How Much “Good Faith” Must the Insurer Show its Insured?

For those who have been involved in a motor vehicle accident and are dealing with an insurer, it may be reassuring to know that under Canadian law, an insurer has a legally-established duty of “good faith” towards its insured.  This is because the relationship between an insurer and the insured is determined and governed by contract, in the form of the insurance policy and every contract of this nature is considered to be one of “utmost good faith”.   Alongside the expressly included contractual provisions plus any conditions or terms that are mandated by statute, the Courts impose an implied obligation on the insurer to deal in good faith with claims by its insured at all times.

But what does mean, in practical terms?   The Ontario Court of Appeal recently addressed that question, by considering the exact scope of the insurer’s good faith duty in a case called Usanovic v. Penncorp Life Insurance Company (La Capitale Financial Security Insurance Company).[1] In this case, the Court admitting that the duty of good faith “has not been precisely delineated or definitively settled”, but noted that the assessment whether an insurer has breached its duty of good faith is fact-specific and depends on the circumstances of each case.  In general, however, the court concluded that the existence of a good faith duty on the insurer’s part dictates the following principle. “The insurer must give as much consideration to the welfare of the insured, as to its own interests”.

The Court noted that the above principle does not mean that the insurer must treat the insured’s interests as paramount, but rather, the principle merely recognizes that the insured is typically in a vulnerable position when he or she advances an insurance claim.

From a more practical standpoint, the Court then set out the specific elements that constitute an insurer’s duty, including the key requirement to act promptly and fairly when investigating, assessing, and attempting to resolve claims made by an insured.   This engages the following standards:

  • The insurer must act with reasonable promptness during each step in the claims process. This includes processing the claim in a timely way, and if there is no reasonable basis to contest it or withhold payment the insurer must pay the claim promptly. This is because the insured will often be under financial pressure to settle, so any delay in payment may operate to his or her disadvantage even if the insurer is later required to pay interest.
  • The insurer must deal with its insured’s claim fairly. This covers both the manner of investigation and assessment of the claim and the decision whether to pay it.   If the insurer decides to refuse payment, this decision must be made after the insurer has assessed the merits in a “balanced and reasonable manner” and should be in accord with the insurer’s reasonable interpretation of its obligations under the policy.  The insurer cannot deny coverage or payment to take advantage of the insured’s economic vulnerability or to gain bargaining leverage in negotiating a settlement.

In the end, while confirming the duty of insurers to act faily, the court noted its earlier decision of 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s London, England[2] in this the Court of Appeal stated:

This duty of fairness, however, does not require that an insurer necessarily be correct in making a decision to dispute its obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith.

If you have an insurance claim arising from a motor vehicle or other accident and have questions, feel free to call our office.

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[1] 2017 ONCA 395 (CanLII).

[2] 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s London, England (2000), 2000 CanLII 5684 (ON CA), 184 D.L.R. (4th) 687 (Ont. C.A.), at para. 27, leave to appeal to S.C.C. refused, [2000] S.C.C.A. No. 258.