British Columbia Insurance Blog : Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

The insureds were insured for damage to their dairy barn for the peril of a “windstorm", among other perils. On October 3, 2003, the insureds notified the insurer that their barn had been damaged by hurricane Juan. Upon receiving notice of the loss, the insurer hired an independent adjuster, who in turn hired a professional structural engineer to give his opinion on the damage to the barn and its cause. The insurer’s engineer concluded that “the structural condition of the building had not been affected by the passing of hurricane Juan”. The insureds also hired a structural engineer who found that the barn had, in fact, been damaged by hurricane Juan.

On April 6, 2004, The insureds provided the adjuster with three letters dealing with damage to the barn; one from each of the insured, Leaonard MacPhee, a carpenter, and Brian Chapman, also a carpenter. Both Mr. MacPhee and Mr. Chapman noted that they had witnessed the barn both prior to and after the hurricane and that there was no structural damage to the barn, that they noticed, prior to the hurricane. The insurer did not follow up with, or interview, any of these witnesses.

Prior to hurricane Juan, a safety survey report was conducted, indicating that the barn was in “good” repair and suitable for insurance coverage. This report was forwarded to the adjuster  by the insurer shortly after the claim was made. However, the insurer never forwarded the “post-Juan” survey report, which was conducted on June 1, 2004, to the adjuster. Further, the author of these reports, an investigator employed by the insurer, was never interviewed in connection to the claim.

On July 19, 2004, the insureds submitted their proof of loss and their claim was denied by the insurer. The insureds brought an action, which was heard before a civil jury. The jury awarded the insureds the full amount of their insurance coverage, together with punitive damages, in the amount of $55,000. The jury specifically made a finding of bad faith in relation to the coverage denial and found that the insurer’s conduct offended its sense of decency.

On appeal, the court found that on the facts of the case, the insurer’s failure to instruct its adjuster to follow up with the various witnesses, each of whom had first hand knowledge of the pre hurricane state of the barn, was tantamount to ignoring relevant evidence. The court also noted that several comments made in the adjusters report, showing disdain for the insureds’ counsel and expert, and making comments about the mounting costs to the insureds, indicated that the investigation was not undertaken in an unbiased and objective manner. Therefore, the court found that the evidence before the jury supported its finding of bad faith. A reasonable jury could have concluded that an award of punitive damages was rationally required to punish the insurer’s misconduct.

This case was digested by Natasha D. Morley and edited by David W. Pilley of Harper Grey LLP.

The plaintiff insured Janey McQueen (“McQueen”) was injured in a rollover motor vehicle accident in January 2004. At the time of the accident, McQueen was not employed and had been receiving disability benefits for 10 years, primarily due to manic depression. She was 35 years old and resided with her husband and 14 year old daughter. Following the accident, the defendant insurer, Echelon General (“Echelon”), paid some benefits but eventually terminated housekeeping benefits, refused to pay transportation benefits, and refused to fund a psychological assessment. McQueen experienced 21 denials of 16 separate benefits over a period of three years and after two failed mediations, brought a suit seeking certain statutory benefits pursuant to the Statutory Accident Benefits Schedule and alleging that Echelon had breached its obligation to act in good faith in handling her claims.

McQueen’s evidence was that prior to the accident, she did the cooking, cleaning, shopping, etc. but that after the accident, she was bedridden for two months and her husband was obliged to leave his job to take care of her and take on the household responsibilities. McQueen obtained a certificate from her family doctor and an occupational therapy assessment which both supported her entitlement to housekeeping benefits. Echelon paid housekeeping benefits until the end of July 2004 and then ceased payments based on a medical report completed by Dr. Kwok, following a half-hour examination of McQueen and without the benefit of seeing the occupational therapy assessment. Echelon also denied McQueen funding for an in-home assessment for housekeeping benefits that was recommended by the occupational therapist, saying it was not “reasonable and necessary.”

