No Loss, No Negligence: Ontario Court of Appeal Reaffirms that Compensable Loss Remains an Essential Component to Recovery in Negligence

Plaintiffs in pharmaceutical class actions typically seek compensation for physical injuries resulting from their ingestion of drug products that are alleged to have been negligently designed and/or manufactured. However, in Palmer v. Teva Canada Limited, 2022 ONSC 4690, aff’d 2024 ONCA 220 (“Palmer”) the Court of Appeal for Ontario recently reaffirmed that the need to plead and prove concrete injury remains an “essential component to recovery” in negligence and that product liability claims cannot generally be sustained based solely on: (a) the potential increased risk of future harm; (b) bare allegations of psychological harm; and/or (c) pure economic losses, such as out-of-pocket costs for medical services and monitoring.^[1]

A summary of the Palmer decision and a discussion regarding its implications follows.

Background

The plaintiffs commenced a proposed class action against a group of pharmaceutical drug manufacturers, alleging that the defendants had negligently manufactured certain lots of the anti-hypertension drug valsartan, resulting in certain shipments being contaminated with trace amounts of carcinogens. The core of the plaintiffs’ action was a negligence claim^[2] alleging that “the defendants breached their duty of care to the plaintiffs by failing to ensure that the valsartan they produced was free of the contaminants”.^[3] However, the plaintiffs did not allege that they or anyone else had been diagnosed with cancer or had otherwise been physically injured as a result of having ingested valsartan. Instead, they sought damages for the following:

1. “genotoxic injuries”, i.e., changes to their “internal bodily composition at a cellular or molecular level" that resulted in an increased risk of being diagnosed with cancer in the future;^[4] 
2. psychological injuries arising from the “shock and serious and prolonged anxiety, mental distress and worry from fear that consuming the contaminated valsartan has led, or will lead, to adverse health effects at some point in the future”;^[5] and
3. pure economic losses, such as the subrogated costs for medical screening and monitoring to provide early detection of any adverse health effects caused by ingesting valsartan.^[6]
   

Ontario Superior Court of Justice Denies Certification

The motion judge held that the plaintiffs’ statement of claim failed to disclose a reasonable cause of action and dismissed the certification motion. The motion judge found it was plain and obvious that the negligence claim was certain to fail because there were no pleaded facts capable of supporting a finding of compensable loss. The motion judge explained that:^[7]

…unlike a products liability class action that is about compensation for concrete injuries caused by the defective product, the Plaintiffs' proposed class action is about compensation for an apprehension of an abstraction (increased risk of diagnosis of cancer) when the normative risk of a Class Member being diagnosed with cancer in his or her lifetime is 50:50, regardless of whether the Class Member ingested valsartan… the law provides remedies for concrete injuries not abstract or speculative ones.

The motion judge also found that the plaintiffs failed to satisfy the commonality and preferability criteria for certification.^[8]

Court of Appeal for Ontario Dismisses Plaintiffs’ Appeal

The Court of Appeal dismissed the plaintiffs’ appeal. In upholding the motion judge’s decision to strike out the plaintiffs’ negligence claim, the appellate court reaffirmed the longstanding principle that “negligent conduct of a defendant can only ground an obligation for compensation to the extent that it causes damage or an actual materialized loss” and held that the types of “damages” alleged by the plaintiffs did not meet this fundamental requirement.^[9] More specifically:

1. “Genotoxic” Injury Not Compensable Physical Injury. The Court of Appeal held that the genotoxic injuries allegedly suffered by the plaintiffs and other putative class members did not constitute a compensable form of physical harm, finding this claim to have “the same flaw as the claim for increased risk of cancer: damage has not materialized and may never materialize.”^[10]
2. Physiological Injuries Improperly Pleaded. The Court of Appeal held that while mental injury arising from fear of future harm could theoretically ground a negligence claim, a plaintiff must nevertheless plead material facts capable of establishing: (a) that the alleged psychological injuries were “serious and prolonged” and rise above the “ordinary annoyances, anxieties and fears”;^[11] and (b) legal causation, i.e., that “the occurrence of mental harm in a person of ordinary fortitude was the reasonably foreseeable result of the defendant's negligent conduct.”^[12] The appellate court held that the plaintiffs had failed to plead facts capable of satisfying either of these requirements. Specifically:
   1. the plaintiffs failed to plead material facts detailing their alleged mental injuries, rendering it impossible for the court to conduct the analysis necessary to conclude that the plaintiffs’ alleged mental injuries met the legal threshold for recovery;^[13] and
   2. even had the plaintiffs’ alleged mental injuries met the threshold for recoverable damages, the claim would have foundered on the person of "ordinary fortitude" standard because the potential increased risk of developing cancer as a result of valsartan treatment was “between 0.0086% and 0.0011%, which … must be considered in the context of a 50% existing lifetime risk of developing cancer.”^[14]
3. No Recovery for Pure Economic Losses Absent Concrete Injury. The Court of Appeal reaffirmed that “there is no general right, in tort, protecting against the negligent or intentional infliction of pure economic loss”^[15] and upheld the motion judge’s finding that the defendants did not owe a duty of care to protect against the types of pure economic losses asserted by the plaintiffs. The Court of Appeal held that, absent any viable claim for physical or psychological harm, these types of damages would only be recoverable if the contaminated lots of valsartan were “imminently dangerous” requiring the plaintiff to “take steps to prevent an imminent injury that it would otherwise suffer”.^[16] The plaintiffs, however, failed to plead any material facts regarding the “imminence (or latency) of the physical harm arising from ingesting [the contaminated] valsartan”.^[17] Further, even if adequately pleaded, there would still be no “path for recovery of medical expenses or medical monitoring without a viable claim in negligence for physical or psychological damages” because such costs “do not repair the defect to make the dangerous product safe” and thus “do not fall within the Maple Leaf Foods liability rule.”^[18]

In dismissing the plaintiffs’ appeal, the Court of Appeal also affirmed the motion judge’s finding that it was plain and obvious that the plaintiffs’ remaining causes of action were certain to fail and that the statement of claim should be struck out without leave to amend.^[19] The appellate court also upheld the motion judge’s finding that the plaintiffs’ had failed to establish “some basis in fact” for commonality, thus failing to meet the section 5(1)(c) certification requirement.^[20]

Commentary

Palmer is a welcome decision for current and prospective defendants in the product liability class actions that serves as an important reminder that “not every instance of wrongdoing will support a viable cause of action”.^[21] By reaffirming the need to plead and prove compensable loss, the Court of Appeal for Ontario has continued to build upon a growing line to recent Canadian decisions that have refused to certify actions in the absence of concrete loss or harm.^[22]

Palmer also provides important clarification about the compensable loss requirement under the tort of negligence, including the circumstances in which alleged psychological injury and/or pure economic losses can support a negligence claim in the absence of physical harm.

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