Bad faith damages in relation to insurance claims have existed in Canadian law for a long time, with the ability to sue for such damages affirmed in the 2002 Supreme Court of Canada decision in Whiten v Pilot Insurance Co.. There are several landmark cases where such damages have been awarded in the hundreds of thousands or even, rarely, into the millions of dollars range.
This paper will aim to provide a brief overview of bad faith damages awarded in the insurance context in Canada, beginning with discussion of the origin of such damages – namely, the landmark Supreme Court of Canada decisions Whiten v Pilot Insurance Co. and Fidler v Sun Life Assurance Co. and how these damages have evolved in the insurance field over the ensuing years. A brief review of recent decisions in this area will follow, along with cursory consideration of whether bad faith damages are reciprocal and, finally, the potential effects of Bill 171 (which, if passed, could possibly extinguish the right of an insured to bring a court claim for bad faith damages), will be considered.
THE ORIGIN OF BAD FAITH DAMAGES IN THE INSURANCE CONTEXT
Any discussion concerning examination of bad faith damages in Canada in the insurance context must begin with consideration of the landmark Supreme Court of Canada decision Whiten v Pilot Insurance Co.1, a case involving a claim by the plaintiff for damages pursuant to a contract of property insurance. The jury had awarded $1,000,000 in punitive damages for Pilot’s bad faith handling of the claim, but the Court of Appeal2 allowed the appeal of the amount of the punitive damage award, and reduced it to $100,000. Laskin, J. A., who had dissented in the Court of Appeal judgment, finding that the award was not only warranted but was also reasonable as to the amount awarded, provided an excellent overview of the relationship between insurers and insureds in relation to bad faith awards of damages and why such damages are, in certain cases, necessary:
25 I do not agree with this submission. A contract of insurance between an insurer and its insured is one of utmost good faith. Although the insurer is not a fiduciary, it holds a position of power over an insured; conversely, the insured is in a vulnerable position, entirely dependent on the insurer when a loss occurs. For these reasons, in every insurance contract an insurer has an implied obligation to deal with the claims of its insureds in good faith. That obligation to act in good faith is separate from the insurer’s obligation to compensate its insured for a loss covered by the policy. An action for dealing with an insurance claim in bad faith is different from an action on the policy for damages for the insured loss. In other words, breach of an insurer’s obligation to act in good faith is a separate or independent wrong from the wrong for which compensation is paid.
27 If Vorvis makes it necessary, like the Commission, I would be prepared to hold that an insured has a duty in tort of good faith towards its insureds.3
This excerpt from Laskin, J. A.’s dissenting judgment makes clear that the relationship between insurers and insureds is one of implied good faith and that such duty will be upheld by awarding punitive damages for bad faith handling of a claim, where it is warranted.
Binnie, J., speaking for the Supreme Court in allowing the appeal, reviewed prior awards for bad faith damages in Canada and noted that, despite the fact that the amount of $1,000,000 was indeed much higher than awards of this nature had historically been, “[o]ne of the strengths of the jury system is that it keeps the law in touch with evolving realities, including financial realities”.4 This passage emphasizes the hesitance the Supreme Court may have in overturning large jury verdicts, where the particular facts of the case do indeed justify a seemingly outrageous award.
