Peace of Mind

Courts have recognized that certain types of contracts provide for peace of mind. Namely, it is the case for disability insurance contracts as found in the case of Fidler v. Sun Life Assurance Company of Canada, 2006 SCC 30. The insurer had refused to pay benefits owed to the plaintiff. The trial judge awarded $20,000 in non-pecuniary general damages for the mental distress caused to the client. This amount was disputed on appeal to both levels of courts. The unanimous bench of the Supreme Court of Canada explained (paras 44-47):

We conclude that damages for mental distress for breach of contract may, in appropriate cases, be awarded as an application of the principle in Hadley v. Baxendale: see Vorvis. The court should ask “what did the contract promise?” and provide compensation for those promises. The aim of compensatory damages is to restore the wronged party to the position he or she would have been in had the contract not been broken. As the Privy Council stated in Wertheim v. Chicoutimi Pulp Co., [1911] A.C. 301, at p. 307: “the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed”. The measure of these damages is, of course, subject to remoteness principles. There is no reason why this should not include damages for mental distress, where such damages were in the reasonable contemplation of the parties at the time the contract was made. This conclusion follows from the basic principle of compensatory contractual damages: that the parties are to be restored to the position they contracted for, whether tangible or intangible. The law’s task is simply to provide the benefits contracted for, whatever their nature, if they were in the reasonable contemplation of the parties.

It does not follow, however, that all mental distress associated with a breach of contract is compensable. In normal commercial contracts, the likelihood of a breach of contract causing mental distress is not ordinarily within the reasonable contemplation of the parties. 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 basic principles of contract damages do not cease to operate merely because what is promised is an intangible, like mental security.

This conclusion is supported by the policy considerations that have led the law to eschew damages for mental suffering in commercial contracts. As discussed above, this reluctance rests on two policy considerations — the minimal nature of the mental suffering and the fact that in commercial matters, mental suffering on breach is “not in the contemplation of the parties as part of the business risk of the transaction”: McGregor on Damages, at p. 63. Neither applies to contracts where promised mental security or satisfaction is part of the risk for which the parties contracted.

This does not obviate the requirement that a plaintiff prove his or her loss. The court must be satisfied: (1) that an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and (2) that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation. These questions require sensitivity to the particular facts of each case.

When confirming the award of the trial judge, the court explained that it is not necessary that peace of mind “be the dominant aspect or the ‘very essence’ of the bargain” (para 48).

The case of Belliveau v. Royal Bank of Canada (2000), 224 NBR (2d) 354 (CA), is of interest. The plaintiff had contracted a RRSP with the defendant financial institution. She had managed to accumulate over $144,000 in anticipation of retirement. However, she had also given to the same institution a personal guarantee for the debt of a family business. As default was registered on the debt, the bank obtained a court order against the client. To cover part of the outstanding balance, it, without notice, unilaterally appropriated her RRSP when it came to terms, even though the statute and contract expressly prevented such action. At trial, the presiding justice held the bank to a fiduciary duty towards its client. In addition to the value of the RRSP garnished and the income tax charged, he awarded $100,000 in compensation. The decision was upheld on appeal even though the unanimous bench discarded the fiduciary duty. In many respects, a RRSP contract shares the characteristics of a disability insurance contract: it also provides for peace of mind. The following comment from Fidler, supra para 56, is apposite. Suffice to trade ‘disability’ for ‘retirement’:

The bargain was that in return for the payment of premiums, the insurer would pay the plaintiff benefits in the case of disability. This is not a mere commercial contract. It is rather a contract for benefits that are both tangible, such as payments, and intangible, such as knowledge of income security in the event 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.

It is not clear on what ground the additional compensation was awarded in Belliveau, but the judge referred to a perfectly legitimate tax shelter destroyed by the bank; the plaintiff would now have to pay income tax on all interests accrued on the money from the judgment. In that sense, the $100,000 might be considered a provision for future income tax premised on the peace of mind that an RRSP provides to the tax payer. Given the age of the plaintiff at the time of the breach (55 years) and the yearly interests accrued in the previous five years (about $12,500), it seems unlikely that she would pay income taxes of $100,000 by the time of retirement. It is possible that the language of the decision would have been different had Belliveau not been rendered 6 years before Fidler, supra.

This aspect of non-pecuniary general damages is relevant to cases of personal injuries mostly where the victim contracted for disability benefits and the insurer denies coverage. An additional layer of stress may aggravate the situation of an already impecunious person and justify compensation. Of course, “the particular facts of each case” would determine the issue.