In Whiten v Pilot, the Supreme Court determined that a breach of the duty of good faith constitutes an independent actionable wrong. Aside from contractual damages, damages defined from the contract itself, insurers could face punitive, aggravated or Fidler damages.Īggravated and punitive damages are supplementary damages that require an independent actionable wrong in order to be claimed. Offering substantially less compensation than the claim is worthĪn insurer breaching the duty of good faith can result in major repercussions.However, the following is a non-exhaustive list of actions that courts may determine as acts of bad faith: The insurer must also not delay a claim in hopes of achieving an economic advantage or increased bargaining power over the insured.Īs stated, what constitutes a breach of the duty of good faith must be decided on a case-to-case basis.
Further investigation into potential claims is permitted as long as the insurer is not willfully blind to substantiate their position and interests. Insurers are permitted to investigate when skeptical about insured claims, however, they must do so in a manner consistent with good faith. What needs to be examined is if there was any bad faith conduct on the part of the insurer, which must be decided on a case-to-case basis. As long as the insurer’s decision was based on reasonable interpretations, whether correct or not in the end, then there is no presumption of bad faith. As ruled in 702535 Ontario Inc v Non-Marine Underwriters, the mere denial of a claim is not itself a breach of the duty of good faith. The duty of good faith does not always require the insurer to be correct. Scope of the Insurer’s Duty of Good Faith The duty of good faith serves to prevent this by placing a duty on the insured, to be honest, and forthright in disclosing facts that are material to the policy. By making misrepresentations or withholding information, the insured may be able to secure a favourable insurance policy. For example, in the pre-contractual stage, the insured knows all of the variables that are relevant for the insurer to calculate the risk of the policy. While it is argued that there are many power imbalances favouring the insurer throughout the relationship, the insured also has opportunities to exert the same. Nevertheless, the insured is also obligated to act in good faith. of Canada, the duty of good faith requires the insurer to investigate, assess and decide a claim in a manner that is consistent with good faith practices. As emphasized in the Supreme Court case of Fidler v Sun Life Assurance Co.
Case law over the years has strongly stated that the insurer owes the insured a duty of good faith throughout the entire relationship. In the majority of cases, it is the insured alleging that the insurer breached their duty of good faith. The duty of good faith is a two-way street. Unlike the fiduciary duty, the duty of good faith does not obligate the insurer to “treat the insured’s interests as paramount”, but rather to give as much consideration to the insured’s interests as they do to their own. It is important to underline that the duty of good faith is distinct from a fiduciary duty. Section 439 of the Insurance Act reiterates this implied principle by stating that “no person shall engage in any unfair or deceptive act or practice.” In summary, the relationship between the insured and insurer is contractual in nature that requires the “utmost good faith” in all dealings between the parties. In the insurance context, it is an implied obligation that the insurer and insured will deal with claims in good faith.
The duty of good faith is a fundamental principle of the common that parties to a contract must perform their contractual duties honestly and reasonably. The duty of good faith is the guiding principle of insurance litigation.
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