The other oft-cited decision of the Supreme Court of Canada related to bad faith damages, this time involving payment of long term disability insurance benefits, is Fidler v Sun Life Assurance Co. of Canada5. In this case, the plaintiff’s claim for punitive damages on the basis of bad faith had been dismissed by the trial judge, but allowed on appeal to the Court of Appeal. The insurer’s further appeal to the Supreme Court was similarly allowed, with the initial finding of the trial judge that there was insufficient evidence to ground a finding of bad faith, restored. The Supreme Court was satisfied that, in order to attract punitive damages, the insurer’s conduct had to “depart markedly” from the ordinary standards of decency and also be independently actionable:
63 In Whiten, this Court set out the principles that govern the award of punitive damages and affirmed that in breach of contract cases, in addition to the requirement that the conduct constitute a marked departure from ordinary standards of decency, it must be independently actionable. Where the breach in question is a denial of insurance benefits, a breach by the insurer of the contractual duty to act in good faith will meet this requirement. The threshold issue that arises, therefore, is whether the appellant breached not only its contractual obligation to pay the long-term disability benefit, but also the independent contractual obligation to deal with the respondent’s claim in good faith. On this threshold issue, the legal standard to which Sun Life and other insurers are held is correctly described by O’Connor J.A. in 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s London, England (2000), 184 D.L.R. (4th) 687 (Ont. C.A.), at para. 29:
The duty of good faith also requires an insurer to deal with its insured’s claim fairly. The duty to act fairly applies both to the manner in which the insurer investigates and assesses the claim and to the decision whether or not to pay the claim. In making a decision whether to refuse payment of a claim from its insured, an insurer must assess the merits of the claim in a balanced and reasonable manner. It must not deny coverage or delay payment in order to take advantage of the insured’s economic vulnerability or to gain bargaining leverage in negotiating a settlement. A decision by an insurer to refuse payment should be based on a reasonable interpretation of its obligations under the policy. This duty of fairness, however, does not require that an insurer necessarily be correct in making a decision to dispute its obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith.
This excerpt crystallizes the position of the courts, that the duty of an insurer to act in good faith is, in fact, two-fold: first, in the manner in which the claim is investigated and assessed; and second, in the decision whether or not to pay the claimed benefit. In both cases, the insurer is expected to be “balanced and reasonable” and to avoid at all costs taking a position that would suggest the insurer is attempting to take advantage of the vulnerability of a disadvantaged insured.
Importantly, the above excerpt also notes that, “mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith”. Rather, as expressed in both cases, for bad faith damages to be warranted, the insurer must have behaved in a manner that is a “marked departure” from what is acceptable. It is for that reason that we end up with two Supreme Court decisions which arrive at disparate conclusions – one where $1,000,000 in bad faith damages is warranted, and another where no bad faith damages are awarded at all.
The court in Fidler adopted the reasoning of an earlier decision of the Ontario Court of Appeal, 702535 Ontario Inc. v Non-Marine Underwriters, Lloyd’s London, England7, a case frequently cited for its concise yet thorough articulation of the nature of the relationship between insurer and insured, including the principle of bad faith damages and the circumstances in which same will be awarded:
27 The relationship between an insurer and an insured is contractual in nature. The contract is one of utmost good faith. In addition to the express provisions in the policy and the statutorily mandated conditions, there is an implied obligation in every insurance contract that the insurer will deal with claims from its insured in good faith: Whiten v. Pilot Insurance Co. (1999), 42 O.R. (3d) 641 (Ont. C.A.). The duty of good faith requires an insurer to act both promptly and fairly when investigating, assessing and attempting to resolve claims made by its insureds.
28 The first part of this duty speaks to the timeliness in which a claim is processed by the insurer. Although an insurer may be responsible to pay interest on a claim paid after delay, delay in payment may nevertheless operate to the disadvantage of an insured. The insured, having suffered a loss, will frequently be under financial pressure to settle the claim as soon as possible in order to redress the situation that underlies the claim. The duty of good faith obliges the insurer to act with reasonable promptness during each step of the claims process. Included in this duty is the obligation to pay a claim in a timely manner when there is no reasonable basis to contest coverage or to withhold payment. Bullock v. Trafalgar Insurance Co. of Canada (1996), 9 O.T.C. 245 (Ont. Gen. Div.); Labelle v. Guardian Insurance Co. of Canada (1989), 38 C.C.L.I. 274 (Ont. H.C.); Jauvin v. Prévoyants du Canada (1986), 57 O.R. (2d) 528 (Ont. H.C.).
29 The duty of good faith also requires an insurer to deal with its insured’s claim fairly. The duty to act fairly applies both to the manner in which the insurer investigates and assesses the claim and to the decision whether or not to pay the claim. In making a decision whether to refuse payment of a claim from its insured, an insurer must assess the merits of the claim in a balanced and reasonable manner. It must not deny coverage or delay payment in order to take advantage of the insured’s economic vulnerability or to gain bargaining leverage in negotiating a settlement. A decision by an insurer to refuse payment should be based on a reasonable interpretation of its obligations under the policy. This duty of fairness, however, does not require that an insurer necessarily be correct in making a decision to dispute its obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith: Palmer v. Royal Insurance Co. of Canada (1995), 27 C.C.L.I. (2d) 249 (Ont. Gen. Div.).
