Facebook Icon. Twitter Icon. LinkedIn Icon. 

A Premier

Toronto Law Firm

serving all of Canada and International clients since 1996.

Fernandes Hearn LLP law firm logo with stylized F and H letters.

Telephone: 416-203-9500

Newsletter > March 2002

PAYING THE PIPER: Whiten, Punitive Damages, and Bad Faith — Whiten v. Pilot Insurance Co.

2002 S.C.C. 18- Insurers have a good faith duty to their insureds. The duty includes the obligation to investigate and settle covered claims, whether first party or third party, in a manner which satisfies the good faith duty. Breaching that duty may, in some cases, amount to a breach of the duty of good faith giving the insured a claim for punitive damages in addition to the amount owing under the policy for the insured loss.

$1 million is no longer too high an amount for a judge or jury to award against an insurer for punitive damages for breach of the duty of good faith towards its insured on a first party claim, in the appropriate case. On the other hand, courts asked to award punitive damages now must find, before punitive damages may be awarded, even where the conduct of the insurer has been heinous, that the amount that the insured has recovered under the policy, plus any other fine or penalty that has been imposed on the insurer, is not sufficient punishment of the insurer. If it is sufficient, then punitive damages are not available.

On February 22, 2002, the Supreme Court of Canada restored the $1 million punitive damages judgment against Pilot Insurance. That judgment had been given by an Ontario jury in 1996. In 1999, the Ontario Court of Appeal upheld Pilot’s liability to pay punitive damages but reduced the amount to $100,000. The Supreme Court reinstated the jury award by a 6-1 majority. It ruled that $1 million, although on the high end of the scale was not, in the circumstances, too high.

The Whiten’s house had caught fire. The house and contents were destroyed. All initial investigations showed the cause was accidental and that there was no basis for denying the claim. Despite this, Pilot refused to pay. Someone in Pilot’s management came to believe, for whatever reason and without any foundation whatsoever, that the cause was arson by the insured’s. Pilot set out to prove the arson. It fired its first adjuster and expert. It found another expert prepared to opine that arson was involved. It used the threat of the arson defence in conjunction with the insureds’ desperate impecuniousness to try force – coerce — the insureds into settling for less than the amount of the loss. In short, Pilot attempted to take advantage of its insureds so as to pay less than it should have paid.

What Pilot did is detailed in this excerpt from the Court of Appeal decision. The excerpt contains a list of everything an insurer might do to invite a punitive damages award. It is also a good guideline for what not to do. The Court of Appeal stated.

“In summary, the evidence overwhelmingly shows that Pilot handled the Whitens’ claim unfairly and in bad faith; that it deliberately ignored any opinion, even of its own adjuster and its own experts, that would oblige it to comply with its contractual obligation to pay the claim; and, that it abused its financial position and contrived an arson defence to avoid payment of the claim or, at least, to force a significant compromise.

This evidence includes:

  • Pilot deliberately ignored the opinion and recommendations of Derek Francis, an experienced adjuster it retained to investigate the fire loss.
  • After receiving Francis’ strong recommendation to pay the claim, Pilot replaced him.
  • Pilot never provided Francis’ reports to the experts that it later retained.
  • Pilot asked the Insurance Crime Prevention Bureau to investigate, but when the Bureau concluded that Pilot had no defence to the claim, Pilot ignored the Bureau’s conclusion.
  • Pilot deliberately ignored the opinion of its engineering expert Hugh Carter, who gave three reports that the fire was accidental; and then Pilot refused to meet with Carter when he expressed concern that his opinion was being misunderstood.
  • Pilot admitted that the jury could reasonably infer that Carter’s later opinion reclassifying the fire as “suspicious, possibly incendiary,” was influenced by Pilot’s counsel.
  • Pilot pressured its experts to provide opinions supporting an arson defence. Indeed, Pilot deliberately withheld relevant information from its experts and, instead, provided them with misleading information to obtain opinions favourable to its arson theory.
  • Pilot even admitted that the jury could reasonably conclude the two later expert opinions supporting an arson defence were influenced by Pilot’s counsel.
  • Pilot accepted as justified the trial judge’s comment that Pilot’s counsel acted improperly in suggesting opinions to experts whose livelihood was earned by providing services exclusively to the insurance industry.
  • Pilot used the bad faith claim against the Whitens to refer to evidence of previous fires – evidence it now concedes was irrelevant and inadmissible – in order to convince the Whitens’ counsel that a trial was risky.
  • At every stage Pilot considered that it could safely deny the claim because the Whitens would not refuse an offer in the future. No representative of Pilot testified why the claim was denied and therefore the jury could reasonably infer that their testimony would not have shown that Pilot had a valid reason for denying the claim.
  • When the Whitens had lost everything in the fire and when they were unemployed and on welfare, Pilot terminated the rent payments on their rented cottage and did so without telling them.”

