Docket: 1967 Saskatchewan Government Insurance, as the Administrator under The Automobile Accident Insurance Act (Defendant) Appellant - v. -, 2012 SKCA 106

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2012 SKCA 106 Date: 2012-11-13 Between: Docket: 1967 Saskatchewan Government Insurance, as the Administrator under The Automobile Accident Insurance Act (Defendant) Appellant - and - Teresa Wilson (Plaintiff) Respondent Coram: Vancise, Ottenbreit & Caldwell JJ.A. Counsel: Robert W. Leurer, Q.C., and Laura Mazenc, for the Appellant Kenneth W. Noble, Q.C., for the Respondent Appeal: From: 2010 SKQB 211

Heard: October 11, 2011 Disposition: Allowed, in part Written Reasons: November 13, 2012 By: The Honourable Mr. Justice Caldwell In Concurrence: The Honourable Mr. Justice Vancise The Honourable Mr. Justice Ottenbreit Caldwell J.A. I. Introduction [1] Saskatchewan Government Insurance (“SGI”) appeals from the trial judge’s decision to grant Teresa Wilson’s claims for breachof the duty of good faith and for indemnification of legal fees and costs (see: 2010 SKQB 211).

In particular, SGI appeals from theawards against it of $15,333.26 in punitive damages and costs on a solicitor-client basis, the latter being with respect to certain mattersonly. [2] For the reasons below, I would uphold the trial judge’s finding that SGI had breached its duty of good faith in the circumstancesof this matter. I would, however, set aside the awards of punitive damages but sustain the awards of costs. I would further award Ms.Wilson her mitigation expenses as damages flowing from SGI’s breach of the duty of good faith. II.

Background [3] SGI admitted at trial that, as an insurer, it owes a duty of good faith to Ms Wilson (fr.: Whiten v. Pilot Insurance Co., 2002 SCC18, [2002] 1 S.C.R. 595 at para. 79). In Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3, at para. 63, theSupreme Court of Canada adopted the description of an insurer’s duty of good faith as set forth in 702535 Ontario Inc. v. Lloyd'sLondon, Non-Marine Underwriters (2000), (ON CA), 184 D.L.R. (4th) 687 (Ont.

C.A.), at para. 29, where O’ConnorJ.A. said the duty requires an insurer “to deal with its insured’s claim fairly” in terms of investigating and assessing the claim and indeciding whether to pay. More particularly, O’Connor J.A. held that an insurer is required to “assess the merits of a claim in a balancedand reasonable manner” and that payment decisions must be based on a reasonable

interpretation of the insurer’s obligations under thepolicy of insurance. O’Connor J.A. was careful to note, however, that the duty does not require an insurer to make the correct decision,but only to act fairly when making decisions.

He later said (at para. 30) that what constitutes “bad faith” will depend on thecircumstances of each case, and that the court must look to see whether the insurer acted “fairly and promptly in responding to theclaim”.[1] For its part, the Supreme Court of Canada restated this notion in Fidler (at para. 71) as whether the denial of benefits hadresulted from “the overwhelmingly inadequate handling of the claim, or the introduction of improper considerations into the claimsprocess.” [4] As noted, each claim of a breach of the insurer’s duty of good faith turns on its facts.

In this case, the facts which gave rise toMs Wilson’s claim and those which arose from SGI’s handling of the litigation resulting from her claim are relevant; all of which thetrial judge carefully detailed in her written reasons (see: 2010 SKQB 211, at paras. 6-87). Suffice it to say, the circumstances of thismatter are distinctly uncomplimentary to SGI. SGI finds itself in the instant predicament solely by reason of its own conduct. [5] In briefest of

summary, SGI notified Ms Wilson that it had decided to terminate her “no-fault” benefits six months into the future,but it retracted the decision before Ms Wilson had suffered any actual damage.[2] SGI did so after Ms Wilson had commenced litigationagainst it and after that litigation had proceeded to a point where SGI was compelled to acknowledge, at least internally, that it had nolegal or factual foundation for its decision.

In the circumstances, the trial judge found that, albeit there had been no interruption to thepayment of benefits, SGI had so seriously mishandled Ms Wilson’s claim, both internally and in the proceedings before the Court, that ithad breached its duty of good faith to Ms Wilson. To remedy the breach, the trial judge made the awards of punitive damages and costsfrom which SGI now appeals. III.

Issues [6] Counsel agreed that the appeal raises, first, a question as to whether the trial judge correctly found SGI had breached its duty ofgood faith and, if answered in the affirmative, second, whether punitive damages was the appropriate remedy for the breach. IV. Analysis a. Breach of the Duty of Good Faith [7] To address the first question, SGI says the trial judge misapprehended the law by finding a breach of the duty of good faith whenSGI had never actually terminated the payment of benefits.

SGI also challenges the trial judge’s findings of fact, namely, the findingsthat SGI had placed unwarranted conditions on the resumption of benefits and had declined to pay the “undisputed portions” of theclaim. Finally, SGI submits the trial judge erred in law by considering irrelevant or improper matters, namely, the fact that SGI hadapologized to Ms Wilson for its handling of her claim and the conduct of SGI’s legal counsel (who was not counsel on appeal) and, inparticular, the decision by SGI’s internal counsel not to share solicitor-client privileged communications with Ms Wilson’s lawyer. i.

A Breach without Damage

[8] As to the first issue, SGI correctly points out that its breach of the contract of insurance was chiefly anticipatory, given the six-month delay in its effect, and that it had fully-remedied the breach before any actual damage arose. This, SGI submits, means its breachof the contract of insurance is not actionable and, in the absence of an actionable breach, SGI questions whether the law supports a causeof action for breach of the duty of good faith alone.