The Court found that the onus was on Echelon to provide reasons for the assessment being unreasonable and unnecessary, which it did not do. It further found that McQueen had a substantial inability to carry out housekeeping activities without assistance during the relevant time and that she had established her entitlement to housekeeping benefits on a balance of probabilities. She was awarded benefits of $100 per week for the relevant period.

With regard to McQueen’s claim for transportation benefits, the Court found that these benefits had been denied in spite of the occupational assessment indicating that she required taxi transportation. Dr. Kwok’s report stated that McQueen was not disabled from operating a motor vehicle and Echelon incorrectly assumed that McQueen had a vehicle, though hers had been destroyed in the motor vehicle accident, and denied the benefit. The Court awarded McQueen a transportation allowance of $7,500.

The Court also awarded McQueen the cost of a number of psychological, neurological and occupational therapy assessments that had been recommended but not carried out.

The Court reviewed the law regarding awarding damages for mental distress, citing the BC Court of Appeal and the Supreme Court of Canada decisions in Fidler v. Sun Life Assurance, 2004 Carswell BC 1086 and [2006] 2 SCR 3. The Court held that for an award of damages for mental distress to be appropriate, it must be satisfied that:

a) An object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and,

b) The degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation.

The Court found that Echelon’s file notes were evidence of an adversarial approach to McQueen ab initio and that in behaving in that manner, Echelon had breached its contract of insurance with McQueen. Echelon adopted this adversarial approach early on, in spite of file notes indicating that McQueen had serious injuries that required treatment and notwithstanding the duty of good faith it owed to McQueen throughout. The Court held that the object of the contract of insurance was to secure psychological benefits to McQueen in the form of peace of mind and that the nature of the contract was such that its breach would bring about mental distress and that this was within reasonable contemplation of the parties. McQueen had endured mental suffering as a result of the breach, which was of a sufficient character to warrant compensation. McQueen was accordingly awarded $25,000 in damages for mental distress.

This case was originally summarized by Emily M. Williamson and originally edited by David W. Pilley.

The insureds' residence was located near Elbow River, Calgary, which flooded in June 2005. The insureds evacuated their residence at approximately 11:30 p.m. on June 18, 2005. At that time they were also advised that the city would be removing service from a nearby lift station, as it had become overwhelmed, and that, as a result, sewer would back up into their basement. When the insureds returned the next day, river water surrounded their house. They testified that the inside of their home was full of foul smelling water and refuse to a depth of about 10 inches.

The insureds had an “all risks” insurance policy that excluded water damage caused by sewer back-up. However, they had purchased an additional endorsement that covered such damage. The endorsement contained an exclusion for loss or damage that “occurs before, during or after flood damage to the premises.” The insurer denied coverage based on the exclusionary clause.

The insureds argued that all the damage to the interior of the house was due to sewer back-up and that the house was not otherwise damaged by the flood, therefore the exclusion should not apply. The insurer took the position that the sewer-water damage was not the only water damage to the interior of the house and that, even if it was, there was additional damage to the exterior of the premises caused by the flood.

The court accepted the insureds' expert evidence, that the damage to the residence was caused by sewer back-up and that if any river water did enter the house in addition to the sewer back-up, it did not contribute in any material way to the damage already caused by the sewage back-up. Therefore, the court found that the insurer did not satisfy its onus of establishing that there was any damage caused by flooding to the interior or exterior of the dwelling and thus the damage caused by sewer-back-up did not occur “before, during or after flood damage to the premises.” Further, the court found that evidence such as silt covering the lawn, driveway and deck did not constitute “damage” within the ordinary meaning of the word.

The court agreed that the insurer’s investigation of the claim was perfunctory and inadequate. However, it found that the insureds did not suffer injuries that would be compensable even if the conduct of the insurer was in bad faith. Furthermore, the disappointment, frustration and anger that the insureds suffered was not sufficient to found a claim for damages for mental distress.

