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Bad faith claim can’t be grounded solely on insurer’s request for a legal opinion, request for medical info


July 10, 2009   by Canadian Underwriter


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The Supreme Court of Canada has effectively ended a B.C. case in which a plaintiff claimed negligence and bad faith against an insurer, based on the insurer’s request for a legal opinion and for the plaintiff to provide a recorded statement.
The Supreme Court of Canada denied leave to appeal in Pearlman v. American Commerce Insurance Company (ACIC), effectively upholding the Court of Appeal for British Columbia decision in the matter.
The Appeal Court ruled the insurer did nothing wrong when it sought a legal opinion during adjudication of the Cdn$10,000 claim and made a written request for the plaintiff, David Pearlman, to cooperate with the insurer’s investigation by providing a recorded statement and submit to an independent medical examination.
Pearlman was injured in a motor vehicle accident in Surrey, B.C. in November 2004. His insurance policy was issued in the state of Washington at a time when Pearlman lived in Ferndale, Washington. The policy included a personal injury protection endorsement for medical and hospital expenses up to a limit of US$10,000.
Pearlman received benefits for dental and other medical expenses up to — and slightly beyond — the US$10,000 limit, before the insurer wrote to him and denied further coverage, saying the policy limit had been reached.
But Pearlman learned from an B.C. lawyer that the U.S. insurer had filed a Power of Attorney and Undertaking in Canada (PAUC), which suggested the insurer would be obliged to pay medical, dental and other limited expenses up to the minimum limit of Cdn$150,000.
Pearlman brought a motion against the insurer for negligence and bad faith, arguing that the insurer had concealed the fact that it had signed the PAUC.
The insurer asked a lower court judge for a summary judgment, dismissing the bad faith and negligence claim, among others.
The lower court judge did not dismiss the claim in bad faith and negligence, ruling that there were enough elements about the claim that it at least required further examination at trial. For example, the lower court found Pearlman raised “valid questions” about why the insurer needed to elicit a legal opinion on “the mundane issue of policy limit conformity.”
Also, whereas the insurer alleged Pearlman had refused the insurer’s request for Pearlman to record a statement and submit to an independent medical examination, Pearlman denied that he refused to do so.
Partly for these reasons, the lower court refused the insurer’s request to dismiss the negligence action.
On appeal, the B.C. Appeal Court overturned the lower court’s decision, noting the trial judge had ample evidence to answer Pearlman’s concerns and dismiss his claims in bad faith and negligence.
For one thing, the Appeal Court noted, the ACIC staff member handling the claim was unaware of the PAUC, which, rather than being concealed, was available on the Web site of the Canadian Council of Insurance Regulators (CCIR). Once made aware of the PAUC, the staff member acted without malice in obtaining a legal opinion on the policy limits, the Appeal Court ruled.
Secondly, the lower court judge was in possession of correspondence in which the insurer asked Pearlman for medical records in support of his claim. While Pearlman gave oral evidence that the did not refuse to supply the information requested of him, he supplied no evidence before the court that he had done so, the Appeal Court ruled.