30 What constitutes bad faith will depend on the circumstances in each case. A court considering whether the duty has been breached will look at the conduct of the insurer throughout the claims process to determine whether in light of the circumstances, as they then existed, the insurer acted fairly and promptly in responding to the claim.
31 A breach of the duty to act in good faith gives rise to a separate cause of action from an action for the failure of an insurer to compensate for loss covered by the policy. In Whiten v. Pilot Insurance Co., Laskin J.A. made the point at p. 650:
[i]n every insurance contract an insurer has an implied obligation to deal with the claims of its insureds in good faith. [cites omitted] That obligation to act in good faith is separate from the insurer’s obligation to compensate its insured for a loss covered by the policy. An action for dealing with an insurance claim in bad faith is different from an action on the policy for damages for the insured loss. In other words, breach of an insurer’s obligation to act in good faith is a separate or independent wrong from the wrong for which compensation is paid.
32 A breach of the duty of good faith may result in an award of damages which is distinct from the proceeds payable under the policy for the insured loss and which are not restricted by the limits in the policy: See Bullock , supra; Labelle , supra.8
The above passage elucidates that the following behaviours are imposed on an insurer by the duty to act in good faith towards its insured: an insurer must act both fairly and promptly in the adjustment of an insurance claim; the insurer must act in a reasonably prompt manner; and the duty to act in good faith encompasses both the adjustment of the claim and the decision whether or not to pay benefits.
When taken as a whole, the decisions of Whiten, Fidler and Lloyd’s can be distilled into several key principles. The relationship between insurer and insured is one of utmost good faith which requires the insurer to act, both in adjusting the claim and in deciding whether to pay benefits, in good faith at all times. Such good faith can be demonstrated by acting in a measured and reasonable manner, behaving reasonably and promptly throughout the handling of the claim, including paying the claim in a timely fashion where there is no reasonable basis for denial. Finally, the single act of denying benefits on a claim which is ultimately successfully, is insufficient to ground a finding of bad faith handling.
It is with these principles in mind that the area of bad faith damages in the insurance context has developed over time.
Although it may appear at first blush that the Supreme Court of Canada has given the insureds of this country carte blanche for successful claims of bad faith on the part of insurers, the very dearth of case law as it relates to this subject is evidence that this is not the case. Of course, it must be borne in mind that the vast majority of insurance cases (as with many other fields of law) settle before trial but, that said, the existing case law demonstrates that, where insurance-related bad faith claims have been successful, it has largely been in relation to adjustment of property insurance related claims (see for example Plester v Wawanesa Mutual Insurance Co.9), and occasionally disability benefit claims (see Asselstine v Manufacturers Life Insurance Co.10 and Fernandes v Penncorp Life Insurance Co., which is discussed in greater detail below in the “Recent Cases” section). Certainly in the accident benefits context, the claim for bad faith damages is rarely, if ever, successful (in reported case law).
Take for example the recent (six months ago) decision of Blake v Dominion of Canada General Insurance Co.11, wherein the insured claimed for accident benefits following her involvement in a motor vehicle collision in 2002. After being advised that she no longer met the test necessary to engender entitlement to caregiver benefits, the insured commenced a claim to recover the requested benefits and also for bad faith damages in the handling of her claim. The action was dismissed in its entirety, with the court stating that, in respect of the bad faith claim, the “assessment of the existence of bad faith is invariably contextual”12 and that, “[a]n error in the processing of a claim may not be illustrative of bad faith in itself if it is an isolated event in the course of conduct”13. In other words, “[t]he contextual approach merits that the conduct of the insured be assessed in its entirety”14, which means that one simple error, or even potentially more than one simple error, is not necessarily sufficient to ground a finding of bad faith, if such errors were innocent and do not demonstrate the adjustment of the claim as a whole. Importantly, this clarifies that a single act on the part of an insurer (unless it is particularly egregious) will not likely amount to adequate reason for a court to find that the insurer has behaved in bad faith.
