Good faith claims may just ‘distract’ from common law principles that apply to insurance contracts: lawyer

An insurer’s duty to act in good faith may not actually mean much beyond the standard common law doctrines that apply to insurance contracts, according to Roderick Winsor of Blaney McMurtry LLP.
Winsor is the author of Good Faith in Canadian Insurance Law. He spoke as a panelist at the Canadian Defence Lawyers 7th Annual Insurance Symposium held in Toronto on Mar. 4.
Winsor said the insurance defence bar has not really defended good faith claims effectively. In particular, he noted defence counsel have been too quick to defend the merits/demerits of ‘good faith’ actions without first considering whether or not standard contract law principles apply.
“There have been a number of cases in Canada when plaintiffs have sued, asserting bad faith claims,” Winsor said. “To me I wonder, why? Is this not simply a breach of the policy that has given rise to the damages? Is it not better analyzed using contractual principles?”
Winsor also noticed he had yet to see an insurance policy that included a specific reference to acting in “good faith.” If the insured thought this was such an important principle, then one had to ask why the insured didn’t insist on that being part of the insurance contract in the first place.
“More often than not, I think [reference to ‘good faith’] is just rhetoric and laziness on the part of counsel, the rhetoric of plaintiffs, trying to turn a nice, contractual claim into something juicy and so on,” Winsor said. “It really confuses and distracts.”
For example, contract law analyzes the intentions of both parties to a contract [i.e. the insurer and the insured]. As such, the courts – and defence counsel – should not allow ‘good faith’ actions to buttress the legal doctrine that only one party to a contract matters (i.e. “the reasonable expectation of the insured”).
Nor should insurance defence counsel necessarily adopt the presumption that insurers always have unequal bargaining power over the insured. Contractual principles already exist to defend those who are disadvantaged in contractual negotiations, Winsor noted.
“There are insureds that are far larger, more sophisticated, better funded, better capitalized than some insurers,” he said. “Why would you ever apply good faith obligations on the basis of a perceived inequality of strength and sophistication, which is patently untrue in a significant portion of these commercial insurance [cases]?”