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Punitive Damages

Punitive Damages

Oct 24, 2017

Category:
Publications: Author:
Murray Stieber Andrea LeDrew Christian Breukelman: Date:
Oct 24, 2017

Overview:

An award of punitive damages[1] is an exceptional and relatively rare remedy available to plaintiffs in civil proceedings. As suggested by its name, such an award is punitive as opposed to compensatory by nature, straddling the frontier between civil and criminal law. This paper will provide an overview of the legal framework underlying punitive damages, consider situations in which punitive damages may or may not be appropriate, and outline specific developments in the case law.

Legal Framework:

I – The legal framework underlying punitive damages

Punitive damages are awarded only in exceptional cases where conduct giving rise to damage is such that it offends the court’s sense of decency.[2] These awards are non-compensatory by nature and represent an exception to the general common law rule that damages are awarded to compensate the injured as opposed to punish the wrongdoer. In Hill v Church of Scientology of Toronto, Justice Cory observes:[3]

Punitive 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.

Two basic requirements underlie punitive damages: (i) the defendant’s conduct must be reprehensible; and (ii) punitive damages, after taking into account any compensatory award, must be rationally required to punish offending party and to meet the objectives of retribution, deterrence, and denunciation.[4]

In recent years, appellate courts in Canada have extensively explored the nature of punitive damages. In the Supreme Court of Canada’s seminal decision of Whiten v Pilot Insurance Co., Justice Binnie summarized the rationale underlying punitive damages as well as the principles relevant to determining whether such an award is appropriate in the circumstances:[5]

1. Awards of punitive damages are not limited to specific categories of misconduct. Rather, the proper control mechanism lies in a rational analysis as to whether the circumstances warrant the addition of punishment to compensation in a civil action.
2. The general objectives of punitive damages are retribution, deterrence, and denunciation.
3. Punishment by a criminal court for an offence arising out of substantially the same facts does not bar an award of punitive damages – it is, however, a factor of great importance.
4. A principled, as opposed to exhortatory, approach to awarding punitive damages is required.
5. An award of punitive damages is only rational if its quantum is the lowest possible that would serve its underlying purposes.
6. It is rational to use punitive damages to relieve a wrongdoer of profit where compensatory damages would amount to nothing more than a license fee to earn greater profits through outrageous disregard of the rights of others.
7. There is no fixed cap on punitive damages, nor is there a fixed ratio between compensatory and punitive damages.
8. The governing rule for quantum is proportionality.Compensatory damages plus punitive damages plus any other punishment related to the same misconduct should be rationally related to the objectives of retribution, deterrence, and denunciation.
9. Jury instructions require detail as to the function of punitive damages as well as the factors that govern them.
10. Punitive damages are not large – an appellate court is entitled to intervene if an award exceeds the outer boundaries of a rational response to the facts of a case.

Evidently, there is no formulaic or fixed approach to awarding punitive damages in a given case. Nor is there a limit on the type of misconduct that may attract such an award. Rather, the proper analysis lies in the outrageous nature of the defendant’s misconduct.

II–Punitive vs. aggravated damages

At this point it is helpful to distinguish between punitive and aggravated damages. While both will frequently cover the same type of misconduct, they serve very different purposes. In Vorvis v Insurance Corporation of British Columbia, McIntyre J. distinguishes between the two:[6]

Aggravated damages are awarded to compensate for aggravated damage. … They take account of intangible injuries and by definition will generally augment damages assessed under the general rules relating to the assessment of damages. Aggravated damages are compensatory in nature and may only be awarded for that purpose. Punitive damages, on the other hand, are punitive in nature and may only be employed in circumstances where the conduct giving the cause for complaint is of such nature that it merits punishment.

Essentially, as opposed to punitive damages, aggravated damages are compensatory in nature. Such an award is only to be made to compensate for additional harm caused to the plaintiff’s feelings by reprehensible or outrageous conduct on the part of the defendant.[7] The types of additional harm for which aggravated damages are typically awarded include a loss of dignity, humiliation, additional psychological injury, and harm to the plaintiff’s feelings.[8]

While aggravated damages compensate for additional harm caused by outrageous behavior, punitive damages punish it. An award of punitive damages based on the harm suffered by a plaintiff runs the risk of double recovery – care must be taken to ensure that the analysis remains focused on the defendant’s conduct.

