Respond to Claims in Good Faith Issue Where Ratio Notes The duty Whiten Insurer owes a reciprocal obligation of good faith: Mutual reliance and vulnerability Insured particularly vulnerable at time of loos/claims Insurer to further purpose of insurance—peace of mind Timely response to claims Duty of good faith response broader than duty to pay Insurer is not to exploit the insured’s vulnerability. Triggered Fidler The duty of good faith is triggered as soon as insurer advances claim under contract, regardless of whether K provides coverage for the loss claimed. Distinguish duty to pay: satisfactory proof of loss, compliance with post-loss obligations. Either or both duties triggered in a particular situation Standard of Duty Fidler KEY: Act reasonably. If unreasonable, will be in breach. Denial of benefits not necessarily a breach of the duty of good faith response Denial of benefits must be reasonable Balance and reasonable assessment of merits of claim Insurer not to strategically exploit insured’s vulnerability Refusal based on reasonable interpretation of insured’s contractual duties Insurer need not be correct re decision to dispute or deny payment Denial of claim that ultimately succeeds per se not bad faith Depends on circumstances May be liable EVEN IF denial of coverage is correct At a minimum, insured must: Investigate and asses the claim objectively and on proper grounds Act with reasonable diligence during each step of the claims process to see claim resolved in timely way; and If no reasonable grounds for denying coverage or payment exists, pay the claim on a timely basis. Consequences of breach of good faith duty Whiten Pay claim if denial of coverage incorrect. Punitive Damages Unfounded allegation of arson; manipulation of evidence Good faith duty breached Breach constitutes independently actionable wrong for punitive damages Example: Blanco Unreasonable denial of disability benefits for 10 years, with knowledge of insured’s financial and emotional vulnerability Punitive damages awarded against insurer for same agent’s conduct before, yet no change in behavior 4.5 million punitive award Even if no breach of good faith duty, there may be consequences Fidler Possibility of aggravated/ mental distress damages: Requires reasonable foreseeability of mental distress at time of K Here: pure contract principles Insured bargains for “peace of mind”, part of the consideration the insured gives in exchange for the premium
defend, then they are not entitled to deny indemnification for reasonable settlements—insurer deemed to have waived right to insist on compliance with contractual conditions: Stevenson SCC 1956 Duty to Settle Within Policy Limits Issue Where Ratio Notes Duty Shea In keeping with the duty of utmost good faith, insurer has a duty to attempt to settle within policy limits. Insurer must give consideration to both their financial interests and the insured’s financial interests. Rationale Lecture Insurer controls defence and settlement negotiations Ensures insured does not jeopardize insurer’s interest Insurer appoints counsel, conducts litigation, settlement etc. Therefore good faith and fair dealings required in defence and settlement 3rd party claim within policy limit Insured not at risk of financial liability to 3rd party Only insurer’s financial interest at stake Duty easily fulfilled *although insured may have other interests, such as reputational interests, at stake* 3rd party claim exceeds policy limit Shea Insurers and insured’s financial interests at stake Insurer must make reasonable efforts to settle within policy limits Insurer not to unreasonably refuse settlement offer within policy limit Includes an offer to pay policy limits in exchange for release of liability! 3rd party judgment against insured exceeds policy limit Fredrikson Not an automatic breach of good faith duty to settle over policy limit Insurer only required to act fairly and openly Consequences of insurer’s breach Dillon Liable for entire judgment amount Here: 3rd party claimed $100,000 Limit $50,000 Settlement offer: $45 Insurer declined, countered with $40 Judgment against insured for 78$ Insurer liable for all. Tripartite Relationship Third party claims against insured under liability insurance policy Insurer appoints, instructs, and pays counsel Counsel to defend insured in 3rd party liability claim Common interests between insured and insurer – judgment in liability claim in insured’s favour or limit liability, for e.g. quantum of damages Potential conflict of interests: Insurer alleges breach of condition/terms; coverage dispute, mixed claims, judgment v settlement, etc. Conflict of interest: whether a reasonable person will perceive defence counsel’s ability to equally protect the insured and insurer as compromised in the circumstances. Remedy: insured appoints independent counsel at insurer’s expense Are there concerns with the insured’s appointment of independent