Whiten v Pilot Insurance Co, 2002 SCC 18, 1 S.C.R. 595 is a leading Supreme Court of Canada decision on the availability of punitive damages in contract. The case related to the oppressive conduct of an insurance company in dealing with the policyholders' claim following a fire. According to the majority, "[t]his was an exceptional case that justified an exceptional remedy."para. 94.

Background On January 18, 1994, the Whitens discovered a fire in their home in Haliburton County, Ontario. The family fled their home in the night wearing only their pajamas, and one member of the family suffered serious frostbite to his feet. The fire destroyed the Whiten's home, possessions, and resulted in the deaths of their three cats.Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), 1 SCR 595, at para 2. The family rented a small cottage nearby and received a single payment of $5,000 from the Pilot Insurance Company for living expenses, and subsequently cut off support for the family.Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), 1 SCR 595, at para 3.

The local fire chief concluded the fire was accidental and concluded it started from a malfunctioning kerosene heater on the porch of the home. As firefighters on scene did not find evidence of arson, the Fire Marshall's office was not called to investigate.Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), 1 SCR 595, at para 5. The independent insurance adjustor retained by Pilot Insurance investigated the fire and concluded based on the physical evidence and family's conduct that the fire was accidental.Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), 1 SCR 595, at para 6.

Pilot Insurance found that the family was behind on mortgage payments and that the Whiten's were arranging refinancing. The independent adjuster was also made aware of the family's financial difficulties during the investigation.Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), 1 SCR 595, at paras 6–7. Pilot Insurance refused to accept the findings of the independent adjustor and later rejected similar advice from the Insurance Crime Prevention Bureau that there was little basis to deny the claim for fraud.Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), 1 SCR 595, at paras 8–9. After requesting the independent adjuster continue to investigate new avenues for arson, which they were unable to find any evidence, Pilot Insurance replaced the adjuster.Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), 1 SCR 595, at paras 11–12.

Pilot had also retained an engineering expert that initially concluded the fire was accidental, however after meeting with Pilots attorney the engineer reclassified the fire as "suspicious, possibly incendiary".Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), 1 SCR 595, at paras 13–15.

Ontario Court of Justice decision In the January 25, 1996, a jury in the Ontario Court of Justice awarded Whiten $1,287,300, including $1 million for punitive damages, as well as interest on the awarded compensatory damages.Whiten v. Pilot Insurance Co., O.J. No. 227 (ON SC), at para 1. The punitive damages awarded by the jury exceeded the $125,000 claimed by Whiten. In his written decision, Justice Theodore Matlow noted the jury's assessment of punitive damages was "very high and perhaps without precedent" but described the award as "entirely reasonable in light of the evidence".Whiten v. Pilot Insurance Co., O.J. No. 227 (ON SC), at para 13.

Ontario Court of Appeal decision Pilot Insurance appealed the award of $1 million in punitive damages as the company did not commit "an independent actionable wrong" and because its actions was not reprehensible enough to warrant the damages. Instead Pilot requested the court remove the punitive damages, or limit the damages to $15,000 to $25,000.Whiten v. Pilot Insurance Company, 1999 CanLII 3051 (ON CA), at para 3. Furthermore, Pilot conceded that despite the position taken at the lower court, the evidence unequivocally showed that the Whiten's fire was accidental.Whiten v. Pilot Insurance Company, 1999 CanLII 3051 (ON CA), at para 2.

On February 2, 1999, the majority for the Ontario Court of Appeal written by Justice George Finlayson and concurred by Justice Marvin Catzman, agreed Pilot's reprehensible conduct justified the award of punitive damages, however, Finlayson found the $1 million award excessive.Whiten v. Pilot Insurance Company, 1999 CanLII 3051 (ON CA), at para 50.

Dissenting in part, Justice John I. Laskin found Pilot's behaviour was reprehensible and the $1 million punitive damage award was justified.Whiten v. Pilot Insurance Company, 1999 CanLII 3051 (ON CA), at para 4.

Reasons of the court The majority decision was written by Justice Binnie; Justice LeBel dissented.

Binnie Writing for the majority of eight justices, Justice Binnie outlined the contractual duty of an insurer to deal with policyholders in good faith, the breach of which would make the insurer liable for punitive damages. He held that the defendant insurance company had breached its contractual duty through its high-handed and reprehensible treatment of the plaintiff insureds. Justice Binnie also restored the unprecedented $1 million jury award, which the a majority at the Ontario Court of Appeal had reduced to $100,000.

Justice Binnie accepted the standard for imposing punitive damages articulated in Hill v Church of Scientology of Toronto: "Punitive damages are awarded against a defendant in exceptional cases for 'malicious, oppressive and high-handed' misconduct that 'offends the court's sense of decency'..."para. 94; Hill v Church of Scientology of Toronto, 2 S.C.R. 1130, at para. 196. Binnie set out the following principles to guide trial judges in their charges to juries:

LeBel In dissent, Justice LeBel accepted the appropriateness of a punitive damage award but was critical of the award's magnitude and skeptical of the remedy's deterrence objective on the facts of the case: there was no evidence of endemic high-handed behaviour, either by the defendant insurer toward its policyholders, or in the Canadian insurance industry generally. In any event, he opined, regulatory and penal mechanisms would be more appropriate for any industry-wide concerns, than less predictable damage awards.paras. 159 & 161.

Justice LeBel agreed generally with the majority's description of principles governing punitive damages and, in particular, the importance of rationality and proportionality in shaping any such award. However, the original jury award in this case failed the rationality test because of its sole purpose of punishing the insurer's bad faith. It also failed the proportionality test because of the gulf between the quantum of the award and the loss suffered by the plaintiffs.paras. 151-58. The reduced award at the Court of Appeal, according to Lebel J., satisfied both of these tests, "impos[ing] significant punishment for the bad faith of Pilot without upsetting the proper balance between the compensatory and punitive functions of tort law."para. 163. This award was sufficient and "consistent with the nature and purpose of punitive damages in the law of torts".para. 143. The majority result, on the other hand, was inappropriate in the context of tort law:

Significance of the decision Justice Binnie pointed to this decision among all of his Supreme Court opinions as giving him "particular satisfaction":

See also List of Supreme Court of Canada cases (McLachlin Court)

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