C.A. Upholds Punitive Damages Award in Fire Insurance Case, but Reduces Aggravated Damages

house-on-fire.jpg The Court of Appeal today released its decision in Plester v. Wawanesa Mutual Insurance Company, a lawsuit that involved a disputed claim on a policy of fire insurance. Two of the insureds (a married couple) owned a furniture store and a third insured (father of one of the first two) owned an antique furniture business operating from the same premises. The second business was separately insured, but both polcies were with Wawanesa.

A fire in March, 1997, damaged the store and much of its contents. The two groups of insureds submitted separate claims to Wawanesa. Norman Plester, who operated the antique furniture business, died prior to trial. Wawanesa denied both claims on the basis of arson.

At the January, 2005 trial before Mr. Justice Williams Jenkins and a jury, damages were awarded in favour of Terry and Cecile Plester, in the amount of $1,000,673.83 and in favour of the estate of Norman Plester, in the amount of $131,900. Both awards included punitive damages and the award to Terry and Cecile also included aggravated damages.

Wawanesa appealed on both liability and damages. The Court of Appeal varied the award of aggravated damages but otherwise dismissed the appeal. In doing so, it made several points of interest to practitioners.

Settlement Offer

Before the litigation had begun, the examiner for Wawanesa asked whether the insureds (Terry and Cecile) would be interested in settling their claim for 50% of the loss. They declined, but at trial, led evidence of the offer. Counsel for the insurer moved for a mistrial. The motion was dismissed, in part, because the Wawanesa examiner had not yet testified. However, that examiner did eventually give evidence. He said that when he discussed settlement, it was always understood that the negotiations were without prejudice. Otherwise, he said, he would never attempt to settle cases. He was not cross-examined on this evidence, nor was any evidence led to contradict him.

The Court of Appeal ruled that the trial judge had not erred in refusing the motion for mistrial, but that once the examiner had testified as he did, Justice Jenkins should have been told to disregard the settlement offer in deciding whether to award punitive damages. However, while the Court of Appeal thought that this had been an error on the part of the trial judge, it did not warrant a new trial.

This is worrisome. The end result was that the Wawanesa examiner made a settlement offer, there was oncontradicted evidence that the offer had been made without prejudice, the jury was permitted to hear about the offer at trial (improperly, said the Court), yet no consequences flowed from that improper disclosure. It would not be surprising if this result made insurance claims people think twice before making such offers in future.

Evidence of insureds’ good character

One ground of appeal was that the trial judge had permitted the insureds to call evidence of their good character. The Court of Appeal rejected this ground: “Once the appellant alleged arson against the Plesters, it was permissible for them to respond with the kind of evidence that would be available to them in a criminal court.”

This is interesting because in criminal cases, when an accused puts his character in issue, the Crown is generally permitted to call rebuttal evidence, to show the bad character of the accused. Thus, following the logic of the Court of Appeal’s ruling on this point, an insurer facing evidence of the insured’s good character should be entitled to call evidence of that person’s bad character.

Evidence of Wawanesa’s financial status

The trial judge appears to have permitted counsel for the insureds to call the regional vice-president of Wawanesa to testify as to the company’s financial status in 1997. He felt that the door had been opened to such testimony by the address to the jury of Wawanesa’s counsel, in which he said: “Wawanesa is a Canadian company that started in Manitoba 100 years ago. It is made up of people you would encounter in your everyday life.  It is a mutual company that is owned by the policyholders. There are no big corporate directors taking big rates of pay out of the company. It competes in Canada with insurance companies from around the world, American insurance companies like State Farm or Allstate and international companies like Axa.” Justice Jenkins felt that this opening statement made Wawanesa’s financial evidence “very relevant”.

The Court of Appeal disagreed. Even having regard to the opening statement of Wawanesa’s counsel, it felt that the evidence should not have been admitted. As was the case with the improperly-admitted evidence of Wawanesa’s offer to settle though, the Court held that this error did not warrant a new trial.

Aggravated damages

The jury awarded aggravated damages of $175,000 in favour of Terry and Cecile Plester. The Court of Appeal said that that amount was “grossly excessive” and reduced it to $50,000.

The first point made by the Court of Appeal was that “aggravated damages are compensatory”. This is not always understood. Insurance policies typically cover “compensatory damages” and we sometimes see insurers confuse “aggravated” with “punitive” damages, concluding that there is no coverage for the former because they are thought not to be “compensatory”. They are.

So, to be entitled to aggravated damages, there must be evidence that the defendant’s conduct has worsened the plaintiff’s injury in some way. Here, the Court felt that apart from a couple of pieces of evidence, “the case for aggravated damages was very thin”. On this basis, the jury’s award was reduced to $50,000.

Punitive damages claimed on behalf of deceased

Although Norman Plester had died before the trial, the jury awarded punitive damages in favour of his estate. Wawanesa appealed on the basis that, as punitive damages are non-compensatory, they do not fall within s. 38 of the Trustee Act [which sets out what tort claims can be maintained on behalf of the estate of a deceased person].

The Court noted that, in British Columbia, the courts have not permitted punitive damages to be claimed on behalf of deceased persons. However, it elected to take the opposite approach and to allow such claims. The Court observed that “ a wrongdoer can be punished just as easily, whether his or her victim lives or dies”. Thus, the $100,000 punitive damages award in relation to the late Mr. Plester was not disturbed on appeal.

(Neither was the $150,000 punitive damages award made in favour of Terry and Cecile Plester.)


Finally, the trial judge awarded partial indemnity costs to the plaintiffs to the date of their offer to settle, and substantial indemnity costs thereafter. The plaintiffs cross-appealed, saying that substantial indemnity costs should have been allowed throughout, having regard to the jury’s award of punitive damages and the serious allegations of misconduct made by Wawanesa. However, the Court of Appeal rejected both of these arguments.

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