Fidler v. Sun Life (2006), 350 N.R. 40 (SCC)
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[French language version follows English language version]
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Temp. Cite: [2006] N.R. TBEd. JN.043
Sun Life Assurance Company of Canada (appellant) v. Connie Fidler (respondent)
(30464; 2006 SCC 30; 2006 CSC 30)
Indexed As: Fidler v. Sun Life Assurance Co. of Canada
Supreme Court of Canada
McLachlin, C.J.C., Major*, Bastarache, Binnie, LeBel, Deschamps, Fish, Abella and Charron, JJ.
June 29, 2006.
Summary:
An insurer wrongfully terminated the plaintiff’s long-term disability benefits. The plaintiff sued for damages. The trial was limited to determining whether the plaintiff was entitled to aggravated damages for the mental distress suffered and punitive damages for the insurer’s breach of its duty of good faith.
The British Columbia Supreme Court, in a judgment reported [2002] B.C.T.C. 1336, awarded $20,000 aggravated damages, but dismissed the claim for punitive damages. The insurer appealed the award of aggravated damages. The plaintiff cross-appealed the denial of punitive damages.
The British Columbia Court of Appeal, in a judgment reported (2004), 196 B.C.A.C. 130; 322 W.A.C. 130, dismissed the insurer’s appeal and allowed the plaintiff’s cross-appeal, awarding her $100,000 punitive damages for the insurer’s breach of the duty of good faith, which was an independent actionable wrong. Ryan, J.A., dissenting in part, agreed with the dismissal of the insurer’s appeal against the aggravated damage award, but disagreed that the facts of the case warranted an award of punitive damages against the insurer. The insurer appealed.
The Supreme Court of Canada allowed the appeal in part. The $20,000 damage award for mental distress for breach of the insurance contract was affirmed, although not technically “aggravated” damages. The punitive damage award was set aside. The trial judge’s finding of no bad faith, which should not have been interfered with by the Court of Appeal, precluded punitive damages, even though the court agreed that the insurer’s conduct was “troubling”.
Damage Awards – Topic 2018.1
Exemplary or punitive damages – Breach of contract – [See
Damages – Topic 1305
].
Damage Awards – Topic 2030.6
Exemplary or punitive damages – Breach of duty of good faith – [See
Damages – Topic 1305
].
Damage Awards – Topic 2416
Aggravated damages – Infliction of mental suffering – The plaintiff was awarded $20,000 aggravated damages against an insurer for the insurer’s wrongful termination of her long-term disability benefits, which caused the plaintiff mental distress but no proof of financial hardship (past benefits paid and entitlement reinstated just before trial commenced) – The insurer challenged the award as inordinately high – The insurer had terminated benefits for five years – The British Columbia Court of Appeal stated that “as the learned trial judge made no error in principle and, in my view, since the amount of $20,000 cannot be considered inordinately high or entirely disproportionate in the circumstances of this case, I would not disturb the trial judge’s award” – The Supreme Court of Canada agreed, but noted that the damages were not technically “aggravated” damages – See paragraphs 27 to 59.
Damages – Topic 904
Aggravation – General – Aggravated damages defined – The Supreme Court of Canada stated that true aggravated damages, which arise out of aggravating circumstances, “are not awarded under the general principle of Hadley v. Baxendale, but rest on a separate cause of action – usually in tort – like defamation, oppression or fraud.” – Damages for mental distress for breach of a contract were awarded under the Hadley v. Baxendale principles – The court stated that “they exist independent of any aggravating circumstances and are based completely on the parties’ expectations at the time of contract formation. With respect to this category of damages, the term ‘aggravated damages’ becomes unnecessary and, indeed, a source of possible confusion. … The recognition that Hadley is the single and controlling test for compensatory damages in cases of breach of contract therefore refutes any argument that an ‘independent actionable wrong’ is a prerequisite for the recovery of mental distress damages. Where losses arise from the breach of contract itself, damages will be determined according to what was in the reasonable contemplation of the parties at the time of contract formation. An independent cause of action will only need to be proved where damages are of a different sort entirely: where they are being sought on the basis of aggravating circumstances that extend beyond what the parties expected when they concluded the contract.” – See paragraphs 52 to 55.
Damages – Topic 912
Aggravation – In contract – For breach – An insurer wrongfully terminated the plaintiff’s long-term disability benefits – The trial judge awarded $20,000 aggravated damages for breach of the insurance contract on the basis of the plaintiff’s mental distress – The insurer challenged entitlement to aggravated damages where the plaintiff failed to prove financial hardship caused by termination of benefits – The British Columbia Court of Appeal held that aggravated damages were justified for mental distress – Although the general rule was that aggravated damages were not available for breach of contract, the exception was “peace of mind” contracts (including insurance contracts), where the very purpose of the contract was to ensure the plaintiff’s peace of mind – The court stated that aggravated damages were available for an insurer’s failure to pay benefits without proof of financial hardship – Mental distress was established where the wrongful termination of benefits caused frustration, anxiety, emotional upset and loss of sleep – The Supreme Court of Canada agreed, but noted that the damages were not technically “aggravated” damages – See paragraphs 27 to 59.
