Bad Faith Claims Against Insurers ' Recent Cases Of Note

• Published date: 03 February 2021
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Clark Wilson LLP
• Author: Ms Raman Johal and Erin Barnes

Bad faith in the insurance context occurs when an insurer acts contrary to its duty of good faith. The perception of what exactly is deemed to be appropriate conduct in the context of insurance claims continues to be refined by the courts. An insurer faces bad faith allegations by their insured in relation to claims handling and coverage decisions, exposing insurers not only to damages above policy limits, but to punitive and aggravated damages that have no direct relation to an insured's loss.

The duty of good faith requires an insurer to fairly investigate and assess an insured's claim and make coverage decision. An insurer must assess the merits of the claim in a "balanced and reasonable manner" and 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."¹

Four decisions rendered in 2020 addressed various aspects of bad faith claims which insurers should be aware of, including: 1) when a claim for bad faith can be made; 2) the conduct of insurers which rises to the level of bad faith; 3) the scope of disclosure required by an insurer accused of bad faith; and 4) the availability of special costs against an unsuccessful insured.

Martens v. Manitoba Public Insurance Corporation, 2020 MBQB 158

On November 10, 2020, Justice Lanchbery of the Manitoba Court of Queen's Bench awarded approximately $350,000 in punitive and aggravated damages to an insured, in addition to a settlement payment, as a result of the insurer's breach of the duty of good faith for denying entitled benefits for a period of 9 years.

In 1998, the insured was involved in a significant motor vehicle accident. The insured received disability benefits and income replacement indemnity after the accident, but the insurer terminated its payments in 2003 after it received an anonymous tip that the insured was working and had failed to report it. The insured was charged with fraud and later acquitted in 2005. Despite the acquittal, the insurer continued to deny her benefits. The insured applied for a review of the insurer's decision in 2005, which was not settled in favour of the insured until 2012, when the insured received a settlement in the amount of $348,248.22 for the 9 years which the insurer improperly withheld her benefits. The insured then brought a separate law suit for bad faith against the insurer.

The evidence in the civil suit revealed that the insurer made decisions...