Damages for breach of good faith not a cure to perceived deficiencies in cost regime
The British Columbia Court of Appeal has rejected a claim for legal fees as compensatory damages for an insurer’s breach of duty of good faith. The court also rejected an award for punitive damages for the insurer’s alleged conduct vis-à-vis the healthcare providers.
In Stewart v. Lloyd’s Underwriters, 2022 BCCA 84, Stewart suffered an accident while on vacation in the U.S. in 2015. He was hospitalized and eventually underwent spinal surgery. Prior to his vacation, Stewart purchased travel medical insurance, which was underwritten by Claims at TuGo (Claims).
Four months after the incident, Claims sent a letter denying Stewart coverage because the injury was “directly or indirectly related to intoxication,” despite conflicting medical evidence on the role of alcohol. At trial, the judge found the letter “opaque,” since “it did not clearly articulate” the basis for denial. The trial judge was later informed that Claims reversed their coverage decision and settled all of Stewart’s healthcare bills in the U.S.
However, Stewart proceeded with his claim, alleging that Claims’ “overwhelmingly inadequate handling of the claim” breached its duty of good faith. The trial judge awarded Stewart punitive damages, but dismissed his claim for legal fees. Stewart appealed the dismissal of legal fees and Claims cross-appealed the award for punitive damages.
The appellate court disagreed with Stewart.
After analyzing several authorities, the appellate court concluded that absent an explicit or implied term in a policy of insurance, legal fees have not been awarded as compensatory damages when an insurer breaches its duty of good faith. Further, “[damages] for breach of the [Claim’s] duty of good faith … should not be used to cure perceived deficiencies in the scheme of costs,” said the court.
Stewart argued that denial of his claim would make it difficult for him to be made whole, as the legal fees would be restricted to the regime of costs. However, the trial judge found – and the appellate court upheld – that Stewart’s financial circumstances did not prevent him from retaining a lawyer nor access to courts and that it was his preference not to risk his investments in litigation.
As to the cross-appeal, the appellate court agreed with Claims.
The trial judge’s analysis failed to consider whether the policy limit would be sufficient to cover the claims advanced, and this failure fundamentally undermined her conclusion on punitive damages, said the court.
Further, an award for punitive damages should be based on the actions of the defendant vis-à-vis the appellant, not the healthcare providers, said the court. Once the coverage was accepted – and since the policy limit was not in jeopardy – there was no basis to conclude that Stewart’s non-involvement could ground an award for punitive damages, said the court.
Thus, the trial judge erred in law in finding that Claims’ settlement of the healthcare provider’s accounts breached its duty of good faith to the appellant and consequently, the award of punitive damages could not be sustained, said the court.