Put another way, SGI questions whether a breach of the duty of good faith, althoughan independently actionable wrong, can arise in the absence of damages flowing from a breach of an express term of the underlyingcontract of insurance. [9] While I agree that breach of the duty of good faith typically walks hand-in-hand with a denial of benefits or other breach underthe express terms of a contract of insurance, a breach of the implied duty of good faith does give rise to a separate cause of action.

Thisfinding, reached by O’Connor J.A. in 702535 Ontario Inc., was reiterated by Charron J.A. (as she then was) in Ferme Gérald Laplante & Fils Ltée v. Grenville Patron Mutual Fire Insurance Co. (2002), (ON CA), 217 D.L.R. (4th) 34 (Ont. C.A.), whereshe wrote: [78] A breach of the duty to act fairly and in good faith gives rise to a separate cause of action that is distinct from the cause of actionfounded on the express terms of the policy and that is not restricted by the limits in the policy. Hence it may result in an award ofconsequential damages distinct from the proceeds payable under the policy.

It is important to note, however, that the duty to paypromptly, as a component of the duty of good faith, must be considered in that context; it is not an absolute obligation giving rise to anautomatic claim for consequential damages in the event of any failure to make a timely payment in accordance with the policy. The lattercontention was made by the insured in 702535 Ontario Inc. and rejected by this court. O'Connor J.A. stated as follows (at para. 37): ... the broader

interpretation urged by the appellants could have far-reaching effects for the insurance industry. In some cases, the risk ofbeing found liable for consequential damages resulting from unsuccessfully contesting a claim under a policy would constitute asubstantial disincentive for insurers to deny claims, even those which they reasonably and in good faith consider to be either unfoundedor inflated. In a general sense, insurers and insureds have a common interest in ensuring that only meritorious claims are paid. Increasedpayments by insurers lead to increased premiums for insureds.

In order to effectively screen claims, insurers must be free to contest thoseclaims which in good faith they have reason to challenge, without running the risk that if they are ultimately found to be wrong, they willbe liable to indemnify the insured for losses not underwritten in the policy contracted for by the insured. [79] In addition, in an exceptional case where the insurer's misconduct is sufficiently malicious, vindictive or reprehensible so as towarrant punishment in addition to compensation, a breach of the duty to act fairly and in good faith can also found a claim for punitivedamages. [10] The foregoing passage is authority for the proposition that a breach of the duty of good faith, even though an independent cause ofaction, does not arise in the absence of an underlying breach of the express terms of the contract of insurance.[3] Given this proposition,SGI says that if it has paid what it was required to pay under the contract of insurance, it cannot be argued that SGI has acted unfairly ininvestigating or assessing the claim or in deciding whether to pay it.

It says there is no foundation to ground a breach of the duty of goodfaith in those circumstances. In that respect, SGI submits Ferme Gérald Laplante & Fils Ltée is applicable to the case at hand becausethere was no termination of benefits here; but, that is a particularly partisan characterization of the law and the facts which I do notaccept.

Rather, what happened here is this: no damage flowed from SGI’s breach of the contract of insurance with Ms Wilson; and, thatis a very different circumstance. [11] On the facts, as found by the trial judge, SGI breached the express terms of the contract of insurance with Ms Wilson. Thetermination letter sent to Ms Wilson notified her that SGI would cease to pay her benefits on May 16, 2007. The trial judge found thatMs Wilson was not notified that SGI had unconditionally withdrawn its decision until June 19, 2007.

Therefore, albeit Ms Wilson admitsof no resulting damage, the fact remains that for one month SGI was in breach of the terms of its contract of insurance with her. [12] Alternatively, the letter SGI sent to Ms Wilson establishes SGI’s intent to breach its contractual obligations to her six months intothe future. Upon its receipt, Ms Wilson immediately took the reasonable step of attempting to mitigate her impending loss bycommencing legal action. Indeed, by statute, she was required to do so within 90 days of her receipt of the letter.

However, undercontract law, this step to litigation may be characterized as Ms Wilson’s acceptance of SGI’s anticipatory repudiation of the contract ofinsurance, which thereby crystalized SGI’s breach.

The fact that SGI later reversed its decision to repudiate the contract before MsWilson had incurred any actual damage, and that the parties seem to have consensually reinstated the contract of insurance, is irrelevant.These circumstances do not, in my opinion, doctrinally foreclose an analysis as to whether the manner in which SGI breached itscontractual duty to Ms Wilson amounted to a breach of its derivative duty to act in good faith. [13] Under either scenario the flaw in SGI’s reasoning is that the “actionable” nature of a wrong is not dependent upon the occurrenceof loss or damage; that Party A suffered no loss or damage from Party B’s breach of a contract does not abrogate the fact that Party Bbreached the contract.

At the very least, such circumstances give rise to the possibility of an award of “nominal damages” to Party A torecognize Party B’s breach. In S.M. Waddams, The Law of Damages, loose-leaf ed. (Toronto, ON: Canada Law Book, 2011), the authornotes simply but aptly in the first line of

Chapter 10 that “[n]ominal damages is a sum awarded where the plaintiff’s legal right has beeninvaded, but no damage has been proven.”[4] [14] Moreover, if SGI were correct (i.e., that breach of the implied duty of good faith cannot occur where damages do not flow from abreach of the express terms of the contract of insurance), the law would invite insurers to engage in the very conduct which the duty ofgood faith seeks to deter.

If no actionable claim arises unless and until an insured suffers actual damage from the insurer’s breach ofcontract, what then prevents an insurer from periodically sending notices to its insureds advising of the termination of benefits six monthshence (or, at least, after expiry of the limitation period for appealing the termination decision) unless the insured re-substantiates his orher claim? If the insured responds, then the insurer simply reverses the decision; no harm, no “actionable” foul.

