The first case this month sets out that a motor vehicle liability policy is a contract which secures the “peace of mind” of the insured, and damages for mental distress may be awarded when it is breached. It also sets out that punitive damages may be awarded against an insurer for ending benefits when that insurer does not properly balance the expert reports provided to it.
Our second case raises
questions as to what an insurance broker must do in order to meet his or her responsibility to the insured when advising on insurance policy exclusions.
The third case affirms that a breach of the insurer’s duty of good faith is independently actionable and separate from a claim for breach of contract. Even without a denial of benefits, damages may be given for breaches of duty. However, punitive damages will not immediately flow from an insurer’s breach of its duty of good faith. The plaintiff must prove something more (a malicious or reprehensible denial of benefits) in order to receive punitive damages.
UPDATE: Small Claims Court in New Brunswick
In our May 2012 newsletter, we reported on the New Brunswick government’s plan to re-establish a Small Claims Court for the Province, replacing Rule 80 of the Rules of Court which had governed small-claims proceedings (up to $30,000) in the Court of Queen’s Bench.
The Department of Justice has now advised that the new Small Claims Act and accompanying Regulation were proclaimed in force, and Rule 80 consequently repealed, effective January 1, 2013.
The re-established Small Claims Court is meant to improve access to justice for New Brunswickers by speeding the process for small claims and allowing hearings to be conducted in a less formal manner.
The Court, which is presided over by adjudicators, will hear actions for debt, damages, and/or the return of possession of personal property to a maximum amount of $12,500. Claims over that amount will remain with the Court of Queen’s Bench and proceed under Rule 79 of the Rules of Court (up to and including a monetary limit of $75,000) or under ordinary procedure (all other claims).
Actions already started in the Court of Queen’s Bench under Rule 80 will continue through to completion under that process; but as of January 1, 2013, parties no longer have the option to proceed under Rule 80.
McQueen v. Echelon General Insurance Company, 2011 ONCA 649
The plaintiff had been involved in a motor vehicle accident at a time when she was unemployed and receiving government disability benefits. Her automotive insurer initially provided benefits for housekeeping and transportation.
The insurer had hired an occupational therapist to visit the plaintiff’s home. The therapist recommended the plaintiff continue to receive benefits due to her limitations. After receiving this report, the insurer hired an orthopaedic surgeon to examine the plaintiff. This surgeon was not given a copy of the therapist’s report and conducted a very short examination. The surgeon recommended the plaintiff was capable of housekeeping, and was able to take public transportation. After receiving this report, the insurer discontinued benefits to the plaintiff.
The plaintiff then began an action for housekeeping and transportation benefits, the cost of medically recommended assessments, and alleged the insurer had acted in bad faith and caused her mental distress.
At trial, the plaintiff was awarded damages for housekeeping and transportation benefits, the cost of the medically recommended assessments, and $25,000 for mental distress. In awarding punitive damages, the trial judge relied on the insurer’s conduct surrounding the denial of benefits and gave little to no weight to the surgeon’s report, stating that the surgeon’s findings were based on a ‘superficial examination lasting only 30 minutes’. The trial judge criticized the fact that the insurer had not forwarded the therapist’s report to the surgeon. The trial judge also remarked that the insurer’s internal notes demonstrated an adversarial approach and negative predisposition from early on which breached the contract of insurance and caused mental distress to the plaintiff.
The Ontario Court of Appeal upheld the trial judge’s decision, slightly reducing the award of transportation benefits. In justifying the award for mental distress, the Court referred to Fidler v. Sun Life Assurance Co. Ltd., 2006 SCC 30 and Whiten v. Pilot Insurance Co., 2002 SCC 18. The Court found that a motor vehicle liability policy constituted a “peace of mind” contract that secured for the plaintiff a psychological benefit, and the insurer’s denial of benefits could lead to damages for mental distress flowing from that breach of contract. The Court also found that awards for mental distress are available to anyone insured under a policy when the promise of ‘peace of mind’ would have been within reasonable contemplation of the insurer and insured. The promise of ‘peace of mind’ need not be the dominant or sole object of the contract for damages to be awarded.
Newbigging et al. v. M. Butler Insurance Brokers Ltd. et al., 2012 ONSC 5174
The insured was a landlord who applied for insurance coverage for his student boarding house. The landlord was forwarded an insurance policy by his broker.
The landlord did not read the policy, and the broker did not meet or explain the policy or its exclusions to the landlord, including the policy’s standard vacancy provision. Rather, the broker informed the landlord that he should read the policy and its exclusions.
During the policy period, the boarding house sustained water damage due to vandalism while one of the residences was vacant. The landlord claimed the cost of repairs under the insurance policy and was denied coverage. The landlord then made a claim against the broker for failure to properly explain the vacancy provision.
The trial judge in the first instance found in favour of the landlord and awarded damages for approximately half the cost of the repairs. The trial judge held that the landlord had relied on the expertise of the broker, and the broker had known that this type of insurance policy was new to the landlord. The broker also knew that the insurance policy was for a boarding house, and had made special policy recommendations based on this fact.
On appeal, the superior court judge found the trial judge had correctly concluded that the broker had breached his obligation in not directly telling the landlord that there would be no coverage during any period when the premises were vacant. The broker was found liable, despite the fact that the landlord admitted he had failed to read the policy. The appeal was dismissed.
Wilson v. Saskatchewan Government Insurance, 2012 SKCA 106
The insurer, Saskatchewan Government Insurance, appealed a trial judge’s award of punitive damages arising from its breach of its duty of good faith and fair dealing with a plaintiff insured. The Saskatchewan Court of Appeal upheld the trial judge’s ruling that a breach of the duty of good faith had occurred. However, the Court of Appeal set aside the award of punitive damages.
The insurer had sent the insured a letter informing her that it would be discontinuing her no-fault benefits in six months’ time. However, the insurer quickly retracted the decision after the insured began her action, and the insured consequently suffered no interruption of payments. The trial judge found that while there had been no interruption, the letter alone constituted a breach of contract. Further, the insurer had only retracted the decision under the threat of litigation and under threat of being forced to acknowledge that there was no legal or factual foundation to end the benefits.
The Court of Appeal noted that the insured did not plead punitive damages, and did not claim punitive damages at trial. The Court also found that a finding of breach of duty of good faith does not necessarily lead to an award of punitive damages. Where no financial hardship fell on the insured, punitive damages were not warranted. The Court also stated that an award of aggravated damages would not be appropriate in this situation. It then converted the award of punitive damages into an award of damages which were to compensate the insured for her efforts to mitigate her losses by suing the insurer for the breach of the contract of insurance.