On March 13, 2019, Judge Chantale Lamarche of the Superior Court of Quebec ruled, in Cohen v. Lloyd’s Underwriters, on the duty of good faith on the part of the insurer and claims adjuster when processing a claim. Judge Lamarche also addressed the privileged nature of the communications between an insurer and its claims adjuster in the processing of a claim.

The Facts

Although Lloyd’s paid its insured $1,184,136.37, the insured believed that she was entitled to an additional $688,780 under her insurance policy, as well as additional compensation for the loss of equity in her residence, for moral and punitive damages, and the reimbursement of costs she incurred for expert opinions, extrajudicial fees, and compensation for revenue losses due to the conduct of Lloyd’s and its claims adjuster.

Lloyd’s denied part of the coverage, claiming that its insured was not entitled to receive an insurance indemnity worth more than the damage she suffered when her residence and its contents caught fire. Since the insured is a co-owner in equal shares, she cannot receive more than half the indemnity that would have been paid for the loss of the residence and its contents. According to Lloyd’s, the economic damage suffered by its insured cannot be greater than her share of the property, which is 50%.

The privileged nature of communications between the insurer and its claims adjuster in the processing of a claim

After dismissing an application made by Lloyd’s and its broker to quash a duces tecum subpoena in hopes of obtaining records of exchanges between Lloyd’s and itself from the claims adjuster in charge of the insured’s claim, Judge Lamarche rejected the premise that these exchanges were protected by litigation privilege. By producing these exchanges, the insured was attempting to support her claim to show that Lloyd’s and its claims adjuster acted abusively and in bad faith, in addition to being condescending and disrespectful.

Hence, Judge Lamarche found that when they occurred, the main objective of these exchanges was not to get ready for litigation, but were held in the course of the insurer’s regular business. Accordingly, she concluded that the exchanges were not protected by litigation privilege.

Judge Lamarche further concluded that because the claim aims to show that Lloyd’s and its claims adjuster acted in bad faith in the processing of a claim, such an exception cannot be applied because the objective of the request for the production of documents aims to show the blameworthy nature of one of the parties. To support her decision, she cited the Supreme Court of Canada in the Blank decision, where Judge Fish writes:

“[44] The litigation privilege would not in any event protect from disclosure evidence of the claimant party’s abuse of process or similar blameworthy conduct. It is not a black hole from which evidence of one’s own misconduct can never be exposed to the light of day.”

 Good Faith and the abuse of Right

In Whiten v. Pilot Insurance Co. and Fidler v. Sun Life Assurance Co. of Canada, the Supreme Court of Canada held that an insurance policy exists to provide the insured with peace of mind, and due to the insured’s vulnerability, insurers must demonstrate a high level of good faith in the event of a claim.

In a situation where an insurer has exercised its rights wrongfully, it must repair the damage caused by its conduct. Judge Lamarche concluded:

“[180] In fact, the Court believes that by behaving as they did, both Lloyd’s and Mr. Parmentier [the claims adjuster] knew that the immediate and material consequences of their actions were at the very least extremely likely to harm Ms. Cohen’s honour and dignity, her right to enjoy her property, and her right to privacy. For example, Mr. Parmentier [the claims adjuster] recognized that he should have cleaned the remains of the residence and that storing Ms. Cohen [the insured]’s property in Saint-Jean-sur-Richelieu while sending her clothes to be cleaned in Repentigny was not ‘the idea of the century.’ […]”

[Our additions]

In addition to granting punitive damages, Judge Lamarche concluded that Lloyd’s actions constituted abuse of right because they were performed with the intention of exhausting the insured and perverting the course of justice in hopes that she would abandon the case and settle for a lesser amount.