If the insured fails torespond, the insurer safely terminates the insured’s benefits. [15] For these reasons I would not, under this ground of the appeal, interfere with the trial judge’s finding of a breach of the duty of

good faith. ii. The Findings of Fact [ 16 ] SGI challenges certain of the trial judge’s findings of fact, namely, the finding that SGI had placed unwarranted conditions on the resumption of benefits, and the finding that it had declined to pay the “undisputed portions” of the claim. This calls for the Court to review the findings of fact made and inferences of fact drawn by the trial judge. In doing so, the Court is bound to accord a considerable measure of deference to a trial judge’s findings and is held to review the findings for “palpable and overriding error” only ( Housen v. Nikolaisen , 2002 SCC 33 , [2002] 2 S.C.R. 235). [ 17 ] The trial of this matter proceeded on a

summary basis with evidence tendered in affidavit form with subsequent viva voce cross- examination of the affiants before the trial judge. The trial judge read the affidavits, examined the written materials filed as exhibits to the affidavits, and saw and heard the affiants as witnesses in her court.

She then assessed the evidence and determined its weight and effect and set out her conclusions in her reasons for judgment. [ 18 ] With respect to the “unwarranted conditions”, SGI submits that its offer to rescind the termination decision was not conditional upon Ms Wilson accepting its offer with respect to costs and other matters. While that may well have been SGI’s intention, a review of the correspondence exchanged between SGI and Ms Wilson’s lawyer quickly leads one to conclude that rescission of the termination decision was indeed conditional, as the trial judge concluded.

Simply put, it cannot be convincingly demonstrated on the record before the court that the trial judge committed any error, let alone a palpable and overriding error, in her

interpretation of the correspondence between SGI and Ms Wilson’s counsel. The trial judge’s findings are not only reasonable and well-supported by the evidence before her they are, in my judgment, correct. I therefore defer to her findings. [ 19 ] Certainly the finding that SGI’s withdrawal of the termination decision was conditional plays a role in my conclusion above that SGI had breached its duty of good faith.

However, I must say that even if there were grounds to interfere with the findings of fact which SGI has impugned, I am unconvinced that SGI’s conduct , exemplified in the findings in question, was anything more than a collateral or ancillary factor in the reasoning which led the trial judge to conclude that SGI had breached its duty of good faith to Ms Wilson.

On my reading of her reasons, the trial judge clearly and largely predicated her legal conclusion on the conduct of SGI as evidenced by the handling of Ms Wilson’s file by SGI’s adjuster after April 2006. [ 20 ] In this respect, when addressing the standard to be met by SGI in the handling of Ms Wilson’s claim, the trial judge notably cited a particular passage from Gordon Hilliker, Q.C., Insurance Bad Faith , (Markham: Butterworths, 2004) which speaks to the internal handling of an insured’s claim.

She wrote: [119] The duty of good faith and fair dealing requires that a denial of benefits be based upon a reasonable investigation and evaluation of the circumstances of the loss. In a number of instances, first party insurers have been found liable for bad faith by wrongly denying claims without carrying out a reasonable investigation, or having done an investigation, without reasonably evaluating the circumstances of the claim.

As stated by Gordon Hilliker, Q.C., Insurance Bad Faith , (Markham: Butterworths, 2004), at page 34: In some situations the failure to adequately investigate a claim is explained by the insurer misconstruing the purpose of the investigation. The insurer’s role is not to look for a putative basis to deny the claim, and, having found one, to then abandon the investigation and leave it to the insured to present evidence to the contrary. A one-sided investigation does not satisfy the requirement of good faith and fair dealing. Instead, the insurer must fairly consider all of the evidence.

This requires the insurer to initiate a reasonable investigation at the outset and to refrain from reaching a conclusion to deny coverage until the basis for the denial has been fairly investigated. ...

Where a claim under a disability policy is supported by the insured’s treating physician and, on its face, is a valid claim, the insured cannot in good faith deny the claim unless the denial is supported by the insurer’s own reasonably conducted investigation. ... [ 21 ] The trial judge also referenced a number of cases where the facts and legal conclusions were confirmatory of the general proposition set forth above in Insurance Bad Faith . She then turned to address the facts of this matter, as she found them. In this respect she was utterly condemnatory of SGI’s adjuster.

She noted that the adjuster had ignored reports and information from medical and health professionals which justified the continued payment of benefits to Ms Wilson. The adjuster had failed to consider SGI’s own tertiary assessment of Ms Wilson, which included the assessment and opinions of no less than seven different health-care professionals, all of whom recommended continued treatment. Instead, the adjuster had based her decision to terminate Ms Wilson’s benefits solely on the less-than-substantiated opinion of a single physiotherapist paid by SGI on a fee-for-service basis.

Notably, the trial judge concluded that SGI’s adjuster had tailored her request for the opinion in such a way as to seek a justification for terminating Ms Wilson’s benefits (at para. 130). As a compounding factor, the trial judge found that no one at SGI, or on its behalf, had actually examined Ms Wilson in person or contacted any of Ms Wilson’s health-care providers directly to discuss her case.

