DATE: 20021212

DOCKET: C36038

COURT OF APPEAL FOR ONTARIO

McMURTRY C.J.O., CATZMAN and ROSENBERG JJ.A

B E T W E E N:

BARRY LYONS

Richard R. Marks and Bruce D. Marks,

for the respondent

Plaintiff (Respondent)

• and -

THE CANADA LIFE ASSURANCE COMPANY

David W. Scott, Q.C. for the appellant

Defendant (Appellant)

Heard: November 4, 2002

On appeal from the judgment of Justice Bernard Joseph Manton of the Superior Court of Justice, sitting with a jury, dated February 22, 2001.

CATZMAN J.A.:

The appeal

[1] Barry Lyons held a disability insurance policy with The Canada Life Assurance Company. In March, 1995, he made a claim for disability benefits under the policy. In August of that year, Canada Life denied his claim. Lyons instituted this action against Canada Life in November, 1998. The action was tried before Manton J. and a jury. The jury returned a verdict in Lyons’ favour for six months’ disability in the amount of $7,500, aggravated damages of $235,000 and punitive damages of $25,000.

[2] Canada Life appeals the awards of aggravated damages and punitive damages. It also raises, as a complete defence to Lyons’ claim, the expiration of the one-year limitation period contained in the policy. Lyons cross-appeals the amount awarded for punitive damages, and seeks a substantial increase in the quantum.

[3] For the reasons that follow, I would allow the appeal, dismiss the cross-appeal and direct a new trial. Because a new trial must be held, I find it inappropriate to deal with issues that were aired before us regarding the medical basis for Lyons’ alleged disability and the financial consequences said to have followed from it, both of which will have to be assessed afresh by a new jury.

The award for disability benefits

[4] In answer to the question whether Lyons had proved that he satisfied the conditions of disability contained in the insurance policy, the jury responded in the affirmative. The next question asked for what period he satisfied those conditions. The jury’s answer was “six months”. Since the benefits payable under the policy were $1,250 per month, the quantum awarded under this head was $7,500. It was common ground on the argument of the appeal that the six months to which the jury referred were the months of April through September, 1995.

[5] On behalf of Canada Life, Mr. Scott did not contest the quantum of the jury’s award of disability benefits. He did, however, contest Lyons’ entitlement to bring this action following the expiration of the limitation period set out in the insurance policy.

Aggravated damages

[6] Lyons’ claim for aggravated damages, as it was presented by his counsel to the trial judge, was advanced on the basis that “as a result of the breach of contract by Canada Life and its failure to make the payments, his depression was aggravated and he suffered great anxiety, became isolated and forewent the opportunity to have medical treatment which might otherwise have alleviated his illness and, as a result, he lost his business and squandered his savings”.

[7] The trial judge’s charge to the jury began with the usual introductory instructions. He then read to the jury statements of the competing theories of the parties’ case prepared by their respective counsel (including the summary set out in the preceding paragraph), spoke briefly about the nature of a policy of insurance, and then moved directly to the questions the jury was being asked to answer. The claim for aggravated damages was the subject of Question 7. The trial judge’s entire charge to the jury on this subject was as follows:

Question number 7:

Do you find the plaintiff suffered aggravated damages by way of mental distress or other cause, and if so, what amount of damages do you award him for his loss?

If you don’t award him anything, don’t put an answer; if you do, put the number of dollars. Aggravated damages is extra compensation to the plaintiff for injury to his feelings, dignity, pride or self-respect, or for increased anxiety, stress and financial pressure from the rejection of his claim. There has to be evidence of these proven on a balance of probabilities.

[8] In my view, particularly when assessed against the substantial award the jury made under this head, the charge on aggravated damages was wholly inadequate. It was not sufficient for the trial judge simply to read Lyons’ theory to the jury and then give them only a bare-bones charge on aggravated damages. The charge failed to give the jury any meaningful elaboration on the nature of aggravated damages, and it failed to identify what aspects of the evidence the jury should consider in forming its assessment of Lyons’ claim for aggravated damages.

