When insurance companies act in bad faith: Punitive damages

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The duty of insurance companies should be one of UTMOST good faith or “uberrima fides”. In Alberta, insurance companies sometimes employ bad faith tactics in order to delay or avoid paying claimants for their insurance claims. There are a number of different practices that insurance companies may use in bad faith in order to try to deny valid insurance claims.

When insurance companies may act in bad faith

When a person is injured in an accident or suffers a property loss, bad faith insurance companies often attempt to avoid paying the valid claims that are submitted to them. They may unreasonably delay paying claims, leaving people to pay for their expenses out of pocket. Some companies will act in bad faith in order to deny long-term disability claims, injury claims and property loss claims that are valid. However, sometimes the insurers are not purposefully acting in bad faith; they just simply ignore the claim, thinking that an injured plaintiff will go away.

Tactics that are commonly used

Bad faith insurance companies may use practices that seem inconvenient to claimants at first. When these bad faith practices become a pattern, a person may more easily recognize them as being done in bad faith. For example, an insurance company may repeatedly lose paperwork and ask people to resubmit the documents over and over again. They might also deny valid claims in the hope that the claimants won’t appeal the denials. Such tactics may include the following:

  • Not fully investigating a claim
  • Not paying a claim in a timely manner
  • Offering much less than a claim is worth
  • Cancelling a policy because the policyholder made a claim
  • Using a policyholder’s past claims as a reason to deny a current, valid claim
  • Requiring excessive amounts of paperwork
  • Misrepresenting facts

Seeking compensatory and punitive damages

When an insurance company’s actions are in bad faith, people may file separate lawsuits against the companies. If the plaintiffs are successful, the court may award both punitive and compensatory damages. Courts in Canada tend to be conservative with awarding punitive damages, however. It is normally reserved for cases in which the insurance companies acted in manners that were especially egregious. Courts are also more likely to award them in cases in which the parties have large disparities in their levels of sophistication such as one involving an individual personal injury claimant versus a large insurance company.

Insurance companies owe duties of good faith to their policyholders. When they breach their duties, courts may order awards in amounts that both fairly compensate the policyholders and additional amounts that are meant to punish the companies for their malicious and wrongful conduct. People who believe that their insurance companies are acting in bad faith might want to consult with a personal injury lawyer.

Norm Assiff

Norm Assiff

Norm was awarded the Alberta Civil Trial Lawyers Association (ACTLA) President's Award for 2012--awarded to a member of the Alberta bar who has distinguished himself or herself by his or her contribution to the profession or the community, the advancement of the law or their service to ACTLA. He has appeared at all levels of court in Alberta (Provincial Court, Queen's Bench and the Alberta Court of Appeal) as well as the Supreme Court of British Columbia and the Federal Court of Appeal.

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The information presented on this post is not legal advice. We encourage you to perform further research on the topics described here, and if you have any questions or would like to speak to one of our personal injury lawyers, please do not hesitate to contact us.

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