Bad Faith and Punitive Damages - When your insurance company is treating you unfairly?

August 12, 2007, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

The law dealing with the relationship between an insurer and the insured has moved to a point where there is a generally accepted understanding the the insurer has to deal fairly with the insurer´s claim under the policy of insurance.  This fair dealing approach extends to all policies of insurance including Long Term Disability insurance to motor vehicle / auto insurance.  The courts have held that the duty of good faith requires the insurer to act promptly and fairly when investigating, assessing and attempting to resolve claims.  The Supreme Court of Canada has held that where the insurer has breached the duty to act in good faith, a duty that arises under the contract of insurance, then that gives rise to an actionable wrong and the insured may sue for punitive damages.

The incorrect denial of a claim alone is not sufficient for punitive damages.  Bad faith has to be shown for the court to consider punitive damages.  The courts have developed a two part step for determining bad faith.  The first step requires the court to consider whether the insurer has been delinquent, conducted the assessment or generally managed the insurer´s claim in a manner that was unfair to the insured.  If the court finds that the insurer has acted in such a manner then the insurer has breached the obligation to act in good faith.  The insured would then be in a position to receive compensation for any damages   The second part of the test requires the court to consider whether the insurer´s conduct is so egregious that an award for punitive damages should be made.

The Supreme Court of Canada has clearly indicated that punitive damages will be awarded in breach of contact cases in rare situations and are the "exception rather than the rule".  Not every breach of good faith will attract punitive damages.  Extreme misconduct, or egregious behaviour, on the part of the insurer will have to be shown by the insured.  But as with all developing areas of the law, this area of punitive damages will likely see the types and awards of punitive damages expanded despite the efforts by the courts in general to set limiting conditions.

Posted under Personal Injury, Disability Insurance

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About Deutschmann Law

Deutschmann Law serves South-Western Ontario with offices in Kitchener-Waterloo, Cambridge, Woodstock, Brantford, Stratford and Ayr. The law practice of Robert Deutschmann focuses almost exclusively in personal injury and disability insurance matters. For more information, please visit or call us toll-free at 1-866-414-4878.

The opinions expressed here, while intended to provide useful information, should not be interpreted as legal recommendations or advice.

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