Author: Lawrence Bau
The law of damages in Canada has undergone unique changes over the past 50 years which have helped shape the actions of Canadian society. The development of three areas of damages in Canada is of particular interest: non-pecuniary, punitive, and aggravated damages.
With respect to non-pecuniary damages, the Supreme Court of Canada, Canada’s highest court, implemented a series of rulings in the late 1970s which affected the way non-pecuniary damages were awarded. The rulings have had longstanding social implications. We will discover how the rule has been treated in subsequent cases and predict how it will likely fare in the future.
The role of punitive and aggravated damages has been particularly important in the context of bad faith claims made against insurance companies. We will review the history behind bad faith claims in Canada and analyze the current amounts which Canadian courts have been awarding for punitive and aggravated damages.
The awarding of non-pecuniary damages in a civil action is by no means unique to Canada. Many other jurisdictions around the world seek to compensate a victim from loss arising from pain and suffering. In Canada, the factors which are analyzed to determine an appropriate award are: 1) the plaintiff’s age, 2) the nature of the injury, 3) the severity and duration of the pain, 4) the level of the disability, and 5) the loss of lifestyle or impairment of life (Stapley v. Hejslet, 2006 BCCA 34 at para. 46).
As a body of jurisprudence emerges, courts rely on previous case law to determine the appropriate award. Given that the calculation of non-pecuniary damages is not an exact science, the Supreme Court of Canada feared that an escalation of these damages would arise from the case law and would subsequently be followed in the future.
Supreme Court Of Canada Trilogy
On January 19, 1978, the Supreme Court of Canada tackled this issue head-on by ruling on a trilogy of cases to limit the maximum amount of non-pecuniary damages a plaintiff could receive in a civil action (Andrews v. Grand & Toy Alberta Ltd.,  2 S.C.R. 229 (SCC) [Andrews]; Thornton v. School District No. 57 (Prince George) et al.,  2 S.C.R. 267 (SCC) [Thornton]; and Arnold v. Teno,  2 S.C.R. 287 (SCC) [Arnold]) (the “Trilogy”).
In the judgment of Andrews, Mr. Justice Dickson explained that non-pecuniary damages were difficult to quantify and did not rely on an objective measure. The presence of these attributes provided the potential for an increasingly substantial and excessive amount of damages to be awarded. The court’s fear was partially grounded on the developing landscape of non-pecuniary damage awards in the United States. As explained by Mr. Justice Dickson:
The sheer fact is that there is no objective yardstick for translating non-pecuniary losses, such as pain and suffering and loss of amenities, into monetary terms. This area is open to widely extravagant claims. It is in this area that awards in the United States have soared to dramatically high levels in recent years. Statistically, it is the area where the danger of excessive burden of expense is greatest (Andrews at p. 19).
Mr. Justice Dickson found there would not be any unfairness to the plaintiff if an upper limit was imposed. Non-pecuniary damages were not, in the direct sense, compensatory in nature as no amount of money can replace the pain and suffering of the plaintiff. The amounts awarded would instead be considered additional money to help the plaintiff in making his or her life more endurable. Furthermore, any future financial burdens to the plaintiff may be awarded through future loss of income or future care heading of damages.
Consequently, Justice Dickson for the Supreme Court of Canada imposed a conservative upper limit on non-pecuniary damages:
I would adopt as the appropriate award in the case of a young adult quadriplegic like Andrews the amount of [CDN]$100,000. Save in exceptional circumstances, this should be regarded as an upper limit of non-pecuniary loss in cases of this nature (Andrews at p. 21).
In Arnold v. Teno,  2 S.C.R. 287 (SCC) [Arnold], the plaintiff was a similarly young individual who suffered a catastrophic injury, albeit with different injuries. Diane Teno, the four year old plaintiff, was crossing the road with her brother when she was struck by a vehicle driven by the defendant Brian Arnold. The plaintiff suffered severe brain damage resulting in physical and mental impairment.
The $100,000 upper limit was again imposed in Arnold. Mr. Justice Spence noted that part of the exercise undertaken was a social and economic attempt to prevent runaway insurance premiums:
The very real and serious social burden of these exorbitant awards has been illustrated graphically in the United States in cases concerning medical malpractice. We have a right to fear a situation where none but the wealthy could own or drive automobiles because none but the wealthy could afford to pay the enormous insurance premiums which would be required by insurers to meet such exorbitant awards (Arnold at p. 28).
