Insurance Bad Faith Litigation: Recent Developments and Interesting Issues Arising from the Supreme Court of Canada Decisions in Whiten and Fidler

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In Whiten v. Pilot Insurance (2002) and again in Fidler v. SunLife Assurance (2006) the Supreme Court of Canada held that, as a matter of law, a breach by the insurer of its contractual duty to act in good faith is itself an independent ?actionable wrong? (beyond the denial of coverage) sufficient to found an award of punitive damages in appropriate cases. In the Whiten case, the court restored a jury award of one million dollars punitive damages in that regard and since that time the floodgates have opened. Runaway juries have even made punitive damage awards as high as 2.5 million dollars against insurers (albeit later overturned by the appeal court).

Today, coverage enforcement lawsuits invariably include what have become almost standard form allegations of bad faith claims handling and claim substantial punitive and mental distress damages on that account. In some (very rare) instances the claim may be justified, or at least arguable, but in many others it merely represents a litigation tactic designed to induce settlements through the combination of 1) potentially substantial awards by sympathetic unsophisticated juries and 2) the increased cost and inconvenience arising from extensive discovery into corporate finances, administration and claims handling.

It is now five years since the Whiten decision and a review of both basic principles and subsequent case law is in order.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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