Crime and Punishment - Punitive Damages Allowed Despite Criminal Sanctions

The recent Alberta Provincial Court decision of Industrial Alliance Insurance and Financial Services Inc. v Sheret will be of interest to those considering a claim for punitive damages despite prior successful criminal sanctions against a defendant.

This decision dealt with a lawsuit brought by Industrial Alliance Insurance ("IA") against a defendant formerly employed by a Calgary area dentist. During the defendant's employment, the defendant remitted multiple fraudulent insurance claims on her behalf, and on behalf of her common-law partner. In total, $10,989.69 was stolen in the course of 27 fraudulent transactions.

The defendant was charged and plead guilty under the Criminal Code, serving 14 days in prison along with 25 hours of community service. Furthermore, the defendant also paid back to IA all the money that was stolen.

Despite the criminal conviction and repayment, IA still sued the defendant for $25,000 in general damages along with $10,000 in punitive damages. At trial, the general damages claim was dropped and only punitive damages were claimed. Punitive damages are generally only awarded to punish and renounce a defendant's actions when they are egregious, high-handed and malicious.

It is common to see punitive damages awarded in cases of fraud. What is less common is seeing them awarded when the defendant has not only paid the money back, but has also been criminally sanctioned. Courts will often decline to award punitive damages where criminal sanctions have essentially provided the same result of punishment and deterrence. Judge Burt's very brief decision observed that the defendant only admitted to wrongdoing after being charged criminally and sued civilly. Judge Burt also held that the defendant's actions were sufficiently reprehensible and deserving of punitive damages, which she awarded in the amount of $2,500. Finally, Judge Burt opined that if the only consequence of the defendant's actions was the repayment of the fraudulently obtained funds, the defendant would be no worse off than if she had acted honestly. What was not discussed, as is usually the case, was the punishment meted out criminally.

While criminal sanctions have historically not been a bar to punitive damages, the combination is unusual. This case will be useful to plaintiffs such as employers or insurers in arguing that punitive damages are warranted, despite the successful criminal conviction of an employee or insured. Finally, while the possibility of punitive damages may exist, there may be non-legal consequences, such as the negative optics of being "heavy-handed", that should be considered before deciding to proceed. If you have any questions or are experiencing a similar situation, the lawyers at McLennan Ross LLP would be happy to help.