This case was digested by Natasha D. Morley and edited by David W. Pilley

After the Plaintiff was involved in a motor vehicle accident she sought accident benefits from her insurer for injuries to her arm and shoulder. She was paid a small amount of housekeeping and attendant care expenses. There was no claim for loss of income or for medical or rehabilitation expenses. Her benefits were cut off when her insurer received an assessment from a kinesiologist. The insurer subsequently offered to settle the claim for $1000. The Plaintiff accepted and signed a settlement agreement drafted by the insurer as well as a disclosure form.

The Plaintiff subsequently returned to work and her pain flared up again. She began massage therapy at her own expense. She then sought to rescind the settlement agreement and filed a claim against her insurer. She did so on the basis that the form did not comply with regulations under the Insurance Act, R.S.O. 1990, c. I-8 because it did not set out the commuted value for medical or rehabilitation benefits. The regulation required that the commuted value be set out for any “lump sum” benefits. The Court held that in this case rehabilitation and medical expenses had not been claimed and therefore the insurers disclosure was sufficient to comply with the regulation.

The Plaintiff also alleged that the insurer acted in bad faith. The Court held that the settlement agreement was sufficiently clear and provided the Plaintiff with all the information that she needed to make an informed decision. The insurer had not acted in bad faith in drafting the agreement, which also had a clause which advised her to get independent legal advice. The insurer was not required to set out the amounts for medical and rehabilitation expenses that had not yet been claimed.

This case was originally summarized by Kim Yee and originally edited by David W. Pilley.

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.

The Plaintiff Insurance Company brought a motion for summary judgment. The Plaintiff was the surety in respect of bonds issued by the Defendant Construction Companies. The Defendants had agreed to indemnify the Plaintiff for any losses or payments under the bonds. The Plaintiff brought an action to enforce its rights under its Indemnity Contract with the Defendants when the Defendants failed to make payments pursuant to that Contract. The Defendants questioned the good faith of the Plaintiff in handling certain claims and on the basis that it refused to honor the Indemnity Contract. The Plaintiff argued that there was no evidence to support the argument that the Plaintiff or its Agent had acted in bad faith.

The Court dismissed the Plaintiff's motion. The Court found that the question of whether the Plaintiff acted in good faith was a genuine issue for trial. The fundamental question was whether the Surety acted with an absence of good faith in processing claims made and bonds it had executed were called on. The Court found that in order to answer this question, it would be necessary to look beyond the complaints made by the individual Defendant and examine whether the actions of the Surety suggested the possibility of an absence of good faith. The Court found that the nature of the question exacerbated the difficulty that counsel for the Plaintiff confronted on this motion. The Court found that it is likely that the case would depend on inferences to be drawn from the actions of the Plaintiff Surety. The Court found that the questions raised by counsel for the Defendants were enough to suggest that a genuine issue for trial exists.

This case was originally summarized by Cameron B. Elder and originally edited by David Pilley.

The Insured ("Pearlman") brought a claim against the Insurer ("ACI") alleging that, amongst other things, ACI had acted in bad faith, deceitfully and fraudulently in handling Pearlman's claim for medical expenses related to a motor vehicle accident which occurred in British Columbia. ACI brought a Summary Trial Application to dismiss Pearlman's Action. The Summary Trial Judge dismissed the Application indicating that there were "valid questions" concerning ACI's conduct which he was unable to answer on the material before him. ACI appealed from this decision.

The Court found that there was no evidence tendered by Pearlman in support of the argument that ACI failed to act in good faith throughout or that it acted with anything less than the requisite degree of care for Pearlman's interest in processing his claim. Similarly, there was no evidence to support the allegations of deceit, fraud, abuse of process or misrepresentation. The Court found that there was sufficient evidence to find all the facts necessary to support ACI's Application for the dismissal of the Plaintiff's Action and that it would not be unjust for the Court to dismiss the Action.

