Insurance Company Ordered To Pay Special Costs For Bad Faith Behaviour

Insurance policies are contracts between insurance companies and the people they insure. In Canada, insurance companies, or insurers, have a legally-established duty of “good faith” towards the people they insure. This means the courts have imposed an implied obligation on insurance companies to deal with their client in good faith when people bring claims. In practice, this means that the courts have acknowledged that people are often in a vulnerable state when dealing with insurance claims. They have often been injured, and in many situations, they may be experiencing financial difficulty in addition to any physical harm. Acting in “good faith” means insurers must give as much consideration to the welfare of the insured as to its own interest. Insurers should act with reasonable promptness throughout the claims process, and must deal with the claim fairly by not denying coverage or using the insured’s vulnerability to gain leverage. A recent decision from the Supreme Court of British Columbia underscores the consequences of an insurer acting contrary to its duty to operate in good faith.

The initial claim

The plaintiff in the case became totally disabled from her employment as a paralegal on June 24, 2011. Her insurance against disability came from a group disability plan made available to members of the Canadian Bar Association. She became eligible for “Own Occupation” disability benefits as of October 21, 2011. Own Occupation benefits allow people to collect insurance if disabled from doing their job until they can resume that type of job, even if the insured has another job. The insurance policy allowed for up to 24 months of Own Occupation coverage. Following that, the coverage switched to “Any Occupation” which means the insured will not receive benefits if they can work a job outside of their previous occupation.

The insurer denied the plaintiff’s claim on January 31, 2012. After a series of appeals and denials, her claim was ultimately accepted on November 23, 2012. On July 30, 2013 the insurer denied the plaintiff’s application for coverage under the Any Occupation benefits. The plaintiff commenced the action against the insurer in August 2014.

Nothing happened for three years and four months. But just days before the hearing was scheduled to begin on March 23, 2017, the insurer reinstated the plaintiff’s benefits. The trial focused on the plaintiff’s claims for mental distress damages and punitive damages.

The original trial

The court found the insurer’s handling of the plaintiff’s claim to be “substandard” and in breach of their duty of good faith. The insurer’s adjudication of the Own Occupation claim, which delayed the claim for ten months, was called out as being “severely flawed” and “arbitrary.” The court also found the insurer’s actions in investigating the existence of an audio recording of the plaintiff’s medical examination to have been a “complete dereliction of duty.”

At trial, the court found the insurer to have not acted in good faith during the years leading up to the trial, but not in its defense of the action. The court awarded punitive damages to the plaintiff, but did not award special costs.The plaintiff appealed, seeking special costs.

The appeal

On appeal, the court found the insurer’s conduct to have been so reprehensible that an award of special costs seems appropriate, but going on to cite a 2017 decision from the Court of Appeal For British Columbia stating that special costs are only to be awarded for conduct during litigation. The insurer was found to have not exhibited bad faith conduct during the trial itself. The court of appeal agreed with the trial judge’s determination that there was no bad faith in the insurer’s defense during the trial.

However, the court of appeal found the trial judge to have neglected to follow the precedent set in a 2017 Court of Appeal for British Columbia decision. The decision stated that while special costs might not be available for pre-trial conduct, higher punitive damages can address such behaviour.  The judge wrote that had they heard the original trial, “ I would have decided that a special costs award was precluded, but I then would have assessed the punitive damages in a higher amount.” As a result, the court awarded the plaintiff special costs.

The disability insurance lawyers at Derfel Injury Law represent people through all stages of disability claims, including claim denial. We have over a decade of experience negotiating with insurance companies, including litigation when necessary. Make sure you get experienced legal advice before dealing with your insurance company. Please call us at 416.847.3580 or reach us online to talk today.