III – What kind of misconduct can give rise to punitive damages?

As there are no categories to which such an award is limited, judges have used a variety of descriptors to characterize the conduct giving rise to punitive damages:[9]

malicious, oppressive, arbitrary and high-handed that offends the court’s sense of decency
a marked departure from ordinary standards of decent behaviour
harsh, vindictive, reprehensible, and malicious
offends the ordinary standards of morality or decency
arrogant and callous
egregious
high-handed and callous
arrogant, callous of the plaintiff’s rights and deliberate
harsh, reprehensible and malicious
outrageous or extreme
highly unethical conduct which disregards the plaintiff’s rights
recklessly exposing a vulnerable plaintiff to substantial risk of harm without any justification

As evident from the characterization of the type of conduct that gives rise to punitive damages, awards will largely be restricted to intentional torts or breach of fiduciary duty.[10] Nonetheless, courts have found that in exceptional cases, punitive damages may be necessary to punish breach of contract or negligence.

In respect of breach of contract, punitive damages may be awarded where a defendant, apart from the breach sued upon, has committed an independent actionable wrong.[11] In particular, awards have been made for wrongful dismissals[12] as well as denials of benefits involving bad faith.[13]

In cases of negligence, punitive damages are restricted to situations in which the misconduct in question was intentional and deliberate and was “extreme in nature and such that by any reasonable standard it is deserving of full condemnation and punishment.”[14] Recently, there have been a number of punitive damages awards made to punish negligence in the context of motor vehicle accidents, a number of which are discussed below.

IV – Measuring Quantum

To determine the quantum of punitive damages necessary to effect the goals of retribution, deterrence, and denunciation, it is inappropriate to simply employ some sort of formula based on the ratio between punitive to compensatory damages. While some American states employ a 1:1 ratio between compensatory and punitive damages, this was explicitly rejected by the Supreme Court of Canada as it places an emphasis on the plaintiff’s loss as opposed to the defendant’s misconduct.[15]

Rather, the principle governing quantum is proportionality – compensatory damages plus punitive damages plus any other punishment related to the same misconduct should be rationally related to the objectives of retribution, deterrence, and denunciation.[16] This analysis should account for:[17]

1. Proportionality to the blameworthiness of the defendant’s conduct, including:
  - whether the misconduct was planned and deliberate;
  - the intent and motive of the defendant;
  - whether the defendant persisted in the outrageous conduct over a lengthy period of time;
  - whether the defendant concealed or attempted to conceal the misconduct;
  - the defendant’s awareness that they were doing something wrong;
  - whether the defendant profited from the misconduct; and
  - whether the interest violated was known to be deeply personal to the plaintiff or was irreplaceable.
2. Proportionality to the degree of vulnerability to the plaintiff, particularly any power imbalance due to financial or other vulnerability.
  - note: this acts as a mitigating factor in most commercial situations.
3. Proportionality to the harm or potential harm directed specifically at the plaintiff.
4. Proportionality to the need for deterrence.
  - note: larger awards may be necessary where the defendant is wealthy or powerful
5. Proportionality after taking into account other penalties, both civil and criminal, which have been or are likely to be inflicted on a defendant for the same misconduct.
6. Proportionality to the advantage wrongfully gained by a defendant from the misconduct.

Taking these factors into account, punitive damages should reflect the lowest award that would serve the purposes of retribution, deterrence, and denunciation. Anything higher is, by definition, irrational.[18]

It is likely that the award made in Whiten is the highest award of punitive damages in Canadian history. In this case, a fire had completely destroyed the house of an already financially vulnerable family. The insurer took a confrontational approach and denied the family’s claim, stating that they had deliberately set the house on fire. This position was wholly discredited at trial and the court found the insurer’s conduct was designed to force the plaintiffs to accept an unfair settlement. Clearly unimpressed with this conduct, the jury awarded the plaintiff $1,000,000 in punitive damages.