In the result, the Court allowed ACI's appeal and dismissed Pearlman's Action.

This case was originally summarized by Jonathan D. Meadows and originally edited by David W. Pilley.

The Insured was involved in a motor vehicle accident on August 22, 2002 and subsequently submitted a claim for accident benefits to the Insurer.  Two unsuccessful mediations were held in respect of the Insured's claim for accident benefits, after which he initiated arbitration proceedings.  The Insured appealed the arbitrator's decision, and, before receiving a ruling on the appeal, he commenced this action against the Insurer claiming damages for loss of accident benefits, damages for breach of contract, negligence, misrepresentation, breach of fiduciary duty and allegations, which can generally be described as "bad faith" claims.

The Insurer argued that the Insured's claims were res judicata given that he had already adjudicated his claims through arbitration proceedings, which were available to him under the Ontario Insurance Act.  The Insurer's second argument was that certain claims made by the Insured were prohibited because they had not proceeded through mediation, as required by the Insurance Act.  In particular, the Insured had not mediated his claim for attendant care benefits.  The Insured, on the other hand, took the position that because the "bad faith" claims had not been the subject of arbitration proceedings and since his Statement of Claim asked for "damages for the loss of accident benefits", these claims were distinct from the claims that had been considered by the arbitrator.

The Court considered the factors, which must exist for a finding of res judicata to apply, these being that the same question or issue has been decided, that the decision was judicial and final, and that the parties to the judicial decision or their privies are the same persons as the parties to the proceedings in which res judicata is raised.  The Court found that the second and third elements had been satisfied and that the only issue to be decided was whether the issues that the Insured was seeking to have litigated had been decided during the arbitration proceeding.  The Court concluded that the claims being made by the Insured in the present action for damages for loss of accident benefits were all considered and determined by the arbitrator, with the exception of his claim for attendant care benefits.  As the Insured had not engaged in mediation of this part of his claim, as required by Section 281(2) of the Insurance Act, the claim was a nullity and could not be brought against the Insurer.

With regard to the Insured's claim against the Insurer for bad faith, the Court found that the arbitrator had not specifically considered or made any findings on the allegations of bad faith advanced by the Insured, with the exception of his determination relative to the special damages.  Accordingly, the Court concluded that the arbitrator's decision did not decide the same issue as presented in the Insured's "bad faith" claim in these proceedings and res judicata did not apply to this part of the Insured's claim.

This case was originally summarized by sdavies@harpergrey.com and originally edited by dpilley@harpergrey.com

In December 1997, the home of an insured ("Sagl") was destroyed by fire. The Insurer refused to pay the losses, claiming the fire was deliberately set by someone acting on Sagl's behalf. The Insurer further claimed the policy was void because Sagl intentionally concealed or misrepresented the material facts before and after the loss. The Insurer submitted that the fire was staged, as Sagl's son was staying elsewhere for the night, Sagl was out for dinner, Sagl's dog was outside and the maid had the night off. The Insurer claimed that Sagl was in bad financial straits and would benefit from having insurance proceeds from the fire. Sagl had claimed that she had significant assets, including jewellery and art, and that her financial position was not dire. It was clear that significant personal assets were lost in the fire.

The Fire Marshall investigated the fire and concluded arson was the likely cause because of the absence of residents, windows were left open and there were no signs of forced entry. The Inspector did not consider statements by firefighters on the scene, who confirmed that the fire started in the basement, in concluding that fires were set in three places in the home. The Investigator did not discuss with Sagl what items in the basement could have started the fire and Sagl's evidence was that there were lamps in the basement which were known to have started fires in other circumstances.

