Insurance Contracts CP - Law Reform Commission

10.48 The Ontario Court of Appeal, in 702535 Ontario Inc v Tinmouth and others 49 observed that an
insurance contract is one of utmost good faith:
―there is an implied obligation in every insurance contract that the insurer will deal with claims
form its insured in good faith 50 … good faith requires the insurer to act both promptly and fairly
when investigating, assessing and attempting to resolve claims made by its insureds.
The first part of this duty speaks to the timeliness in which a claim is processed by the insurer.
Although an insurer may be responsible to pay interest on a claim paid after delay, delay in
payment may nevertheless operate to the disadvantage of an insured. The insured, having
suffered a loss, will frequently be under financial pressure to settle the claim as soon as
possible in order to redress the situation that underlies the claim. The duty of good faith
obliges the insurer to act with reasonable promptness during each step of the claims process.
Included in this duty is the obligation to pay a claim in a timely manner when there is no
reasonable basis to contest coverage or to withhold payment…. 51
The duty of good faith also requires an insurer to deal with its insured‘s claim fairly. The duty
to act fairly applies both to the manner in which the insurer investigates and assesses the claim
and to the decision whether or not to pay the claim. In making a decision whether to refuse a
claim from its insured, an insurer must assess the merits of the claim in a balanced and
reasonable manner. It 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.
A decision by an insurer to refuse payment should be based on a reasonable interpretation of
its obligations under the policy.‖ 52
10.49 These Canadian cases distinguish damages for breach as being independent of damages
payable in respect of the underlying claims. Aggravated and punative damages are also possible. In
contrast to the English position, the Canadian and Australian courts have been clearer on both the nature
of the post contractual duty placed on the isurer either via a contractual implied term (as in Canada), and
by virtue of statute law (as in Australia). These cases clearly envisage the award of damages from breach
of the duty of good faith, in an appropriate case: Fidler v Sun Life Assurance Co of Canada. 53 The
Canadian courts have ruled that it is not necessary to prove an independent actionable wrong for
damages for mental distress to be recoverable, nor need the ―very essence‖ of the bargain to seek to
obtain relief from mental anxiety, for example.
10.50 The High Court of Australia, in CGU Ltd v AMP Financial Planning Pty Ltd 54 had to consider
whether an insurer had breached the section 13 Insurance Contracts Act 1984 post-contractual duty of
good faith by, belatedly, putting the insured to an obligation to show that claims made and settled, with
the insurer‘s apparent approval, were claims in respect of which liability would have been made out. The
case is a complex one in which much of the evidence concerned the conduct of the trial and the
reasoning of the Full Court of the Federal Court (which itself involved a 2:1 majority decision), but there
was agreement in the High Court of Australia that it is not correct to argue that absence of good faith is
limited to cases of dishonesty. Gleeson CJ and Crennan J wrote:
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(2000) 184 DLR (4th) 687.
Citing Whiten v Pilot Insurance Co. Ontario Court of Appeal decision [1999] (Can LII 3051), see later the
decision of the S.CC. at [2002] 1 SCR 595.
Citing Bullock v Trafalgar Insurance Co of Canada [1996] O.J. No. 2566; Labelle v Guardian Insurance Co
[1989] 37 CCLI 274; Jauvin v L‟Ami Michel Automobile Canada (1986) 57 O.R. (2d) 528.
Ibid; see also Maschke Estate v Gleeson (1986) 54 OR (2d) 753; Finlay v Trimac Corp [2008] Can LII 16191;
Veno v United General Insurance Corporation (2008) 330 NBR (2d) 237.
[2006] 2 SCR3; McQueen v Echelon General Insurance Co [2009] Can LII 50865. Privity of contract may be
required – Mirjagic v State Farm Mutual Automobile Insurance Co [2009] Can LII 44415.
[2007] HCA 36: see also (2007) 235 C.LR 1.
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