Damages – Topic 1305
Exemplary or punitive damages – Breach of contract – The trial judge awarded the plaintiff $20,000 aggravated damages for the mental distress resulting from an insurer’s wrongful termination of long-term disability benefits, but declined to award punitive damages because the insurer had not breached its duty of good faith – The British Columbia Court of Appeal held that the trial judge erred in failing to find a breach of the duty of good faith, which was an independent actionable wrong entitling the plaintiff to punitive damages if the insurer’s breach departed from ordinary standards of decency to a marked degree – Benefits were paid for six years, then terminated without notice and with no medical evidence to support termination of benefits – The insurer maintained its position for five years, reinstating benefits only on the eve of trial – The plaintiff was not treated fairly, the insurer failed to objectively assess evidence and had little regard for the plaintiff’s position of vulnerability -The court held that the insurer’s conduct warranted punishment by way of punitive damages, which the court fixed at $100,000 – The Supreme Court of Canada held that the Court of Appeal erred in reversing the trial judge’s fact finding of no bad faith – Although the insurer’s conduct was “troubling”, it was not sufficiently so as to interfere with the fact finding – Absent bad faith, punitive damages were precluded – See paragraphs 60 to 75.
Damages – Topic 5703
Contracts – Breach of contract – Damages in reasonable contemplation of parties – The Supreme Court of Canada stated that “damages for breach of contract … must be ‘such as may fairly and reasonably be considered either rising naturally … from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties'” – See paragraph 27.
Damages – Topic 5706
Contracts – Breach of contract – Injured feelings or emotional upset – The Supreme Court of Canada stated that “damages for mental distress for breach of contract may … be awarded as an application of the principle in Hadley v. Baxendale … The measure of these damages is, of course, subject to remoteness principles. … It does not follow, however, that all mental distress associated with a breach of contract is compensable. In normal commercial contracts, the likelihood of a breach of contract causing mental distress is not ordinarily within the reasonable contemplation of the parties. … The law does not award damages for incidental frustration. … The court must be satisfied: (1) that an object of the contract was to secure a psychological benefit that brings mental distress upon breach with the reasonable contemplation of the parties: and (2) the degree of mental suffering caused by the breach was of a sufficient degree to warrant compensation. … While mental distress as a consequence of breach must reasonably be contemplated by the parties to attract damages, we see no basis for requiring it to be the dominant aspect or the ‘very essence’ of the bargain. … as long as the promise in relation to state of mind is a part of the bargain in the reasonable contemplation of the contracting parties, mental distress damages arising from its breach are recoverable. … ‘peace of mind’ class of cases should not be viewed as an exception to the general rule of non-availability of damages for mental distress in contract law, but rather as an application of the reasonable contemplation or foreseeability principle that applies generally to determine the availability of damages for breach of contract.” – See paragraphs 44 to 49.
Damages – Topic 5706
Contracts – Breach of contract – Injured feelings or emotional upset – [See
Damages – Topic 904
].
Insurance – Topic 730
Insurers – Duties – Duty of good faith – [See
Damages – Topic 1305
].
Practice – Topic 8800
Appeals – General principles – Duty of appellate court regarding findings of fact – [See
Damages – Topic 1305
].
Cases Noticed:
Warrington v. Great-West Life Assurance Co. (1996), 81 B.C.A.C. 164; 132 W.A.C. 164; 139 D.L.R.(4th) 18 (C.A.), refd to. [para. 20].
Hadley v. Baxendale (1854), 9 Exch. 341; [1843-60] All E.R. Rep. 461; 23 L.J. Ex. 179; 23 L.T.O.S. 69; 18 Jur. 358; 2 W.R. 302; 2 C.L.R. 517; 156 E.R. 145, refd to. [para. 27].
Hobbs v. London and South Western Railway Co. (1875), L.R. 10 Q.B. 111, refd to. [para. 32].
Hamlin v. Great Northern Railway Co. (1856), 1 H. & N. 408; 156 E.R. 1261 (Ex.), refd to. [para. 32].
Addis v. Gramophone Co., [1909] A.C. 488 (H.L.), refd to. [para. 32].
Eastwood et al. v. Magnox Electric plc, [2004] N.R. Uned. 148; [2004] 3 All E.R. 991; 2004 UKHL 35, refd to. [para. 32].
Malik v. Bank of Credit and Commerce International S.A., [1998] A.C. 20; 218 N.R. 353 (H.L.), refd to. [para. 33].
Wallace v. United Grain Growers Ltd., [1995] 9 W.W.R. 153; 10 Man.R.(2d) 161; 93 W.A.C. 161 (C.A.), varied [1997] 3 S.C.R. 701; 219 N.R. 161; 123 Man.R.(2d) 1; 159 W.A.C. 1, refd to. [para. 33].
