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Insurance - Duty of Good Faith - No Duty to Advise of Limitation Periods

Usanovic v. Penncorp Life Insurance Company (La Capitale Financial Security Insurance Company) (Ont CA, 2017)

In this case the Court of Appeal decides against the proposition that an insurer's duty of utmost good faith to the insured requires them to advise insureds of applicable limitation periods, and in so doing canvasses the requirements of that duty:
[25] There is no doubt that parties to an insurance contract owe each other a duty of utmost good faith: Bhasin v. Hrynew, 2014 SCC 71 (CanLII), [2014] 3 S.C.R. 494, at para. 55; Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), [2002] 1 S.C.R. 595, at para. 79.

[26] This court has held that this duty requires an insurer to deal with claims by its insured in good faith. See 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s London, England (2000), 2000 CanLII 5684 (ON CA), 184 D.L.R. (4th) 687 (Ont. C.A.), at para. 27, leave to appeal to S.C.C. refused, [2000] S.C.C.A. No. 258:
The relationship between an insurer and an insured is contractual in nature. The contract is one of utmost good faith. In addition to the express provisions in the policy and the statutorily mandated conditions, there is an implied obligation in every insurance contract that the insurer will deal with claims from its insured in good faith.
[27] The duty of good faith is not the same as a fiduciary duty: Plaza Fiberglass Manufacturing Ltd. v. Cardinal Insurance Co. (1994), 1994 CanLII 653 (ON CA), 18 O.R. (3d) 663 (C.A.), at p. 669. In contrast to a fiduciary duty, the insurer is not obliged to treat the insured’s interests as paramount. However, the insurer must give as much consideration to the welfare of the insured as to its own interests: Bullock v. Trafalgar Insurance Co. of Canada, [1996] O.J. No. 2566 (Gen. Div.), at para. 101. This requirement is based on the recognition that the insured is typically in a vulnerable position when making a claim: Bhasin, at para. 55.

[28] The scope of the duty of good faith has not been precisely delineated or definitively settled: Barbara Billingsley, General Principles of Canadian Insurance Law, 2d ed. (Markham: LexisNexis Canada, 2014), at p. 52; Kang v. Sun Life Assurance Co. of Canada, 2013 ONCA 118 (CanLII), 303 O.A.C. 64, at para. 39. Although the assessment is fact-specific and will depend on the particular circumstances of each case, courts have recognized some general requirements of the duty of good faith.

[29] In 702535 Ontario Inc., at paras. 27-29, this court provided an overview of the insurer’s duty of good faith to act promptly and fairly when handling claims by the insured:
The duty of good faith requires an insurer to act both promptly and fairly when investigating, assessing and attempting to resolve claims made by its insureds.

The first part of this duty speaks to the timeliness in which a claim is processed by the insurer. Although an insurer may be responsible to pay interest on a claim paid after delay, delay in payment may nevertheless operate to the disadvantage of an insured. The insured, having suffered a loss, will frequently be under financial pressure to settle the claim as soon as possible in order to redress the situation that underlies the claim. The duty of good faith obliges the insurer to 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.

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 obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith. [Citations omitted.]
[30] The motion judge observed that “at its highest, the obligation of good faith and fair dealing arguably carries with it a positive obligation on an insurer to inform its insured of the nature of the benefits available under the policy” (at para. 40). See, for example, Atchison v. Manufacturers Life Insurance Co., 2002 ABQB 1121 (CanLII), 332 A.R. 72 and Clarfield v. Crown Life Insurance Co. (2000), 2000 CanLII 29045 (ON SC), 50 O.R. (3d) 696 (S.C.). The issue of whether an insurer breaches its duty of good faith when it fails to inform the insured of available policy benefits is not squarely before us and we need not decide it.

[31] In this case, however, we are asked to do something more than impose a duty of good faith on insurers to disclose the contents of the insurance policy. We are asked to extend the duty of good faith to require an insurer to disclose information outside the policy – namely, the existence of a limitation period.

[32] Some commentators have suggested that it would be severe and unfair for the insured to be denied benefits when the insurer was aware of the limitation period, but the insured was not: see, for example, Roderick Winsor, Good Faith in Canadian Insurance Law (Toronto: Thomson Reuters Canada, 2016), at para. 2.30. The appellant adopts this argument, submitting that it would be preferable, and simple, for the insurer to advise the insured of the limitation period when it denies the claim.

[33] The appellant acknowledges that no Canadian case has gone that far. Although two decisions of this court might have afforded an opportunity to address the issue, neither is directly on point: International Movie Conversions Ltd. v. ITT Hartford Canada (2001), 27 C.C.L.I. (3d) 102, aff’d on other grounds (2002), 2002 CanLII 23581 (ON CA), 57 O.R. (3d) 652 (C.A.) and LeBlanc & Royle Enterprises Inc. v. United States Fidelity & Guaranty Co. (1994), 1994 CanLII 1255 (ON CA), 17 O.R. (3d) 704 (C.A.).

[34] The British Columbia Court of Appeal has directly addressed this issue and concluded that the insurer is not obliged to advise the insured of the limitation period, although some members of the court suggested that it may be advisable to do so.

