Bad Faith Claim Permitted After Expiration of Limitation Period

29 janvier 2013 | James B. Prior

( Disponible en anglais seulement )

Recently, a Superior Court judge granted a motion to amend a Statement of Claim to allow the Plaintiffs to advance a claim against their home insurer for breach of its duty to act fairly and in good faith, as well as to add a claim for punitive, aggravated and exemplary damages.

In Shubaly v. Coachman Insurance, the Plaintiffs commenced an action against their insurer, Coachman Insurance Company (“Coachman”), for damages for breach of contract and negligence in relation to Coachman’s handling of a fuel oil spill at their home. The Plaintiffs then brought a motion to amend their Statement of Claim to add a claim for punitive, aggravated and exemplary damages in relation to Coachman’s alleged breach of its duty of good faith.

In response, Coachman argued that the motion should be dismissed on the basis that (a) the Plaintiffs were out of time to bring a claim for punitive, aggravated and exemplary damages for its alleged breach of its duty of good faith by virtue of section 4 of the Limitations Act, 2002, which creates a basic two-year limitation period within which to commence most actions in Ontario; and (b) it would experience prejudice that could not be compensated for by costs or an adjournment if the motion were granted.

Limitation Period

Regarding the limitation issue, Coachman argued that more than two years had passed since the Plaintiffs knew, or ought to have known, of its alleged bad faith conduct and, therefore, an amendment to add a claim for bad faith as a new and separate cause of action was statute-barred. In contrast, the Plaintiffs argued that the proposed amendments did not add a new cause of action,but were an alternative claim for relief arising out of facts already pleaded in their Statement of Claim.

In deciding the motion, Justice Shaw rejected Coachman’s argument that the proposed amendment to add a claim for breach of the duty of good faith constituted a new cause of action. Although Justice Shaw acknowledged that an alleged breach of duty of good faith can give rise to a cause of action separate and apart from a claim for indemnity under an insurance contract, that was not the case here. Instead, Justice Shaw found that the Statement of Claim, as drafted before the expiration of the limitation period, pleaded facts to support not only the Plaintiffs` claims for breach of contract and negligence, but also provided the basis for a claim for breach of the duty  of good faith. The facts previously pleaded to support the claim for bad faith included:

  • Failing to contain a fuel spill on a timely basis;
  • Denying the Plaintiffs’ claim for damage to their septic field after one of its representatives suggested that such damage would be covered;
  • Delaying payment to a contractor, without explanation, resulting in the registration of a construction lien against the Plaintiffs` property;
  • Failing to properly plan and supervise the work of the contractor; and
  • Failing to retain competent agents and contractors to deal with the fuel spill.

In allowing the amendments, Justice Shaw quoted with approval the following comments of Master Dash in Ascent Inc. v. Fox 40 International Inc.:

The key is whether substantially all of the material facts giving rise to the « new cause of action » have previously been pleaded or whether new facts are sought to be added that are relied upon to support a new cause of action. A new cause of action is not asserted if the amendments simply plead an alternative claim for relief arising out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts.

With this in mind, Justice Shaw found that the Plaintiffs were not seeking to allege a new set of facts. Rather, the facts initially pleaded by the Plaintiffs (before the expiration of the limitation period) were not limited to allegations of breach of contract and negligence, but also included, in some detail, allegations of how Coachman handled the claim, which provided the basis for a claim for breach of its duty of good faith.

Regarding Coachman’s allegations that the amendments sought would result in prejudice as it would be denied an opportunity to investigate and defend the allegations of breach of the duty of good faith, Justice Shaw reminds us that the onus of proving prejudice is on the party alleging it. In the present case, Justice Shaw was critical of Coachman’s bald assertions of prejudice without any concrete evidence to support such claims. Justice Shaw therefore found that there was insufficient evidence of prejudice to dissuade him from granting the motion to amend the Plaintiffs’ claim.

Although Justice Shaw ultimately granted the Plaintiffs’ motion to amend its Statement of Claim, it must be remembered that he did so in the context of the « well-established rule that amendments such as those sought by the Plaintiffs should be presumptively approved unless they would occasion prejudice that cannot be compensated by costs or an adjournment ». Therefore, even though the Plaintiffs were allowed to assert claims of bad faith against Coachman after the expiration of the applicable limitation period, it remains to be seen whether those claims will be proven at trial.

See Shubaly v. Coachman Insurance (2013), 112 O.R. (3d) 620 (S.C.J.)

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