Insurance law – Accident and sickness insurance – Bad faith – Damages – Punitive damages – Mental distress – Conflict of laws – Choice of law
Branco v. American Home Assurance Co.,  S.J. No. 286, 2015 SKCA 71, Saskatchewan Court of Appeal, June 19, 2015, R.G. Richards C.J.S., J.G. Lane and M.J. Herauf JJ.A.
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.
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