Friday, 09 March 2012 19:35
Insurance Bulletin March 1, 2012: Bad faith denial of coverage by ICBC results in $75,000 punitive damage award: McDonald v. ICBC 2012 BCSC 283
This paper reviews the recent judgment of Madam Justice Ballance in McDonald v. ICBC 2012 BCSC 283 in which the plaintiff was awarded full indemnity for a motor-vehicle claim together with $75,000 in punitive damages against ICBC where the insurer had wrongfully denied coverage.
The plaintiff (the defendant in the underlying action) had consumed some wine with some friends late in the evening. They then drove into Vancouver to eat some sushi. While driving back to Abbotsford, the plaintiff was involved in a motor-vehicle accident when she drove her vehicle into an oncoming vehicle after turning the wrong direction on an off-ramp. The police attended at the scene. They formed the impression that the plaintiff was impaired; there were problems in obtaining a breath sample; and the plaintiff was arrested and charged with refusal to provide a breath sample, impaired driving, and dangerous driving.
The driver in the oncoming vehicle commenced a civil action. ICBC appointed counsel to defend the plaintiff’s mother and the corporate lessor. ICBC did not defend the plaintiff. In the meantime, the Crown stayed the charges of refusing to provide a breath sample and impaired driving. The plaintiff plead guilty to driving without reasonable care.
The underlying action by the injured oncoming motorist was settled for the sum of $182,085. Some weeks after settlement, ICBC concluded that the plaintiff was intoxicated from alcohol rendering her incapable of exercising proper control of her vehicle. ICBC took the position that the plaintiff was therefore in breach of her insurance policy and sought recovery of the sum of $182,085.36. The plaintiff, a young woman who worked at a McDonald’s restaurant, was understandably distressed at the request of ICBC for this sum of money and commenced action for full indemnity and punitive damages for a bad faith denial of coverage.
At trial, ICBC maintained its position that the plaintiff was in breach of her insurance policy as a result of intoxication by alcohol, notwithstanding that the alcohol related charges had been stayed in the criminal proceedings. ICBC relied on the following:
- The plaintiff’s admission that she had consumed alcohol prior to the accident;
- The circumstances of the accident, including the plaintiff’s admission that she went the wrong way;
- The plaintiff’s alleged failure to provide a breath sample;
- The observations of the investigation RCMP;
- The criminal charges against the plaintiff and the outcome of those charges.
Unfortunately for ICBC, the judge held that the circumstantial evidence relied on fell significantly short of establishing the likelihood that the plaintiff was incapacitated by alcohol. Indeed, she held that the preponderance of evidence was overwhelmingly the other way.
Justice Ballance then turned to the issue of whether the insurer was in breach of its duties of good faith. She provided a useful summary of the law of bad faith in first party claims as follows:
- An insurer’s duty to act fairly and in good faith is engaged upon its receipt of the claim;
- A bad faith claim must be evaluated in light of the surrounding circumstances on a case-by-case basis: a closed category of defining attributes is neither possible nor desirable;
- An insurer must perform a balanced and reasonable investigation and assessment of the claim;
- It must be prompt in handling and assessing the loss;
- The insurer must assess the merits of the claim in a balanced and reasonable manner;
- It must give as much consideration to the interests of the insured as it does to its own interests and is not to do anything to injure the insured’s rights to benefits under the policy;
- A want of reasonable care in settling a claim suggests an absence of good faith;
- While the insurer is entitled to satisfy itself that a claim is bona fide before it covers the loss, this entitlement does not authorized the insure to adopt a partisan approach in its treatment of the claim;
- Mere denial of a claim of a claim that ultimately succeeds in not, in itself, an act of bad faith;
- The insurer must assess all of the information pertinent to the claim-both supporting and challenging it—through a lens of reasonableness;
- If the insurer decides to deny a claim, it must do so promptly.
Turning to the facts of the case in McDonald, Justice Balance concluded that ICBC had breached its duties to the insured in the following ways:
- ICBC displayed an unfortunate readiness to assert a policy breach on the flimsiest of grounds;
- It was disposed to claim certain breaches on which it had not investigated on even a superficial basis (principal operator breach);
- While ICBC may have been entitled to rely on the Crown to prove the alcohol breach, the landscape changed significantly when the Crown stayed charges. It knew that the coverage breach could not be maintained without further investigation;
- ICBC placed undue reliance on the inconclusive views of an RCMP constable that aligned itself with its interests. It was not shielded from a bad faith claim simply because it relied on a constable’s impressions and observations;
- ICBC, through its staff, had lost interest in performing a thorough investigation;
- It was not possible to perform a fair and proper evaluation in the absence of a reasonably thorough investigation;
- In this case, ICBC did not appoint counsel to represent the plaintiff’s interest nor did it advise the plaintiff of the settlement with the oncoming driver until after the settlement was reached, all the while investigating the plaintiff’s potential breach;
- ICBC’s multiple failings in the investigation, assessment and breach decision and its misconduct in relation to the defence and settlement of the underlying action contravened the duty of fair dealing and good faith owed to its insured.
In this case, the plaintiff sought only punitive damages rather than aggravated damages. Based on her findings, Justice Ballance held that this was an exceptional case. The overall handling and evaluation of the claim was overwhelmingly inadequate. Its conduct was harsh, high-handed and oppressive, and marked a significant departure from the Court’s sense of decency and fair play. An award of punitive damages was justified to deter other insurers from engaging in similar types of misconduct, and to punish ICBC and condemn its breaches of duty. In this case, Justice Balance concluded that an award of $75,000, in addition to full indemnity for the underlying claim, was appropriately proportionate and rationally accomplished the goals of punitive damages.
Insurers and their counsel would be well advised to consider this case, and the applicable principles, in every case that comes across their desks. While reasonable people may disagree on the application of the principles to a particular set of facts, most of the principles are well established and beyond serious dispute. Insurers and counsel must have a moral compass based on the concept of utmost good faith that influences their decision making in each case. Further, it is important to keep in mind that the duty of good faith does not cease with the commencement of the action, but continues to the resolution of this case. One must remain open to changing circumstances, new evidence, and new cases, and respond appropriately. While insurers and their counsel are entitled to be wrong, they must have a reasoned and principled basis for their decisions. Such deicison making does call for a certain courage but such is the nature of the business in which we are engaged.
For further information or assistance on coverage issues, please contact any of the lawyers in our Insurance Litigation Group:
Prepared by Harmon C. Hayden, Chair of the Insurance Litigation Group.