduct represents a departure from the ordinary
standards of decent behaviour. Punitive damages go to the plaintiff.
U.S. courts have shown a strong trend to awarding large sums as
punitive damages. Some readers may remember an American case against
McDonald’s where a jury awarded a woman $2.7 million for burns
resulting from spilling a cup of hot coffee on her lap while trying to
balance it in the passenger seat. This was reduced to $480,000 by the
judge.
In the Whitens’ case, the courts agreed that punitive damages were
appropriate. The Whitens were in a vulnerable position, there was no
basis for denying the claim and the strategy of denying the claim was
known to top management. The court noted that except for the Whitens’
lawyer, who took on a hotly contested case when they had no money, the
Whitens might have received nothing.
The court of appeal, while agreeing that punitive damages were
appropriate, reduced the punitive damages to $100,000. The majority of
the Supreme Court, while saying that $1 million was at the high end of
damages, restored the jury verdict. To date, this is the highest
punitive damage award in Canada.
Punitive damages can be
awarded against claimants too. In
Andrusiw vs. Aetna Life Insurance, a policyholder was required to repay
$260,000 in disability payments plus punitive damages in the amount of
$20,000 for claiming disability when in fact he was actively working
for his company. Punitive damages have also been awarded in cases of
sexual abuse, wrongful dismissal and malfeasance by financial advisers.
Don Purich is a former practising lawyer who is now involved in
publishing, teaching and writing about legal issues. His columns are
intended as general advice only. Individuals are encouraged to seek
other opinions and/or personal counsel when dealing with legal matters.
