Watch out for aggravated claims, law report tells insurers

Depending on what the Supreme Court of Canada holds when it decides the point in Fidler v. Sun Life Assurance Co., insurers have “cause for concern” about being hit with aggravated damages for wrongfully denied claims, according to a recent report commissioned by the IBC.
“Since it has been held that bad faith is not necessary for a claim to be ‘wrongfully’ denied, and that it is enough that the insured’s claim is ultimately successful, an insurer is placed in a difficult position when inclined to deny a claim even when holding in good faith the view that it is not covered,” the report states.
The report was prepared by Craig Brown, a professor at the University of Western Ontario’s faculty of law, in conjunction with assistant professors Jason Neyers and Stephen Pitel. The IBC commissioned the study to see how legal developments “could have had an impact on the cost of liability insurance.”
In its conclusions, the report discusses the issue of how class actions in Canada may have expanded the scope for claims by policyholders. It also contains a warning about court decisions expanding the scope for aggravated damages based on “wrongfully” denying insurance coverage.
“The outcome of a dispute about coverage is often far from certain, as illustrated by the large number of litigated cases turning on interpretation,” the law professors note. “Insurers often take the view, in good faith, that the loss is not covered.
“Yet invariably a denied claim is going to cause the insured some anxiety or loss of peace of mind which could attract compensation in the form of aggravated damages. One could predict that this result, if unaltered by the Supreme Court of Canada, will lead to more paid claims [although] the entitlement to indemnity is debatable.”
The full report can be viewed at: http://www.ibc.ca/pdffiles/publications/UWOlegalimpactstudy.pdf