The Ontario Court of Appeal lowered this amount to $100,000, holding this would be sufficient to deter such conduct. At the Supreme Court of Canada, however, after undertaking a thorough review of the law, the original award of $1,000,000 was reinstated. Justice Binnie noted:[19]

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.

As a brief aside, this is indicative of the deference that the quantum of punitive damages awarded will be afforded on appeal.

The award in Whiten was recently exceeded by the Court of Queen’s Bench for Saskatchewan. In Branco v American Home Assurance Company,[20] Justice Acton was faced with a plaintiff injured his foot while working at a mine in Kyrgyzstan. He brought an action against his insurers in an effort to secure the benefits he considered to be owing under two group policies. Based on their conduct, awards of $3,000,000 and $1,500,000 in punitive damages were made against two of the plaintiff’s insurers.

On appeal, Chief Justice Richards agreed that the two insurers’ conduct warranted an award of punitive damages, but reduced the quanta to $500,000 and $175,000 respectively, concluding that the awards at trial were “unwarrantedly high”.[21]

Also noteworthy, Justice MacNaughton of the British Columbia Supreme Court issued what is likely the highest award of punitive damages in the context of a motor vehicle accident on October 12, 2017.[22] The defendant – who was driving with a suspended license – swerved into a clear lane on the wrong side of the road to avoid rush hour traffic and hit the defendant. He fled the scene and later lied under oath about being the driver at the time. Given this egregious conduct, $100,000 in punitive damages were awarded as against the defendant driver.

The three cases outlined above are exemplary and help illustrate the upper range of punitive damages available to plaintiffs. While the facts underlying most cases will not give rise to such extraordinary awards, judges are clearly willing to test the boundaries of reasonableness in respect of punitive damages.

Insurers should pay particular attention to Branco and Whiten, where large awards were made for the explicit purpose of catching the industry’s attention.

Specific Issues in Punitive Damages:

I – Coverage under CGL policies

The distinction between aggravated and punitive damages will often be of practical importance in the context of CGL policies. While coverage will depend on the wording of the specific policy entered into, CGL policies often exclude coverage for punitive damages. By way of example, the Insuring Agreement contained within the 2005 edition of the IBC CGL Form reads: (emphasis added)

1. Insuring Agreement.
  - We will pay those sums that the insured become legally obligated to pay as “compensatory damages” because of “bodily injury” or “property damage” to which this insurance applies.…

“Compensatory damages” is a defined term:

“Compensatory damages” means damages due or awarded in payment for actual injury or economic loss. “Compensatory damages” does not include punitive or exemplary damages or the multiple portion of any multiplied damage award.

The fact that that “compensatory damages” excludes punitive but not aggravated damages is consistent with the long-settled distinction between these two types of damages.

Judicial consideration of similar policy wording has confirmed “compensatory damages” should exclude punitive damages from coverage. In Palliser Regional (School) Division #26 v. Aviva Scottish & York Insurance Co. Limited, Justice Park of the Court of Queen’s Bench of Alberta considered a policy providing the following coverage:[23]

The Insurer will pay those sums that the Insured becomes legally obligated to pay as compensatory damages including pre-judgment interest or in those jurisdictions where statute prescribes interest from some other date because of “bodily injury” or “property damage” to which this insurance applies. …This insurance applies only to “bodily injury” and “property damage” which occurs during the policy period. The “bodily injury” or “property damage” must be caused by an “occurrence”. The “occurrence” must take place in the “coverage territory”.

In respect of whether this wording warranted a defence by the insurer in respect of punitive damages, he stated simply:[24]

I do note that the Policy provides coverage only for compensatory damages. The claim and the Prayer for Relief against Palliser for aggravated or punitive damages falls outside of the purview of the Policy. These latter damages are not subject to a defence by Aviva.

Accordingly Aviva has a duty to defend Palliser’s possible liability for compensatory damages. Aviva is ordered to provide Palliser with an appropriate defence to the action in that respect.

While, of course, coverage will be subject to the wording of the remainder of the agreement, most CGL policies do not provide coverage for punitive damages.