Morberg v. Klassen (1991), 49 C.L.R. 124 (B.C.S.C.), refd to. [para. 33].
Taylor and Schiffner v. Gill, [1991] 3 W.W.R. 727; 113 A.R. 38 (Q.B.), refd to. [para. 33].
Watts v. Morrow, [1991] 1 W.L.R. 1421 (C.A.), refd to. [para. 34].
Baltic Shipping Co. v. Dillon (1993), 176 C.L.R. 344 (Aust. H.C.), refd to. [para. 35].
Johnson v. Gore Wood & Co., [2001] 2 W.L.R. 72 (H.L.), refd to. [para. 36].
Peso Silver Mines Ltd. v. Cropper, [1966] S.C.R. 673, refd to. [para. 37].
Jarvis v. Swan Tours Ltd., [1973] 1 All E.R. 71 (C.A.), refd to. [para. 38].
Farley v. Skinner, [2001] 4 All E.R. 801; 278 N.R. 47; 2001 UKHL 49, refd to. [para. 40].
Wilson v. Sooter Studios Ltd. (1988), 33 B.C.L.R.(2d) 241 (C.A.), refd to. [para. 41].
Wharton v. Harris (Tom) Chevrolet Oldsmobile Cadillac Ltd. (2002), 163 B.C.A.C. 122; 267 W.A.C. 122; 97 B.C.L.R.(3d) 307 (C.A.), refd to. [para. 41].
Thompson et al. v. Zurich Insurance Co. (1984), 7 D.L.R.(4th) 664 (Ont. H.C.), refd to. [para. 41].
Prinzo v. Baycrest Centre for Geriatric Care (2002), 161 O.A.C. 302; 60 O.R.(3d) 474 (C.A.), refd to. [para. 41].
Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085; 94 N.R. 321; 58 D.L.R.(4th) 193; [1989] 4 W.W.R. 218; 36 B.C.L.R.(2d) 273; 90 C.L.L.C. 14,035; 25 C.C.E.L. 81; 1989 CarswellBC 70, refd to. [para. 42].
Wertheim v. Chicoutimi Pulp Co., [1911] A.C. 301 (P.C.), refd to. [para. 44].
Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701; 219 N.R. 161; 123 Man.R.(2d) 1; 159 W.A.C. 1; 152 D.L.R.(4th) 1, refd to. [para. 54].
Whiten v. Pilot Insurance Co. et al., [2002] 1 S.C.R. 595; 283 N.R. 1; 156 O.A.C. 201; 2002 SCC 18, refd to. [para. 61].
Hill v. Church of Scientology of Toronto and Manning, [1995] 2 S.C.R. 1130; 184 N.R. 1; 84 O.A.C. 1; 126 D.L.R.(4th) 129, refd to. [para. 62].
702535 Ontario Inc. et al. v. Non-Marine Underwriters, Lloyd’s, London, et al. (2000), 134 O.A.C. 391; 184 D.L.R.(4th) 687 (C.A.), refd to. [para. 63].
Authors and Works Noticed:
Chitty on Contracts (29th Ed. 2004), vol. 2, p. 1468 [para. 33].
Cohen, Ronnie, and O’Byrne, Shannon, Cry Me a River: Recovery of Mental Distress Damages in a Breach of Contract Action – A North American Perspective (2005), 42 Amer. Bus. L.J. 97, generally [para. 43].
McCamus, John D., The Law of Contracts (2005), p. 877 [para. 43].
McGregor, Harvey, Damages (17th Ed. 2003), p. 63 [paras. 36, 46].
O’Byrne, Shannon Kathleen, Damages for Mental Distress and Other Intangible Loss in a Breach of Contract Action (2005), 28 Dal. L.J., pp. 36, 37 [para. 43].
Tartaglio, David, The Expectation of Peace of Mind: A Basis for Recovery of Damages for Mental Suffering Resulting from the Breach of First Party Insurance Contracts (1983), 56 S. Cal. L. Rev. 1345, pp. 1365, 1366 [para. 57].
Waddams, Stephen M., The Law of Damages (2nd Ed. 1984), pp. 562, 563 [para. 51].
Waddams, Stephen M., The Law of Damages (4th Ed. 2004), p. 222 [para. 33].
Counsel:
Avon M. Mersey, William Westeringh and Michael Sobkin, for the appellant;
Joseph J. Arvay, Q.C., and Faith E. Hayman, for the respondent.
Solicitors of Record:
Fasken Martineau DuMoulin, Vancouver, B.C., for the appellant;
Faith E. Hayman, Vancouver, B.C., for the respondent.
This appeal was heard on December 6, 2005, before McLachlin, C.J.C., Major*, Bastarache, Binnie, LeBel, Deschamps, Fish, Abella and Charron, JJ., of the Supreme Court of Canada.
On June 29, 2005, McLachlin, C.J.C., and Abella, J., jointly delivered the following judgment in both official languages for the Court.
* Major, J., did not participate in the judgment.
