Insurer Owes No Duty of Good Faith to Advise Insured of Limitation Period

In Usanovic v. Penncorp Life Insurance Company (La Capitale Financial Security Insurance Company), 2017 ONCA 395, the Ontario Court of Appeal held that an insurer’s duty of good faith did not require it to give notice of the limitation period to its insured for an action to be brought against it. The Court held that while the legislatures of some provinces have imposed a statutory obligation to that effect, there is no such requirement in Ontario. Whether there should be is a matter that should be left to the legislature.

Background

The claimant Mr. Usanovic (“Usanovic”) was a self-employed eavestrough installer. In 1999, he bought an insurance policy from the insurer Penncorp Life Insurance Company. The policy insured him against disability arising from accidents. In 2004, he purchased additional coverage for disability arising from sickness.

In September 2007, Usanovic fell from a roof and suffered serious injuries. He received disability benefits until November 2011, when the insurer terminated its payments because he no longer had a “total disability”, as defined by the policy.

On January 12, 2012, the insurer’s lawyer wrote to Usanovic explaining that since benefits had been paid for 24 months, he was not entitled to receive further benefits unless he was unable to engage in any and every occupation for which he was reasonably fit by reason of his education, training and experience. A review of the medical information on his file did not support the conclusion that he had a total disability. Moreover, surveillance undertaken by the insurer was inconsistent with the limitations from which Usanovic claimed to be suffering.

The lawyer’s letter added, “If you disagree with this decision, please submit, within sixty days of receipt of this letter, medical records in support of your claim for total disability from any occupation for which you are reasonably trained and educated”.

Usanovic did not provide new medical records in response to the letter. He claimed in an affidavit that he had sent a letter to the insurer, protesting the termination of his benefits. The insurer denied having received that letter.

In cross-examination, Usanovic admitted that he knew his benefits had been terminated, had received the lawyer’s letter, had read the policy over, had discussed the matter with his wife many times and had considered hiring a lawyer, but could not afford to do so.

In early 2015, Usanovic consulted counsel, who told him that there was a two-year limitation period regarding his claim. Usanovic alleged that, had the insurance company told him about the limitation period when it denied his claim, he would have brought an action earlier. He commenced this action in April 2015, more than two years after the termination of his benefits and receipt of the letter from the insurer’s lawyer.

The Decision of the Motions Judge

The Court of Appeal reviewed the decision of the judge before whom the original application had been brought. In the court below Usanovic submitted that the insurer’s duty of good faith and fair dealing obliged it to advise its insured of the applicable limitation period regarding the denial or discontinuance  of insurance benefits and that the two-year limitation period did not begin to run until the insurer gave this notice.

The motion judge rejected this argument. He observed that, “in my view, the extension of the law proposed by the plaintiff [Usanovic] would represent a substantial shift in the boundaries of the obligation of good faith and fair dealing on insurers as they are presently understood” (at para. 38).

The motion judge’s core conclusions, at paras. 40-42, were as follows:

It would appear 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. There is a marked difference, however, between imposing on an insurer a positive obligation to advise with respect to rights and benefits internal to the policy and the imposition of an obligation to advise with respect to the application of law external to the policy, such as pursuant to the Limitations Act.

In my view the court should be circumspect in extending the common law to impose positive obligations of general application on parties, particularly where the implications of so doing are unknown. The law of insurance is broadly occupied by legislation and in my view it should be left to the legislature to regulate, if it deems it necessary and appropriate, the nature and extent of information which must be given by insurers to their insureds upon denial of benefits, including the existence and details of applicable limitation periods.

I find that there was no obligation in law on the defendant to advise the plaintiff of the applicable limitation period in the Limitations Act.

Court of Appeal

Justice George Strathy, Chief Justice of Ontario, writing for a unanimous panel, summarized the law in Ontario as follows:

1.         Parties to an insurance contract owe each other a duty of utmost good faith;

2.         This duty requires an insurer to deal with claims by its insured in good faith;

3.         The duty of good faith is not the same as a fiduciary duty. 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. This requirement is based on the recognition that the insured is typically in a vulnerable position when making a claim;

4.         The scope of the duty of good faith has not been precisely delineated or definitively settled. 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;

5.         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.

Justice Strathy noted that, “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.”

Justice Strathy also noted that 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. He also noted that 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.

The Court noted that 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. 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. Alberta has also adopted specific notice requirements. Pursuant to a 2012 amendment to the Fair Practices Regulation 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.

Ontario has not gone as far as Alberta and British Columbia. However, the Insurance Act 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.

Justice Strathy concluded that the Ontario legislature might have gone further than it did, 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.”

In this well reasoned decision, Justice Strathy summarized the issue:

The consequences of the appellant’s [Usanovic’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.

The appeal was dismissed.