In addition to imposing an upper limit, the Supreme Court in Andrews further explained that the amount of non-pecuniary awards should not vary greatly from part of the country to another. “Everyone in Canada, wherever he may reside, is entitled to a more or less equal measure of compensation for similar non-pecuniary loss” (Andrews at pp. 263-264).
Cases that are Exempted from the Upper Limit Cap
Since the Trilogy, the Supreme Court of Canada has exempted the application of the upper limit cap in particular types of cases. One such case where the cap did not apply involved injuries resulting from the defamation of a lawyer by the Church of Scientology (Hill v. Church of Scientology,  2 S.C.R. 1130 (SCC) [Hill]). The lawyer was awarded $300,000 in general damages.
Similarly, a case involving a loss of reputation resulted in $430,000 in non-pecuniary damages being awarded (Young v. Bella, 2006 SCC 3 [Young]). The plaintiff in this case was a university student who was suspected by her professor to be a child sex abuser. The professor reported her suspicions to a number of authorities and community figures but was later discovered to be wrong in her finding. The Supreme Court of Canada stated at page 17:
The [defendants] have not established why the policy considerations which arise from negligence causing catastrophic personal injuries, in the context of accident and medical malpractice, should be extended to cap a jury award in a case such as the present. This argument was rejected in relation to damages for defamation in Hill v. Church of Scientology at paras. 170-76. In our view, the case for imposing a cap in cases of negligence causing economic loss is not made out here either.
Although not a Supreme Court of Canada case, the British Columbia Court of Appeal refused to impose the cap on damages for civil sexual assault cases (S.Y. v. F.G.C. (1996), 78 B.C.A.C. 209 (BCCA) at para. 30 [S.Y.]):
There is no evidence before us that this type of case has any impact on the public purse, or that there is any crisis arising from the size and disparity of assessments. A cap is not needed to protect the general public from a serious social burden, such as enormous insurance premiums.
From the above cases, it is clear that the court considers the social implications of a high damage award when deciding whether to apply the cap. If there is no evidence to indicate that society would suffer an economic burden from the award, such as an increase in insurance premiums, the upper limit cap appears not to apply.
The Aftermath of the Trilogy
For a brief period after the Supreme Court of Canada handed down the trilogy judgment, there was uncertainty as to whether the upper limit was a strict rule of law or merely a guideline to be used in future cases. As mentioned in Andrews, the upper limit may not be surpassed “save for exceptional circumstances”. The “exceptional circumstances” phrase gave an opportunity for particular cases to ignore the upper limit as we have seen with the defamation, loss of reputation, and sexual assault cases. However, it also left the potential to exceed the limit if the plaintiff experienced more pain and suffering than that of the plaintiffs in the trilogy cases.
Slightly over a year after the trilogy, the Ontario Court of Appeal awarded a plaintiff $125,000 in non-pecuniary damages for nervous shock (Fenn v. City of Peterborough,  O.J. No. 4312 (Ont. C.A.) [Fenn]). The court reasoned that the plaintiff suffered substantially more pain than the plaintiffs in the trilogy cases and thus qualified as an exceptional circumstance. The plaintiff suffered severenervous shock and emotional distress when he witnessed his wife and three children caught in a fire and explosion which destroyed their house. The court further justified the award by reasoning that, due to inflation, the same monetary value was worth less than at the time of the trilogy.
At the time, Fenn appeared to have expanded the upper limit on non-pecuniary damages for personal injury cases, which could have potentially led to an escalation of awards. However, Fenn was an exceptional circumstance in its own regard. No other provincial appellate court or Supreme Court of Canada decision since Fenn has upheld an award of non-pecuniary damages above the trilogy’s upper limit cap because the plaintiff experienced more pain and suffering than the plaintiffs in the trilogy cases.