The courts in Wadhwani v State Farm Mutual Automobile Insurance Co.15 and Stranges v Allstate Insurance Co. of Canada16, both actions for accident benefits coverage that included claims for bad faith, similarly agreed that there was insufficient evidence to ground such a claim.
RECENT BAD-FAITH INSURANCE CASES IN CANADA
In Branco v American Home Assurance Co.17, a decision of only one year ago involving a claim for disability benefits, the Saskatchewan Court of Queen’s Bench issued a landmark ruling in which it surpassed the $1,000,000 benchmark set by the Supreme Court of Canada in Whiten v Pilot for bad faith damages. Specifically, the court in Branco awarded $3,000,000 in punitive bad faith damages, rationalizing such a massive award in the following terms:
211 The court therefore assesses punitive damages against Zurich in the amount of $3,000,000. Considering that Zurich is doing business worldwide, it would only take six individuals worldwide who accept low offers like the ones made to Branco to save Zurich $500,000 each and recoup the amount of this award.
212 As stated earlier by the Supreme Court by Binnie J. in Whiten, at para. 112:
112 The more reprehensible the conduct, the higher the rational limits to the potential award. The need for denunciation is aggravated where, as in this case, the conduct is persisted in over a lengthy period of time (two years to trial) without any rational justification, and despite the defendants’ awareness of the hardship it knew it was inflicting (indeed, the respondent anticipated that the greater the hardship to the appellant, the lower the settlement she would ultimately be forced to accept). 215 Although Canadian courts may have believed that the $1 million award in the Whiten case would catch the attention of the insurance industry and the court’s disapproval of such actions, it is apparent that the $1 million was not sufficient. These decisions were rendered during the same time period that AIG and Zurich were continuing their pattern of aggressive non-activity on the claim of Branco.
216 The court is cognizant of the fact that a punitive damages award of $3 million may not be particularly significant to the financial bottom line of a successful worldwide insurance company. It is hoped that this award will gain the attention of the insurance industry. The industry must recognize the destruction and devastation that their actions cause in failing to honour their contractual policy commitments to the individuals insured.18
Thus, the Court of Queen’s Bench made it clear that the award was intended to garner the attention of the insurance industry, to cause them to “recognize the destruction and devastation” of their actions. These are harsh words, and it is rare for a court to speak in such a tone against an industry as a whole, as opposed to a particular defendant in a specific case. The Court of Queen’s Bench went even further in this judgment, in stating its concern regarding how often insurers behave in such a manner:
218 The court has grave concerns as to how often this type of action occurs in dealing with insurance claims. The court is only cognizant of the cases such as Sarchuk, Whiten and Branco which come before them. If Whiten (in the Whiten case) and Branco, in this case, had not been able to withstand the unbelievable pressure to settle on the terms and conditions originally offered these cases would not have received the attention of the courts either. The question remains: how many individuals have been unable to withstand the financial and psychological pressure of these tactics?19
Again, the extreme language used by the court in issuing what could be considered a blistering indictment of the insurance industry is exceptionally rare, and begs the question of whether this is the beginning of a trend of which insurers (or, at least, insurers doing business in Saskatchewan) should be aware. Of course, it is unknown whether this decision will stand through the appeals that are likely to be forthcoming (though, at the time of the writing of this paper, the decision had not yet been appealed), so perhaps adopting a “wait and see” attitude would, at this time, be more prudent.
