First Presented at the CBA-OBA Professional Development Program: Fast Out of the Gate: An Insurance Law Primer
The insurance contract is a contract of utmost good faith.1 This duty is reciprocal. This duty not only requires insurers to respond to and investigate claims in good faith, but also requires insureds to present their claims in good faith.2 This duty of utmost good faith is an implied term of the insurance contract and should be maintained throughout every step of the claim process.3
The duty of good faith of the insurer towards the insured has two components. The insurance company must act (a) promptly and (b) fairly in "investigating, assessing and attempting to resolve claims made by its insured."4
The first component of the duty of good faith is promptness.5Â A claim is normally submitted by an insured when he or she is already in a position of vulnerability as a result of the event that led to the claim in the first place. The Court in 702535 Ontario Inc. discussed this vulnerable position of the insured in relation to the importance of the claim being responded to promptly in stating:
"...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."6
The second component of the duty of good faith on behalf of the insurer is fairness. The Court in 702535 Ontario Inc. explained this duty in stating that the insurer must treat the insured's claim fairly in both "the manner in which the insurer investigates and assesses the claim and to the decision whether or not to pay the claim."7
The insured has the obligation to disclose all pertinent information sought by the insurer in the application process. This information is used by the insurer in its underwriting process and forms the basis on which a decision is made about whether to issue a policy.
In many instances, a failure by the insured to disclose all pertinent information in both the application process and after a claim is submitted under a policy, will not only invalidate the insurance coverage but may also lead to allegations of fraud against the insured. In assessing a potential first party claim, it is important for counsel of both an insured and an insurer to review and verify the information provided during the application process to ensure that all information provided by the insured at that time was true and accurate to the best of the insured's knowledge.
1 Adams v Confederation Life Insurance Co., 1994
CarswellAlta 78 at para 57.
2 Andrusiw v. Aetna Life Insurance Co. of Canada, 2001 CarswellAlta 1506.
3 Whiten v Pilot Insurance Co, 2002 SCC 18 [Whiten].
4 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd's London, 2000 CarswellOnt 904 at para 27 [702535 Ontario Inc.].
5 Ibid at para 28.
7 Ibid at para 29.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.