Canada: Ont. C.A. Finds That, In Ontario, LTD Insurer's Duty Of Good Faith Does Not Include Advising Insured Of A Limitation Period

Last Updated: June 9 2017
Article by Michael S. Teitelbaum

Further to the previous Blawg posts about Usanovic v. Penncorp Life Insurance Company (La Capitale Financial Security Insurance Company), pasted below, the Ontario Court of Appeal, in a decision written by Chief Justice Strathy, and released on May 18th, 2017, dismissed the insured's appeal from the dismissal of this LTD action as being limitation-barred.

The Court upheld the motion judge's finding that the insurer did not breach its duty of good faith by failing to inform the insured of the limitation period when it terminated his benefits. His Honour noted that "[u]nder the Limitations Act, 2002,... the limitation period began to run when the claim was 'discovered', [here, the date of the denial letter] as determined by s. 5. The insurer's duty of good faith did not require it to give notice of the limitation period to its insured. 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 I would leave to the legislature.".

Although involving a LTD claim, subject to the specific provisions relating to Ontario SABS claims, discussed in the Court's decision, excerpted below, the Court's reasoning should be generally applicable.

The Court's Analysis reads in part:

[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, [2014] 3 S.C.R. 494, at para. 55; Whiten v. Pilot Insurance Co., 2002 SCC 18, [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), 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), 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, 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:...

...

[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, 332 A.R. 72 and Clarfield v. Crown Life Insurance Co. (2000), 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), 57 O.R. (3d) 652 (C.A.) and LeBlanc & Royle Enterprises Inc. v. United States Fidelity & Guaranty Co. (1994), 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, 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), 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, 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, 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.

Ont. Super. Ct. awards costs to successful defendant insurer finding allegedly novel issue of whether insurer obliged to advise insured of limitation period does not warrant exercise of discretion to not award costs

by Michael Teitelbaum | Oct 07, 2016

Further to the earlier Blawg post in Usanovic v. Capitale Life Insurance Co., pasted below, in which this LTD action was held limitation-barred, Ontario Superior Court Justice Broad has now awarded partial indemnity costs to the defendant of $23,750.

I have posted this costs decision for future reference in respect of one of the arguments by the plaintiff; namely, because the issue was novel, no costs should be awarded, which His Honour did not accept.

The plaintiff's position was that because the main issue on the motion was whether an insurer is required, "considering its duty of good faith to its insured, to advise the insured of the limitation period when it denies a claim, was novel and important to the public at large as well as to the insurance industry".

On this point, His Honour stated:

11 I am not satisfied that the nature of the issue raised by the plaintiff on the motion was such that no award of costs should be made on the basis of novelty. As the Divisional Court observed in Groia v. The Law Society of Upper Canada 2015 ONSC 1680 (Div. Ct.) at para. 4, there is no rule that the first case to raise a particular issue should not attract a costs award. Although there may be a public benefit to having the court clarify a legal issue, that does not mean that no costs should be awarded in all such cases.

12 I would not characterize the issue advanced by the plaintiff as involving an attempt to right "some legislative or industry wrong that an insurer seeks to unfairly utilize" as expressed by Glithero, J. in Lauzon v. Axa Insurance (Canada), 2013 ONSC 2676 (S.C.J.) at para. 11 and as urged by the plaintiff. The existence of a statutory limitation
period can hardly be called a "wrong" and reliance on it by the defendant cannot be regarded as "unfair". The fact that an insurer, as with any other contracting party, is not obliged to advise the other contracting party of a limitation period similarly cannot be characterized as a "wrong".

13 I therefore find that the usual rule that costs should follow the event should apply in the present case and that the defendant is therefore entitled to an award of costs on a partial indemnity basis.

ONSC grants summary dismissal in LTD matter as action brought beyond two-year limitation period; also confirms denial was clear and unequivocal and no obligation on insurer to advise of limitation period

by Michael Teitelbaum | Jul 26, 2016

Many thanks to Laura Dickson for her case note, pasted below, prepared while I was away, which I have lightly edited:

In Usanovic v La Capitale Life Insurance Company, 2016 ONSC 4624 (CanLII), the defendant brought a Summary Judgment Motion in a LTD claim on the basis that the action was commenced more than 2 years after the denial letter. The plaintiff opposed the motion on the basis that the denial was not clear and unequivocal as it invited the insured to provide further medical documentation in support of any appeal of the denial. The plaintiff also argued the denial letter had failed to inform the insured of the 2 year limitation period.

In granting the motion for a summary dismissal, Justice Broad held the denial "did not convey an equivocal sense of indeterminacy in the defendant's decision. The letter clearly stated "Penncorp's notice that your benefits would be terminated as of November 27, 2011 remains in effect." The specific direction on the steps the plaintiff must take should he disagree with the decision did not, in my view, detract from the clarity by which its determination to terminate benefits was communicated." Justice Broad found the 2 year limitation commenced upon receipt by the plaintiff of the denial letter.

Justice Broad also found, having heard submissions from plaintiff counsel on the obligations and duties of good faith imposed on the insurer, there was no obligation in law on the defendant to advise the plaintiff of the applicable limitation period under the Limitations Act.

"[40] 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.

[41] 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."

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