[35] In Balzer v. Sun Life Assurance Co. of Canada, 2003 BCCA 306 (CanLII), 227 D.L.R. (4th) 693, the British Columbia Court of Appeal suggested that in order to trigger the start of the limitation period the insurer must give an unequivocal denial and the “preferred course of action” may be to bring the limitation period to the insured’s attention. The court said, at para. 45:
Any ambiguity in the communication of a refusal of benefits, as to whether it is a clear and unequivocal denial, should be resolved in favour of the insured. To avoid any doubt, the preferred course for an insurer intending to deny coverage should be to include an alert in the letter drawing the insured's attention to the one year limitation … and informing the insured that the insurer will rely on the denial as starting the running of time.
See also Dachner Investments Ltd. v. Laurentian Pacific Insurance Co. (1989), 1989 CanLII 2723 (BC CA), 59 D.L.R. (4th) 123 (B.C.C.A.), at pp. 130-31.

[36] In Esau, Thackray J.A. clearly rejected the argument that an insurer is obliged to notify the insured of the limitation period, holding, at para. 42:
While I have sympathy for the plea of the appellant, this Court cannot, as acknowledged by the appellant, mandate the “ideal.” It cannot order legislative changes. Nor can it mandate that insurers must advise insureds as to policy or statutory limitation provisions. It would clearly be advisable for insurers to advise insureds as to the existence of limitation periods, but even here caution must be exercised because there are different limitation provisions with inconsistent commencement dates. Insurers could not, therefore, as suggested by the appellant, “advise their insureds that their letter of denial … commences the running of a one year limitation period.”
[37] Similarly, Levine J.A. held, at para. 52:
The British Columbia Insurance Act includes no such statutory obligation [to advise of limitation periods], and, as my colleague points out, it is not within the power of this Court to require insurers to provide specific information regarding limitation periods. But the judicially imposed requirement to provide a “clear and unequivocal denial,” … reflects the same principle: that insurers have an obligation to provide clear information to insured persons, who are consumers, about their claims under the policy.
See also Falk v. Manufacturers Life Insurance Co., 2008 BCSC 173 (CanLII), 80 B.C.L.R. (4th) 347, at para. 61.

[38] While no court has imposed a duty on the insurer to inform the insured of the limitation period, some legislatures have done so. In British Columbia, a regulation introduced in 2012 requires the insurer to give written notice to the claimant of the applicable statutory limitation period when it denies the claim or within a short time thereafter: Insurance Regulation, B.C. Reg. 403/2012, s. 4. There are exceptions for claimants represented by legal counsel and those making certain types of claims. If the insurer fails to provide the requisite notice, the running of the limitation period is suspended.

[39] Alberta has also adopted specific notice requirements. Pursuant to a 2012 amendment to the Fair Practices Regulation, Alta. Reg. 128/2001, s. 5.3, an insurer must give written notice of the applicable limitation period within five business days of denying a claim. The notice is not required when the insurer is aware the claimant is represented by counsel and for certain types of claims. If the insurer fails to give that notice, the court may, on application of the claimant, order that the applicable limitation period be extended and grant any other remedy that the court considers appropriate: s. 5.3(7).

[40] In Dhillon v. Anderson, 2014 ABQB 609 (CanLII), 597 A.R. 189, the Alberta Court of Queen’s Bench held that this amendment was more than procedural; instead, it fundamentally altered a substantial defence available to a defendant. Further, “[i]t imposes a new obligation on insurers to provide advice to claimants, an obligation that did not exist previous to the introduction of the Regulation” (at para. 34).

[41] Ontario has not gone as far as Alberta and British Columbia. However, the Insurance Act, R.S.O. 1990, c. I.8 was amended in 2012 to require life, disability and creditors insurers to include the following statement in the insurance policy and certificate:
Every action or proceeding against an insurer for the recovery of insurance money payable under the contract is absolutely barred unless commenced within the time set out in the Limitations Act, 2002.
[42] This amendment came into force on July 1, 2016.

[43] The appellant relies on Smith v. Co-operators in support of his argument for imposing a duty on an insurer to advise the insured of the limitation period when the claim is denied. In that case, the Ontario regulation pertaining to the Statutory Accident Benefits Schedule required the insurer to inform the insured, in writing, at the time a claim was denied, of the statutory procedure for the resolution of disputes. That statutory procedure specified a two-year limitation period. The Supreme Court held that the effect of the regulation was to require the insurer to inform the insured “of the most important points of the process, such as the right to seek mediation, the right to arbitrate or litigate if mediation fails, that mediation must be attempted before resorting to arbitration or litigation and the relevant time limits that govern the entire process” (at para. 14; emphasis added). Without providing that information to the insured, it could not be said that the insurer had given a valid refusal and the time limit did not begin to run.

[44] There is no statutory provision in this case similar to that considered by the Supreme Court in Smith v. Co-operators. Further, as Gonthier J. cautioned in Smith v. Co-operators, “it is not the role of this Court to set out the specific content of insurance refusal forms. This task is better left to the legislature” (at para. 14).

[45] The Ontario legislature might have gone further than it has, for example, by adopting the approach taken in Alberta or British Columbia. It presumably chose not to do so and, in my respectful view, the court should not impose consumer protection measures on insurers, outside the terms of their policies, that the legislature has not seen fit to require. A properly crafted regime, such as those in effect in Alberta and British Columbia, would not only have to specify the requirement to give notice, but also the consequences of failing to do so.

[46] The consequences of the appellant’s proposed expansion of the duty of good faith are significant. The appellant’s interpretation would effectively judicially overrule the provisions of the Limitations Act, 2002 by making notice given by an insurer to an insured the trigger for the limitation period, rather than discoverability of the underlying claim. This would defeat the purpose of the statute and bring ambiguity, rather than clarity, to the process.



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