In the context of insurance litigation, Courts recognize the power imbalance between an insured party and the insurance company with which they filed a claim.
Courts have consistently held that when dealing with an insurance claim the insurer has an obligation to deal with the insured with utmost good faith. If an insurer fails to deal with the insured in good faith, damages, including moral and punitive damages, may be awarded to the insured.
The Supreme Court of Canada held, in its landmark decision of Whiten v. Pilot Insurance Co (1) , that “the obligation of good faith dealing means that the appellant’s peace of mind should have been Pilot’s objective, and her vulnerability ought not to have been aggravated as a negotiating tactic”.
A recent 2019 Superior Court decision (“Lloyds”) (2) has even confirmed that the obligation of good faith dealing – and accordingly damages resulting from a breach – extends to claim adjusters, who often represent the insurance companies throughout the course of an insurance claim.(3)
Obligation of good faith
The obligation of good faith is reinforced in insurance matters since the insured person is considered to be in a vulnerable position and at the mercy of the insurance company. The obligation of good faith means that the insurer must not only respect the contractual undertakings in the insurance contract but must also execute those obligations with respect, neutrality, objectivity, without attempting to take a more intimidating position and without forming a biased impression of the insured party. Furthermore, the duty of utmost good faith implies that a refusal to indemnify the insured party cannot be based on irrelevant facts or facts that cannot be substantiated.
With respect to moral damages in the context of insurance litigation, the Court in Lloyds awarded $70,000 to the insured as a result of the insurer failing to respect the “Additional Living Expenses” clause in her insurance contract.
The clause in the insured’s policy offered an additional indemnity to allow the household to maintain its normal standard of living. The Court concluded that the insurer failed to pay the proper insurance indemnity to the insured, which in and of itself caused for the insured an inability to regain a normal standard of living. Moral damages were granted to compensate for this breach.(4)
Punitive damages may also be granted in insurance matters when the insured is able to demonstrate an unlawful intentional interference of an insured right protected under the Quebec Charter of Human Rights and Freedoms. If the insurer intentionally breaches the insured’s right to dignity, private life or property rights, punitive damages may be awarded. Punitive damages have also been granted when an insurer fails to accept insurance coverage within a reasonable delay, with no justification, or the insurer fails to fulfill its contractual obligation to maintain the insured in its normal standard of living. The amount to which an insurer is condemned is unique in each case.
Computation of applicable interest
It is important to file your insurance claim promptly since the applicable interest will begin 60 days after the filing of the claim. In accordance with Article 2473 of the Civil Code of Quebec, within 60 days of receiving the notice of loss from the insured, the insurer has an obligation to pay the insurance indemnity. After 60 days, legal interest begins to apply. This is a significant factor since the Superior Court in Lloyds condemned the insurance company to pay the full value of an insurance claim with the applicable legal interest from the date of filing of the notice of loss, which was two years prior to the commencement of the legal proceedings.(5)
Abuse of proceedings and legal fees
If an insurer abuses the insured through legal procedures, such conduct may be declared abusive. The Court in Lloyds ruled that an insurer’s conduct is abusive when strategies are employed by the insurance company or its claims adjuster to financially exhaust the insured, in the hopes that the insured will abandon its claim or accept a reduced amount.(6)
Proving an insurance claim can be a time consuming, stressful and an arduous process. While Courts are understanding of the power imbalance between insurance companies and insured parties, the application of the good faith doctrine will be most relevant when the insured has fulfilled his or her obligations under the contract.
Prior to ever making a claim, make sure to have pictures, receipts and video recordings of the moveable and immoveable property insured. If a loss does occur, be sure to notify the insurer in writing and verbally as soon as possible. Everything should be documented, and correspondence should be in writing, although electronic mail is the best method of communication.
If the insurer denies coverage or fails to pay the proper indemnity, one should consider hiring a public adjuster to represent the insured and to retain the services of a certified building evaluator and content evaluator to properly evaluate the claim. The persons retained should evaluate the loss and should be experts in their field in order for them to be confirmed by the Court.
If you are uncertain of your rights under your policy, it is also important to seek legal counsel to properly review your policy and assess your legal rights.
- Whiten v. Pilot Insurance Co.,  1 S.C.R. 595, 2002 SCC 18
- Cohen c. Lloyd’s Underwriters, 2019 QCCS 826 (CanLII)
- Id., par. 172 – 182
- Id., par. 170
- Id., par. 201 and 202
- Id., id., par. 192