Sagl had purchased insurance by inadequately completing an application form, but neither the brokers nor the Insurer had requested that she complete the form prior to issuing the insurance policy or collecting premiums. Sagl claimed that she lost personal property valued at over $2,200,000 in the fire, including jewellery valued at approximately $925,000. The Insurer offered no evidence to rebut this claim. Sagl provided an appraisal of her art collection, which valued it of over $9,000,000. The Insurer did not prepare a rebuttal report, but challenged many items as fraudulent where no purchase receipts were retained and no pictures of the work provided.

The Court awarded Sagl damages for full replacement cost of the home and the policy limits for contents, jewellery and art. The Court further awarded punitive damages of $500,000 against the Insurer.

The Court found that the Insurer had not established that there was a staging of arson, as all absences from the house on the night of the fire were reasonable. The Insurer did not establish that Sagl had a motive or opportunity to have someone set the fire to her house. The Court found that the Fire Marshall's investigation of the fire was flawed as the investigation proceeded on the assumption that the fire was incendiary. The Investigator did not keep an open mind until the investigation was complete. The Insurer had failed to prove on a balance of probabilities that Sagl was involved in the fire in any way.

The Court found that the Insurer was wrong to suggest that Sagl's claim for personal property losses was fraudulent where evidence showed value of the contents of the home greatly exceeded the policy coverage. The Insurer was faulted for poor business practices in failing to examine the art collection prior to providing coverage. The Insurer failed to show Sagl intentionally concealed or misrepresented material facts relating to the policy after the fire. The Court concluded that the Insurer breached its duty of good faith in failing to determine appropriate coverage for Sagl, then asserting her claims were fraudulent. The Insurer also breached its duty of good faith by failing to properly scrutinise the Fire Marshall's evidence. The Insurer's allegation that Sagl committed the criminal offence of arson without evidence to support the allegation was reprehensible. In denying coverage for ten years after the fire, the Insurer's conduct was malicious, oppressive and high-handed, meriting condemnation of the Court.

The Plaintiff brought an application to amend its Statement of Claim seeking damages for business interruption; mental distress on behalf of the corporate directors; and punitive damages for loss of reputation and loss of business incurred by the Plaintiff corporation. In the underlying action, the Plaintiff, 539091 Ontario Ltd. (c.o.b. Len’s R.V. Sales) ("Len’s R.V. Sales") sued its insurer, Allianz Insurance Co. of Canada ("Allianz") alleging bad faith after a fire broke out at the corporate premises. Mr. and Mrs. Ager were the shareholders and directors of the Plaintiff Len’s R.V. Sales.

The Defendant, Allianz opposed the amendments on the following grounds: counsel for the Plaintiff had already confirmed there would be no claim for business interruption loss which constituted an admission that should not now be withdrawn by the amendment; the corporation’s directors were not named insureds and therefore did not have any claim under the insurance policy; and a claim for punitive damages had already been pleaded in the Statement of Claim.

The first issue was whether the statement by Plaintiff’s counsel that there would be no claim for business interruption loss constituted an admission. Plaintiff’s counsel submitted the statement, contained in a letter following a request made at an examination for discovery, was not an admission as it was not made by Mr. and Mrs. Ager, the company’s shareholders. The Court found that the solicitor’s statement constituted an informal admission that was not binding on the Plaintiff who gave it. The Defendant would not suffer prejudice if the admission was withdrawn and the amendment was permitted.

The second amendment sought was to add a claim for damages for the mental distress of Mr. and Mrs. Ager caused by the nature of the claim and the handling of it by the Defendant insurer. The Defendant argued that this claim was not tenable at law because the shareholders were not named as insureds under the Policy. The Court found that Mr. and Mrs. Agers were not named insureds under the Policy. However, it could not be said that there was no contractual nexus between the Agers and the insurer given the limited scope of coverage extended to officers and shareholders. Whether it is sufficient to ground the duty of care is an issue that should be left for trial to be decided on a full evidentiary record.

 Accordingly, the Plaintiff was granted leave to amend its Statement of Claim to seek damages for mental distress on behalf of the Agers as officers of the Plaintiff corporation.