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Damages - Mental Distress

Damages - Aggravated

Damages - Punitive

Insurance - Bad Faith

Damages - Appeal - Standard of Review

Fernandes v. Penncorp Life Insurance Company (Ont CA, 2014)

In this case the Court of Appeal commented as follows on several issues relating to the awarding of punitive, aggravated and mental distress damages - and their appellate review - in the context of an appeal of a plaintiff's successful lawsuit for private disability insurance coverage.

On the issue of punitive damages, and bad faith dealings by an insurer, the court stated:
[74] The law relating to punitive damages was canvassed in detail by the Supreme Court in Whiten and addressed again more recently in Fidler. The key applicable principles may be summarized as follows.
• Punitive damages are designed to address the objectives of retribution, deterrence and denunciation, not to compensate the plaintiff: Whiten, at paras. 43 and 94, and Fidler, at para 61.

• They are awarded only where compensatory damages are insufficient to accomplish these objectives: Whiten, at para. 94.

• They are the exception rather than the rule: Whiten, at para. 94.

• The impugned conduct must depart markedly from ordinary standards of decency; it is conduct that is malicious, oppressive or high-handed and that offends the court’s sense of decency: Whiten, at paras. 36 and 94; and Fidler, at para. 62.[4]

• In addition to the breach of contract, there must be an independent actionable wrong: Whiten, at para. 78, and Fidler, at para. 63.

• In a case of breach of an insurance contract for failure to pay insurance benefits, a breach by the insurer of its contractual duty to act in good faith will constitute an independent actionable wrong: Whiten, at para. 79, and Fidler, at para. 63.
[75] In considering the issue of good faith, it must be emphasized that disputing or refusing a meritorious claim does not, in itself, constitute a breach of a duty to act in good faith: Fidler, at para. 63.

[76] The decision of 702535 Ontario Inc. v. Lloyd’s of London, Non-Marine Underwriters 2000 CanLII 5684 (ON CA), (2000), 184 D.L.R. (4th) 687 (Ont. C.A.), which was approved by the Supreme Court in Fidler, describes the parameters of an insurer’s duty at para. 29:
The duty of good faith also requires an insurer to deal with its insured’s claim fairly. The duty to act fairly applies both to the manner in which the insurer investigates and assesses the claim and to the decision whether or not to pay the claim. In making a decision whether to refuse payment of a claim from its insured, an insurer must assess the merits of the 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. This duty of fairness, however, does not require that an insurer necessarily be correct in making a decision to dispute its obligations to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith.
On the issue of aggravated and mental distress damages, the court stated:
[88] In Fidler, at paras. 51-53, the Supreme Court observed that the jurisprudence speaks of two different types of aggravated damages. The court clarified that the term “aggravated damages” is misplaced in a case of mental distress damages arising out of a contractual breach. This was the nature of the damages claimed and awarded in the case under appeal.

[89] In Fidler, the Supreme Court held that damages for mental distress for breach of contract may be awarded “where they are established on the evidence and shown to have been within the reasonable contemplation of the parties at the time the contract was made”: para. 45.

[90] This does not obviate the need to prove the loss. The court stated at para. 47:
The court must be satisfied: (1) that an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and (2) that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation.
[91] In that case, the Supreme Court determined that the plaintiff’s distress and discomfort arising out of the loss of disability coverage was amply supported by the evidence, which included extensive medical evidence. The court did not disturb the award of $20,000.
On the issue of the standard of appellate review of damages awards, the court stated:
[97] The applicable principles for appellate review of damage awards are described by Viscount Simon in Nance v. British Columbia Electric R. Co., [1951] 3 D.L.R. 705, at p. 713:
The principles which apply under this head are not in doubt. Whether the assessment of damages be by a Judge or a jury, the Appellate Court is not justified in substituting a figure of its own for that awarded below simply because it would have awarded a different figure if it had tried the case at first instance. Even if the tribunal of first instance was a Judge sitting alone, then, before the Appellate Court can properly intervene, it must be satisfied either that the Judge, in assessing the damages, applied a wrong principle of law (as by taking into account some irrelevant factor or leaving out of account some relevant one); or, short of this, that the amount awarded is either so inordinately low or so inordinately high that it must be a wholly erroneous estimate of the damage [citations omitted].
[98] This decision has been repeatedly affirmed by this court. See for example, Barrick Gold Corporation v. Lopehandia 2004 CanLII 12938 (ON CA), (2004), 71 O.R. (3d) 416.

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