Bad Faith & Punitive Damages Update – Case Commentary – Stewart v. Lloyd's Underwriters

Introduction

Recently, in Stewart v. Lloyd's Underwriters, 2019 BCSC 1582, the British Columbia Supreme Court considered a claim for punitive damages arising from the insurer's alleged breach of its duty of good faith. Ultimately, the court agreed that punitive damages were warranted and made an award in the amount of $100,000. While far from the $1 million punitive damages awarded in the leading case of Whiten v. Pilot Insurance Co. 2002 SCC 18, the court's award is the largest in BC since Whiten.

Details of the Case

On May 31, 2015, the plaintiff, Christopher Stewart, was on vacation in Reno, Nevada. While sitting at a bar he suffered a brief loss of consciousness, fell to the floor and hit his neck. He was hospitalized for 12 days, had a pacemaker inserted and underwent surgery to his spine to correct a slippage of a vertebra. The health care bills from his hospitalization amounted to $293,127.60 USD.

Prior to travelling to Reno, Mr. Stewart purchased travel medical insurance from the defendant insurers. He made a claim on the policy for coverage of his health care bills. Health Insurance B.C. paid $3,574.64 USD and the insurers paid $15,500.00 USD to have Mr. Stewart flown to a hospital in BC, leaving a balance owing of $274,052.97.

In September 2015, the insurers denied coverage, taking the position that Mr. Stewart's injuries were directly or indirectly due to alcohol intoxication. On December 18, 2018, three-and-a-half months prior to the trial, the insurers advised Mr. Stewart that they were no longer denying coverage. The insurers filed an Amended Response to Civil Claim formally admitting coverage under the policy. The insurers also settled all of Mr. Stewart's health care bills prior to the trial for a significant discount.

The trial proceeded with Mr. Stewart claiming, among other things, punitive damages for a breach of the duty of good faith.

The insurers denied they acted in bad faith in denying the claim, arguing that the test is not whether the denial of coverage is wrong, but rather whether the assessment of coverage was made in good faith.

In considering whether the insurers breached their duty of good faith, the court reiterated the following principles: there is no obligation upon an insured to prove coverage and the insured does not bear the onus of proving an exclusion in the policy. The court also reviewed the entire history of the insurers' coverage investigation to determine if the insurers met the duty of good...