In another very recent case, Fernandes v Penncorp Life Insurance Co.20, the self-employed insured brought an action for damages for breach of contract against his disability insurer, which had provided the insured with disability benefits for only about six months after the insured’s accident, despite the insured’s complete inability to carry out the duties of his bricklaying business as he had prior to the accident. The Ontario Superior Court not only allowed the action, but it awarded $200,000 in punitive bad faith damages, based on the criteria set out by Justice O’Connor of the Ontario Court of Appeal (and adopted by the Supreme Court of Canada in Fidler) in the Non-Marine Underwriters decision:
65 I am of the opinion that Penncorp’s handling of Avelino’s claim demonstrates bad faith. Penncorp breached the duty of an insurer in handling a claim under an insurance contract set out by Justice O’Connor in 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s London, England [2000 CarswellOnt 904 (Ont. C.A.)] adopted by the Supreme Court of Canada in Fidler. What Ms. Mayo, on behalf of Penncorp, was doing in trying to settle the claim on the basis that Avelino was partially disabled in December 2005 and then in denying Avelino any benefits for six years, was what Justice O’Connor stated that an insurer ought not to do, namely, “deny coverage or delay payment in order to take advantage of the insured’s economic vulnerability or to gain bargaining leverage in negotiating a settlement.” Ms. Mayo took an adversarial approach to Avelino’s claim for benefits for inability to do his own occupation. It is most distressing that she ignored the detailed job description of his occupation of bricklaying that Avelino provided in the questionnaire dated December 6, 2005 requested by Penncorp. She did not deal with his claim “fairly” and in a “balanced” way. This conduct constitutes “an independent actionable wrong”. It meets the test for punitive damages as being “highhanded, malicious, arbitrary or highly reprehensible misconduct.”21
Obviously then the courts across the country are demonstrating a willingness to make awards under the bad faith head of damages, but appear to only do so on a very cautious basis, where the actions of the insurer clearly demonstrate behaviour that goes beyond mere denial of a claim, and encroaches the territory of “highhanded, malicious, arbitrary or highly reprehensible misconduct”.
ARE BAD FAITH DAMAGES RECIPROCAL?
Given all of the discussion above regarding whether and in what circumstances an insurer could potentially be found liable for bad faith damages, it is only fair to consider the reciprocal alternative. In other words, can there be a finding of bad faith behaviour on behalf of an insured? After all, the relationship between insurer and insured is one of utmost good faith, and shouldn’t what is good for the goose be good for the gander also?
As it turns out, there is case law where Canadian courts have determined that an insured behaved in bad faith, and awarded damages for same in favour of the insurer. The case of Andrusiw v. Aetna Life Insurance Co. of Canada22 is an excellent illustration of this point. The case involved an insured who, after suffering a stroke and being diagnosed as long-term disabled and unable to work, was paid monthly disability payments for approximately a decade. After receiving a tip that the insured was in fact working, the insurer ceased payment of benefits, prompting the insured to commence a claim against the insurer for payment of further total disability benefits. The insurer counterclaimed for reimbursement of the monthly benefits it had paid for in excess of ten years. The court dismissed the insured’s claim and allowed that of the insurer, including awarding $20,000 for the insured’s breach of the duty of good faith:
82 The contract of insurance between an insurer and an insured is one of utmost good faith. Implicit is a term of the contract that the insurer has an obligation to deal with the claims advanced by an insured in good faith and an insured has an obligation to the insurer to put forward his claims honestly and in good faith. As such, breach of that obligation on the part of either party constitutes a separate and independent wrong for which compensation is paid. Thus, if either party acts in bad faith toward the other, that is an independent actionable wrong as contemplated by McIntyre, J. in Vorvis. I agree with Laskin, J.A. in the case of Whiten v. Pilot Insurance Co. (1999), 42 O.R. (3d) 641 (Ont. C.A.) where His Lordship concluded that though a good case can be made out that an insured or insurer has a duty in tort of good faith toward the other because the relationship is sufficiently proximate to give rise to a concurring duty in tort alongside the implied contractual obligation, one need not go this far. The breach by one party or the other to a contract of insurance of the implied term of good faith meets the Vorvis requirement of an independent actionable wrong.
84 This leaves the question of whether or not the Plaintiff’s conduct was so reprehensible and high-handed that he should be punished for his behaviour. Counsel for the Defendant makes the point that the Plaintiff embarked on a deliberate course of conduct to misrepresent facts to the Defendant in order to continue to collect disability benefits. If the only consequence of this behaviour is forfeiture of his claim then in effect he is no worse off than if he had been truthful in the first place and deterrence which is one of the objects of granting punitive damages is given no effect.
