In a general sense, the concept of good faith governs the behaviour of every person. No right may be exercised with the intent of injuring another person or in an excessive or unreasonable manner. In insurance, this criterion becomes even more important, and we might refer to the concept of a “high level of good faith.” This is even truer when we consider that the objective of an insurance policy is to provide “peace of mind.” The insurer cannot ignore the disastrous consequences of an unwarranted refusal to compensate the insured party as outlined in the insurance policy.
Bad Faith: The Interpretation of the Courts
Although the concept of bad faith is undefined, the courts have ruled on certain behaviours that can be considered wrongful and liable of leading to a condemnation for moral, and sometimes punitive, damages.
In 2021, in Bédard Martin v. Intact, the Superior Court recalled the lens the Supreme Court used to assess the conduct of the insurer. The insurer must process the insured’s claim in a fair manner. This is just as true during the investigation and evaluation phase as it is when deciding whether or not to pay. All of this must be done without unduly delaying or refusing to pay in order to take advantage of the financial vulnerability of the insured party, or in an effort to gain leverage for the purposes of negotiating a settlement. Conversely, should the insurer base its decision on a reasonable interpretation of its obligations and turn out to be wrong, that does not necessarily constitute an act of bad faith. In the absence of such bad faith conduct or malicious intent, we would be in the presence of a breach of contract due to the refusal to compensate.
This decision involves a fire that completely destroyed the insured’s restaurant along with their fruit and vegetable stand in 2003. The fire was considered arson. Subsequently, in a trial that took place in 2006, the Superior Court found there was a presumption that the insured had started the fire. Pursuant to this decision, it could not be concluded that the insurer had acted in bad faith by refusing to compensate the insured party. However, years later, in 2013, a third party was charged with starting the fire. The insurer, which had a duty to continually investigate, did not review the elements contained in the third party’s prosecution file. Accordingly, it was found at fault for not having paid the insurance proceeds to its insured, as of 2013.
In Bergeron v. Promutuel Lac St-Pierre-Les Forges, the insurer’s adjustor exceeded the scope of their mandate by leading the insureds to believe that by removing certain contentious items from the list of stolen property, their claim would be settled more quickly. In light of this information and the adjustor’s insistence, the insureds heeded his advice and removed the contentious items from the list. At the same time, the adjustor convinced them to complete a false statement regarding the removed items. However, when the time came to draft his report to the insurer, he suggested that the removal was an admission on the part of the insurers, while concluding that there was no reason warranting a complete rejection of their claim. Nevertheless, the insurer, based on the impressions and recommendations of the adjustor, and without investigating further, chose to have them undergo a statutory examination, although the value in issue did not allow for an examination for discovery in the context of the proceedings. The insureds were examined separately and repeatedly, contrary to their rights, without being given a copy of the statements made to the adjustor. They were also denied a transcript of the statutory examinations. The insurer was looking for contradictions between the insureds’ statements, but ignored information that was favourable to them, notably regarding the rejection of the hypothesis that the theft was faked. Yet, this hypothesis, which was argued in its defence, had been excluded from the very beginning of its investigation. The Court therefore concluded that the insurer had acted arbitrarily and in a hostile, excessive, and unreasonable manner that violated the rights of the insureds, was contrary to the interests of justice, and in breach of the duty to act in good faith.
More recently, in Cohen v. Lloyds Underwriters, it was found that an unjustified delay of several months to confirm insurance coverage, while the insured was in a vulnerable financial situation, in addition to the failure to honour the insured’s standard of living coverage, leaving her home in a deplorable state, constituted an infringement of her right to peaceful enjoyment. Furthermore, because of the sarcasm, condescension, and lack of empathy shown towards the insured, the Court concluded that her right to dignity had also been infringed. The Court even characterized it as abusive and a perversion of the ends of justice for an insurer to attempt to exhaust the insured, by various means, in hopes that she would drop her claim or agree to settle for a lesser amount.
Sanctions for Bad Faith
Payment of insurance indemnities
As mentioned above, the obligation to act with a high level of good faith is not the same as a breach of a contractual obligation. An insurer’s breach of its policy will not lead to a condemnation for damages on an extra-contractual basis unless a separate breach of its obligations stipulated in the policy has been committed. However, it will still need to pay the insurance indemnities it had initially agreed to within 60 days, in addition to interest and the additional indemnity.
The insurer’s failure to act with a high level of good faith may lead to reparation in order to compensate for direct, certain, foreseen or foreseeable injury, whether bodily, moral or material, caused to the insured due to the insurer’s fault.
Under this heading, the courts have awarded damages to compensate, most notably, significant stress, sleep disturbances, anxiety and feelings of injustice experienced by an insured. They have also deemed it appropriate to compensate insureds for injury to their dignity and reputation, as well as for the problems they faced over a three-year period, from 2007 to 2010. Compensation has also been awarded for leaving the insureds to their own devices, forcing them to take several steps such as retaining the services of an expert and a lawyer, as well as the burden of following up with various parties regarding their files. The courts have also awarded compensation for moral injury where the breach prevented an insured from regaining their previous standard of living, prevented them from choosing to rebuild their home, or where they experienced insecurity and additional stress following the loss of their home.
