An award of $4.5 million in punitive damages against two insurers was found to be so high as to be irrational and was reduced to a total of $675,000. Similarly, $450,000 in damages for mental distress was too extravagant and was reduced to a total of $45,000.

[2015] S.J. No. 286

2015 SKCA 71

Saskatchewan Court of Appeal

R.G. Richards C.J.S., J.G. Lane and M.J. Herauf JJ.A.

June 19, 2015

Appeal by the defendant insurers from a trial award in which the insured was awarded $4.5 million in punitive damages and $450,000 in damages for mental distress after the trial judge found that the insurers had wrongfully denied the insured disability benefits following a workplace injury. The trial judge also awarded costs on a multiple of fives times column four of the Queen’s Bench tariff, though this was not appealed by the insurers.

The Court of Appeal was very critical of the trial judge’s reasoning and findings, but none-the-less agreed that both insurers had breached their duty of good faith. The first insurer had suspended and failed to pay benefits without proper reason and it attempted to lever the insured into accepting an unfairly low settlement. The second insurer had deliberately refused to pay benefits after it had determined that the insured was entitled to them and attempted to settle the claim for an unconsciously low amount. However, the court found that both awards were so dramatically high that they exceeded the bounds of rationality. The $1.5 million award against the first insurer was reduced to $175,000, while the $3 million award against the second insurer was reduced to $500,000.

In the course of considering the punitive damages award against the second insurer, the court first considered whether a choice of law clause prevented such an award because punitive damages were not recognized under Swiss law. The court noted that awards for punitive damages were of long standing historical importance and any law prohibiting application was deeply inconsistent with Saskatchewan legal policy and should be disregarded on public policy grounds.

Turning to the awards for mental distress, the court found that the awards against both insurers were too extravagant to be sustained and far exceeded the modest awards which had been made to other insureds who had suffered similar periods of financial insecurity with similar consequences. The $150,000 mental distress award made against the first insurer was reduced to $15,000, and the $300,000 against the second insurer was reduced to $30,000.