The Trouble with Bad Faith Claims in the Context of Statutory Accident Benefits

Insurance companies have a duty to deal fairly with the claims of the people they insure. If you are in a car accident, however, you cannot sue your insurance company for bad faith in connection with their decision to deny your statutory accident benefits.

In 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s of London, the Supreme Court of Canada made it clear that the duty to act fairly applies to both how the insurance company investigates and assesses a claim and to its decision whether or not to pay. An insurance company must not deny payment to take advantage of a person’s economic situation or to gain bargaining leverage in negotiating a settlement.¹

If an insurance company fails to meet its duty of utmost good faith and refuses to pay an insured person’s claim, the courts may award punitive damages. In Whiten v. Pilot Co. and Fidler v. Sun Life Assurance Co. of Canada, the Supreme Court of Canada set out what courts should consider in determining whether punitive damages should be awarded:

• Punitive damages are meant to address retribution, deterrence and denunciation, not compensation.
• They are awarded only where compensation is insufficient to meet the goal of deterring or denouncing the insurance companies conduct.
• The insurance company’s conduct must depart markedly from ordinary standards of decency as conduct that is malicious, oppressive or high-handed.
• Failure to pay insurance benefits on its own is not enough. There must be proof that the insurance company breached its contractual duty to act in good faith.²

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