85 A great deal has been made in the case law, to which this Court was referred, of the fact that insurers vis à vis their insureds are in a superior bargaining position and one which places the insureds in positions of dependency and vulnerability. Equally, insurers must not be looked upon as fair game. It is a two-way street founded upon the principle of utmost good faith arising from the very nature of the contract. Thus, it is appropriate that punitive damages be awarded and I do so in the sum of $20,000.00.23
The Andrusiw decision was followed by the Ontario Superior Court of Justice in National Life Assurance Co. of Canada v. Skowron24 where, in an exceptionally brief judgment, Low, J. awarded the insurer $3,000 in punitive damages against the individual defendant because, “[t] here was a clear breach of the duty of good faith and I am satisfied that the circumstances warrant an award of punitive damages for both specific and general deterrence purposes”. Thus, the precedent does exist to suggest that insureds are just as liable as insurers for their behaviour, and must at all times honour their obligation to behave in a good faith manner toward the other.
THE EFFECT OF EXTINGUISHING THE RIGHT TO CLAIM BAD FAITH DAMAGES IN COURT
Bill 171, “Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014” is currently on its second reading in Canadian Parliament. If passed, there are many significant changes it would implement with respect to the Canadian automobile insurance industry, not least of which is the suggestion that, under the proposed new section 280 of the Insurance Act25, an insured person must apply to the Licence Appeal Tribunal (which would ostensibly replace the existing Financial Services Commission of Ontario) to resolve a dispute respecting benefits, and no proceeding in respect of such dispute could be brought in court unless it was an appeal from a decision of the Licence Appeal Tribunal or an application for judicial review:
280. (1) This section applies with respect to the resolution of disputes in respect of an insured person’s entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which an insured person is entitled.
Application to Tribunal
(2) The insured person or the insurer may apply to the Licence Appeal Tribunal to resolve a dispute described in subsection (1).
Limit on court proceedings
(3) No person may bring a proceeding in any court with respect to a dispute described in subsection (1), other than an appeal from a decision of the Licence Appeal Tribunal or an application for judicial review.26
If such an alteration to the Insurance Act were to be permitted, the question inevitably arises as to whether this would effectively extinguish the right of an insured to bring a claim for bad faith damages in court.
To answer this question, recourse to the language of Laskin, J. A. in his dissenting opinion in the Whiten v Pilot decision (discussed above, in the overview of insurance related bad faith claims section) is instructive. Specifically, it was stated that:
An action for dealing with an insurance claim in bad faith is different from an action on the policy for damages for the insured loss. In other words, breach of an insurer’s obligation to act in good faith is a separate or independent wrong from the wrong for which compensation is paid.27
Significantly, this clarifies that the action for recovery benefits is separate and distinct from an action to recover bad faith damages. Thus, the potential changes which would arise in the event that Bill 171 is implemented, would not seemingly affect the right of a claimant to bring an action in court for bad faith damages, regardless of where a related claim for benefits may stand before the Licence Appeal Tribunal.
However, consideration must also be given to the 2002 Ontario Court of Appeal decision in Arsenault v Dumfries Mutual Insurance Co.28, which involved an insured who had been injured in a car accident in 1993, following which she received statutory accident benefits for a period of time. Medical assessments eventually recommended that the insured could return to part-time employment with the assistance of certain medical and psychiatric assistance, but the insured failed to comply with any of the recommendations, leading the insurer to terminate benefits in 1995. The insured brought an action in 2000 for damages for bad faith termination of her benefits. The insurer brought a successful summary judgment motion and the insured’s appeal was dismissed. The court concluded that the claim for benefits and the claim for bad faith damages were inextricably linked, such that the limitation period applicable to a claim for benefits began to run simultaneous with the running of a claim for bad faith damages:
18 I am prepared to assume, without deciding, that there can be an independent claim for bad faith conduct in respect of the insurer’s refusal to pay or continue to pay no-fault benefits. In order to establish such a claim, the appellant would first have to establish that the insurer’s termination of her benefits was improper. Such a claim must comply with the requirements outlined in ss. 280-283 of the Insurance Act, one of which is the two year limitation period for the institution of proceedings to determine this question. The appellant cannot, by the device of a claim for bad faith damages, extend threefold the length of that termination period.