In 1995, the $100,000 upper limit was further solidified when Justice Sopinka, writing for the Supreme Court of Canada, stated that the upper limit was to be a “rule of law” (ter Neuzen v. Korn,  S.C.J. No. 79 at p. 29 [ter Neuzen]). In ter Neuzen, a jury awarded $460,000 in non-pecuniary damages. Sopinka J. indicated that when a jury awards an amount exceeding the upper limit, the court should lower it to the amount of the cap. ter Neuzen’s “rule of law”judgment most likely contributed to the dearth of awards exceeding the upper limit due to the “exceptional circumstances” of the plaintiff.
The Current Upper Limit
In the 1981 Supreme Court of Canada decision of Lindal v. Lindal ( S.C.J. No. 108 (SCC)), it was agreed upon that the $100,000 cap would be adjusted at the rate of inflation to determine the upper limit at the time of trial.
An example of the inflation adjustment can be seen in a 2012 British Columbia Supreme Court case, where the judge noted at the time that the upper limit for non-pecuniary damages in Canada for negligently caused injuries was just over $342,000 (Clost v. Relkie, 2012 BCSC 1393). As of the writing of this paper in April 2014, the upper limit is calculated to be approximately $360,000.
Challenging the Upper Limit
In 2003, Lee v. Dawson, 2003 BCSC 1012 attempted to challenge the upper limits of non-pecuniary damages. In the British Columbia Supreme Court, a jury awarded $2,000,000 to a 15 year old who suffered a traumatic brain injury, severe depression, stunted psychological growth and permanent facial scarring from a motor vehicle accident. The trial judge lowered the jury award to the upper limit as suggested under ter Neuzen, which amounted to $294,000 after it was adjusted for inflation.
The plaintiff appealed the decision to the BC Court of Appeal (Lee v. Dawson,  B.C.J. No. 679 (BCCA)) with the main argument being that the upper limit violated Section 15 of the Canadian Charter of Rights and Freedoms (the right to equality). The plaintiff argued that less injured persons who fell below the upper limit would be entitled to full compensation, whereas catastrophically injured persons would be limited by the cap imposed by the trilogy. In addition, victims of defamation were not limited by the cap but victims of negligence, as was the case in Lee, were limited. These situations created inequality which breached Charter values and rights.
The Court of Appeal reinforced the BC Supreme Court’s reasoning that the courts are bounded by the trilogy with the upper limit to be applied as a rule of law. Furthermore, non-pecuniary damages did not violate equality rights as it was not meant to fully compensate the plaintiff for all the injuries sustained. Non-pecuniary damages were meant to provide a substitute for loss of amenities and to make the plaintiff’s life more bearable. Damages may be awarded in other headings to provide equality in the amount of compensation a plaintiff receives in a negligence case. Finally, the plaintiff was said to have misapprehended the reason behind the upper limit, which was to prevent excessive awards and the societal consequences stemming from them.
Given the ruling in the Lee case, the “rule of law” on the upper limit cap does not seem to be in jeopardy at the present time. Since the trilogy judgment was handed down over 30 years ago, Canadian courts have held strong in their stance on non-pecuniary damages. It appears they will continue to do so in the foreseeable future.
Duty of Good Faith
In the 19th century, the implied covenant of good faith and fair dealing arose in the United States as part of contract law. The duty of good faith has since been adopted by Canada and continues to be imposed in contracts, especially those between an insured individual and an insurance company.
In Canada, the duty of good faith requires an insurer to act fairly in investigating and assessing the claim, and in deciding whether to pay the claim. In making a decision to refuse payment of a claim, an insurer must assess the merits of a claim in a balanced and reasonable manner. It must not deny coverage or delay payment in order to take advantage of the insured’s economic vulnerability or to gain bargaining leverage in negotiating a settlement. A decision by an insurer to refuse payment should be based on a reasonable interpretation of its obligations under the policy (Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30).
A breach of the duty of good faith may result in an award of punitive and/or aggravated damages. The context in which bad faith claims fall within the realm of punitive and aggravated damages is explained below.
Generally, punitive damages are imposed in rare circumstances where there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs markedly from ordinary standards of decent behaviour. Their purpose is not to compensate the plaintiff, but to give the defendant his or her just dessert (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 (Hill v. Church of Scientology).
An award of punitive damages in a contract case, though rare, is obtainable. It requires an “actionable wrong” in addition to the breach of contract. In addition to the contractual obligation to pay the claim, insurers have 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.