SGI did not even advise Ms Wilson that it was reviewing her file. (See: 2010 SKQB 211 at paras. 124-131 ). [ 22 ] So, while the trial judge may have been influenced by her conclusion that SGI had placed “unwarranted conditions on the payment of benefits” or had declined to pay “undisputed portions” of the claim, the conclusion that SGI had breached its duty of good faith to Ms Wilson was more than adequately made out, in my opinion, on the basis of the acts and omissions of SGI’s adjuster alone. [ 23 ] I would, therefore, dismiss this ground of SGI’s appeal. iii. Improper Considerations

[ 24 ] SGI submits the trial judge erred in law by considering irrelevant or improper matters. In particular, SGI questions the trial judge’s reliance on SGI’s apology to Ms Wilson for its handling of her claim and a decision of SGI not to disclose certain solicitor-client privileged information to Ms Wilson’s counsel. 1. The Apology [ 25 ] The law with respect to the legal use of an apology is set out in s. 23.1 of The Evidence Act , S.S. 2006, c. E-11.2. The

section unambiguously precludes the use of an apology in any determination of fault or liability in connection with an event or occurrence. [ 26 ] At trial, a senior executive officer of SGI apologized to Ms Wilson for the manner in which SGI had treated her and in which it had handled her claim. The officer made the apology to Ms Wilson in open court but, in respect of this, the trial judge wrote simply: [132] Mr. McIntyre, in his cross-examination, sincerely apologized to Ms. Wilson for the way in which SGI treated her and her claim.

She made no other reference to the apology in any of the 148 other paragraphs of her reasons for judgment. Nevertheless, SGI submits the trial judge improperly took the apology into account in her analysis of whether it had breached its duty of good faith. [ 27 ] Here, SGI submits that the placement of para. 132 immediately after the trial judge’s lengthy recitation of SGI’s “alleged misconduct” and immediately prior to her conclusion of bad faith “suggests” that she considered SGI’s apology as an admission of wrongdoing.

For reference, the paragraph subsequent reads as follows: [133] Considering as a whole all of SGI’s conduct, which I have outlined , I conclude that SGI has breached its duty of good faith and its duty to act fairly towards Ms. Wilson. SGI acted in a harsh and arbitrary manner. The breach of good faith is, on the facts of this case, conduct deserving of punishment and meets the test for an award of punitive damages. [emphasis added.] [ 28 ] With respect, I am wholly unconvinced by SGI’s submission on this point.

If the trial judge had placed any reliance on the apology in her determination of fault or liability, then that is certainly not evident from the language of her reasons nor can it be inferred from the placement of para. 132 within her reasons. As noted elsewhere in these reasons, the trial judge very pointedly attributed her conclusion of bad faith to the particular factual circumstances that comprised the manner in which SGI’s adjuster had handled Ms Wilson’s claim after April 2006 (see: 2010 SKQB 211 at paras. 124-131 , in particular).

The trial judge was referring to the detailed account of these facts, as itemized in her reasons, when she wrote “[c]onsidering as a whole all of SGI’s conduct, which I have outlined”; this does not, on my reading, include the apology. [ 29 ] Furthermore, even if one were to assume the trial judge did consider the apology as constituting part of “SGI’s conduct”, she can only be said to have accepted the apology for what, I expect, it was; namely, a genuine expression of the executive officer’s candid regret and sincere sympathy for Ms Wilson’s predicament. [ 30 ] Bluntly put, nothing in the trial judge’s reasons or the ordering of the paragraphs suggests she accepted the apology as an admission of wrongdoing.

I therefore find this ground of appeal to be without any merit whatsoever. 2. The “Failure” to Disclose Privileged Communications [ 31 ] SGI submits the trial judge improperly took SGI’s decision not to disclose privileged internal communications to Ms Wilson’s legal counsel into account in her analysis of whether SGI had breached its duty of good faith. In this respect, SGI points only to the following paragraph of the trial decision: [69] On April 25, 2007, Mr. MacLeod wrote Mr. Noble by email and advised that he had made a recommendation to the Injury Claims Department (Mr. McIntyre) and would advise Mr.

Noble in short order. He did not advise Mr. Noble what that recommendation was . [emphasis added] [ 32 ] In context, the undisclosed recommendation was clearly a liability opinion on the part of SGI’s Vice-President, Legal, and, as such, it was subject to solicitor-client privilege, and need not have been disclosed. [5] SGI’s submissions in this respect are accepted. However, if the trial judge had placed any reliance on the decision not to disclose the liability opinion, then that is not evident from her reasons. On my reading, her statement in para. 69 is, in its worst connotation, neutral.

She merely states as a fact that SGI did not disclose what its Vice-President, Legal, had recommended; she does not cast the fact with disapprobation. [ 33 ] Furthermore, even if I accept that the final sentence of para. 69 exhibits the trial judge’s “obvious disapproval” (to use the language from SGI’s factum), it cannot be said that her conclusion of bad faith turns on this single fact given the panoply of instances of SGI’s mishandling in this matter.

In short, I find no basis to conclude that the trial judge erred in law and, if she did err in this respect, I find the error had no substantive impact on her decision. iv. A Breach [ 34 ] The trial judge’s finding that SGI had breached its duty of good faith to Ms Wilson was the product of an unquestionably thorough review of the relevant evidence. She retrospectively examined SGI’s conduct to determine whether, in the light of the circumstances, SGI had satisfied its duty to act fairly and promptly in responding to Ms Wilson’s claim (see, for example, paras. 35-44, 71-78, and 121- 131).

From even a cursory review of her reasons, it is clear that the trial judge’s conclusions were greatly influenced, on the one hand, by her appreciation of the lack of substantiation for SGI’s decision to terminate Ms Wilson’s benefits and, on the other hand, by her knowledge of SGI’s awareness of the significant evidence which substantiated continued payment of Ms Wilson’s benefits. [ 35 ] A review of her decision leads one to conclude that the trial judge undoubtedly considered every salient and even marginal aspect of SGI’s handling of Ms Wilson’s claim, both before and after SGI’s decision to terminate her benefits.