The Supreme Court upheld the award by a 6-1 majority. The dissenting judge though the $100,000 allowed by the Ontario Court of Appeal was sufficient. The majority held that while the award of $1 million in punitive damages was more than it would have awarded, the amount was nonetheless within the high end of the range where juries are free to make their assessment. It stated:

“The jury’s award of punitive damages, though high, was within rational limits. The respondent insurer’s conduct towards the appellant was exceptionally reprehensible. It forced her to put at risk her only remaining asset (the $345,000 insurance claim) plus $320,000 in costs that she did not have. The denial of the claim was designed to force her to make an unfair settlement for less than she was entitled to. The conduct was planned and deliberate and continued for over two years, while the financial situation of the appellant grew increasingly desperate.”

The Court also provided some clarification on when punitive damages are available and what the jury should be told, in cases where there is a jury trial.

The court held:

“The trial judge’s charge to the jury with respect to punitive damages should include words to convey an understanding of the following points: (1) Punitive charges are very much the exception rather than the rule, (2) imposed only if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour. (3) Where they are awarded, punitive damages should be assessed in an amount reasonably proportionate to such factors as the harm caused, the degree of the misconduct, the relative vulnerability of the plaintiff and any advantage or profit gained by the defendant, (4) having regard to any other fines or penalties suffered by the defendant for the misconduct in question. (5) Punitive damages are generally given only where the misconduct would otherwise be unpunished or where other penalties are or are likely to be inadequate to achieve the objectives of retribution, deterrence and denunciation. (6) Their purpose is not to compensate the plaintiff, but (7) to give a 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. (8) Punitive damages are awarded only where compensatory damages, which to some extent are punitive, are insufficient to accomplish these objectives, and (9) they are given in an amount that is no greater than necessary to rationally accomplish their purpose. (10) The jury should be told that while normally the state would be the recipient of any fine or penalty for misconduct, the plaintiff will keep punitive damages as a “windfall” in addition to compensatory damages. (11) Judges and juries in our system have usually found that moderate awards of punishment, which inevitably carry a stigma in the broader community, are generally sufficient.”

The issue of the sufficiency of the compensatory damages is very important. It is now clear that that punitive damages may be awarded, assuming the impugned conduct is sufficient to justify the award, only where the amount of the for compensatory damages, and any other penalties that might apply, are not sufficient to achieve “the objectives of retribution, deterrence and denunciation.” This factor will require plaintiffs to lead appropriate evidence to show that the total of the award – which will include the costs that the insured recovers — is not, in the circumstances sufficient. It should be borne in mind that, in cases where the insurer’s conduct is sufficient for punitive damages cases, the successful insured’s trial costs will likely be award on a scale which more fully indemnifies the insured for legal fees.

In addition, although increasing the top end of insurer’s exposure in the worst cases, the judgment may end up as a brake on the amount of future awards and tend to eliminate or reduce punitive damages awards exposure in minor cases. The court stated that punitive damages are “very much the exception rather than the rule. ” There is the explicit statement by the majority that the award was more than they would have allowed on top of the dissenting judge’s views that $100,000 was sufficient. And, the majority said specifically that “Judges and juries in our system have usually found that moderate awards of punishment, which inevitably carry a stigma in the broader community, are generally sufficient.”


This newsletter is published to keep our clients and friends informed of new and important legal developments. It is intended for information purposes only and does not constitute legal advice. You should not act or fail to act on anything based on any of the material contained herein without first consulting with a lawyer. The reading, sending or receiving of information from or via the newsletter does not create a lawyer-client relationship. Unless otherwise noted, all content on this newsletter (the “Content”) including images, illustrations, designs, icons, photographs, and written and other materials are copyrights, trade-marks and/or other intellectual properties owned, controlled or licensed by Fernandes Hearn LLP. The Content may not be otherwise used, reproduced, broadcast, published,or retransmitted without the prior written permission of Fernandes Hearn LLP.

Contact Us!

7 + 6 =

Banner for our Toronto law firm newsletter called the Navigator.

Subscribe to our newsletter "The Navigator"

1 + 11 =

Fernandes Hearn LLP
155 University Avenue, Suite 700, Toronto, Ontario, Canada  M5H 3B7
Telephone: 416-203-9500 | Fax: 416-203-9444

A proud Canadian law firm specializing in Transportation, Insurance, Trade, Technology and Commercial Law.

Copyright © Fernandes Hearn LLP. All Rights Reserved. | Copyright | Disclaimer | Privacy Policy | Designed By: Christopher Chong Productions Inc. | SEO By: Spider Choice Inc.