Judge Puts Bad Faith Claims On The Roof

January 21, 2013

A Superior Court judge has granted an insurer’s summary judgment motion to dismiss claims for “breach of a contract of insurance, damages for wrongful infliction of mental distress, damages for bad faith on the part of the defendant insurance company and aggravated punitive and exemplary damages in the amount of $1,000,000.00.”

In Spadafora v. Dominion, the plaintiff applied to his insurer for accident benefits. On his Application for Accident Benefits (OCF-1) signed December 16, 2003, he stated that, at the time of the accident, he was employed and working. He also indicated that he was not a student (or had not just completed school), his injuries did not prevent him from working, and he was able to return to work after the accident. He did not complete the caregiver section of the OCF-1.

On February 25, 2004, after receiving the OCF-1, Dominion sent to the plaintiff an OCF-9 (Explanation of Benefits) informing him that he was not eligible for income replacement benefits, non-earner benefits or caregiver benefits. That mailing also included a second request for a completed OCF-3 Disability Certificate.

Some 6 ½ years after the original accident (May 25, 2010), the plaintiff notified Dominion that he intended to pursue a claim for non-earner benefits. The parties proceeded to a failed FSCO mediation and the plaintiff issued a Statement of Claim, seeking entitlement to non-earner benefits and various “extra-contractual” claims for bad faith. Dominion raised a limitation defence. It also denied that the claimant met qualified for non-earner benefits.

Dominion brought this motion for summary judgment, seeking to dismiss the action in whole or in part. The motions judge (Mr. Justice Reilly) refused to dismiss the action on the limitation period or non-earner benefit entitlement issues, finding that those were genuine issues that needed to be heard by a trial judge.

However, Justice Reilly agreed to dismiss the extra-contractual claims, citing a number of notorious cases on these issues (Vorvis v. ICBC; Whitten v. Pilot; Fidler v. Sun Life). The judge found that although there may be a difference of opinion between the plaintiff and the defendant as to the plaintiff’s entitlement to damages based on the insurance contract, there was no suggestion and no evidence of bad faith on the part of the defendant insurance company. He also found that Dominion’s conduct in this case was far from the “highhanded, malicious, arbitrary or highly reprehensible conduct” that would justify an award for punitive or aggravated damages.

What I find interesting is Justice Reilly’s findings dismissing the mental distress claims (what I sometimes refer to as the “on the roof” claims). After the Supreme Court ruled in Fidler, we started seeing more Statement of Claims pleading damages for mental distress as a result of the alleged breach of the SABS. But a claim for mental distress as a result of a contract breach requires evidence that the parties to the contract contemplated that the claimant might suffer mental distress if the contract were breached.

On this issue, Justice Reilly made the following important findings:

I have no hesitation in concluding: (1) that an object of the contract of insurance was not to secure a psychological benefit that would bring mental distress upon breach within the reasonable contemplation of the parties and perhaps more importantly (2) that the degree of mental suffering caused by any breach in this case was not of sufficient degree to warrant compensation.

This case should put a hole in any allegations for mental distress arising from an insurer’s handling of accident benefit claims.

See Spadafora v. Dominion of Canada, 2013 ONSC 182 (CanLII)

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