As a breach of the duty of good faith is a separate actionable wrong, it is not dependent on the claim for coverage or compensation under the insurance policy. Therefore, an individual may be awarded punitive damages even if the court rules that the insured is not entitled to any form of coverage (seeSaskatchewan Government Insurance v. Wilson, 2012 SKCA 106).
History of Punitive Damages
Beginning in 1989, a Canadian court for the first time awarded punitive damages against a property insurer in a first party case in the modest amount of $10,000 (Labelle v. Guardian Insurance (1989) 38 C.C.L.I. 274 (Ont. H.C.J.).
During the 20th century, Canadian courts remained modest in their punitive damage awards against an insurer for acting in bad faith. All this would change when the Supreme Court of Canada released a judgment awarding $1 million in punitive damages in a first party bad faith insurance case (Whiten v. Pilot Insurance Co., 2002 SCC 18 [Whiten]).
In Whiten, the plaintiff and his family sought insurance coverage after the plaintiff’s house completely burned down on a cold winter night in Ontario. The insurer made a single payment of $5,000 to the insured for living expenses under the policy but refused to provide further coverage on suspicions of arson.
The fire department, police, and independent adjusters retained by the insurer concluding that it was an accidental fire. Nonetheless, the insurer held on to its arson theory and relied on the help of an aggressive and confrontational legal counsel.
The jury in the Ontario Supreme Court awarded $1 million in punitive damages, which was lowered to $100,000 by the Ontario Court of Appeal. The Supreme Court of Canada restored the $1 million award having found that the insurer attempted to take advantage of the plaintiff’s financial difficulties, its superior resources, and bargaining power to obtain a favourable settlement. The defendant’s strategy had also been known and approved by middle and senior management. The Supreme Court of Canada noted that:
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. Deterrence is required. The obligation of good faith dealing means that the insured’s peace of mind should be the insurer’s objective, and the insured’s vulnerability ought not to be aggravated as a negotiating tactic.
Interestingly, the court in Whiten chose not to follow the U.S. Supreme Court’s model of using a 1:1 ratio between compensatory and punitive damages. The ratio in the Whiten case was 3:1 ($1 million punitive vs. $345,000 compensatory). The decision not to follow a ratio for determining punitive damages opens the door for much higher punitive damage awards in the future.
Following the Whiten decision, the number of bad faith claims made against insurers has increased but the punitive damage awards remain conservative. Juries have awarded punitive damages as high as $2.5 million, but this award was later overturned by the appeal court (see Plester v. Wawanesa Insurance,  O.J. No. 2139 (Ont. C.A.)).
Currently, the range for punitive damages in Canada is between $50,000 to $1 million. Most cases, however, fall within the $100,000 to $200,000 range (see Clarfield v. Crown Life (2000), 23 C.C.L.I. (3rd) 266 (Ont. S.C.J.), Kogan v. Chubb (2001), 27 C.C.L.I. (3rd) 16 (Ont. S.C.J.), Fidler v. Sunlife, 2004 BCCA 273, Fernandes v. Penncorp Life Insurance Company, 2013 ONSC 1637).
In Canada, aggravated damages are awarded to compensate a party for the mental distress experienced from another party’s misconduct or misbehaviour. Aggravated damages cover intangible injuries such as mental distress, pain, anguish, grief, anxiety, vexation, humiliation, indignation, outrage, wounded pride, damaged self-confidence or self esteem, loss of faith in friends or colleagues, and other similar matters.
As a general principle in Canada, damages for mental distress resulting from a breach of contract are not normally awarded. The exception to this rule is in cases where the purpose of the contract was to offer “peace of mind” such as a vacation holiday package or an insurance contract. In these types of contracts, aggravated damages would be allowed.
History of Aggravated Damages
In 1996, Canadian courts began awarding aggravated damages against insurers. Until the year 2000, the highest amount awarded was $20,000 (Evans v. Crown Life Insurance (1996) 37 C.C.L.I. (2nd) 61 (BCSC)).
In the early 2000s, aggravated damages in bad faith claims increased and reached amounts of up to $75,000 as was awarded in both Ontario and Newfoundland cases (Clarfield v. Crown Life (2000), 23 C.C.L.I. (3rd) 266 (Ont. S.C.J.); and Fowler v. Maritime Life Assurance Co. (2002), N.J. No. 217 (Nfld. S.C.)).
