Fidler
The 2007 Supreme Court of Canada decision of Fidler 1 in June 2007 has become the leading case on the subject of mental distress damages, in this instance due an unfair denial of the insurer to pay disability insurance benefits. The duty of good faith was found as one not limited simply to the denial of the claim. It extends throughout all aspects of the manner in which the claim is handled by the insurer.
One week prior to trial, the insurer agreed to pay the arrears and to reinstate benefits. The trial continued only on the issues of aggravated and punitive damages.
The trial judge awarded $20,000 for “aggravated damages”, holding that such a claim is permissible given a “peace of mind” contract. The Court of Appeal upheld this award and also found for the plaintiff for punitive damages 2 in the sum of $100,000. The nomenclature of damage awards of this genre is important, as noted later by the Supreme Court of Canada.
The Supreme Court agreed that damages for mental distress, this term being used specifically to distinguish the award from aggravated damages, may be recoverable in Canada for contracts which promise pleasure, relaxation or peace of mind. Such awards, the court stated, follow the general rule of compensatory damages, 3 rather than as an exception to this principle. This is the case as damages for mental distress are seen as being reasonably foreseeable.
This being said, not all mental distress becomes the subject of compensation. “Incidental” frustration will not lead to recovery. However, where the contract is intended to secure a particular psychological benefit, and where such is reasonably foreseeable, and are proven, a damage award should follow, where the “degree of suffering is of such a degree to warrant compensation”.
As noted, the court distinguished the nomenclature of “aggravated” damages as being confined to claims which arise from “aggravating circumstances”, such as tort claims or defamation as opposed to the claim in this instance which arose from the contractual breach in itself and required no “independently actionable wrong”.
The Supreme Court upheld the trial judge’s award of additional damages for mental distress in the sum of $20,000, given the significant additional distress arising from the loss of benefits over a five year period. The award of punitive damages, given by the appellate court only, was set aside, the Supreme Court choosing to defer to the trial judge’s assessment, as opposed to that of the Court of Appeal.
It has been acknowledged that such a breach of the duty of good faith will support a finding of an independent actionable wrong to allow for a punitive damage award. 4
To support such a punitive damage finding, it must be also be shown that the conduct in question shows a "marked departure from the ordinary standards of decency" 5