Punitive damages

[9] Lyons’ claim for punitive damages, as it was presented by his counsel to the trial judge, was advanced on the basis that “Canada Life acted [so] inappropriately that there should be punitive damages awarded against Canada Life”.

[10] The claim for punitive damages was the subject of Question 8. The trial judge’s charge to the jury on this subject was as follows:

Question number 8:

If you find the plaintiff suffered punitive damages, what amount of damages do you award him for his loss?

Again, if you award nothing, don’t put an answer, and if you award something, put the number of dollars.

What is the Law on punitive damages? Punitive damages may be awarded in a situation where the defendant’s misconduct is so malicious, oppressive and high-ended that it offends the Court’s sense of decency. Punitive damages may only be awarded in respect of conduct which is of such nature as to deserving of punishment because of its harsh, vindictive, reprehensible and malicious nature. The conduct must be extreme in its nature, and such that by any reasonable standard, is deserving of full condemnation and punishment.

To support an award of punitive damages there must be evidence of malice, directly or by inference. Malice, however, does not solely mean personal ill will; it may also mean such a wanton and reckless disregard of the right of another as amounts to the equivalent of malice. It means, however, more than mere negligence or a want of sound judgment or hasty action.

Punitive damages are appropriate where the defendant has acted in a high-handed fashion, with open disregard for the plaintiff’s rights. The aim of punitive damages is not to compensate the plaintiff, but rather, to punish the defendant. It is the means by which a jury expresses its outrage at the conduct of the defendant. This type of damages are in the nature of a fine which is meant to act as a deterrent to the defendant and to others from acting in the same manner.

While there is no doubt that a Court or Jury may award punitive damages in a case where there has been a breach of contract, the circumstances under which such an award is made are rare.

In order for the plaintiff to be awarded punitive damages, you must find that:

1. the defendant’s conduct was so malicious, oppressive and high-ended that it offends your sense of decency;

2. that the defendant’s conduct was of such a nature as to deserving of punishment because of its harsh, vindictive, reprehensible and malicious nature;

3. the conduct of the defendant was extreme in its nature and such that by any reasonable standard, it is deserving a full condemnation and punishment.

Again here, the onus of proof is upon the plaintiff to prove the damages on a balance of probabilities.

[11] While this was fuller than the charge on aggravated damages, it too was seriously flawed. It failed to draw the jury’s attention to the need to identify an independent actionable wrong for which punitive damages could be awarded (Whiten v. Pilot Insurance Co. (2002), 2002 SCC 18, 209 D.L.R. (4th) 257 (S.C.C.) at para. 78), and it failed to draw the attention of the jury to the relevant evidence it should consider in forming its assessment on the claim for such damages.

The limitation period in the policy

[12] Lyons’ insurance policy with Canada Life contained the limitation period provision in the following mandatory language of statutory condition 12 of s.300 of the Insurance Act, R.S.O. 1990, c. I.8:

An action or proceeding against us for the recovery of a claim under this contract shall not be commenced more than one year after the date the insurance money became payable or would have become payable if it had been a valid claim.

[13] The six-month period for which the jury awarded disability benefits to Lyons ran from April to September 1995. His action against Canada Life was not commenced until November 1998, well beyond the expiration of the one year limitation period. But the trial judge was persuaded by Lyons’ counsel to put the following instruction to the jury on Question 5, which dealt with the limitation defence:

Question number 5:

If Mr. Lyons was disabled, as defined in the policy, and the policy had not lapsed due to non-payment of premium, is his claim for benefits barred by the limitation of actions provision? – Answer: “Yes” or “No”.

If you look on page 18 of the policy, under “Limitation of actions”, it says: “An action or proceeding against us for the recovery of a claim under this contract shall not be commenced more than one year after the date the insurance money became payable, or would have become payable if it had been a valid claim”.

