Insurance problems and awards – The Law

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Published: August 22, 2002

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.

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