Punitive damages

How BC law treats it

The leading case is Whiten v Pilot Insurance Co, 2002 SCC 18. Punitive damages are awarded only where the defendant's conduct is high handed, malicious, arbitrary or highly reprehensible and departs markedly from ordinary standards of decent behaviour. They are a last resort: the court first considers compensatory damages and awards punitive damages only if that award is not enough to achieve retribution, denunciation and deterrence. The amount must be rational and no more than necessary. In Whiten, the jury's $1 million award against an insurer that pursued a baseless arson defence was restored, and it remains unusually high by Canadian standards. In contract cases, a breach alone is not enough. The plaintiff must prove an independent actionable wrong, such as breach of an insurer's duty of good faith (Whiten) or of an employer's duty of good faith in the manner of dismissal, as discussed in Vorvis v Insurance Corporation of British Columbia, [1989] 1 SCR 1085 and Honda Canada Inc v Keays, 2008 SCC 39. In Honda, the Supreme Court set aside a punitive award because the employer's conduct, while harsh, did not meet the threshold. Punitive damages differ from aggravated damages, which compensate a plaintiff for mental distress or humiliation caused by the defendant's conduct. Courts guard against overlap between the two. Awards in Canada are generally modest compared to those in the United States, and punitive damages must be specifically claimed in the notice of civil claim.

What it means for your business

For businesses, punitive damages are rare but possible, mainly in insurance coverage disputes, wrongful dismissals handled in bad faith, fraud and deliberate breaches of fiduciary duty. They are usually not covered by insurance and can damage reputation because the judgment publicly condemns the conduct. Conversely, claimants should not inflate a commercial dispute with a punitive claim that has no realistic basis: it adds cost and seldom succeeds. Reasonable, documented conduct during a dispute is the best protection. Example: A Prince George company's insurer denies a fire loss claim by alleging arson without evidence and pressures the owner to drop the claim. A BC court could award punitive damages against the insurer for breaching its duty of good faith, on top of the policy benefits.

Risks and common mistakes

Claiming punitive damages for an ordinary breach of contract without an independent actionable wrong. Expecting US-sized awards, when Canadian punitive awards are usually modest. Confusing punitive damages with aggravated damages, which compensate for mental distress. Failing to plead punitive damages specifically in the notice of civil claim. Assuming liability insurance will pay a punitive award.