Fidler v. Sun Life Assurance Co. of Canada – Supreme Court of Canada – June 29, 2006
An employee is only able to recover damages for mental distress due to the breach of a contract if it can be shown that such damages were within the reasonable contemplation of the parties at the time the contract was formed.
The Supreme Court of Canada’s decision on June 29, 2006 in Fidler v. Sun Life Assurance Co. of Canada  2 S.C.R. 3 (“Fidler”) demonstrates what is required for an award of aggravated damages for mental distress due to a breach of contract. Specifically, damages should only be recoverable where such damages can be shown to have been within the reasonable contemplation of the parties at the time the contract was formed.
In Fidler, the employee was covered by a group policy that included long-term disability benefits for a period longer than two years if she was unable to do any job for her employer. The employee became ill and was eventually diagnosed with chronic fatigue syndrome and fibromyalgia. Due to her condition, the employee began receiving Long Term Disability benefits in January of 1991. However, on May 12, 1997 the insurer stopped providing the employee with these benefits after video surveillance showed the employee engaged in activity that was inconsistent with her claim justifying her Long Term Disability benefits. In response, the employee commenced an action against the insurer. One week before the Trial was scheduled to begin, the insurer offered to reinstate the employee’s benefits and to pay all arrears with interest. As a result, the sole issue for Trial was the employee’s claim for aggravated and punitive damages.
The Trial Judge awarded the employee $20,000 in aggravated damages for mental distress but dismissed her claim for punitive damages on the basis that the insurer had not acted in bad faith. The insurer appealed this decision to the British Columbia Court of Appeal where the award for mental distress was unanimously upheld and an additional sum of $100,000 was awarded for punitive damages. This decision was then appealed to the Supreme Court of Canada where the appeal was allowed in part.
The Supreme Court of Canada found that the award of aggravated damages for mental distress should be upheld stating, “It is not unusual that a breach of contract will leave the wronged party feeling frustrated or angry. The law does not award damages for such incidental frustration. The matter is otherwise, however, when the parties enter into a contract, an object of which is to secure a particular psychological benefit. In such a case, damages arising from such mental distress should in principle be recoverable where they are established on the evidence and shown to have been within the reasonable contemplation of the parties at the time the contract was made.” The Court continued, “Turning to the case before us, the first question is whether an object of this disability insurance contract was to secure a psychological benefit that brought the prospect of mental distress upon breach within the reasonable contemplation of the parties at the time the contract was made? In our view it was. The bargain was that in return for the payment of premiums, the insurer would pay the plaintiff benefits in the case of disability…If disability occurs and the insurer does not pay when it ought to have done so in accordance with the terms of the policy, the insurer has breached this reasonable expectation of security.”
In regards to the Court of Appeal’s award of punitive damages, the Supreme Court of Canada set aside these damages stating, “…to attract punitive damages, the impugned conduct must depart markedly from ordinary standards of decency — the exceptional case that can be described as malicious, oppressive or high-handed and that offends the court’s sense of decency.” The Court continued, “[The insurer’s] conduct was troubling, but not sufficiently so as to justify interfering with the trial judge’s conclusion that there was no bad faith.”
The decision in Fidler clarifies the circumstances in which a claim for aggravated damages for mental distress due to a breach of contract will succeed. Unless the damages were within the reasonable contemplation of the parties when the contract was formed, such a claim will not be able to succeed.