Punitive Damages: Deterring Low-ball Settlements and Prolonged Claims_.

When dealing with insurance companies, it can often feel like there are countless roadblocks and delays and that the end of your claim is far out of reach. In some instances, these protracted claims require that you bring a lawyer to help fight the battle with you. In other cases, the insurance company may be intentionally stalling your claim to get you to settle for less or hope that you go away with your claim. These tactics aren’t fair and take advantage of people in vulnerable situations.

To help protect the insured, Courts occasionally award additional compensation called punitive damages to deter insurance companies from behaving poorly. In a lawsuit, it is important to understand these damages and how they are different from compensatory damages.

What are punitive damages?

Punitive damages are awarded to plaintiffs to compensate them beyond the amount necessary to right the wrong that has been done. While compensatory damages seek to compensate an injured person for things like lost wages, future cost of care, or medical expenses, punitive damages punish the defendant for their actions in particularly egregious circumstances.

The courts consider that in an insurance claim, the insured pays their premiums for peace of mind that they are covered if something catastrophic happens to them. Insurance companies have an “obligation of good faith dealing,” meaning they must pay their claims on a reasonable timeline unless there is reason to contest the coverage.

Without an obligation of good faith dealing, insurance companies could be able to draw out their claims and arbitrarily contest claims to delay paying out settlements. This would leave people financially vulnerable and could force them to take settlements for less than they deserve. Punitive damages serve as an essential tool for the courts to punish insurance companies that act in this way and serve as an example of what could happen if they violate the obligation of good faith dealing. It is a deterrent that causes other insurance companies to consider their actions when dealing with the insured and should encourage a more productive relationship between both parties.

What is the legal precedent for punitive damages?

In 2002, the Supreme Court awarded $1,000,000 of punitive damages to the plaintiff in Whiten v Pilot Insurance. In this case, the family had a fire in their home in the middle of winter that destroyed the building and its contents. The insurance company made a single payment of $5,000 and covered the cost of renting a small, winterized cottage for a couple of months, then proceeded to cut the family off. This led to a prolonged legal battle where the insured had to risk losing money in legal fees and lived without the compensation that they were owed.

In Whiten, the Supreme Court of Canada upheld a decision requiring an insurance company to pay $1,000,000 in punitive damages in addition to compensatory damages. While this is not the magnitude or circumstances for all injury cases, it is a notable factor in insurance law.

Will I get punitive damages in my case?

Punitive damages are not commonly awarded in Canada. Punitive damages are only awarded in lawsuits that go to court, which are only a small fraction of cases in general. Even in the cases that do end up in court, only a small percentage of those will be awarded punitive damages.

For a court to award punitive damages, two conditions must be met: (i) the defendant’s conduct must offend the court’s sense of decency, and (ii) punitive damages, after considering any compensatory award, must be required to punish the defendant and to meet the objectives of retribution, deterrence, and denunciation.

While it is uncommon, there are instances in which punitive damages are awarded by the courts. To discuss your case and if punitive damages are relevant, reach out to MacGillivray Law for free today.