NS Court of Appeal upholds punitive damages claim against insurer in dairy barn case

At trial, a jury awarded Adrian and Kelly Ackermann of Nova Scotia $265,000 (the maximum payable under their insurance policy) in connection with damage caused to their dairy barn by Hurricane Juan in 2003.  The Ackermann's insurer, Kings Mutual, had denied coverage, although it was agreed that the hurricane was a "wind storm" within the meaning of the policy and was covered.  Kings Mutual denied that any damage had been caused to the barn.

In addition to the main damages award, the jury at trial also awarded $55,000 in punitive damages against Kings Mutual, having found that the denial of coverage was made in bad faith and that the insurer's conduct offended the jury's sense of decency (click on the link to the decision below to read the extensive report of the facts of the case).  Punitive damages are only awarded in rare and exceptional circumstances where a party’s actions are deserving of punishment, deterrence or denunciation.  Normally, damages are compensatory - designed to put the injured party back in the place they were before suffering the injury.  Punitive damages are about punishment for exceptionally wrongful conduct.

Kings Mutual did not appeal the main award of damages, but did appeal the award of punitive damages to the Nova Scotia Court of Appeal.  The Court of Appeal ruled with respect to the jury's decision on the issue:

The jury’s answers to the questions put to it clearly indicate its findings of bad faith in relation to Kings’ denial of coverage under the policy and that King’s conduct offended its sense of decency. This indicates the jury was satisfied Kings’ conduct of its investigation was outrageous. My review of the record satisfies me that this was a conclusion a reasonable jury could reach and that an award of punitive damages was a rational response on the jury’s part to its findings. It was not an inevitable or unavoidable response, but it was a rational response to what the jury saw and heard. Without an award of punitive damages, Kings would not have been required to pay more than its policy required it to pay and there would be nothing to deter it from acting similarly in the future; by not following up on all of the evidence relevant to a claim, withholding critical information from the adjuster engaged to investigate a claim and allowing the adjuster to present the results of his or her investigation in a partisan, biased and unobjective manner. The actions of Kings were exceptional, justifying an exceptional remedy.

Read the decision at: Kings Mutual Insurance Company v. Ackermann.