*Since the writing of this blog SCC refused Leave to Appeal.

In the recent decision of Usanovic v. Penncorp Life Insurance Company, the Court of Appeal has made an important pronouncement on the extent of and limits to the obligation of good faith imposed on an insurer as part of a first party relationship.

The underlying dispute arose out of a disability insurance claim.  Usanovic was a self-employed eavestrough installer who had purchased a policy of disability insurance from Penncorp.  The policy provided for a 24 month “own occupation” disability test, with an “any occupation” total disability test applicable after 24 months.  In 2007, Usanovic suffered injuries after falling from a roof.  He was paid disability benefits until November 2011, when Penncorp terminated the benefits based on its determination that Usanovic no longer suffered a total disability as defined under the policy.

In January 2012, counsel for Penncorp wrote to Usanovic and explained that since benefits had been paid for 24 months, he was no longer entitled to receive further benefits unless he met the “any occupation” test of disability.  Penncorp further explained that the medical documentation provided did not support entitlement under the “any occupation” test, and that surveillance obtained by the insurer was inconsistent with a total disability.  The letter also invited Usanovic to submit medical records in support of his claim within 60 days.  Usanovic did not provide new medical records in support of his claim.  In cross examination, Usanovic admitted that he knew his benefits had been terminated, that he had received the letter from Penncorp’s lawyer, that he had reviewed his insurance policy, and that he had discussed the issue with his wife and had considered retaining his own lawyer.

Usanovic eventually did consult a lawyer in early 2015, who advised him that the claim was subject to a two-year limitation period.  Usanovic thereafter commenced suit against Penncorp in April 2015, more than three years after his benefit was terminated, alleging that he would have commenced the action earlier had the insurance company advised him of the limitation period.

Penncorp brought a motion for summary judgment based on the expiry of the limitations period.  Usanovic argued, based on Smith v. The Co-Operators Gen. Ins. Co., 2002 SCC 30, and Kassburg v. Sun Life Assurance Co., 2014 ONCA 922, that Penncorp’s denial was not sufficiently clear and unequivocal as to trigger the limitation period.  Usanovic also argued that the insurer’s duty of good faith obliged it to advise its insured of the applicable limitation period when it denied a benefit, and that the limitation period did not begin to run until such notice was given.  The Court granted summary judgment in favor of Penncorp, finding that the limitation period commenced on the date of the lawyer’s letter in January 2012.

On appeal, Usanovic again argued that Penncorp’s failure to notify him of the limitation period precludes it from advancing a limitation defense.  He again submitted that the insurer’s duty of good faith should require it to inform an insured of any limitation period when denying benefits.  While it was conceded that no statutory obligation to do so exists in Ontario, Usanovic argued that such a duty could be imposed through the development of the common law.  Penncorp took the position that its denial was clear and unequivocal, payment ceased, Usanovic knew his claim was denied, and the limitation period began to run.  Penncorp also took the position that where the legislature had declined to impose a statutory duty to inform, such a duty should not be imposed by the courts.

In a thorough analysis, written by Chief Justice Strathy and concurred to by Justices Laskin and Trotter, the Court of Appeal confirmed that both parties to an insurance contract owe one another a duty of utmost good faith.  This does not rise to the level of a fiduciary duty.  An insurer’s duty of good faith requires that an insurer act both promptly and fairly when investigating, assessing, and attempting to resolve claims advanced by an insured.  Usanovic asked the Court to extend the duty of good faith to require an insurer to disclose information outside of the insurance policy in his assertion that Penncorp should have been required to inform him of the existence of a limitation period.

The Court of Appeal reviewed extensive case law from various Canadian jurisdictions, none of which went so far as to require an insurer to advise an insured of a limitation period.  Some legislatures, most notably British Columbia and Alberta, have imposed a statutory duty on insurers to provide specific notice of limitation periods in denying benefits.  Ontario, however, has not imposed such a statutory standard.  The Insurance Act was amended in 2012 to require life, disability, and creditor insurers to include a statement on the limitation period in their insurance policies and certificates, but not in their denials.

Usanovic relied on the seminal decision of the Supreme Court of Canada in  Smith v. The Co-Operators in support of his argument.  The Court of Appeal found that the facts of that case were inapposite to a disability insurer.  Smith arose out of a statutory accident benefits claim, which includes specific requirements to inform the insured of the denial of benefits as well as the statutory procedure for the resolution of disputes.  The Statutory Accident Benefit Schedule contains its own limitation period as part of the dispute resolution process, and had to be included as part of the denial.  No statutory provision includes the same requirement in relation to disability insurance.

In dismissing Usanovic’s appeal, the Court of Appeal ultimately held that the courts should not impose consumer protection measures on insurers, beyond the terms of their policies, where the legislature has declined to impose such a duty by statute.

If you a have a question about this blog or a similar file, please contact the author, Patrick Baker.