© 2013 Stewart McKelvey. All rights reserved. Not to be copied or used in whole or in part without the express written consent of Stewart McKelvey Avoiding Bad Faith Claims CHRIS MADILL

© 2013 Stewart McKelvey all rights reserved Overview What is bad faith? What are punitive damages and when are they available? What are “aggravated” damages and when are they available? What can you do to mitigate the risk of a bad faith claim? 2 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved The Duty of Good Faith Implied obligation in every insurance contract that the insurer will deal with claims from its insured in good faith Requires fair, objective and even-handed approach in investigation and evaluation of claims 3 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved What is Bad Faith? Breach of the duty to be fair, objective and even- handed in the investigation, assessment and evaluation of a claim. 4 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Consequences of Bad Faith – Punitive Damages Punitive damages - awarded in exceptional cases for “malicious, oppressive and high-handed” misconduct that “offends the court’s sense of decency” Not awarded to compensate the plaintiff, but to punish the defendant. 5 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Consequences of Bad Faith – “Aggravated damages” for mental distress Aggravated Damages – for mental distress. Awarded where (1) an object of the contract was to secure a psychological benefit which would reasonably result in mental distress if breached; and (2) the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation. 6 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Whiten v. Pilot Insurance Co., 2002 SCC 18 Claim against Pilot following residential fire loss claim. Damages $345,000 in compensatory damages $320,000 in costs (full indemnity/solicitor and client) $1,000,000 in punitive damages. 7 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Branco v. American Home Assurance Co SKQB 98 Claim against AIG and Zurich related to temporary and long term disability benefits. Aggravated damages $150,000 awarded against AIG $300,000 awarded against Zurich Insurance Punitive damages $1.5 million against AIG $3.0 million against Zurich 8 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Bad Faith - Examples Deliberately misleading the insured Refusing to negotiate with the insured or failing to act promptly Ordering unwarranted surveillance and investigations of insured Relying on inadequate information to deny payment 9 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Bad Faith - Examples (cont) Dismissing expert reports favourable for the insured Sending the insured to an expert lacking in competency and objectivity Failing to provide an expert with all available information Denial of benefits after receipt of an insurance medical without allowing insured an opportunity to have their doctors comment on it 10 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Avoiding Bad Faith - Generally Act promptly Act fairly Avoid premature conclusions Investigate thoroughly Communicate with the insured Know your policy 11 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Avoiding Bad Faith Claims - Investigation Internal claims handling policy Conduct an investigation Timing Tailoring Consider advance payments Goal is a fair and reasonable investigation 12 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Avoiding Bad Faith Claims – Document the File Proof of reasonable conduct Record keeping Date stamping Phone/call memorandums Notations of activity Assume discoverability 13 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Avoiding Bad Faith Claims – Use of Experts Use of experts Use a qualified, fully informed expert as necessary Protect the sanctity of the expert’s evaluation 14 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Avoiding Bad Faith Claims – Administering the Claim Obtain and document Medical history Follow written procedures Avoid “bundling” Be responsive Reasonable use of coverage counsel Denial of coverage – key elements Abandon the untenable 15 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved Summary Act promptly and fairly throughout claim Investigate thoroughly, investigate timely Keep insured informed at all stages Keep a well documented claims file Obtain expert opinions where required Pay claim in timely manner if no reasonable basis to deny coverage When denial is proper, be comprehensive in explanation 16 CIAA / CICMA Joint Conference

© 2013 Stewart McKelvey all rights reserved QUESTIONS / DISCUSSION 17 CIAA / CICMA Joint Conference