NS Court of Appeal Cuts Punitive Damages by 88% in Industrial Alliance Insurance and Financial Services Inc. v. Brine

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NS Court of Appeal Cuts Punitive Damages by 88% in Industrial Alliance Insurance and Financial Services Inc. v. Brine

November 20, 2015

By Michelle Awad, at McInnes Cooper

On November 17, 2015 the NS Court of Appeal made it clear that the quantum of damages to be awarded to an insured for breach of the duty of good faith has limits when it reduced the global damages the trial judge had awarded by 75%. The punitive damages award was reduced by 88%. The Court of Appeal upheld the insurer’s $210,000 subrogation-based judgment against the insured, which was the lost income portion of the proceeds from settlement of the insured’s human rights claim against his employer.

The NS Court of Appeal’s decision did not specifically change the law of damages, but it did reconfirm it. Practically, however, the decision shows the need for consideration of all damages awarded in setting punitive awards. McInnes Cooper’s Michelle Awad represented the successful insurer.

The trial judge decided the insurer breached its duty of good faith to the insured in the specific facts of the case and awarded the insured significant punitive damages, contractual damages for mental distress and aggravated damages. The insurer appealed the appropriateness and quantum of these awards – and the NS Court of Appeal soundly agreed, reducing the global award for breach of the duty of good faith from $680,000 to $150,000 – a 75% reduction:

More interventionist powers in punitive damages awards. The Court of Appeal reconfirmed that an appeal court has “more interventionist” supervisory powers when reviewing a punitive damages award than it has when reviewing other damage awards. It can only overturn other damages awards if the trial judge has applied a wrong legal principle or the award is so inordinately high or low that it is a wholly erroneous estimate of loss. The Court of Appeal noted that it can set aside a punitive damages award when the cumulative total of it and the compensatory damages exceeds what is “rationally required” to further the legal objectives of punitive damages. The governing rule is proportionality: is the amount of the award, and no less, rationally required to punish the defendant’s misconduct? Applying this principle to the unique facts, and considering other punitive damages awards, the Appeal Court reduced the trial judge’s award from $500,000 to $60,000.

“Contractual” damages for mental distress are different from “true” aggravated damages. The Appeal Court reconfirmed that all damages flowing from contractual breaches engage the principles from Hadley v. Baxendale, and since a breach of the duty of good faith is breach of an implied term of a contract, the resulting damages must follow Hadley v. Baxendale. These contract damages are different from “true” aggravated damages, which require a separate cause of action. No separate cause of action existed in this case. The trial judge awarded the insured $30,000 in contractual damages for mental distress and $150,000 for “true” aggravated damages. There was no appeal from the mental distress damages award. The Court of Appeal held that in the absence of a separate cause of action, no aggravated damages could be awarded but on the facts of the case, it held that some of the bases for the aggravated damages award could also justify additional mental distress damages. The aggravated damages award was reduced to $0 but some of the harm giving rise to the initial $150,000 was reclassified as mental distress and a further $60,000 of contract damages was awarded.

Read the NS Court of Appeal’s decision in Industrial Alliance Insurance and Financial Services Inc. v. Brine, 2015 NSCA 104 here (PDF).

Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Insurance Defence Team to discuss this topic or any other legal issue.

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