Applying the Brakes

Whenever Canadian insurance company claims departments and legal vendors seek signs of The Apocalypse when it comes to claims litigation, they often look in the direction of United States courtrooms. And it’s a common psychological tendency that when we look for something, we are bound to find it.

Take, for example, the U. S. case in which a man supposedly sued Michael Jordan and Nike co-founder Phil Knight for US$862 million for defamation and permanent injury because he found it distressing to look like and be confused with the basketball star. The story may well be apocryphal, but it certainly illustrates the reason why many people in the claims industry believe there are far too many legal cases in which damages awarded or claimed no longer seem to have any rational connection to the personal injury actually suffered.

With this in mind, many Canadian insurance industry seminars have looked at the massive jury awards in insurance cases southward and hoped the same thing can’t happen here. So it’s with some gratification they can look at two particular judgments emanating from the Supreme Court of Canada over the past nine months.

The first example is the court’s well-known twin ruling in Citadel General Assurance Co. v. Vytlingham and Lumbermens Mutual Casualty Company v. Herbison. The court’s decisions in these two cases last October effectively put the brakes on what had become an extravagently expansive interpretation of a personal injury arising from the “indirect use of an automobile.” Much has been written about this already, and so we will leave this example alone.

The most recent example of Canadian judicial restraint is the Supreme Court of Canada’s May 22, 2008 ruling in Mustapha v. Culligan of Canada Ltd.

The facts of the case are straightforward enough. In the course of replacing an empty bottle of drinking water with a full one, Waddah (Martin) Mustapha saw a dead fly and part of another dead fly in the unopened replacement bottle. Obsessed with the event and its “revolting implications” for the health of his family, he developed a major depressive disorder, phobia and anxiety. He sued Culligan, the water supplier, for damages related to his psychiatric injury.

An Ontario trial judge awarded Mustapha more than Cdn$341,000 in damages (including loss of business after Mustapha developed the psychiatric disorder). But the Ontario Court of Appeal quashed the award and the Supreme Court upheld the Appeal Court’s decision.

The mere fact that the Supreme Court agreed to hear the case — it usually elects to hear cases perceived to be of national consequence — might have triggered alarm bells for some people in the claims industry. After all, once a case gets refracted through the lens of the court system, it’s anyone’s guess what the final outcome will be.

But, as it turned out, the Supreme Court dispensed with the matter in as few as 20 paragraphs, quibbling marginally with the Ontario Court of Appeal’s reasoning (but not its final decision).

The end result is that while Culligan owed Mustapha a duty of care to provide him with uncontaminated water, and Mustapha’s psychiatric injuries were severe and found to be connected to the presence of flies in the water, Culligan could not have reasonably foreseen that Mustapha’s psychiatric injury as a result of the company’s negligence would be so severe. “In order to show that the damage suffered is not too remote to be viewed as legally caused by Culligan’s negligence, Mr. Mustapha must show that it was foreseeable that a person of ordinary fortitude would suffer serious injury from seeing the flies in the bottle of water he was about to install,” Supreme Court of Canada Chief Justice Beverley McLachlin wrote for the court. “This he failed to do.”

The court made it clear the legal standard is based on what a person of ordinary fortitude would believe; not what a person with relatively more delicate sensibilities might believe.

And thus, the Supreme Court of Canada in at least two instances now has proved to be a mitigating factor in the supposed trend towards the Americanization of Canada’s legal culture — at least when it comes to extreme awards and/or legal interpretations in personal injury cases.

Whether the same restraint holds out in the court’s consideration of a proliferating number of class action cases remains to be seen. (Class actions are most often cited as the cause of the trend towards Americanization.) But certainly in the area of personal injury, while there have been some odd cases in the lower courts, it’s clear that the truly out-of-line damage awards are not necessarily — indeed not likely — going to last to the end of the line within Canada’s legal system.