Sagan v. Dominion of Canada General Insurance Company: Beware unsupported allegations of Bad Faith.

In Sagan v. Dominion of Canada General Insurance Company, 2013 ONSC 7886, Dominion brought a summary judgment motion, arguing that the plaintiff’s claim for non-earner benefits was statue barred as it was not commenced within two years of the insurer’s clear and unequivocal denial. Additionally, Dominion argued that the plaintiff had not provided any evidence to substantiate his claims in bad faith, or for damages for mental distress. The court found that these issues were discreet and focused, so as to be appropriately determined under Rule 20 of the Rules of Civil Procedure.[1]

Mr. Justice Lofchik found that Dominion’s denial of non-earner benefits was given in clear and straightforward language, and that the plaintiff had no adequate explanation as to why a claim or mediation regarding the denial of non-earner benefits was not commenced within the two year limitation period. The Court accepted that early in his claim, the plaintiff’s non-earner benefits were denied on the basis that he was back to work, and did not qualify for income replacement benefits, and that this was the accepted practice in the insurance industry as of the date of denial in 2008. The Court considered the similar circumstances in Galdamez v. Allstate Insurance Company of Canada, 2012 ONCA 508[2], which held that a claimant is not necessarily barred from receiving a non-earner benefit solely because he or she returns back to work after the accident. Rather, the Ontario Court of Appeal found that, in very rare situations, a person who was employed at the time of the accident could still qualify for non-earner benefits.[3]

The Court found that even though Dominion’s denial of non earner benefits may have been incorrect in the wake of Galdamez, there was no negligent misrepresentation or bad faith involved. The plaintiff’s claims for damages for mental distress were therefore dismissed.

Justice Lofchik’s decision on costs is reported in Sagan v. Dominion of Canada General Insurance Company, 2013 ONSC 2245. Dominion argued that the plaintiff’s allegations of negligent misrepresentation and bad faith were serious and prejudicial, but unfounded, and thereby warranted an award of substantial indemnity costs. The Court considered the limited jurisprudence where such an award had been held to be appropriate.[4]

Justice Lofchik cited DiBattista v. Wawanesa Mutual Insurance Company, 78 O.R. (3d) 445, where the insureds’ claimed punitive and aggravated damages arising from the alleged incomplete or negligent restoration of their home. The insureds alleged that Wawanesa had been dishonest and not forthright, and that through it’s employees, it had engaged in lies and deceit. Interestingly, the insureds also disseminated their allegations against Wawanesa through the Toronto Star and television. After a seventy-day trial, the jury found no liability on the part of Wawanesa. Coats J., found that the insureds understood the important nature of the case, and Wawanesa’s need to completely and totally answer the allegations made against the insurer. Costs on a substantial indemnity basis were fixed in the amount of $564,998.73, inclusive of fees, disbursements and taxes (being the full amount of the bill of costs submitted).

Justice Lofchik found that Sagan was an appropriate case for an award of substantial indemnity costs, on basis that the plaintiff had advanced empty bad faith allegations. against Dominion. The Court commented that the purpose of an award of substantial indemnity costs is to diminish frivolous and speculative litigation. The Court awarded partial indemnity costs up to the date of the summary judgment motion, and substantial indemnity costs for the day of the hearing. Costs were fixed in the amount of $10,582.75, inclusive of fees, disbursements and taxes.

The Sagan decision is clear that when a plaintiff asserts a meritless claim for bad faith in a first party context, this may give rise to an a punitive-type award of substantial indemnity costs to compensate an innocent insurer for having been obliged to defend serious, yet unsupported allegations.

[1] The Court applied the Ontario Court of Appeal’s 2011 decision in Combined Air Mechanical Services Inc. v. Flesch, as the Supreme Court’s recent decision in Hryniak v. Mauldin, had not yet been released. Lofchik J., however, applied Rule 20 in the same fashion as the Supreme Court in Hryniak.)

[2] See also Sietzema v. Economical Mutual Insurance Company, 2014 ONCA 111.

[3] Galdamez v. Allstate Insurance Company of Canada, 2012 ONCA 508 (CanLII), at para. 48.

[4] See: Lamie v. Belair Insurance Co.,2002 CarswellONT 4269, at paragraph 132,DiBattista v. Wawanesa Mutual Insurance Co., 2005 CarswellONT 6604, at paragraph 5, and McNaughton Automotive Ltd. v. Cooperators General Insurance Co., 2005 CarswellONT 212, at paragraph 18.