When something happens to someone’s health, home, or automobile, insurance companies can be first place people turn to in order to recover financially for their loss. An insured person or business is a customer of an insurance company, and rights and obligations of both parties are established by a contract – an insurance policy. One item found in insurance policies is the obligation for the insurance company to act “in good faith” towards the insured person or business. But what exactly does that mean? The Court of Appeal for Ontario recently addressed that question in a 2017 decision.

The history of the claim

The plaintiff was a self-employed eavestrough installer. He purchased his insurance policy from the insurance company (the defendant) in 1999. The policy insured him against disability arising from accidents. He added coverage for disability arising from sickness in 2004. In 2007 the plaintiff fell from a roof while working and suffered serious injuries. He collected disability benefits until 2011, at which time the defendant terminated its payments because the plaintiff no longer had a “total disability” as defined in the policy.

It was the defendant’s position that the plaintiff was only eligible to continue receiving payments after two years if he was unable to engage in any and every occupation his education, training, and experience allowed. The defendant informed the plaintiff that he had 60 days to submit evidence of total disability, something the plaintiff did not do. In trial, the plaintiff admitted to reading his policy and had considered hiring a lawyer, but could not afford to do so at the time. He eventually hired a lawyer in 2015, but was told by the lawyer that the two-year limitation period on is claim had expired. The plaintiff took the position that had the defendant told him about this limitation period when denying his claim, he would have brought action earlier.

The case goes to trial

A decision from a motion judge was issued in favour of the defendant, stating that the limitation period had expired. However, the plaintiff claimed upon appeal, and before the motion court, that the defendant had a duty of good faith and fair dealing in serving its customers, and that the two-year limitation period should not have started until the defendant told the plaintiff about the limitation period.

The motion judge stated “in my view, the extension of the law proposed by the plaintiff would represent a substantial shift in the boundaries of the obligation of good faith and fair dealing on insurers as they are presently understood.”

How limitation periods are defined

At the time of the appeal there was no statutory requiring insurance companies to notify customers of limitation periods, which are established by the Limitations Act, 2002 (the Act), not by insurance policies. The plaintiff’s position was that it was the insurer’s duty to give the same consideration to the insured as it does to its own interests, adding that insurance law is about consumer protection, and when analyzing the law, the court needs to consider the protection of consumers.

The defendant claimed it made a clear and unequivocal denial of claim in 2012, at which time the limitation period should have started to run. The defendant argued the courts should not impose a duty to inform the insured about limitation periods.

On appeal

In its analysis of the law, the court stated the duty of good faith “has not been precisely delineated or definitively stated.” Instead, the duty of good faith is something to be considered on a case-by-case basis and is fact-dependent. The court agreed with the plaintiff that “the insurer must give as much consideration to the welfare of the insured, as to its own interests.” However, that does not mean the interests of the insured are paramount to those of the insurance company. It simply recognized that an insured person is typically in a vulnerable position when dealing with an insurance claim.

Defining what it means to act in good faith

The court looked back to a 2000 decision which outlined what it means for an insurance company to act in good faith.

The first duty is for the insurer to act both promptly and fairly when investigating, assessing and attempting to resolve claims made by its insureds. This means insurance companies must act with reasonable promptness along each step of the claims process, recognizing its customers could be under financial pressure.

The second duty requires insurance companies to act fairly. This means the insurance company must assess claims in a reasonable manner, not taking into account financial pressures its customers may be facing when denying a claim or negotiating a settlement.

The court considered the plaintiff’s proposed expansion of the duty of good faith. The Act already states when a limitation period is triggered. By imposing a positive obligation on insurance companies to notify customers of limitation periods, the court would be overruling existing law, defeating the purpose of the statue and creating ambiguity.  The court upheld the decision of the motion judge and denied the plaintiff’s appeal.

Insurance disputes can be complex, technical and lengthy. HMC Lawyers has over 120 combined years of litigation experience. Our deep understanding of the nuances of policy language and how the courts have interpreted insurance clauses in the past allows us to provide our clients with exceptional, insightful, and timely advice. Call us at 403-269-7220 or contact us online if you have a question about your insurance coverage.