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Insurer's Duty of Good Faith will not be expanded by Supreme Court

Case Comment: Usanovic v. Penncorp

Domenic D. Nicassio
Domenic D. Nicassio
Associate Lawyer

January 2018

By Domenic D. Nicassio

Does the duty of good faith require a disability insurer to inform a claimant of a legislative limitation period?

The end of 2017 brought the dismissal of a leave application at the Supreme Court of Canada that relates to this issue and which will be of interest to insurers throughout Ontario and throughout the country.

In Usanovic v. Penncorp,1 the Ontario Court of Appeal had decided that insurers were not obligated to inform insureds of the two-year limitation period when denying benefits.

The claimant sought leave to appeal to the Supreme Court of Canada, with leave having been denied on December 21, 2017. The Ontario Court of Appeal decision and related appellate cases would appear to be the most up-to-date law on the issue.2

Case Details

  • The claimant was a self-employed eavestrough installer who bought a policy of disability insurance from the insurer.
  • In September 2007, he fell from a roof and suffered injuries.
  • The claimant received disability benefits until November 2011 when the benefits were terminated.
  • The insurer was of the view that medical information on file did not support the total disability definition by that time.
  • The insurer’s lawyer advised the claimant on January 12, 2012, that if the claimant disagreed with the termination he was required to submit medical records in support of total disability “within sixty days.”
  • The claimant conceded that this was the date his claim was discovered.
  • The claimant consulted a lawyer in early 2015 who told him about the basic two-year limitation period.
  • An action was commenced in April 2015 more than two years after the termination of benefits.
  • The claimant attended a cross-examination and admitted he had received the letter and considered hiring a lawyer but never did so. He admitted he knew his benefits were terminated, he had received the insurer’s letter and had read the policy.
  • The insurer brought a summary judgment motion on the basis of the expired limitation period.
  • At the appeal, the claimant proposed that an insurer’s duty of good faith and fair dealing obliged it to advise the claimant of the applicable limitation period.
  • The claimant relied on the position that insurance law is consumer-protection legislation, as set out in the decision of Smith v Co-operators.3 The claimant proposed it was unfair to deny him benefits when the insurer knew of the limitation period but the claimant did not.

These arguments were not enough to sway the court in the claimant’s favour.

These arguments were not enough to sway the court in the claimant’s favour.

The legislative context of Smith v. Co-operators was not comparable to the existing claim and the Court of Appeal was generally reluctant to mandate the content of insurance refusal forms which would be “better left to the legislature.”

At the basis of the decision is the subtle distinction made as regards to the duty of good faith and the nature of a fiduciary duty. These are not the same thing. The Court of Appeal noted:

“In this case ... we are asked to do something more than impose a duty of good faith on insurers to disclose the contents of the insurance policy. We are asked to extend the duty of good faith to require an insurer to disclose information outside the policy – namely, the existence of a limitation period,” [emphasis in the original].

Evidently, the Court of Appeal refused to expand the scope of the duty of good faith.

To be sure, some jurisdictions in Canada have legislation requiring insurers to inform the claimant of a limitation period in certain circumstances (i.e. British Columbia, Alberta). Ontario’s Insurance Act only requires that insurers include a statement in the policy of insurance and certificate stating that all claims are subject to the Limitations Act.

With the scope of the duty of good faith not being precisely defined or settled, it is nevertheless clear that as far as the common law is concerned, the duty of good faith does not require an insurer to inform claimants of the legally applicable limitation period.

Read the full case decisions - see links below.

1 Usanovic v. Penncorp Life Insurance Company (La Capitale Financial Security Insurance Company), 2017 ONCA 395 (CanLII)
Fadil Usanovic v. Penncorp Life Insurance Company also carrying on business as La Capitale Financial Security Insurance Company, 2017 CanLII 86177 (SCC) – 2017-12-2
3 Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 SCR 129


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