What does it mean when an insurance company acts in “bad faith”? Ottawa disability claims denied arbitrarily and unfairly.

Insurance companies sell policies of insurance to cover losses in the event of an accident (disability, car insurance, property insurance, fire loss insurance, critical illness insurance for example). The policies are sold on the basis that claims will be fairly assessed and if valid, paid. In many cases the process of making an insurance claim goes smoothly. However, in other cases, claims are denied arbitrarily and unfairly. Just because an insurance company has denied a claim does not mean it acted in bad faith. However, if in denying a claim an insurer has acted arbitrarily, unfairly and has denied your claim without any legal justification while acting patently unfair in the way they have processed your claim, you may have a bad faith claim against your insurer. Bad faith may entitle you to damages in addition to payment of the actual claim made.

In general terms “bad faith” means the intentional dishonest act by not fulfilling legal or contractual obligations, misleading another, entering into an agreement without the intention or means to fulfill it, or violating basic standards of honesty in dealing with others (https://legal-dictionary.thefreedictionary.com/bad+faith).

The Supreme Court of Canada has dealt with the issue of insurance companies acting in bad faith. In one case, the Supreme Court of Canada defined “bad faith” as “conduct involving ‘malicious intent’ or that ‘exceeds the limits of discretion reasonably exercised.'”

What constitutes bad faith will depend on the facts of the specific case. There is no solid definition of what “bad faith” is but Courts do consider all of the facts when assessing whether an insurance company acted in bad faith and what damages should be awarded as a result.

In Canada, insurance companies must act with good faith. This means that they must act honestly and fairly when investigating claims, assessing claims and in paying out claims.

The duty of good faith owed by an insurer to an insured includes paying out claims in a timely manner and to investigate claims quickly, fairly and diligently.

When an insurance company’s behaviour becomes high handed, arbitrary or malicious, the Courts could make a finding that it acted in bad faith and require the insurance company to pay punitive damages and aggravated damages. In some cases, damages for emotional distress may be ordered.

In general terms, the following is a guideline of the law as it relates to bad faith and insurance companies:

  • What constitutes bad faith depends on the facts of the specific case.
  • A mere denial of a claim, even of the claim eventually succeeds in Court, is not necessarily bad faith.
  • As long as the insurance company acted reasonable in assessing and denying the claim, there is no bad faith generally.
  • Insurers cannot arbitrarily deny claims.
  • Insurers cannot dismiss relevant information and documents that supports an insured’s claim.
  • In investigating, assessing and paying out claims, insurers must act honestly and with the utmost good faith.

Insurance companies often employ bad faith tactics when denying claims. They unduly delay claims and deny claims without justification, blindly ignore relevant information and documents and over-rely on other documents. There are many ways in which insurers can act in bad faith in order to avoid paying a valid claim. In Ottawa, we have come across many cases of injury victims being denied insurance proceeds by insurers who were in our clients’ view, acting in bad faith.

What types of behaviours can lead to a finding of bad faith?

Here are some examples:

  • Unreasonable interpretation of an insurance policy.
  • Failure to make a decision about a claim in a timely fashion.
  • Not investigating a claim.
  • Not fully investigating a valid claim.
  • Delaying in paying a claim in a timely manner.
  • Denying a claim based on prior claims.
  • Requiring documentation that is irrelevant.
  • Ignoring relevant evidence such as expert reports.
  • Relying on information that is irrelevant or misleading.
  • Misleading the insured.
  • Ignoring claims entirely.

Cases where insurers have acted in bad faith include denying disability benefits, denying accident benefits in car accident cases or in fire losses claims where the insured is accused of arson.

If an insurance company has acted in bad faith, the Courts can award punitive damages against the insurance company in addition to payment of the actual claim. However, such damages are generally awarded in only the worst of cases, where the insurer has acted especially egregiously.

There is no uniform standard for identifying when an insurance company has acted in bad faith because it depends on the facts of each case. If you believe your insurance company has acted in bad faith, you should consult one of our Ottawa injury lawyers for free. Our lawyers will assess your case and assist you in determining the best course of action to take to pursue your claims.

If your insurance claim has been denied or not resolved fairly, you don’t have to simply accept the decision made by your insurer. We can review your situation for free and provide you with advice so you can make an informed decision on how best to proceed.

Marc-Nicholas Quinn

Insurance bad faith lawyer