Ontario Court of Appeal decision knocks out bad faith claims

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According to the Ontario Insurance Act, bad faith is a conscious wrongdoing or act of dishonesty, but there is little recourse for survivors of car accidents if their insurance company has treated them badly.

Michael Bennett, partner at Thomson Rogers, says Stegenga v. Economical Mutual Insurance Company — a recent case out of the Ontario Court of Appeal — basically knocks all bad faith claims out.

“The court of appeal took away the right of Ontarians to sue automobile insurers in bad faith,” Bennett says. “I don't think it's well-known and I don't think it's well understood — and I think people should know.”

Bad faith claims have a complicated history. On April 1, 2016, massive changes were made to how accident benefit disputes are adjudicated in Ontario. First, they took took away the right to sue in court for any of these matters and were instead mandated to bring the problem to the Licensing Appeals Tribunal — “a sleepy tribunal that dealt with dog licenses and liquor license appeals” that has now increased its size massively to handle the accident benefit disputes.

Cases attempting to sue for bad faith against an automobile insurer, which has been done since the settled law was written at the Supreme Court of Canada, Bennett notes, started facing motions to strike out the claim altogether for no cause of action because of the Insurance Act amendment directing such issues to the LAT.

In the Stegenga case, a 15-year-old girl was involved in a serious car accident. She and her parents decided to go the accident benefit claim alone, and were never told of the young woman's rights to have her claim assessed as catastrophically impaired, which would have given her an elevated level of benefits. In a short amount of time the insurance company began to deny her claims as she had no more benefits available under the basic amount she received.

“The rule of thumb is the first two years after a brain injury are massive in terms of what kind of recovery you’re going to get,” Bennett says. “You can never turn back time.”

The Stegenga family retained a lawyer who sought to punish the insurance company — it was not a claim for benefits, it was a claim against Economical for bad faith damages.

But the appeal court referenced the wording of the 2016 amendment to s. 280 (1) of the Insurance Act and said if you want to claim bad faith, you’ve got to make a claim to the LAT.

“There’s only one catch — there is no claim for bad faith at the Licensing Appeals Tribunal,” Bennett says. “There are provisions that are penal towards the insurance company in some circumstances that could increase the amount of money they have to pay.”

The claimant has to prove benefits were unreasonably withheld, and if successful could get up to 50% of the benefits owing as a special award, plus heavy duty interest. But, there's another catch. Like in the Stegenga case, if someone goes years without knowing they’re entitled to certain benefits, the special award is meaningless because ultimately they’re not claiming a benefit — they're saying you robbed me of my chance to recover, you should be punished to make sure this never happens again, Bennett says. None of that works with a special award.

Bennett recently had a hearing at the LAT where insurer sponsored assessments said his client’s injury as a result of the accident was more than minor, but the insurance company misconstrued what was said in the reports to the client who was not English speaking and told him he was in the minor injury guideline and therefore wasn’t entitled to certain benefits.

Bennett argued his client would have received support and care if the insurance company hadn’t strayed from what their own doctors were telling them, and at first instance the arbitrator found the man's attendant care benefits were unreasonably withheld and he was entitled to those benefit amounts retroactively. On reconsideration, the vice-chair at the LAT said if you don’t in reality incur those expenses you can’t get them paid.

“That sticks in my craw,” Bennett says. “I think it’s unfair and a real problem. By watering down the deemed incurred provision, it’s wiping out the penal effect of the special award.”

He believes in both cases they should be able to make the argument that had the insurance company treated the insured better, they would have known what was available and got it. The insurance company robbed them of that opportunity, and worse they have no recourse against the insurer. While the Stegenga decision admits the claim is extinguished in the court, it justified it as the legislature’s will — meaning there’s no real penalty for not allowing a claimant to understand what benefits they’re entitled to receive.

The 2016 changes were meant to reduce costs, but Bennett argues having un-policed automobile insurance companies does the opposite.

“Eventually people find a lawyer, realize they have rights and it’ll wind up before the tribunal,” he says. “There will be justice, but letting these insurers run their claims without any penalty doesn’t lead to lower costs. It leads to bigger mistakes, longer mistakes and delayed justice.”