We all know that this action was commenced on November 19th 1998, more than three and a half years after the plaintiff alleges that he was entitled to disability benefits under the policy.

If you find that the plaintiff was totally disabled in 1995, and that the defendant had an obligation to pay to the plaintiff his disability payments -- we all know that Canada Life never paid Mr. Lyons anything. So, in this situation, if he was disabled, the defendant Canada Life would have breached the contract, and the limitation for breach of contract is not one year but six years. So, he would be on time.

Also, causes of action for the recovery of ongoing payments continually renew themselves each time a payment is due, because the insurer is under a continuing liability. So long as the entitlement for benefit continues by continued disability, the limitation period only bars claims originating more than one year before the commencement of the action. In the present case, November 19th 1997; if you go back one year.

If on the other hand you find that the plaintiff was not disabled in 1995, his action should be dismissed under the limitation of action provision [emphasis added].

[14] From the jury’s award of disability benefits, it is clear that they found Lyons to have been totally disabled in 1995, and must have followed the trial judge’s instruction that the effect of such a finding was that Canada Life was in breach of its insurance contract with Lyons and that the relevant limitation period was not the one year set out in the policy but was, instead, six years for breach of contract. When asked about that proposition in argument in this court, Mr. Marks candidly acknowledged that he could find no authority to support it, and I have found none. The instruction to the jury that conveyed that proposition was erroneous in law.

[15] In an alternative submission, Mr. Marks suggested that the jury must have found that Lyons’ disability rendered him incapable of dealing with his claim against Canada Life before he did and that his action was therefore commenced in time by reason of the application of the “discoverability” principle. That principle is that a cause of action does not accrue to start the running of a limitation period until the material facts, upon which the action is based, have been discovered or ought to have been discovered by the exercise of reasonable diligence: Peixeiro v. Haberman, 1997 325 (SCC), [1997] 3 S.C.R. 549. Though the principle has been applied most frequently in limitation periods created by statute, there have been trial judgments in this province that have applied it to statutorily mandated limitation periods in policies of insurance: Paccar Financial Services Ltd. v. System 55 Inc. (1993), 1993 17725 (ON CJ), 18 C.C.L.I. (2d) 45 (Day J.); Risorto v. State Farm Mutual Automobile Insurance Co., [2002] I.L.R. I‑4119 (Winkler J.).

[16] The difficulty with the application of the principle in the present case is that the trial judge’s charge said nothing about discoverability. It did not invite the jury to make any finding, on the disputed evidence before it, that would answer the question when Lyons knew, or ought to have known, of the existence of facts entitling him to assert a cause of action against Canada Life. Assuming that the discoverability principle applies to the limitation period in the Canada Life insurance policy, this court does not have the benefit of any finding of the jury on the facts necessary to resolve the manner of its application to the present case. In fairness to the trial judge, I do not lay the responsibility for that failure at his door. The record is silent on any invitation by trial counsel for either side to put such a question to the jury for its resolution.

Disposition

[17] Having regard to the fatal defects in the charge to the jury on the issues of aggravated damages and punitive damages and to the failure to invite the jury to find the facts necessary to determine the application of the limitation period in the policy, I have concluded that the trial judgment cannot stand. I would therefore allow the appeal, dismiss the cross-appeal, set aside the trial judgment and direct a new trial. I would reserve the costs of the first trial for disposition by the judge presiding at the new trial, and would make the same order with respect to the costs of this appeal. While, in the ordinary course, the successful appellant might be entitled to those costs, I would not make that order here in view of the failure of Canada Life’s counsel at trial (who was not Mr. Scott) to raise and pursue the objections that I have accepted in these reasons.

Released: DEC 12 2002 Signed: “M.A. Catzman J.A.”

RRM “I agree R.R. McMurtry C.J.O.”

“I agree M. Rosenberg J.A.”