Zvulony

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This article is intended to offer general comments on legal developments of concern to individuals, business and legal professionals and is not intended to provide legal opinions. Readers should seek legal advice on the particular issues that concern them. © March 2005. by Toronto Lawyer Karen Zvulony Insurance polices are purchased for peace of mind. If you have purchased an insurance policy, paid the premiums and experienced a loss (i.e. your car is stolen or a fire at your home), an insurance company should indemnify you for your loss (assuming the loss is within the ambit of what is covered in the policy). This sounds simple and pretty straightforward, and while many insurance claims are paid without incident, at times, individuals find themselves in a situation where their insurance company is denying their claim or unduly delaying payment. Once a claim is denied, you essentially have three options. Specifically, you can: 1) walk away; 2) settle for whatever the insurance company has offered, even if it is considerably less than what you are entitled to; or 3) challenge the decision and commence legal action. Few individuals have the financial resources to challenge an insurance company ’s decision to deny a claim, irrespective of the merits of such a decision. The insurance company knows this. When assessing the validity of your claim an insurance company has a duty of good faith and fair dealing. An insurance company has a right to investigate your claim, but they must do so fairly and diligently. Failure to do so and subsequently denying a claim without sufficient evidence may amount to bad faith and a breach of their obligation of good faith and fair dealing. At the same time, some claims can legitimately be denied and their denial will not amount to bad faith. For example, if there is evidence that a material misrepresentation was made at the time you applied for insurance or if there is evidence to support an allegation of arson or fraud. Recently, the amounts that courts have awarded for punitive damages against insurance companies who have acted in bad faith have increased considerably. These recent awards reflect the growing trend to hold insurance companies accountable for their bad faith conduct in refusing to pay out legitimate claims, where there is no evidence of any wrongdoing. At the same time, if, at the end of the day there is insufficient evidence to sustain the insurance companies ’ denial of a claim, but the insurance company was reasonable in its investigation of the claim and the rational behind its decision to deny the claim, they should not be exposed to a claim for punitive damages. In [2002] S.C.J. No. 19, the Supreme Court of Canada reaffirmed the trial jury ’s award of $1,000,000 for punitive damages against the insurance company. The facts are fairly straight forward. In January, 1994 a fire totally destroyed the Whiten home and its contents. The insurance company denied the claim and alleged that the Whitens were guilty of arson. After a lengthy trial, this allegation was proven to be entirely without merit.

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