CLIENT TALK
May, 2006
Duty of Good Faith and Fair Dealing
Insurers owe their insureds a duty of good faith and fair dealing. What this means is that insurers must act in “utmost good faith”; they must treat their insureds fairly, and assess evidence in an objective manner when assessing an insurance claim. The duty of good faith and fair dealing is especially import ant in an insurance context where the contracts are designed to provide “peace of mind” during times in which the insured is vulnerable, for example, after a house fire or an accident.
If an insurer breaches its duty of good faith and fair dealing, the insured may claim for punitive damages, which are designed to punish a defendant for its conduct. Respecting contracts, the plaintiff must show that there was a breach of contract and an “independent actionable wrong”. In Whiten v. Pilot Insurance Co ., [2002] 1 S.C.R. 595 , the Supreme Court of Canada found that the insurer’s duty of good faith and fair dealing is a separate duty from its contractual duty to pay for any loss that occurs, and that a breach of the insurer’s duty of good faith and fair dealing constitutes a separate “actionable wrong”.
In Whiten, the Supreme Court of Canada established the test for when punitive damages may be awarded:
“Punitive damages are awarded against a defendant in exceptional cases for “malicious, oppressive and high-handed” misconduct that “offends the court’s sense of decency”: Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130, at para. 196. The test thus limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour….”
Whether conduct constitutes “malicious, oppressive and high-handed” misconduct will depend on the particular circumstances of each case.
In Fidler v. Sun Life Assurance Co. of Canada , (2004) BCCA 273 (C.A.), Sun Life terminated the plaintiff’s long term disability benefits without obtaining medical evidence to support its position. They maintained their denial of the plaintiff’s claim over a long period of time despite the fact that her medical practitioners confirmed her disability. Although the British Columbia Court of Appeal did not find Sun Life’s conduct to be malicious, they did find it to be high-handed, and awarded $100 000 in punitive damages against Sun Life Insurance. Sun Life has appealed this award, and the Supreme Court of Canada will render a final decision in this matter.
If you have any questions about your insurance contract, or insurance claim and how it is being handled, please do not hesitate to contact one of our lawyers at our firm.
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The opinion(s) expressed in this article may not be shared by the Law Corporation and is the opinion(s) of the author. This article is not intended to substitute for the advice of a lawyer. Please consult a lawyer regarding any legal issues you may have.
Shook, Wickham, Bishop & Field
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Tel: (250) 287-8355
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Email: wickham@crlawyers.ca
