Court upholds $1 million punitive award against Pilot

The Supreme Court of Canada has restored a jury award of $1 million in punitive damages which had been made against Pilot Insurance Co. The cross-appealed Whiten v. Pilot case has been closely watched by insurers due to the magnitude of the punitive award contested, as well as the apparent “shift” by the courts toward a more “U.S. style” in determining such damages. Prior to the Whiten v. Pilot case, the largest punitive damage handed down by a Canadian court against an insurer had been $15,000.

A legal source serving the insurance industry says the Supreme Court’s ruling has set a new precedent in the application of punitive awards in Canada. Insurers will have to increase their contingency reserves to deal with such costs, he adds, with future punitive court awards expected to rise in both number and value. Furthermore, observes Marcus Snowden, a partner at Blaney McMurtry LLP, the court has sent out a message to insurers and other financial institutions engaged in contractual agreements with the public that those not fully fulfilling their obligations “breach duty of good faith at your own peril”. Snowden expects that this latest ruling by the Supreme Court of Canada will focus greater attention by the courts on the conduct of insurers in the personal lines arena, with more cases going before a jury. “This [Whiten v. Pilot case] is the high watermark [in punitive costs].” As such, he does not expect that future punitive awards will exceed this level.

Daphne and Keith Whiten initially sued Pilot for $125,000 in punitive damages after the insurer refused a claim for the loss of their house due to fire. The insurer alleged that the couple had destroyed their own home with the intent of committing insurance fraud. After these allegations were rejected, a jury awarded the Whiten couple an amount of $1 million in punitive damages over and above the compensation payout. This outcome was appealed by Pilot, resulting in an Ontario Appeal Court reduction of the damages to $100,000 in 1999. In response, the Whitens cross-appealed this decision, resulting in the $1 million punitive award being restored by the Supreme Court of Canada. In addition to the $1 million in punitive damages, the Whitens also received $320,000 in court costs and $345,000 for the loss of their house.

In a statement released after the Supreme Court ruling, Pilot’s president Stuart Kistruck says that, while the company recognizes the decision of the court, it is also disappointed with the fact that the punitive award was raised back to the level previously determined by a trial jury. “To maintain the integrity of the insurance business for both policyholders and the industry, it is the duty of every insurer to verify claims made. We believed in this case [Whiten] that there was sufficient initial evidence to take the position that we did. We fear that the court’s decision on this case may have ramifications on future cases of insurer/policyholder resolutions that will have a very negative effect on what is a very smooth functioning insurance system in Canada, for all sides.” –

6www.canadianunderwriter.ca CANADIAN UNDERWRITER / MARCH 2002

ICBC posts $251 million loss for 2001

On the heels of reporting a $251 million loss for the 2001 financial year, B.C.’s public insurer the Insurance Corp. of British Columbia (ICBC) is also set to face the B.C. government’s “Core Services Review” task force. But last year’s dismal financial results for the ICBC are the last thing on the mind of the task force, which is asking agencies to “justify their existence”.

The Insurance Bureau of Canada (IBC), which has lobbied for privatization in the B.C. auto insurance market, has made submissions to the task force, confirms regional vice president Lindsay Olson. The process, however, has been delayed as many of the government bodies have tried to show how they will become “leaner and meaner”, rather than looking why they should exist at all. “The Crown corporations, as one politician put it, are still at the “counting pencils” stage,” Olson says.

IBC hopes to have some word on increased competition in the market after the task force wraps up its submission process in a few weeks. Last year also saw an independent review of ICBC’s reserves, for which the IBC had pushed. Those reserves were deemed adequate by the government, confirms Hal Wake, senior manager of media relations at ICBC.

A good piece of the loss in 2001 is due to restructuring costs, totaling $40 million, as ICBC chopped 1,000 staff and consolidated offices. Another $100 million was set aside in anticipation of a financial hit from a real estate venture in Surrey, B.C. Increased claims, up $105 million over 2000, were also a factor. ICBC did raise its rates late in 2001, up an average 7.4%. “This will have partial impact in 2002 and a full impact in 2003,” Wake says. ICBC predicts a “close to break even” for the 2002 financial year as a result of these rate increases and the anticipated savings flowing through from the company’s restructuring program. –