Duty of Utmost Good Faith

Every person injured in a motor vehicle accident is entitled to receive Statutory Accident Benefits, regardless of fault.

In a recent accident benefits case I handled for one of our clients , the Court considered how the obligation to act in the utmost good faith relates to automobile insurers when handling a claim for accident benefits.

The right to sue an at-fault person for the accident is also an important consideration but, in the immediate aftermath of a motor vehicle accident, victims must first turn their minds to claiming accident benefits from their own automobile insurer, or, in some cases, the automobile insurer who stands in line of priority to pay accident benefits. If an injured person cannot find the correct automobile insurer, he or she should call a lawyer immediately.

Victims may require medical/rehabilitation benefits, attendant care benefits, housekeeping and home maintenance benefits, and often, income replacement benefits. Depending upon the severity of the accident related injuries, a victim may even require benefits while still in hospital as well as a Case Manager to co-ordinate private health care services in preparation for discharge from the hospital. Without timely approval and payment of these benefits, an injured party’s physical and mental recovery may be jeopardized.

In order to maximize the opportunity to fully recover, the automobile insurer must step forward and become a partner in the rehabilitative and claims process. Victims of motor vehicle accidents are usually at a very low ebb in terms of their ability to advocate on their own behalf or to finance their own recovery. Therefore, in most cases, a relationship of dependence is immediately created between the victim and the automobile insurer regarding the payment of accident benefits.

The Court has recognized the importance of this relationship of dependence between victims and their insurers in a number of decided cases. The leading case which defines and enshrines the nature of this relationship is the Supreme Court of Canada decision Whiten v. Pilot Insurance Company, [2002] S.C.J. No. 19. Although this decision related to a fire loss claim, the Supreme Court of Canada took the opportunity in this case to describe the relationship that exists between every person and his or her insurer. According to the Supreme Court of Canada, an insurer must treat its insured during the claims process with the “utmost good faith”.

While there have been a number of cases that discuss the meaning of the term “utmost good faith”, the obligation clearly includes the responsibility of the insurer to act both promptly and fairly when investigating, assessing and attempting to resolve claims made by its insureds. The duty to act fairly applies to the manner in which the insurer investigates and assesses the claim and to its decision about whether or not to pay a claim. Before refusing payment of a claim, an insurer must assess the merits of the claim in a responsible and reasonable matter. 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.

In a recent accident benefits case I handled for one of our clients, Mamaca v. Direct Protect, the Court considered how the obligation to act in the utmost good faith relates to automobile insurers when handling a claim for accident benefits. In this case, the insurer denied my client’s claim for income replacement benefits. After denying this benefit, the automobile insurer took the position that it was no longer responsible to honour its obligation to act in the “utmost good faith” to its insured because it was reasonable to believe at this point in time that a court action would be commenced for payment of this benefit. The question before the Court became whether the automobile insurer’s obligation to act in the utmost good faith survives a denial of benefits.

In short, the question before the Court was whether the obligation or duty of utmost good faith ends after the insurer and the victim appear to be heading into battle with one another over the payment of benefits. In answer to this question, the Court found that the handling of an accident benefit claim is more complicated than most other contracts of insurance. Usually, when one makes a claim to an insurer, the insurer is responsible to make a single decision whether or not to pay. In contrast, when dealing with accident benefits, there are a number of different benefits a victim can claim and entitlement to these benefits may survive a denial of any separate benefit. What the Court confirmed in Mamaca v. Direct Protect was that a denial of a benefit does not end the automobile insurer’s obligation to act in the utmost good faith towards its insured. Instead, the insurer must continue to treat and adjust the accident benefit claim fairly even after there has been a denial.

In most cases, victims are treated very fairly by their automobile insurer and the duty of utmost good faith is honoured by the appointed adjuster. However, once in a while adjusters refuse to consider payment of benefits in a timely manner. Other times, denials of benefits are made without due consideration to the injuries involved and how these injuries have affected this individual victim. When this happens or where victims feel they are being treated unfairly by their insurer, it is very important to document these concerns. It is best to write a letter to the insurer setting out the concerns one has and remind the insurer of its obligations to act in the “utmost good faith”.

When a victim is involved in a car accident they have one claim for accident benefits and this claim is very important to them. Usually, insurance adjusters have several claims and they may not be investing an appropriate amount of time handling your claim. In those circumstances, it is important to keep in mind that institutional delay on behalf of an automobile insurer is unacceptable. If an automobile insurer cannot respond in a timely and effective way to a claim, it is incumbent upon this insurer to hire more staff. Every victim is entitled to a fair determination of their needs and benefits in a timely manner by a properly trained and experienced representative of the insurance company. Even after benefits are denied, this obligation continues while other benefits are being claimed.

It may be necessary to have a lawyer involved to consider whether a claimant is entitled to claim “punitive” or “aggravated” damages against the insurer for failing to honour its obligation to act in the “utmost good faith”. Letters sent by treating healthcare professionals, social workers or the victim him or herself will be of great assistance in establishing a “bad faith claim” against the automobile insurer.

It is equally important that claimants act responsibly towards the insurer. Timely filing of the Statutory Accident Benefit forms and providing the information that the insurer is entitled to receive is a parallel obligation that exits between an insured person and his or her insurer. Unfortunately, all too often, insurers take advantage of an insured’s lack of knowledge in relation to the forms that must be submitted and what information the insured is required to provide to the automobile insurer at the outset of the claim. Sometimes, the insurer’s request for information may be “overly broad”. When considering what information must be provided to an insurer at the outset of a claim, one may wish to consult with a lawyer to discuss what the true obligations are in this regard.

Where the relationship breaks down to such an extent that the insurer appears to be acting in an adversarial manner, there may be a need to involve a lawyer to consider a claim for “bad faith”. Bad faith claims are very difficult to prove against the insurer but, with sufficient documentation it may well be possible to prove that the automobile insurer fell short of its obligation to deal with its insured with the “utmost good faith”.

¹ 7025353 Ontario Inc. v. Non-Marine Underwriters Lloyds of London, [2000] O.J. No. 29 (Ont. C.A.)

² Mamaca (by His Litigation Guardian) v. Direct Protect (2007), 50 C.P.C. (6th) 197; affirmed [2008] O.J. No. 2508 (Ontario Divisional Court)