Insurance contracts are not ordinary commercial contracts. Courts in Canada have long recognized that the relationship between insurer and insured carries duties that go beyond the express terms of the policy — and that insurers who breach those duties face consequences beyond the policy limits.
The Duty of Good Faith
Every insurance contract in Canada contains an implied duty of good faith owed by the insurer to the insured. This duty was affirmed by the Supreme Court of Canada in Fidler v Sun Life Assurance Co of Canada, 2006 SCC 30, and requires insurers to assess claims promptly, fairly, and in accordance with the policy terms. The duty exists independently of any contractual obligation.
What Constitutes Bad Faith
An insurer acts in bad faith when it:
- Denies a claim without a reasonable basis in fact or law
- Delays investigation or payment without justification
- Fails to conduct a fair or adequate investigation
- Misrepresents the policy terms or the grounds for denial
- Takes an adversarial posture toward a claimant without reasonable cause
- Settles for less than fair value through improper pressure
Remedies for Bad Faith
Where bad faith is established, a court may award damages beyond the policy limits. These may include:
- Aggravated damages — for mental distress caused by the insurer’s conduct (confirmed as available in Fidler)
- Punitive damages — for conduct that is high-handed, malicious, or reprehensible, intended to deter future misconduct by the insurer
- Full indemnity costs — courts may award elevated costs where an insurer’s litigation conduct was unreasonable
Common Insurance Disputes
- Long-term disability (LTD) denials — particularly at the “own occupation” to “any occupation” transition, typically at 24 months
- Property insurance denials — disputes over coverage, depreciation, or proof of loss requirements
- Life insurance — disputes over exclusions, misrepresentation allegations, and beneficiary designation
- Liability insurance — coverage disputes where an insurer refuses to defend or indemnify a claim
Limitation Periods
Insurance limitation periods are complex and often shorter than general civil limitation periods. In BC, section 22 of the Insurance Act, RSBC 2012, c 1, sets various limitation periods depending on the type of policy. In Ontario, section 5 of the Limitations Act, 2002, SO 2002, c 24, Sched B, governs. Many policies contain their own limitation provisions. It is critical to act quickly.
This article is for general informational purposes and does not constitute legal advice. If you believe your insurer has acted in bad faith or denied a valid claim, contact us to discuss your options.