II – Coverage under auto policies

There has been very limited judicial consideration as to whether awards of punitive damages are covered by automobile policies in Ontario.

In his dissent in McIntyre, Justice Blair provides comments in obiter with respect to coverage for punitive damages under Ontario’s standard automobile policy:[25] (emphasis added and citations omitted)

I am not persuaded that an award of punitive damages in this case, and more generally, in the context of impaired driving and motor vehicle negligence, advances either the objectives of punishment or deterrence.

Mr. Grigg is required by law in Ontario to be insured. Although the details of his insurance are not before the court, the Standard Automobile Owner’s Policy provides that where the insured is legally responsible for the bodily injury to, or death, of others, or for damage to the property of others, as a result of owning, using or operating the insured automobile, the insurer “will make any payment [on the insured’s behalf] that the law requires, up to the limits of the policy”. [See Note 9 below] Nothing in the Standard Policy terms exclude punitive damages from this provision, and nothing negatives coverage vis-a-vis third parties as a result of intoxication. Thus, it is unlikely that Mr. Grigg — or other impaired drivers in similar situations — will have to pay the punitive damages awarded (subject to policy limits).

What, then, is accomplished in the way of punishment or deterrence by such an award? An award of punitive damages in these circumstances does little to advance the objectives of punitive damages, in my opinion, particularly when weighed against the injunction that such awards are to be reserved for exceptional cases that justify an exceptional remedy.

Moreover, if punitive damages are to be awarded in such circumstances, the social cost of such a development may be significant as well. Drivers in Ontario are insured. If insurers are to become exposed to an increasing risk of indemnifying for punitive damage awards, they will naturally be required to increase their reserves for losses accordingly. Even if coverage for punitive damages becomes optional, insurance premiums across the board will inevitably rise. In that sense, then, all automobile-owning members of society will effectively be “punished” for the conduct of Mr. Grigg and comparable drivers. Similar concerns underlie the “cap” on non- pecuniary damages imposed by the Supreme Court of Canada in the trilogy of cases referred to in the reasons of the Chief Justice and Justice Weiler.

Further, the type of conduct required for a pleading of punitive damages will not necessarily negate coverage by means of section 118 of the Insurance Act. Justice Ellies in Savage v Belecque, confirms that such an award will not necessarily involve the type of intent contemplated by section 118:[26]

The type of “deliberate” conduct contemplated by a claim for punitive damages is not the type of intentional conduct excluded by the automobile insurance policy or by section 118. Section 118 provides,

118. Violation of law, effect of, on claim for indemnity – Unless the contract otherwise provides, a contravention of any criminal or other law in force in Ontario or elsewhere does not, by that fact alone, render unenforceable a claim for indemnity under a contract of insurance except where the contravention is committed by the insured, or by another person with the consent of the insured, with intent to bring about loss or damage but in the case of a contract of life insurance this section applies only to insurance undertaken as part of the contract whereby the insurer undertakes to pay insurance money or to provide other benefits in the event that the person whose life is insured becomes disabled as a result of bodily injury or disease. (emphasis added)

In McIntyre v. Grigg, the Ontario Court of Appeal agreed with the reasoning of the British Columbia Supreme Court in Vlchek v. Koshel,in which it was held:

While negligence or an intentional act can trigger an award of exemplary damages, it does not follow that the act must be directed towards a specific individual. But the act must be malicious or reckless to such a degree as to indicate complete indifference to the consequences that might flow therefrom, including the welfare and safety of others. In other words, intention to cause the injury need not be present; it will suffice if there was an intention to do the act which eventually caused the injury. (emphasis in original)

Therefore, the plea for punitive damages does not, of necessity, constitute a plea that Michel Belecque intended to bring about the loss or damage sustained by Amy Savage.

Accordingly, the insurer was not relieved from its duty to defend the action by means of the plaintiff’s pleading for punitive damages.

Coverage will depend on the entirety of the policy; however, there does not appear to be judicial consensus excluding coverage for punitive damages in Ontario. While the public policy discussed in obiter by Justice Blair in McIntyreno doubt present valid concerns, these may not be sufficient to preclude coverage under automobile policies.

