In this final Part IV of this Practice Profile series, we look at bad faith in insurance contracts.
A contract of insurance between an insurer and its insured is one of utmost good faith. Essentially, as the insured, you have purchased insurance coverage for peace of mind and are therefore in a vulnerable position, entirely dependent on the insurer when a loss occurs. As such, insurers are required to act in good faith towards you and act fairly and promptly when handling your claim. As a result of an insurer’s legal duty to act in good faith, an insurer is not permitted to deliberately and wrongfully deny valid claims.
The Supreme Court of Canada has held that in making a decision on whether to refuse payment of a claim from its insured, an insurer must assess the merits of the claim in a balanced and reasonable manner. While mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith, an insurer must not deny coverage or delay payment in order to take advantage of the insured’s economic vulnerability or to gain bargaining leverage in negotiating a settlement. Instead, a decision by an insurer to refuse payment should be based on a reasonable interpretation of its obligation under the policy.
Successful bad faith claims result in damages payable over and above the amount that the disability benefits are payable. Where an insurer wrongfully denies a claim, a lawyer may hold them accountable for mental distress caused by a breach of their duty and the “peace of mind” bargain that the Supreme Court of Canada has found to exist in benefit plans. The amount of these awards can be significant.
Remember that if you are denied disability benefits, you only have a limited time within with to take legal action. When the limitation period begins to run will depend on the facts of each individual case and are not the same for each policy. As such, it is essential to seek legal advice from one of our disability claim lawyers early in order to know what limitation periods are applicable to your circumstances and ensure you comply with those deadlines and do not jeopardize your claim.
Thus, by contacting one of our lawyers early, it will also provide you with an advocate who is familiar with the process and who can help you meet crucial deadlines and enforce your legal rights to ensure you receive appropriate compensation.