It is fair to say, that the trial

judge found few aspects of SGI’s conduct that could be relied upon to suggest that it had handled Ms Wilson’s claim “fairly” after April2006 or that it had acted “promptly” in its handling of the matter and the litigation which ensued from its decision to terminateMs Wilson’s benefits. The judgment recognises that SGI had breached its duty of good faith to Ms Wilson and then compounded thatbreach through its inattentive, seemingly-cavalier handling of the litigation in this case (prior to appeal).

Using the language of Fidler, itis clear that the trial judge found SGI’s handling of Ms Wilson’s claim to have been overwhelmingly inadequate and to have involved theintroduction of improper considerations into the claims process. [36] SGI has proffered no reason sufficient to satisfy the standard of review and persuade me to overturn the trial judge’s findings. Itherefore decline to interfere with the trial judge’s overall conclusion that SGI had “breached its duty of good faith and its duty to actfairly towards Ms Wilson”. b.

Are the Damages and Costs Awards Appropriate [37] The awards made by the trial judge have two distinct elements: (

a) punitive damages: (

i) in the amount of $7,500.00 for SGI’s breach of its duty of good faith; and (ii) in the amount of $7,833.26 as indemnification of Ms Wilson’s legal costs to May 15, 2007; and (

b) solicitor-client costs, in respect of Ms Wilson’s counsel’s attendances on the appearances of the two SGI adjusters as witnesses,and party-and-party costs (on the basis of Double Column 4), plus disbursements, from May 16, 2007 to the date the trial commenced. [38] The trial judge dismissed Ms Wilson’s claim for aggravated damages. [39] Before beginning any analysis of the appropriate remedy for SGI’s breach of its duty of good faith, it is important to understandthat Ms Wilson suffered no actual damages as a result of SGI’s largely anticipatory breach of its express contractual duty to her.

MsWilson’s benefits were paid at all times. This fact is uncontroverted in this Court. Furthermore, the trial judge found that damages formental distress or suffering had not been made out on the evidence before her and Ms Wilson has not appealed from that finding. i. Punitive Damages [40] To begin, I cannot sustain the punitive damages awards made with respect to the breach of the duty of good faith and inindemnification of Ms Wilson’s costs. I reach this conclusion for two reasons. [41] First, critical to this conclusion is the fact that Ms Wilson never sought an award of punitive damages against SGI.

Her statement ofclaim, although amended, contains no pleadings to this effect and her counsel noted, in his summation at trial, that Ms Wilson had notclaimed punitive damages. While counsel for SGI may have characterised the breach of the duty of good faith claim as somehowinvolving an element of punitive damages, the absence of an express pleading of that nature from the statement of claim is, in myopinion, fatal to the awards of punitive damages at trial. [42] In Lauscher v. Berryere (1999), (SK CA), 172 D.L.R. (4th) 439 (Sask.

C.A.), this Court said that a plaintiffmust expressly plead a claim for punitive damages: [10] Let us turn, first, to the award of punitive damages. The basis upon which a person may become liable for the payment of suchdamages was succinctly stated by Mr. Justice Cory, in delivering the judgment of the Supreme Court of Canada in Hill v. Church ofScientology, (SCC), [1995] 2 S.C.R. 1130 at p.1208: Punitive damages may be awarded in situations where the defendant’s misconduct is so malicious, oppressive and high-handed that itoffends the court's sense of decency.

Punitive damages bear no relation to what the plaintiff should receive by way of compensation.Their aim is not to compensate the plaintiff, but rather to punish the defendant. It is the means by which the jury or judge expresses itsoutrage at the egregious conduct of the defendant. They are in the nature of a fine which is meant to act as a deterrent to the defendantand to others from acting in this manner.

It is important to emphasize that punitive damages should only be awarded in thosecircumstances where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishmentand deterrence. Unlike compensatory damages, punitive damages are not at large. Consequently, courts have a much greater scope and discretion onappeal. The appellate review should be based upon the court’s estimation as to whether the punitive damages serve a rational purpose.

Inother words, was the misconduct of the defendant so outrageous that punitive damages were rationally required to act as deterrence? [11] In this jurisdiction claims for aggravated and punitive damages must be expressly pleaded, given the requirements of the Queen’sBench Rules governing the subject of pleading: Rieger v. Burgess (1988), (SK CA), 66 Sask. R. 1 (Sask. C.A.). (See,too, Atkins Court Forms (2nd ed.), Vol.32 (1996 issue) at p.29).

It is therefore necessary that the statement of claim not only ask forpunitive damages but specify the misconduct upon which the cause of action is said to give rise to liability for such damages. [43] Binnie J., writing for the majority of the Supreme Court of Canada in Whiten, affirmed the ruling espoused in Lauscher v. Berryerewhere, when discussing the pleading requirements of punitive damages, he wrote: [86] . . .

In my view, the suggestion that no pleading is necessary overlooks the basic proposition in our justice system that beforesomeone is punished they ought to have advance notice of the charge sufficient to allow them to consider the scope of their jeopardy aswell as the opportunity to respond to it. This can only be assured if the claim for punitive damages, as opposed to compensatory

damages, is not buried in a general reference to general damages. This principle, which is really no more than a rule of fairness, is madeexplicit in the civil rules of some of our trial courts. For example, in Saskatchewan the Queen’s Bench Rules require that claims forpunitive damages be expressly pleaded and specify the misconduct which is claimed to give rise to such damages (Rieger v. Burgess, (SK CA), [1988] 4 W.W.R. 577 (Sask. C.A.); Lauscher v. Berryere (1999), (SK CA), 172 D.L.R.(4th) 439 (Sask. C.A.)).

Rule 25.06(9) of the Ontario Rules of Civil Procedure also has the effect of requiring that punitive damagesclaims be expressly pleaded.