IV– FLA claimants

It is settled that a plaintiff seeking damages pursuant to Section V of the Family Law Act in respect of the death of a family member is not entitled to plead for punitive or aggravated damages. The provisions under Section V are designed to provide statutory exceptions to the strict common law rule that the right to bring an action in tort does not survive the death of a victim.[27]

In the seminal decision in respect of this issue, Justice Sharpe explained why a pleading pursuant to the Family Law Act for punitive damages could not be sustained:[28] (citations omitted)

… As is clear from its terms, s. 61(1) limits the claims of survivors to “their pecuniary loss resulting from the … death”. “Pecuniary loss” refers to the actual monetary losses incurred by the plaintiff as a result of the injury. While s. 61(2)(e) allows for recovery of certain specified non-pecuniary damages, those damages are still compensatory in nature. In my view, the statutory language is fatal to any claim for punitive or exemplary damages.… While it may be that the circumstances pleaded could call for the censure of the court, the issue is whether the legal entitlement asserted by the plaintiffs can embrace such a claim. As the plaintiffs assert a purely statutory cause of action which limits recovery to pecuniary losses and certain specified non-pecuniary compensatory losses, I fail to see any basis for allowing the plaintiffs to claim punitive or exemplary damages which are plainly non-compensatory in nature.

Justice Sharpe further concluded that aggravated damages are not properly recoverable under this provision either:[29] (citations omitted)

In my view, in the light of Mason v. Peters, supra, the inevitable conclusion is that such losses are not recoverable. In that case, after a careful review of the legislation, its history, and the authorities interpreting it and its predecessors, Robins J.A. concluded that while the Act (there, the FLRA, s. 60 (2), now, the FLA, s. 61 (2)), allows for the recovery of the non-pecuniary loss of care, guidance and companionship, the trial judge had properly excluded (at p. 39) “grief, sorrow and mental anguish suffered by reason of the death as compensable items of damage. Non-pecuniary loss of this kind, unlike guidance, care and companionship, are not provided for in the Act and under its terms remain non-recoverable.” Mason v. Peters, supra, did not deal with the issue of aggravated damages. However, it is my view that by holding that the statute does not allow recovery for grief, sorrow and mental anguish, the decision effectively precludes recovery of aggravated damages as they aim to compensate a similar, if not identical, loss.

More recently, Justice Hackland[30] and Justice Faieta[31] considered the entitlement of Family Law Act claimants to punitive damage and reasoning confirmed to be dispositive.

Interestingly, however, the Supreme Court of Canada’s recent decision in Saadati v Moorhead[32]may have affected a plaintiff’s potential recourse in some scenarios. While it is still good law that a plaintiff cannot recover punitive or aggravated damages arising from the death of a family member under the Family Law Act, they may be able to advance a direct claim in negligence for mental injury suffered following the injury or death of a family member.[33] In Snowball, Justice Faieta dismissed a defendant’s Rule 21.01(1)(b) motion, suggesting that it was not plain and obvious that the plaintiffs’ claim in negligence and mental distress had no reasonable prospect of success:

Given that courts have apparently disregarded Baker by allowing claims in negligence for mental injury so long as the claimant witnesses a person’s injury, death or the aftermath of such injury or death (see the cases described above at paragraph 16 of these reasons), and given that the court in Saadati rejected the “primary/secondary victim” distinction, as well as the view that there are geographic, temporal and relational proximity restrictions that are an absolute limitation on the duty to take reasonable care to avoid causing foreseeable mental injury, it is my view that the plaintiffs’ claims for mental distress following Snowball’s death might succeed even though they are secondary victims who did not witness this sudden, traumatic event. As directed by the Supreme Court of Canada in Saadati, the outcome of the Snowball action should turn on the robust application of the elements of an action in negligence by the trier of fact rather than on the separate application of geographic, temporal, and relational considerations or a distinction between “primary” and “secondary” victims.