19 If I am wrong in concluding that bad faith claims in connection with no-fault benefits refusals are subject to the procedures and time limits set out in ss. 280 to 283 of the Insurance Act, I am nonetheless of the view, based on the pleadings, that this appellant’s claim is not an independent, actionable wrong, but is in fact exactly the kind of dispute over no-fault benefits entitlements contemplated by the dispute resolution scheme in the Insurance Act. The allegation is that the insurer ought not to have terminated Ms. Arsenault’s benefits when it did. This is the issue she attempted, unsuccessfully, to resolve through mediation. She then had the choice of either starting a court action or filing an application for the appointment of an arbitrator under s. 282 of the Insurance Act. Moreover, had the dispute been arbitrated, it was open to the arbitrator under s. 282(10), if it was found that the insurer had “unreasonably withheld or delayed payments”, to award an additional lump sum.29
It is worth noting that this decision was released before the Supreme Court of Canada’s ruling in Whiten, which definitively held that a bad faith damage claim is a separate and distinct claim of its own, capable of pursuance independent of an action for damages. Further, the Fidler decision stated in no uncertain terms that, “[w]here the breach in question is a denial of insurance benefits, a breach by the insurer of the contractual duty to act in good faith” will be sufficient to constitute independent actionability. Moreover, the Supreme Court of Canada has articulated on multiple occasions, as has the Ontario Court of Appeal, that it is not just the denial of benefits that can ground a claim for bad faith damages, but also the handling of the claim itself. Thus, the conclusion of the court in Arsenault, that the plaintiff insured was attempting to “circumvent the mandatory requirements of the dispute resolution scheme in the Insurance Act through the guise of linguistic reformulation”30, could possibly be avoided in a situation where the insured brings a claim before the court for bad faith damages related to the adjustment of the claim, as opposed to the denial of benefits in and of itself.
Indeed, this notion is borne out by the 2006 decision Johnston v Wawanesa Mutual Insurance Co.31, wherein the plaintiff brought a claim for breach of his insurance contract on grounds that the insurer had refused to compensate him for the cost of repairs to his snowmobile and also that they breached their duty of good faith in the processing of the claim itself. The insurer contended, unsuccessfully, that the plaintiff was out of time to bring his claims, as the one year limitation period imposed by section 259.1 of the Insurance Act had run out. The court distinguished the Arsenault decision and concluded that, in fact, the limitation period found in the Insurance Act was not attributable to the claim for bad faith damages in this case, because the claims themselves were separate and distinct:
37 In the case at bar the causes of action are distinct: compensation for damage to the snowmobile on the one hand, and, on the other hand, the insurer’s breach of the duty of good faith in relation to the unreasonably slow pace of processing the claim for compensation and the failure to explain to Mr. Johnston that time had to be taken into account if he intended to sue the insurer was concerned. The measure of damages in respect of these two causes of action might be the same but the causes of action still are different.32
This sentiment, that Arsenault is distinguishable so long as the bad faith damages claim is an independent claim based on the handling of the claim itself, as opposed to the denial of benefits, is echoed in the decisions of St. Denis v. TD Insurance Home & Auto Liberty Insurance Co. of Canada33 and Whorpole Estate v Echelon General Insurance Co.34, both of which allowed independent claims for bad faith damages where a limitation period for benefits under the Insurance Act had already run out.
Despite the above discussed case law and it’s seeming indication that, since a claim for bad faith damages is not a claim for benefits, it can be pursued in the courts independent of a claim before any tribunal, it of course cannot truly be known what the effects of Bill 171 will be unless and until such time as it is implemented. Regardless, it is an important topic for discussion amongst insurance industry legal professionals at this time, though the full extent of the effects of the Bill are beyond the scope of this paper.