It is quite usual, of course, for the complexion of a case to evolve over time, but a pleading can always beamended on terms during the proceedings, depending on the existence and extent of prejudice not compensable in costs, and the justiceof the case. [87] One of the purposes of a statement of claim is to alert the defendant to the case it has to meet, and if at the end of the day thedefendant is surprised by an award against it that is a multiple of what it thought was the amount in issue, there is an obvious unfairness.Moreover, the facts said to justify punitive damages should be pleaded with some particularity.

The time-honoured adjectives describingconduct as “harsh, vindictive, reprehensible and malicious” (per McIntyre J. in Vorvis, supra, p. 1108) or their pejorative equivalent,however apt to capture the essence of the remedy, are conclusory rather than explanatory. [44] Here, the amended statement of claim merely claims “[d]amages for [SGI’s] breach of its duty to act in good faith in the amount of$10,000.00” (at para. 16(d)).

While the facts of SGI’s alleged misconduct are pled, the pleadings contain no reference to punitive orexemplary damages. [45] Second, notwithstanding the absence from the pleadings, the trial judge (at para. 91) erroneously stated that Ms Wilson had“claim[ed] punitive damages of $10,000.00 for the breach of the duty of good faith”.

Not only is this in error on the face of the pleadings,but it is also not supportable on the law because, while breach of the duty of good faith is an independently actionable wrong that mustunderpin an award of punitive damages, it is not axiomatic that conduct which amounts to a breach of that duty necessarily satisfies thehigher threshold required for punitive damages; namely, an exceptional case, which may be described as malicious, oppressive or high-handed such that it offends the Court’s sense of decency (see: Whiten, at para. 36; Fidler, at para. 62; and Hill v.

Church of Scientology, (SCC), [1995] 2 S.C.R. 1130). And, as SGI submits, the trial judge did not embark on the separate analysis as towhether the higher threshold had been met on the facts of this case, which was necessary to ground her awards of punitive damages.These are errors of law which invite appellate intervention. [46] I therefore conclude the trial judge erred in law when she awarded punitive damages to Ms Wilson and the awards of punitivedamages must be overturned. [47] But, that does not end the matter.

Counsel for Ms Wilson invited the Court to invoke its jurisdiction under ss. 12 and 14 of TheCourt of Appeal Act, 2000, S.S. 2000, c. C-42.1, and Rule 58 of The Court of Appeal Rules to remedy the trial judge’s error. Sections12(1)(

d) and (

f) of our Act provide the Court with the power to “make any decision that could have been made by the court or tribunalappealed from” and to “make any additional decision that it considers just.” Similarly, Rule 58(

c) empowers the Court to “give anyjudgment or make any order that ought to have been made, or make any further order the case may require notwithstanding that thenotice of appeal sought to reverse or vary only part of the judgment appealed from.” [48] Nevertheless, I need not examine the conduct of SGI in this case to determine whether, in my opinion, it could be said to havesatisfied the higher threshold required for an award of punitive damages.

The Queen’s Bench Rules and jurisprudence are clear: it is notwithin the power of a court to award punitive or exemplary damages in the absence of pleadings seeking such damages.

As such, theabsence of a pleading of punitive or exemplary damages in this case is not only fatal to the awards of punitive damages appealed from, italso prohibits an award of punitive damages by this Court. [49] However, in these particular circumstances, I have considered whether the trial judge’s awards of punitive damages might besustained under another head of damage or otherwise by order of this Court. [50] First, given the three other awards against SGI, it cannot be said that the $7,500 award of punitive damages was compensatory orindemnificatory in nature.

The award is purely punitive in that it is meant to penalise SGI for its conduct. As such, the $7,500 award ofpunitive damages must be set aside without substitution of an equivalent amount under another head. [51] Second, as a general point, I find the amounts awarded to Ms Wilson as punitive damages cannot be sustained as awards ofaggravated damages. I do not dispute the trial judge’s conclusion that aggravated damages are not appropriate here. Aggravated damagesare compensatory and must reflect actual damage suffered by a plaintiff.

Here, Ms Wilson might have relied on the principle in Hadley v.Baxendale (1854), 9 Exch. 341, 156 E.R. 145, to support an award of damages for mental distress but for the fact that the trial judgefound such damage had not been made out on the evidence before her. [52] Third, while breach of the duty of good faith is an independently actionable wrong, it is generally remedied by compensatorydamages related to the underlying breach of the express terms of the contract or in an award of punitive damages, neither of which areavailable in these circumstances.

The question is then whether breach of the duty of good faith itself is remediable in damages. As astarting point, Gordon G. Hilliker notes in his work, Insurance Bad Faith that, in the United Kingdom, where the requirement of goodfaith does not arise as an implied term of contract, breach of the duty is not compensable in damages (at p.6): …[I]n obiter dicta, Lord Templeman noted [in Banque Keyser Ullmann SA v. Skandia (UK) Insurance Co. (sub nom. Banque Financiérede la Cité SA v.

Westgate Insurance Co.), [1991] 2 A.C. 249 (H.L.)] that … a breach of the duty of good faith does not sound in damages,an issue upon which Lord Bridge declined to offer an opinion, preferring to leave the matter open until its determination is required inanother case. In their subsequent decision in Manifest Shipping Co. v. Uni-Polaris Shipping Co. [[2001] 1 All E.R. 743 (H.L.)], however,the House of Lords made it plain that the legal principle is correctly stated in the decision in Banque Keyser Ullmann SA v.

Skandia (UK)Insurance Co., and that no remedy exists in damages for the breach of the duty of good faith. It must be emphasized that this does notpreclude a remedy in damages either in tort or in contract for conduct that might otherwise be characterized as bad faith.