As no Supreme Court of Canada case has ruled on aggravated damages in bad faith claims, the damages are specific to the provinces and vary in range. In provinces such as British Columbia, the highest award has only been $35,000 (Asselstine v. Manulife, 2005 BCCA 292). On the other hand, a recent 2013 Ontario case awarded $100,000 in aggravated damages on a disability insurance claim (Fernandes v. Penncorp Life Insurance Company, 2013 ONSC 1637).
Currently, the typical range for aggravated damages in Canada is $10,000 to $100,000 but most of the awards fall on the lower end of the spectrum.
Raising the Limit of Punitive and Aggravated Damages
Since Whiten, judges have not ventured to award punitive damages above the $1 million given in 2002. However, this limit for punitive and aggravated damages was recently challenged in a 2013 insurance case from Saskatchewan. Justice Acton, a judge on the Saskatchewan Court of Queen’s Bench, handed down punitive damages totaling $4.5 million and aggravated damages of $450,000 against two insurance companies (Branco v. American Home Assurance Company, 2013 SKQB 98 [Branco]).
The plaintiff in this case was a welder who was permanently injured when he dropped a heavy steel plate on his foot. At the time, he was working for a subsidiary of Cameco Corp., a Saskatchewan-based company. Despite numerous medical reports indicating that the plaintiff suffered a permanent injury, his insurers American Home Assurance Company (“AIG”) and Zurich Life Insurance Company Ltd. (“Zurich”), ignored his claim for eight years.
Justice Acton showed an immense amount of disapproval for the actions of the two insurance companies. He awarded punitive damages of $1.5 million and aggravated damages of $150,000 against AIG, and punitive and aggravated damages of $3 million and $300,000 respectively against Zurich.
Action justified the large aggravated damages award by stating that had:
AIG made the monthly payments on a regular and timely basis as required under the policy there would in all likelihood not have been the significant amount of mental distress which has virtually destroyed Branco’s life over the last 13 years (Branco at para. 146).
AIG’s actions established a pattern of abuse as punitive damages of $60,000 had previously been awarded against AIG for undertaking a similar action in another case.
Justice Acton believed the $1 million award in Whiten was not sufficient to capture the attention of the insurance industry and hoped a larger award would help them “recognize the destruction and devastation that their actions cause in failing to honour their contractual policy commitments to the individuals insured” (Branco at para. 216).
Not surprisingly, the insurers in Branco have appealed the case to the Saskatchewan Court of Appeal. The Court of Appeal may ultimately lower the amount of damages to reflect the average range in Canada. On the other hand, if the damages are upheld in the Court of Appeal and Supreme Court of Canada, the ripple effect of a higher ceiling for punitive and aggravated damages would be felt throughout the country. For now, however, the decision of the Saskatchewan Court of Queen’s Bench is not binding on other provincial courts in Canada.
As we have seen, the $100,000 upper limit on non-pecuniary damages imposed in 1978 remains a “rule of law” and is predicted to continue well into the future.
In contrast, aggravated and punitive damages in bad faith claims have not been limited by the courts. The courts are beginning to respond by awarding increasingly higher damages under this heading. Only time will tell whether the Canadian courts will limit the maximum amount of punitive and aggravated damages awarded in the future.
As the numbers currently stand in Canada, the upper limit for non-pecuniary damages is approximately $360,000. The range for aggravated damages is between $10,000 and $100,000, and the range for punitive damages is between $50,000 and $1 million.
The History and Treatment of Damages in Canada
Patricia J. Armstrong
1000 – 564 Beatty Street
Vancouver, British Columbia V6B 2L3
Biography of Patricia J. Armstrong
Patricia Armstrong practices civil litigation, exclusively as insurance defence counsel. She defends individuals and companies against claims for personal injury, particularly claims involving complex medical issues, brain injuries, auto-immune diseases and psychological and psychiatric claims.
Patricia is the president-elect of Canadian Defence Lawyers and has developed numerous CLE programs for CDL in addition to making presentations on insurance defence issues. She is also Vice Chair of DRI International for the Defense Research Institute. She is a board member of the Medical Legal Society of British Columbia and a member of the Canadian Bar Association Women’s forum and has been a mentor to many young lawyers.