1 Whiten v Pilot Insurance Co., 2002 SCC 18.
2 Whiten v Pilot Insurance Co. (1998), 42 OR (3d) 641 (ONCA).
3 Ibid, at paras 25, 27.
4 Supra, note 1, at para 136.
5 Fidler v Sun Life Assurance Co. of Canada, 2006 SCC 30.
6 Ibid, at para 63.
7 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s London, England (2000), 184 DLR (4th) 687 (ONCA).
8 Ibid, at paras 27-33.
9 Plester v Wawanesa Mutual Insurance Co. (2006), 269 DLR (4th) 624 (OSCJ).
10 Asseslstine v Manufacturers Life Insurance Co., 2005 BCCA 292.
11 Blake v Dominion of Canada General Insurance Co., 2013 ONSC 6069.
12 Ibid, at para 234.
13 Ibid, at para 235.
15 Wadhwani v State Farm Mutual Automobile Insurance Co., 2010 ONSC 2479.
16 Stranges v Allstate Insurance Co. of Canada (2007), 47 CCLI (4th) 244 (OSCJ), varied on appeal at 2010 ONCA 457.
17 Branco v American Home Assurance Co., 2013 SKQB 98.
18 Ibid, at paras 211-212, 215-216.
19 Ibid, at para 218.
20 Fernandes v Penncorp Life Insurance Co., 2013 ONSC 1637.
21 Ibid, at para 65.
22 Andrusiw v. Aetna Life Insurance Co. of Canada (2001), 289 AR 1 (ABQB).
23 Ibid, at paras 82-85.
24 National Life Assurance Co. of Canada v. Skowron (2006), 2006 CarswellOnt 6823 (OSCJ).
25 RSO 1990, c. I. 8.
26 Bill 171, Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014, s. 280.
27 Supra, note 3.
28 Arsenault v Dumfries Mutual Insurance Co. (2002), 57 OR (3d) 625 (ONCA).
29 Ibid, at paras 18, 19.
30 Ibid, at para 21.
31 Johnston v Wawanesa Mutual Insurance Co. (2006), 2006 CarswellOnt 4528 (OSCJ).
32 Ibid, at para 37.
33 St. Denis v. TD Insurance Home & Auto Liberty Insurance Co. of Canada (2005), 2005 CarswellOnt 5080 (SCJ) [see in particular paragraphs 76-83].
34 Whorpole Estate v Echelon General Insurance Co., 2011 ONSC 2234 [see in particular paragraphs 17-21].
Table of Authorities
702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s London, England (2000), 184 DLR (4th) 687 (ONCA).
Andrusiw v. Aetna Life Insurance Co. of Canada (2001), 289 AR 1 (ABQB).
Arsenault v Dumfries Mutual Insurance Co. (2002), 57 OR (3d) 625 (ONCA).
Asseslstine v Manufacturers Life Insurance Co., 2005 BCCA 292.
Blake v Dominion of Canada General Insurance Co., 2013 ONSC 6069.
Branco v American Home Assurance Co., 2013 SKQB 98.
Fernandes v Penncorp Life Insurance Co., 2013 ONSC 1637.
Fidler v Sun Life Assurance Co. of Canada, 2006 SCC 30.
Johnston v Wawanesa Mutual Insurance Co. (2006), 2006 CarswellOnt 4528 (OSCJ).
National Life Assurance Co. of Canada v. Skowron (2006), 2006 CarswellOnt 6823 (OSCJ).
Plester v Wawanesa Mutual Insurance Co. (2006), 269 DLR (4th) 624 (OSCJ).
St. Denis v. TD Insurance Home & Auto Liberty Insurance Co. of Canada (2005), 2005 CarswellOnt 5080 (SCJ).
Stranges v Allstate Insurance Co. of Canada (2007), 47 CCLI (4th) 244 (OSCJ), varied on appeal at 2010 ONCA 457.
Wadhwani v State Farm Mutual Automobile Insurance Co., 2010 ONSC 2479.
Whiten v Pilot Insurance Co. (1998), 42 OR (3d) 641 (ONCA).
Whiten v Pilot Insurance Co., 2002 SCC 18.
Whorpole Estate v Echelon General Insurance Co., 2011 ONSC 2234.
Bill 171, Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014.