What are an insurance company’s obligations when handling their client’s claims? For one, an insurance company has a duty of good faith, which amounts to acting fairly and promptly in investigating and assessing the claim, as well as in deciding whether or not to pay the claim.
There is no hard or fast rule, but some examples of breaches of this obligation may include:
- denying claims without sufficient justification;
- paying substantially less than what is owed;
- withholding coverage without basis;
- failing to advise the insured of the reasons for its decision; and
- making misrepresentations to their client.
While fraud or corrupt motive may ground an allegation of bad faith, malicious intent is not required to breach the duty of good faith, and mere acts for the purpose of obtaining an advantage for the insurance company at the expense of the insured may suffice. However, it should be noted that an insurance company is not required to always be correct – only that their decisions be reasonable.
Where an insurance company has breached their good faith obligations in a way that resulted in damages to an insured, a court may be inclined to deter this behaviour by awarding punitive damages. This requires that the insurance company breached the contract.
In Zurich Life Insurance Co v Branco (2015), the insured had injured his foot in a mining accident and claimed outstanding benefits under his insurance policy. The court of appeal held that he was entitled to punitive damages in the amount of $500,000 (in addition to mental distress damages in the amount of $30,000) against one of his insurance companies as it found that it had improperly withheld the insured’s “own occupation” benefits for some seven years, failed to inform him that his claim was approved and rather attempted to settle the claim for an unconscionable amount, withheld medical reports from its own claims department, and attempted to dispute his claim even after having accepted it.
An insurance company also has the obligation to carry out its responsibilities with due care and without negligence, up to the standard of care expected of it. Thus, the insured may also have a claim against an insurance company in damages in tort for negligence where it fails to meet that standard in providing its services, such as by failing to advise an insured of a gap in their coverage, causing the insured damages as a result.
Our firm has experience in handling insurance claims. Please call us for a free consultation.