Date: Mon, 3 Jul 2006 12:57:40 -0400

From: David Cheifetz

Subject: Intangible Injuries for Breach of Contract (Fidler v. Sun Life)

Craig,

I can't imagine any insurance policy (1st party or 3rd party) which WILL NOT satisfy the SCC's definition of the type of contract for which a "mental distress" award is now payable in the event of mere breach, so long as the amount payable isn't so small as to be meaningless. Otherwise, the insured's peace of mind is always a significant part of the reason why the insured purchased insurance. I suppose we could quibble about compulsory motor vehicle liability insurance, but even there there's a peace of mind aspect - the liability limits one chooses, for example.

Given that, we might wonder why the panel thought it necessary to spend as many words as they did (paras 56-58) answering the rhetorical question "whether an object of this disability insurance contract was to secure a psychological benefit that brought the prospect of mental distress upon breach within the reasonable contemplation of the parties at the time the contract was made?". How could the panel have provided any answer other than "yes"?

The reasons are written as if to imply that the panel thought the "yes" answer isn't necessary for all insurance policies. That implication isn't consistent with the content of the reasons. Nor is it consistent with reality. Leaving aside compulsory auto insurance, I can't imagine any Canadian trial judge finding that the insured's peace of mind wasn't a significant part of the reason for the purchase of the insurance. If the panel thought there could be a valid "no" answer for insurance policies (outside of the limited example I've sketched) it should have said so.

So, the fight is going to be over (1) what is compensable mental distress and (2) how much. The "what is" won't take much, given the evidence that was sufficient in Fidler. So, the fight will be about how much. Will the award be "conventional"? What sort of guideline is the Fidler amount? The trial judge justified the $20,000 on the basis that Fidler "genuinely suffered significant additional distress and discomfort" over a 5 year period. Judges aren't supposed to scale, but ...

Apart from that, it's an award of non-pecuniary damages no different in "quality" than the solatium / non-pecuniary damages award in tort. Is it the contract mental distress award subject to a cap analogous to the tort non-pecuniary cap? Bear in mind that the SCC has already said, in effect, "no" to that question in the recent Young v Bella. The claim against Memorial University could have been framed in contract. It wasn't, mind you, but it could have been. And, since the $400,000 award was more than the cap ...

This case is yet another example of what I see as the SCC's unfortunate tendency (at least in private law areas with which I'm familiar) of too often not considering (far enough) the logical consequences of a conclusion on a question in one area to related or analogous areas of law.

It's my view that the consequences of Fidler will be worse than you've described. The SCC has set the insurance industry up for an expensive few years of litigation to establish the parameters of this mental distress damages exposure, including whether the award is subject to a cap analogous to the non-pecuniary damages cap in tort. Either the SCC panel saw that and decided they'd leave those issues for another day or they didn't see that at all. Neither explanation does the panel any credit.

Best regards,

David Cheifetz

-----Original Message-----
From: Craig Brown
Sent: July 3, 2006 9:14 AM
Subject: Re: RE: ODG: Intangible Injuries for Breach of Contract (Fidler v. Sun Life)

While I'm sure insurers are relieved that they can' t be liable for punitive damages without bad faith, it must be alarming to them that they are exposed to aggravated damages without the separate wrong of bad faith. No doubt anyone whose insurance claim is turned down suffers loss of peace of mind and that is probably foreseeable by the insurer. But there are many instances when insurers deny claims in good faith in the sense they genuinely believe the policy wording does not cover the loss or the insured has been in breach of his/her obligations. Yet courts disagree with them and order them to pay the insurance money. Now they are liable for additional amounts to compensate for the upset.

One would expect either fewer claims are contested or that insurers will calculate the additional damages as a cost. Either way the cost of insurance increases.

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