[53] In Canada, with reference to the U.K. cases cited in Insurance Bad Faith, the court in Green v. Constellation Assurance Co.,[1993] O.J. No. 1445 (Ont. Gen. Div.) (QL), said: [95] There is a reciprocal duty both on the insurer and the insured to act fairly and in good faith with each other (Banque KeyserUllman S.A. v. Skandia (U.K.) Insurance Co. Ltd. (1991) 2 A.C. 249). Such duty, absent statutory enactment, is imposed by law as anincident of the relationship and contract of insurance. It is not an implied contractual term. The breach of such duty would give rise to anaction in tort. (Gibson v.

Parkes District Hospital (1991) 26 N.S.W.L.R. 9). However, what of the remedy? Does such breach give rise todamages or only a right to rescind the policy of insurance and recover the premium. In Skandia the Court of Appeal (1990) 1 Q.B. 665)dismissed the claim of breach of duty of good faith on the ground that the breach did not sound in damages. In the House of Lords, thedecision was affirmed but on different grounds. However, two Lords endorsed the conclusion of the Court of Appeal that the onlyremedy was the rescission of the policy and the return of the premium. Such dicta was clearly obiter.

The cases relied on in the Court ofAppeal were cases where there was failure to disclose, something different than failure to investigate. Moreover, in my view if the onlyremedy for breach of such a duty was rescission of the policy, then an insurer would benefit from his own wrongdoing, which strikes atand is contrary to basic principles. Accordingly, I with respect, would decline to follow the obiter in Skandia. In my view the remedy isone of damages. [54] However, the court in Green was not called upon to assess damages as the insured had failed to make out his claim for them.

I amotherwise unaware of any Canadian case in which a court has awarded a sum as damages for breach of the duty of good faith simpliciter. [55] It is difficult to separately identify the “damages” which might flow strictly from a breach of the duty of good faith.

This difficultyis made all the more evident where, as here, a plaintiff successfully mitigates or otherwise avoids all loss or damage resulting from theunderlying breach of the contract of insurance; especially in circumstances which do not merit an award of punitive damages. [56] However, as noted earlier in these reasons, in practical terms Ms Wilson had no option but to sue SGI. Given the appealmechanisms available, she did not have the option of doing nothing when SGI notified her of its anticipatory breach of the contract ofinsurance and the impending termination of her benefits.

If she had waited six or more months until she had actually suffered damages inthe nature of a loss of benefits, she would then have been statutorily barred from challenging SGI’s termination of her benefits. While theloss would then have crystalized, she would have been without a right of appeal with respect to the decision which caused her loss. [57] This is not an instance of “mitigate or litigate” (see: Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation and BaudCorporation, N.V., (SCC), [1979] 1 S.C.R. 633, at p. 664).

Here, the nature of the contract of insurance and the statutoryregime set out in The Automobile Accident Insurance Act, R.S.S. 1978, c. A-35, required that Ms Wilson litigate to mitigate the loss ofbenefits she rightly anticipated would flow from SGI’s decision to terminate her benefits. Simply put, in these peculiar circumstances,litigation was the sole means of mitigation available to Ms Wilson, and she was entirely successful in that respect.

By her efforts, shefully mitigated or avoided any loss or damage resulting from SGI’s anticipatory breach of the express terms of the contract. [58] Nevertheless, as a general rule, reasonable expenses incurred by an innocent party in the mitigation of a breach of contract are recoverable from the breaching party (see: Pitch and Snyder, Damages for Breach of Contract, 2nd ed., loose-leaf (Toronto, ON:Carswell, 1989), at para. 8-15).

Here, Ms Wilson’s mitigation expenses were her legal fees and the disbursements she incurred in thecourse of litigation, which include the cost of the medical reports her counsel obtained and used in his efforts to cause SGI to reverse itsdecision.

These expenses are allowable, in my opinion, as damages flowing from SGI’s breach of the duty of good faith because there isa direct link between SGI’s wrong and the litigation expenses Ms Wilson incurred in mitigation, it was reasonable for Ms Wilson toattempt to mitigate SGI’s anticipatory repudiation of the insurance contract in the manner in which she did and, therefore, the expenseswere foreseeable as damages and must be paid by SGI (see: Farish v. National Trust Co.

Ltd. (1974), (BC SC), 54D.L.R. (3d) 426 (B.C.S.C.) at paras. 60-61.) [59] While there is no doubt that the trial judge intended to fully indemnify Ms Wilson of her legal costs incurred up to the approximatedate that SGI rescinded its decision to terminate her benefits, that the judge did so, in part, under the head of punitive damages is an error.I, however, find that the award of $7,833.26 was properly quantified and is properly sustainable as an award of Ms Wilson’s reasonablemitigation expenses incurred in respect of SGI’s breach of the duty of good faith.

In this respect, the judge’s error is merely one ofclassification. ii. Solicitor-Client Costs & Party-and-Party Costs [60] A judge’s award of costs has consistently been held to be discretionary, but subject to oversight in that the discretion must beexercised judicially. This was clearly set out in the majority decision of this Court in Benson v. Benson (1994), (SKCA), 120 Sask. R. 17, where Cameron J.A. stated: [89] …In general, costs are in the discretion of the court, with full power to determine by whom and to what extent they are to bepaid.

The exercise of that discretion has been taken to be limited only by the need to act judicially on the facts of the case. Its exercise isotherwise “unfettered and untrammelled”: Smigarowski v. Mugliston (1951), (SK CA), 2 W.W.R. (N.S.) 108 (Sask.C.A.), Mildenberger v. Francis (Rural Municipality) (1954), (SK CA), 13 W.W.R. 528 (Sask. C.A.). [90] That, combined with the nature of our function in relation to appeals concerning the exercise of judicial discretion, serves tosignificantly narrow the scope for appeal. The discretion is vested in the trial judge, not us.

