Allegations of bad faith should be severed from an action seeking entitlement to insurance benefits.
The application to sever a bad faith issue from the main action regarding entitlement to benefits was allowed as was the application to strike the jury notice for the main action. The Court held that the matter of entitlement turned on complex contractual interpretation which was inappropriate for a jury and in addition, there was some possibility for prejudice if the actions were not severed because privileged communications would have to be revealed in the defence of the bad faith action.
Rehmat v. Transamerica Life Canada, [2009] B.C.J. No. 738, April 14, 2009, British Columbia Supreme Court, T.M. McEwan J.
The Insured brought an action seeking a declaration that he was disabled as defined in an insurance policy issued to him by the Insurer (the “Policy”), an order for monthly disability payments in accordance with the Policy, and damages for breach of contract. The Insurer brought an application to sever the portions of the Statement of Claim that alleged bad faith and to strike the jury notice in relation to the entitlement claim.
Pursuant to British Columbia Supreme Court Rules, rr. 39(25) and 10(1)(b), a trial shall be heard by the court without a jury when the sole or principal question at issue is alleged to be one of construction of a contract. The Insured conceded that with respect to the issue of entitlement, the principal question was whether he was disabled within the meaning of the Policy. The Court held that the pleadings put the interpretation of the contract in issue and it was not tolerably apparent that the principal issues would involve matters of fact or would not revolve around construing the terms of the contract between the parties. Therefore, the case fell within the principles enunciated in Nelson Marketing International Inc. v. Royal & Sun Alliance Insurance Co. of Canada, 2003 BCSC 1131, in which the court articulated that when the necessary findings of fact in a case substantially dispose of the issues to be tried then the jury notice should not be struck, but if, after the facts have been found, a genuine question remains as to the significance of those facts within a Rule 10(1)(b) issue, it will be the “principle question in issue” within the meaning of the Rule, regardless of the relative length or complexity of the fact finding exercise itself.
The Court also considered the prejudice that would be caused to each party in deciding whether to sever the claims. Relevant factors are the inextricability of the issues, duplication of proceedings, the likelihood that privileged solicitor-client communications would be relevant to the bad faith claim but not the entitlement claim.
The principal ground in favour of allowing the application was that it appeared that once the facts were known, there would still be a genuine question as to the significance of those facts within an issue of contractual interpretation. Though the possibility of prejudice caused by revelation of privileged communications was weak, this also weighed in favour of allowing the application. In conclusion, the Court noted that severance ought to be ordered unless, at the time of the application, a court can be persuaded that an intelligible jury instruction as to the application of the contract will be possible.
In the result, the Court allowed the application and ordered that the entitlement claim proceed before the bad faith claim without a jury and that, depending on the outcome of the entitlement trial, the bad faith claim then proceed with a jury.
This case was originally summarized by Emily M. Williamson and edited by David Pilley.
