Punitive are damages which are awarded over and above simple compensatory damages. They are not intended to compensate the plaintiff.

The Supreme Court of Canada has ruled a punitive damage award against an insurance company. This is the case known as Whiten vs Pilot Insurance and has established a landmark for this type of ruling and award of $1 million.

Daphne and Keith Whiten had a home fire loss in 1994. There was an independent adjuster appointed by their insurer, Pilot Insurance. Despite this adjuster's advice to pay out the claim, Pilot Insurance denied the claim on the basis that the fire had been deliberately set. Their defense strategy has been remarked upon as intended to "starve the insureds into submission."

When the case went to trial the jury awarded the Whitens compensatory damages of $320,000 for their proven losses resulting from the fire. The jury also awarded $1 million in punitive damages for the steadfast refusal of the insurer to abandon its ill-founded defense to the claim.

The Ontario Court of Appeal upheld the Whitens' entitlement to punitive damages but reduced the amount to $100,000.

The Supreme Court of Canada now addressed this case. the Court had itself established that where breach of contract is alleged there must be an "actionable wrong" independent of that breach in order for punitive damages to be recoverable. Writing for the majority, Justice Binnie ruled that a refusal by an insurance company to deal with its insured in good faith constitutes an independent breach that permits punitive damages to be awarded.

The Supreme Court was concerned about the sheer size of the jury award for punitive damages. It represents not only the largest such award ever recovered in a civil action in Canada, but as well a 20-fold increase of the largest assessment of punitive damages ever imposed against any Canadian insurer.

The Court reviewed the history and purpose of punitive damages as they have been awarded throughout the common-law world. The ultimate conclusion of the Court was that based on the facts of the case the jury award should be restored.

Pilot Insurance had an obligation of good faith that was not met. Their behaviour was such that the court sent a message of deterrence, retribution and denunciation. This tells the insurance companies that this type of action will be severely punished in the courts.