Insurer Breached Duty of Good Faith Despite No Damages

An insurer was found to have breached the duty of good faith when it decided to terminate benefits without any factual or legal grounds despite no damages actually occuring because benefits were reinstated before they were actually terminated.

Saskatchewan Government Insurance v. Wilson, [2012] S.J. No. 832, November 13, 2012, Saskatchewan Court of Appeal, W.J. Vancise, R.K. Ottenbriet and N.W. Caldwell JJ.A.

The insurer notified an insured that it had decided to terminate her no-fault benefits six months into the future. The insured brought a claim for breach of good faith duty and for indemnification of legal fees and costs. After the claim had progressed to a point where the insurer was aware that it had no legal or factual grounds to terminate, the insurer reversed its decision and reinstated benefits. This occurred prior to the termination date and the insured did not suffer any actual damage.

The trial judge found the insurer had breached the express terms of the insurance contract with the insured as it failed to notify the insured that it had unconditionally reversed its decision until one month after the scheduled termination date. The insurer conceded that it had no factual or legal basis for deciding to terminate the insured’s no-fault benefits. The trial judge held the insurer had seriously mishandled the insured’s claim and had breached its duty of good faith in doing so. The trial judge found for the insured and awarded punitive damages for (i) breach of duty of good faith, and (ii) indemnification of the insured’s legal costs incurred up to the scheduled termination date. The trial judge also awarded solicitor-client costs for the insured’s counsel’s attendance on the appearances of the adjusters as witnesses, and party-and-party costs for the time after the scheduled termination date to the date of trial.

The appeal court upheld the trial judge’s finding that the insurer breached its duty of good faith on the basis that the adjuster failed to consider assessments of the insured prepared on behalf of the insurer which recommended continued treatment. However, the appellate court overturned the judge’s award for punitive damages because the insured had failed to expressly claim for punitive damages in her pleadings.The court held a finding that an insurer has breach its duty of good faith does not necessarily satisfy the high threshold to be met before punitive damages will be awarded.

However, the appellate court went on to find that the steps she took to litigate the matter constituted mitigation of her damages. Therefore, the court upheld the award for indemnification of the insured’s legal costs which was originally classified as a punitive damage and held that the award was sustainable under a different classification. Despite having some success on the appeal, the insurer was ordered to pay for the insured’s costs in the appeal.

This case was digested by Djuna M. Field and edited by David W. Pilley of Harper Grey LLP.

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