Where there is an abuse of the right to sue, either when a fault is committed in the course of legal proceedings, for instance, through the multiplication of proceedings, or the unfounded extension of the legal debate, section 54 of the Code of Civil Procedure allows the court, when ruling on the abusive nature of a claim or proceeding, to order a provision for costs to be reimbursed, or may order a party to pay damages to compensate the extrajudicial fees and disbursements incurred, or even to award punitive damages.
In practical terms, this might occur when an insured party is required to pay unnecessary fees and disbursements to their lawyer or when the insurer’s conduct is designed to exhaust the insured in hopes that they will drop the lawsuit (or settle for a lesser amount) for example.
In addition, the amounts paid by the insured party throughout the course of the abusive conduct tainted with bad faith are those that could be awarded.
Moreover, in a case of bad faith, the insurer may be ordered to pay punitive damages in accordance with article 1621 C.C.Q. Such damages may only be awarded where stipulated by law, such as in sections 51 and 54 C.C.P., or under section 49 of the Charter of Human Rights and Freedoms.
In accordance with the Charter, such damages will only be awarded if the infringement of the rights it guarantees is unlawful and intentional, either where the guilty party is acting on purpose or aware of the consequences of their wrongful actions. These actions must be the result of foolhardy recklessness.
However, abuse of the right to sue may also lead to punitive damages as per sections 51 and 54 C.P.C., without the necessity of proving unlawful and intentional infringement. It is sufficient to show that the proceeding is being used in an effort to harm another party.
Costly, Non-Exclusive Sanctions
In Bergeron v. Promutuel Lac St-Pierre-Les Forges, the insurer was ordered to pay $5,481.96 in insurance benefits, $2,000 in compensatory moral damages, $5,000 in damages for extrajudicial fees and disbursements, and $10,000 in punitive damages, in addition to legal interest and the additional indemnity.
In Cohen v. Lloyds Underwriters, the insurer was ordered to pay $517,140 in insurance benefits, $20,987 of which was related to the loss of principal on the insured’s home. In fact, the insurer temporarily interrupted the repayment of the mortgage balance when it had decided to take it over. This resulted in interest and penalties that impacted the principal of the home, which would not have happened if the insurer had allowed the insured to remain in charge of repayment. The Court also awarded $70,000 in damages, $10,000 in punitive damages, and $55,000 in extrajudicial fees, in addition to legal interest and additional indemnity.
Finally, in Bédard Martin v. Intact, $75,000 was awarded as compensatory damages for psychological harm, in addition to $6,071, with legal interest and the additional indemnity, for the loss of profits after the restaurant and fruit and vegetable stand were lost in the fire.
 Sec. 6, 7 and 1375, Civil Code of Québec.
 Barrette v. Union Canadienne, compagnie d’assurances, 2013 QCCA 1687, para. 69 to 71; Cohen v. Lloyds Underwriters, 2019 QCCS 826, para. 159.
 Bergeron v. Promutuel Lac St-Pierre Les Forges, 2010 QCCQ 5595, para. 1.
 Whiten v. Pilot, 2002 SCC 18 and Fidler v. Sun Life du Canada, compagnie d’assurance-vie, 2006 SCC 30 cited in Bédard Martin v. Intact, compagnie d’assurances inc., 2021 QCCS 3964, para. 141-143
 Id., para. 69 et seq., 119, 145, 151, 155, 174, 179, 298, 303, 305, 310, 312-321
 Cohen v. Lloyds Underwriters, supra, note 2, para. 80, 176 and 185 et seq.
 P. R. v. RBC, compagnie d’assurance-vie, 2009 QCCS 4899, para. 258 cited in Lamarre v. Intact Insurance Company, 2021 QCCQ 5163, para. 80.
 Bédard Martin v. Intact, compagnie d’assurances inc., supra, note 4 and art. 2473 C.C.Q.
 Art. 1458, 1607, 1611, 1613 of the Civil Code of Québec.
 Bédard Martin v. Intact, supra, note 4, para. 438.
 Bergeron v. Promutuel Lac St-Pierre Les Forges, supra, note 3, para. 336.
 Lacoursière v. Promutuel, 2021 QCCQ 7655, pars. 176 and 177.
 Cohen v. Lloyds, supra, note 2, para. 168 et seq.
 Viel v. Entreprises immobilières du terroir Ltée., 2002 CanLII 41120, para. 75 et seq. on the abuse of the right to sue as opposed to abuse on the merits.
 Bergeron v. Promutuel Lac St-Pierre Les Forges, supra, note 3.
 Cohen v. Lloyds, supra, note 2.
 Lacoursière v. Promutuel, 2021 QCCQ 7655.
 Quebec (Public Curator) v. Syndicat national des employés de l’hôpital St-Ferdinand,  3 S.C.R. 211, para. 121.