While plaintiffs are still unable to plead for punitive and aggravated damages under the Family Law Act, the Supreme Court of Canada’s recent decision in Saadati may have widened the ability of plaintiffs to recover such damages arising from the death of a family member outside of this statutory scheme.

IV – Punitive damages and criminal punishment

Prior criminal punishment is a significant factor in assessing the appropriateness of punitive damages in the context of the same conduct.[34] Nonetheless, it is not a complete bar to such an award.

The facts underlying McIntyre illustrate the type of scenario in which punitive damages may be awarded despite prior criminal punishment of the same misconduct. The defendant, a member of the Hamilton Ticats at the time, struck the plaintiff with his car after having attended three bars that night. He failed a breathalyzer test shortly after the incident and was charged accordingly.

Ultimately, the Crown Attorney decided to proceed with only a careless driving charge as the defendant had not been informed of his right to counsel before the breathalyzer test was administered. In the end, he pled guilty and received a fine of $500. No license suspension was imposed.

At the civil trial, however, the evidence established that the defendant was significantly impaired at the time of the accident. The Crown Attorney testified that, had the defendant have been convicted, he would have asked for and the defendant would have likely received a period of incarceration.

The Court held that punitive damages were appropriate in this case:[35]

While the driver Grigg pleaded guilty to, and received a fine for, careless driving, the evidence in the civil trial established that he was significantly impaired and that his conduct should normally warrant a serious punishment. … In our view, there are sound policy reasons for generally not attempting to re-try those proceedings in a civil action. As this court held in Fleury v. Fleury at para. 11:

Where tortious acts have already been sanctioned by the imposition of a criminal sentence, it is inappropriate to award punitive damages in a civil lawsuit. To do so is to punish twice for the same offence…. Where, however, the civil proceedings establish that … the sentence does not fully sanction the tortfeasor’s behaviour… punitive damages may be awarded.

In our view, a court in a civil proceeding should generally demonstrate deference to the decision of the other court. Otherwise, the review of the appropriateness of a penalty administered in a criminal court, for example, could be viewed as a collateral attack on that decision. In our opinion, the “disproportionality” test enunciated by Binnie J. in Whiten in relation to the wrongful conduct and the penalty imposed is one that should be approached with considerable caution.

We believe that the facts in the present case present one of those rare instances where the disproportionality test applies. It was rational for the jury to conclude that punitive damages would denounce Andrew Grigg’s conduct and signal the need for general deterrence of impaired driving. Given Andrew Grigg’s fine of $500, punitive damages would not amount to double punishment and indeed would be more appropriate punishment.

As the defendant’s behavior had not yet been properly punished, punitive damages were appropriate.

Recently, MacFarland J.A. confirmed that the facts of McIntyre are exceptional and that an award of punitive damages in the face of prior criminal punishment should be rare.[36] She explicitly refused to read McIntyre as allowing the court to consider punitive damages in any case of negligence arising from impaired driving.

Essentially, the defendant in McIntyre was not actually punished criminally for his misconduct that was the subject of the civil trial – impaired driving. Rather, he pled guilty to a lesser offence and received only a $500 fine. Had he received criminal punishment commensurate to the actual misconduct giving rise to the civil action, punitive damages would likely not have been awarded. It is only given similar facts – where the misconduct giving rise to a civil action has not been properly punished – that punitive damages should be awarded in light of prior criminal punishment.

[1] The terms punitive damages and exemplary damages are used synonymously.

[2] Hill v Church of Scientology of Toronto, [1995] 2 SCR 1130 at para 196, 1995 CanLII 59.

[3]I bid.

[4] Boucher v Wal-Mart Canada Corp., 2014 ONCA 419 [Boucher] at para 79.

[5] 2002 SCC 18 [Whiten] at paras 67-76.

[6] [1989] 1 SCR 1085 [Vorvis] at p 1099, 1989 CanLII 93.

[7] McIntyre v Grigg, [2006] OJ No 4420 [McIntyre] at para 49, 2006 CanLII 37326.

[8] Ibid at para 50.

[9] Ibid at para 60.

[10] Whiten, supra note 5 at para 67.

[11] Ibid at para 31.

[12] See, eg, Boucher, supra note 4.