And our function, at least at the outset, is oneof review only, review for error vitiating the exercise by the judge of that discretion. The obvious aside, vitiating error is to be foundeither in misapplication of some governing principle or rule, or in disregard of some critical fact or other consideration. Either that or it isto be assumed in the case of an order so obviously unjust as to invite intervention. But in the absence of something of that sort we are notto wade in, substituting our discretion for that of the trial judge: see, generally, Walker v.

McKinnon Industries, (UKJCPC), [1951] 3 D.L.R. 577 (P.C.), at p. 579; Hadmor Productions Ltd. v. Hamilton (1982), [1983] 1 A.C. 191 (H.L.); MetropolitanStores (MTS) Ltd. v. Manitoba Food & Commercial Workers, Local 832, (sub nom. Manitoba (Attorney General) v. Metropolitan StoresLtd.) (SCC), [1987] 1 S.C.R. 110, at p. 155; and Saskatchewan Power Corp. v. Doe, (SK CA), [1988]6 W.W.R. 634 (Sask. C.A.).

[ 61 ] This Court assessed the appropriateness of an award of solicitor-client costs in Siemens v. Bawolin , 2002 SKCA 84 , [2002] 11 W.W.R. 246, when, after reviewing the above-passage from Benson , Jackson J.A. held: [98] While this was said in relation to party and party costs, the same principle applies with respect to solicitor and client costs. We are, whether we characterize the costs as party and party or solicitor and client costs, dealing with a discretionary order. The standard of review in relation to discretionary orders is well known. As the Supreme Court of Canada stated in Canadian Pacific Ltd. v.

Matsqui Indian Band : . . . This discretionary determination should not be taken lightly by the reviewing courts. . . . unless [the trial judge] considered irrelevant factors, failed to consider relevant factors, or reached an unreasonable conclusion, then his decision should be respected.

The difference between the application of the standard of review in relation to party and party costs and that in relation to solicitor and client costs is that an appellate court will be concerned to ensure that solicitor and client costs are awarded rarely. [footnotes omitted] [ 62 ] Jackson J.A. then went on to extensively review the law with respect to the award of solicitor-client costs, including Whiten , noting (at para. 106 ) that “[o]ne starts from the proposition that there is no right to costs, particularly solicitor and client costs.” Nonetheless, she concluded that it is now accepted that a court has a general and discretionary jurisdiction to award costs to a successful party as between solicitor and client.

Jackson J.A. then set out the four principles which should guide a court when considering an award of solicitor-and-client costs (at para. 118): 1. solicitor and client costs are awarded in rare and exceptional cases only; 2. solicitor and client costs are awarded in cases where the conduct of the party against whom they are sought is described variously as scandalous, outrageous or reprehensible; 3. solicitor and client costs are not generally awarded as a reaction to the conduct giving rise to the litigation, but are intended to censure behaviour related to the litigation alone; 4. notwithstanding point 3, solicitor and client costs may be awarded in exceptional cases to provide the other party complete indemnification for costs reasonably incurred. [ 63 ] The trial judge’s clear intention was to award Ms Wilson indemnification of her solicitor-and-client costs with respect to the evidence of and appearance by SGI’s two adjusters at trial.

She characterised SGI’s conduct in that respect as an attempt to “obstruct and impede” certain evidence from being presented to the court (see paras. 141-149). Given the tenor of her reasons in this respect, she undoubtedly considered SGI’s conduct in this matter to have satisfied the second, third and fourth principles identified by Jackson J.A. in Siemens .

I find no discernible error on her part with respect to the application of the governing principles, nor any disregard of critical facts or other relevant considerations such as to warrant interference by this Court with her exercise of judicial discretion in awarding solicitor-and-client costs against SGI. I would, therefore, uphold the award. [ 64 ] I would, on the same basis, uphold the trial judge’s award of party-and-party costs. V. Conclusion [ 65 ] In sum, I find that the trial judge erred in law when she awarded punitive damages against SGI as Ms Wilson had not pled such damages.

The award of punitive damages must be set aside. I would, however, convert the trial judge’s award of $7,833.26 in punitive damages to an award of damages in respect of the breach of the duty of good faith. I would sustain the awards of solicitor-and-client costs and party-and-party costs. [ 66 ] I turn now to the knotty issue of costs in this Court. SGI has met with some success on appeal and would, thereby, typically be entitled to a favourable (or neutral) costs award in this Court.

I am, however, strongly disinclined to make any award of costs against Ms Wilson given the particular circumstances of this matter. I recognise SGI could not, from a business- or risk-management perspective, have allowed the trial judge’s decision to stand unchallenged. This matter had, by then, become fraught with industry-level consequences affecting more than just Ms Wilson’s claim.

Nevertheless, Ms Wilson is undoubtedly without fault in this matter and she accessed the justice system solely to mitigate the unreservedly botched handling of her insurance claim by SGI. [ 67 ] On that basis, I find this appeal falls into that small class of exceptional cases where the unsuccessful party deserves to have its costs paid by the successful party. I therefore order SGI to pay Ms Wilson’s costs in this appeal. Furthermore, given the importance of this matter to SGI, Ms Wilson’s costs shall be taxed under Column 4 of the Tariff of Costs.

DATED at the City of Regina, in the Province of Saskatchewan, this 13 th day of November, A.D. 2012. “Caldwell J.A.” ________________________ Caldwell J.A.

I concur. “Vancise J.A.” Vancise J.A. I concur. “Ottenbreit J.A.” Ottenbreit J.A.