Window on Canada: Legal Opinion
Punitive damages for denial of an insurance claim
Ontario Superior court awarded an Ingersoll, Ontario, couple $ 1.1 million in damages after the insurer denied liability alleging arson. More than half of this amount was made up of punitive and aggravated damages.
Punitive damages are not generally granted by court in a civil case for damages unless the conduct of the defendant is reprehensible and deserving of punishment. This criteria for damages is based on what the court feels is a behaviour that deserves punishment.
Insurance companies commonly employ adjusters to settle the claims of the insured. The job of the adjuster is to settle the claim but they often act aggressively to settle in favour of the insurance company that pays them rather than the claimant who suffered the loss. The claimant is in usually in a difficult position financially or physically when disaster strikes to assert the claim.
When you obtain house insurance, for example, it is very common for the agent to quote the best premium amount. The payment of the premium begins. This can continue for several years. One day when the house burns down and you make a claim when you have no receipts or place to live you must deal with the adjuster who will be asking for the proof that you owned all your belongings. At the time of obtaining the insurance there is usually no mention of what proof one should prepare for, like photographs and where to store them.
Insurance contracts are special in that the insured is placing a special trust and confidence in the insurance company to come to the rescue of the person when he has suffered a loss. Usually at the time when a claim arises the insured is in a very weak position. The insurance company on the other hand is in a financially strong position and has lawyers and adjusters to support them. Most of the time the insurance companies check out the claim and pay the amount. However, this is not always easy. On the other hand there are also marginal claims that the insured make which the insurance company must deal with. How does the insurance company determine that the claim is reasonable? Most insurance companies have claims departments and claims checking procedures.
Where the claim is determined to be false the trouble and the court litigation a claimant faces can be daunting and challenging. It can take expert evidence and a lot of technical know how to come up with proof of what happened.
In Canada reliance on insurance is very heavy for many newcomers as they do not have the support systems of the families to come to their rescue when disaster falls on them or their families. Insurance companies pay their sales agents heavy commissions for finding clients and the agents to not have incentive to portray an objective picture of claims history of the insurance company unless they are independent brokers. The concentration usually is on finding the cheapest insurance rather than insurance company that has a good claims history. This history is rarely discussed.
(Jay Chauhan is a senior lawyer based in Richmond Hill, Ontario, near Toronto, and an Economist from The London School of Economics.)