Insurers owe a duty of good faith to their insureds in the manner that they evaluate and assess claims. They must do so fairly and must not deny coverage as a strategic ploy to weaken the insured’s negotiating position. Where an insurer has failed to uphold this duty, the insurer is guilty of bad faith and may be subject to a claim for punitive damages, over and above its contractual obligation to pay benefits pursuant to the policy. The purpose of punitive damages in Canada is therefore to discourage wrongdoers from engaging in malicious and offensive activities by punishing them, irrespective of the compensation paid to the Plaintiff.
The Saskatchewan Court of Queen’s Bench has captured the attention of the insurance industry across Canada with its recent decision in Branco v. American Home Assurance Company, 2013 SKQB 98 (an appeal is anticipated). The Court awarded the Plaintiff $4.5 million in punitive damages, the largest award of its kind in Canadian history, after a 10-year dispute with his insurers, American Home Assurance Company (AIG) and Zurich Life Insurance Company. In arriving at this landmark decision, Justice Acton characterized the insurers’ conduct as “calculated and abhorrent” and “cruel and malicious”.
The insurers denied Mr. Branco’s long term disability benefits, despite the fact that he was clearly unable to work on account of two workplace injuries to his foot in 1999. Justice Acton found that the insurers failed to disclose to Mr. Branco for seven years that his claim had been approved; they terminated and/or withheld benefits without rhyme or reason; and they coerced him to enter in to an unfair settlement because of his financial struggles. This behaviour, as well as other actions on the part of the insurers, led to a finding of bad faith.
While most insurers would not stoop to this type of behaviour, it is hoped that that this decision will influence those other insurers to never again engage in the sort of conduct identified by the Saskatchewan Court of Queen’s Bench as deserving of significant punitive damages.