Describe the insured's post-contractual duty of utmost good faith by providing

examples of the best known cases in which it has been applied.

common law provinces

It has been less common for the insurer to initiate a claim against the insured for bad faith. Instead, it is

73

See Jawahar Lal Sharma c. La Victoria Compagnie d'Assurances, [1997] R.R.A. 46 (C.A.).

74

See Miserany c. Royal Sun Alliance, 2007 QCCQ 12212 (CanLII).

75

See Civil code of Quebec, LRQ c C-1991, art. 2471. 76

See Civil code of Quebec, LRQ c C-1991, art. 2466. 77

See Lemay Paquette c. Unique cie d'assurances générales, 2004 CanLII 14063.

more common that the insurer allege bad faith as a defense to a claim brought by the insured. In one case, the insured misled the insurer about the defence of a claim against the insured.78 Another case involved an insured refusing to co-operate with the insurer in a first party claim.79

civil law (Quebec)

In Minville c. Assurances générales des Caisses

Desjardins, an insured failed to communicate to their

insurer that an insured residence had been vacated, instead describing it as a temporary vacancy, and the insurer refused to indemnify the insured when the vacated property burned down. The Quebec Superior Court found that the insured’s failure to give a real account of the character of the vacancy was a breach of the duty of utmost good faith.80

In Cyr c. Groupe La Laurentienne, the Court of Appeal found that an insured’s concealment of the fact that they were approached by someone who declared themselves ready to set fire to the insured building in order to rectify their financial difficulties constituted a breach of the duty to proactively disclose.81

In Miserany c. Royal Sun Alliance, the Court of Quebec found that an insured, claiming theft of a microwave, had breached the duty of utmost good faith in respect of his/her obligations under articles 2471 and 2472 of the Civil Code of Quebec, when it was determined that he had lied concerning the state of the microwave.82

18. Is the insured’s intentional concealment of his/her criminal activities when completing a proposal for life policies a breach of the duty of utmost good faith?

common law provinces

No. In Oldfield, the widow of the insured was not barred from claiming under her husband's life insurance policy even though he died during the commission of a criminal act (he swallowed a condom filled with cocaine, which he intended to sell, in order to hide it from the police). Two principles of insurance are discussed in the case. First, that the insured cannot benefit from their own intentional action (e.g.

78

Fredrickson v Insurance Corp of British Columbia, [1985] 5 WWR 342 (BCSC); affd 28 DLR (4th) 414 (BCCA); affd 49 DLR (4th) 160 (SCC).

79

Andreychuk v RBC Life Insurance Co. (2008) 60 CCLI (4th) 237 (BCSC); affd 305 DLR (4th) 110 (BCCA). 80

Mainville c. Assurances générales des Caisses Desjardins, 2006 CanLII 3162.

81

Cyr c. Groupe La Laurentienne, 1998 CanLII 1092. 82

See Miserany c. Royal Sun Alliance, 2007 QCCQ 12212 (CanLII).

IBA Insurance Committee Substantive Project 2014 41 The Duty of Utmost Good Faith: Canada

setting their house on fire). Second, that the insured must not benefit from their own deliberate criminal conduct. However, here the insured did not swallow the cocaine with the intention of ending his life so his wife could have the insurance proceeds; his death was accidental. The insurance claim by the wife would not form part of the insured's estate, and as such her claim was that of an ordinary beneficiary and was not tainted by the criminal activity.83

civil law (Quebec)

Yes. The duty of utmost good faith requires that the insured proactively declare all relevant information to his/her insurer. In life-insurance policies, some criminal activities, such as driving while impaired, must be revealed to the insurer as part of both his/her duty of disclosure and his/her duty of the utmost good faith.84 Also, the intentional concealment of a previous criminal record is considered to be information that is relevant for the insurer to evaluate the risk, thus breaching the duty of utmost good faith.85

B - For the Insurer

19. What is the content of the duty of utmost good faith for the insurer when dealing with a claim?

common law provinces

The duty of good faith requires an insurer to act both promptly and fairly when investigating, assessing and attempting to resolve claims made by the insured.86 The insurer must act with reasonable promptness during each step of the claims process. Included in this duty is the obligation to pay a claim in a timely manner when there is no reasonable basis to contest coverage or to withhold payment.87

The duty of good faith also requires an insurer to deal with its insured's claim fairly. The duty to act fairly applies both to the manner in which the insurer investigates and assesses the claim and to the decision whether or not to pay the claim. In making a decision 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. It must not deny coverage or delay payment in order to take advantage

83

Oldsfield v Transamerica Life Insurance Co of Canada (2000) 135 OAC 177 [Oldfield].

