Punitive damages not necessary where fraudsters sufficiently punished by damages and costs awards

09. March 2021 0

Insurance law – Automobile insurance – Fraud – Benefits – Actions – Intentional torts – Practice – Summary judgments – Damages – Punitive damages

Traders General Insurance Co. v. Kayes, [2020] O.J. No. 4261, 2020 ONSC 5991, Ontario Superior Court of Justice, October 2, 2020, J. Stribopoulos J.

The insurer brought claims against numerous defendants for fraud and conspiracy.  The torts arose from a scheme that unfolded when one of the defendants, Mohammed Kayes, then 17 years old, and without a driver’s license, borrowed his mother’s car and a short time later was involved in a motor vehicle collision with another driver.  After the accident, Mr. Kayes phoned his father, who attended at the scene with his brother (Mr. Kayes’ uncle).  Mr. Kayes’ father told him to go home, which he did.  Unbeknownst to Mr. Kayes, his father then told the police that he had been driving when the accident occurred.  After the accident, Mr. Kayes’ father began submitting claims to the insurer for Accident Benefits for treatments due to “injuries” he said he sustained in the accident, resulting in payments of approximately $100,000. Soon, Mr. Kayes’ uncle started a tort action against Mr. Kayes’ father, seeking damages for “injuries” he sustained as the “front seat passenger” at the time of the accident.

The insurer began an investigation which soon uncovered that, in fact, Mr. Kayes’ father was not the driver, and his uncle was not in the vehicle at the time of the accident.  Mr. Kayes’ father and uncle consented to an order requiring them to pay, on a joint and several basis, the all inclusive sum of $80,000 to the insurer which was the amount of costs the insurer spent defending against the fraudulent tort action and for bringing the costs’ motion.  The order made clear that the insurer was entitled to pursue claims against Mr. Kayes’ father and uncle for losses incurred by way of a separate action.

The insurer brought an application for summary judgment against Mr. Kayes, his father and uncle.  In support of its motion, the insurer filed an affidavit sworn by Mr. Kayes.  In that affidavit, Mr. Kayes denied any wrongdoing, but implicated his father and uncle.  Mr. Kayes’ father and uncle acknowledged the fraud and their role in it, but asked the court to take all of that into account and exercise restraint in deciding whether to impose punitive damages.

The court granted the motion for summary judgment against the father and uncle, but found that, in contrast, there were triable issues involving the claims of fraud and conspiracy against Mr. Kayes.  In that regard, the court noted that the evidence furnished a basis for the insurer to suspect Mr. Kayes’ potential involvement, but there “was a wide gap between the available evidence and a reasoned conclusion that [Mr. Kayes] was in on the fraud.”  Further, the court found that Mr. Kayes deposed in his affidavit that he wasn’t involved in the fraudulent scheme, and the insurer did not cross examine on the affidavit; therefore, the court stated that “there [was] no basis for the court to reject the credibility of [Mr. Kayes] entirely innocent account of the relevant events.”

With respect to punitive damages, the court found that some of the facts supported a finding of punitive damages – namely, that the father and uncle were involved in a calculated and prolonged scheme to defraud the insurer and that neither had ever been charged with a crime; however, other facts pointed away from making an award of punitive damages:  the father and uncle were not the “architects” of the fraud; others benefitted from the scheme; and the judgment required the father and uncle to make the insurer whole, which amount was well above any financial benefit they received from the scheme.  The court held that “…an award of punitive damages [was] not necessary to serve the objectives of denunciation, deterrence or retribution” as the costs’ order from the tort action, along with the compensatory damages on the summary judgment motion would more than adequately punish the father and uncle for their misconduct.

This case was digested by Tricia M. Milne, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Tricia M. Milne at [email protected].

To stay current with the new case law and emerging legal issues in this area, subscribe here.