by Rajeev Patro, September 2011
In the recent case of Sidhu v. The Wawanesa Mutual Insurance Company, 2011 BCSC 1117, the BC Supreme Court awarded the Plaintiffs $50,000 in punitive damages following the conclusion of litigation related to a denial of coverage by the insurer on a home insurance policy following a house fire. The case may represent a significant advancement in the law relating to punitive damages. An appeal is being pursued by the Defendant.
The Fire
The underlying insurance claim arose from a fire at the Plaintiffs’ home that broke out in the early hours of February 7, 2005. Mr. Sidhu, a self-employed auto mechanic, lived in the home with his wife, three small children, and parents. He owned the home along with his wife and parents, all of whom were plaintiffs in the litigation.
At trial, there was evidence that an accelerant was used to start the fire, with traces found both inside and outside the master bedroom. Indeed, it was agreed between the parties that the fire was not accidental. It was accepted that the fire started either inside or just outside the master bedroom, but it could not be determined if the fire was probably started by someone inside or outside the home.
The Plaintiffs’ Position
The Plaintiffs maintained that none of them had any knowledge as to how the fire started and the claim ought to be paid. Furthermore, the Plaintiffs alleged that the Defendant acted in bad faith in failing to investigate and assess the claim on the merits and in a balanced and reasonable manner, thereby justifying an award of punitive damages.
The Defendant’s Position
The Defendant’s theory of the case was that Mr. Sidhu had started the fire in the master bedroom to recover insurance proceeds from the destruction of the Plaintiffs’ home. Much of the evidence relied upon by the Defendant focused on the timing of events as relayed by Mr. Sidhu in various statements and at his Examination for Discovery. Mr. Sidhu gave conflicting evidence as to when he saw the smoke in relation to when he heard the noise at his window. This was significant from the Defendant’s perspective because one of the scenarios described by Mr. Sidhu suggested that he would have been in the master bedroom when the fire started. The Defendant denied that it did not act in good faith.
The Decision
In the end, the court did not accept that Mr. Sidhu had any involvement in the setting of the fire and allowed the claim. Punitive damages in the amount of $50,000 were also awarded against the Defendant.
In making the award for punitive damages, the court reviewed the guiding principles set out by the Supreme Court of Canada in Hill v. Church of Scientology, and Whiten v. Pilot Insurance Co. As set out in those cases, the court noted that punitive damages are reserved for exceptional cases where a defendant’s conduct has been malicious, oppressive, high handed, and offensive to the court’s sense of decency. The mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith. However, the court did find evidence of bad faith in the Defendant’s failure to investigate and communicate the denial of coverage to the Plaintiffs in a timely fashion.
Analysis
Although the Sidhu case is not unique in awarding punitive damages where an insurer has failed to investigate and communicate with an insured in a timely manner, it is unique in the circumstances where that finding was made. The insurance policy in question in Sidhu stipulated that a loss was not payable until 60 days after submission of a proof of loss by the insured. No such proof of loss was furnished prior to the Plaintiffs serving their Writ of Summons in which punitive damages were claimed. Also, no evidence was referred to in the reasons as to when the Plaintiffs retained counsel who would have been in a position to provide advice regarding submission of a proof of loss and to recommend that the Plaintiffs request a form from the Defendant to force a determination of coverage by the Defendant prior to the commencement of litigation. In the circumstances, it appears the court found that there is a positive duty on an insurer to communicate a denial of coverage in a timely manner, even in circumstances where no proof of loss is furnished by the insured.
The court appears to have been heavily influenced by the fact that there was no documentary evidence that a proof of loss form was ever provided to the Plaintiffs by the Defendant. While it is reasonable that the Defendant would be found at fault for this failure, it is not clear on the court’s reasoning as to why this failure might represent malicious, oppressive, or high handed conduct sufficient to justify an award of punitive damages.
Rajeev Patro
Associate Lawyer in Insurance Law and Litigation
Lindsay Kenney – Vancouver Office