84

See Didier Lluelles, “Précis des assurances terrestres”, 5th ed., (Montreal: Editions Thémis, 2009) at 256. 85

Landry c. Union-Vie, 2004 CanLII 18015 (QC SC); McDuff c. Industrielle Alliance, assurances et services financiers inc., 2009 CanLII 530 (QC SC); Proulx c. Axa Assurance Inc., 2004 CanLII 28327 (CQ CQ).

86

702535 at para 27. 87

Ibid at para 28; Bullock v Trafalgar Insurance Co of Canada (1996), 9 OTC 245 (Ont Gen Div).

of the insured's economic vulnerability or to gain bargaining leverage in negotiating a settlement. A decision by an insurer to refuse payment should be based on a reasonable interpretation of its obligations under the policy. This duty of fairness, however, does not require that an insurer necessarily be correct in making a decision to dispute its obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith.88

When dealing with bad faith claims, the insurer must pass two tests. They must 1) fairly and fully consider the interests of the insured and 2) act as a prudent insurer without policy limits would. When considering the interests of the insured, Canadian cases state that the insurer must at least give as much consideration to the insured's interest as it does its own.89 However, often the courts will require the insurer to give more consideration to the interests of the insured than it does its own.90

Bullock v Trafalgar Insurance Co of Canada91 set out

requirements for an insurer responding to a claim. An insurer:

 Must be prompt in handling and assessing the loss

 Must give as much consideration to the welfare of the insured as it does its own interests

 Cannot do anything to injure the rights of the insured to receive benefits under the policy

 Must undertake an adequate investigation and evaluation of the claim

 Provide the insured with correct information, a fair interpretation of the policy and prompt payment if the claim has merit

 Not treat the insured as an adversary whose

interest may be disregarded.

These requirements have also been laid out as: an obligation to fairly and competently investigate, assess the claim, defend the claim, negotiate the claim, inform the insured, be prompt, and acquire and communicate information.

88

Palmer v Royal Insurance Co of Canada (1995), 27 CCLI (2d) 249 (Ont Gen Div).

89

Shea v Manitoba Public Insurance Corp, [1991] ILR 1- 2721 at 1237 (BCSC); Comunale v Traders General Ins Co, 328 P2d 198 (Cal Sup Ct 1958); Brown v Guarantee Ins Co, 319 P2d 198 (Cal Ct App 1957) at 74.

90

Appel (Guardian ad Litem of) v Dominion of Canada General Insurance Co (1995), 32 CCLI (2d) 92 (BCSC); affd [1998] 1 WWR 592 (BCCA).

91

(1996) 64 ACWS (3d) 670 (Ont Ct Gen Div) at paras 100- 102.

IBA Insurance Committee Substantive Project 2014 42 The Duty of Utmost Good Faith: Canada

civil law (Quebec)

In civil law, the insurer’s duty of utmost good faith at the claim stage includes an obligation to obtain any information from the insured in a reasonable amount of time that he deems necessary for proper assessment of the claim. The insurer also has the obligation of acting in good faith, transparent and diligent when paying the indemnity to his/her insured. Hence, if the insurer is not satisfied with the details given by the insured with respect to the loss suffered, he needs to seek additional information.92 The Civil

Code of Quebec stipulates that the insurer has a 60

day period following receipt of the notice of loss or the relevant information to pay the indemnity.93 Furthermore, the insurer is “liable for injury resulting from delay in the performance of the obligation from the moment he begins to be in default”.94

20. Does an insurer owe a duty of utmost good faith towards third party beneficiaries of cover in handling claims?

common law provinces

When a third party is entitled to claim benefits under the insurance policy of another person, the insurer can assert they have no contract with the third party and therefore no duty of good faith. In one British Columbia case, however, it was held that an insurer may owe good faith obligations to an uninsured when the person is treated as if they were insured.95 In

Hosseini, the insurance company treated Mr.

Hosseini, who was uninsured, as if he was insured by writing in its statement of claim that Mr. Hosseini was driving "contrary to the terms and conditions of the owner's policy."96

civil law (Quebec)

Yes. In Quebec, the obligations owed to an insured with respect to the duty to obtain any information necessary for the assessment of a claim will also be owed to a third party beneficiary who, as an interested party, has taken up the burden of disclosing information under article 2471 of the Civil Code of

Quebec as provided for in that article.

92

Max-I-Mum Services Financiers Ltée c. Promutuel du Lac au Fjord, 2005 CanLII 19397 (CQ CQ). See also Manon Chayer c. Studio Chantal-Frank Inc. et un autre -et- Groupe Desjardins Assurances générales, [1994] R.R.A. 309-313 (C.S.).

93

See Civil code of Quebec, LRQ c C-1991, art. 2473. 94

See Civil code of Quebec, LRQ c C-1991, art. 1600. 95

Insurance Corp of British Columbia v Hosseini (2006), 262 DLR (4th) 233 (BCCA) [Hosseini].

96

Ibid at para 60.

21. Describe the insurer's post-contractual