Simon's Megalomaniacal Legal Resources

Damages - Insurers Denial of Meritorious Claim

In Fernandes v. Penncorp Life Insurance Company (Ont CA, 2014) the Court of Appeal commented on when damages may emanate from an insurer's denial of a meritorious claim:

[75] In considering the issue of good faith, it must be emphasized that disputing or refusing a meritorious claim does not, in itself, constitute a breach of a duty to act in good faith: Fidler, at para. 63.

[76] The decision of 702535 Ontario Inc. v. Lloyd’s of London, Non-Marine Underwriters 2000 CanLII 5684 (ON CA), (2000), 184 D.L.R. (4th) 687 (Ont. C.A.), which was approved by the Supreme Court in Fidler, describes the parameters of an insurer’s duty at para. 29:

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 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 obligations to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith.