Whiten v. Pilot Insurance Co., [2002] SCC Facts: The Whitens discovered a fire in their house just after midnight in January 1994. The family fled wearing only their nightclothes. The husband gave his slippers to his daughter to go for help and suffered serious frostbite. The fire destroyed the home and contents, including the family pets. Pilot made a single payment for living expenses, covered their rent for a couple of months, then unilaterally cut the family off. The denial of the claim led to a lengthy trial based on the theory that the family had set fire to its own home, although the local fire chief, and Pilot’s own expert investigators all said there was no evidence of arson (The insurer’s position was eventually completely discredited on trial).
Issues: Are insurance companies under a contractual duty to act in good faith? What damages are appropriate for breaching this duty?
Holding: YES insurance companies under a contractual duty to act in good faith – and if they breach this duty punitive damages of up to $1,000,000 might be appropriate.
Reasons: The Supreme Court 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 (This is the actionable wrong!!). Writing for the majority, Justice Binnie 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 for failure to act in good faith, which the majority at the Ontario Court of Appeal had reduced to $100,000. The SCC stated that although the $1 million award of the jury was higher than the court would have made, it was within the high end of the range where juries are free to make their assessment.
The Supreme Court of Canada had previously affirmed that punitive damages could be awarded in a breach of contract case, although it would only be in rare circumstances. So, besides the contractual obligation to pay the insurance claim, an insurer is also under a distinct and separate obligation to deal with its policyholders in good faith. A breach of the duty of good faith is accordingly “independent of” and “in addition” to any breach of the contractual duty to pay the loss.
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