Plaintiffs can't sue for bad faith in accident benefits disputes

An Ontario Superior Court of Justice decision to bar an accident benefits claimant from suing her insurer in court for bad faith is unfortunate news for plaintiffs, Ottawa personal injury lawyer Najma Rashid .

The judge in the case summarily dismissed the woman’s claim after ruling it was not an independent, actionable wrong, but was, in fact, the type of dispute over no-fault benefits entitlements contemplated by the 2016 changes to s. 280 the Insurance Act.

When the legislative changes were made, preventing plaintiffs from turning to court for any dispute resolution “in respect of an insured person’s entitlement to, or amount of, statutory accident benefits,” Rashid explains that there remained some doubt about whether claimants could still sue for damages on the narrow issue of an insurer’s alleged bad faith in the administration of benefits.

“It’s a distinct claim, but unfortunately, this decision is confirmation that you can’t sue for bad faith, which is unfortunate news for plaintiffs,” says Rashid, a partner with Howard Yegendorf & Associates LLP.

Instead, injured parties must bring their complaints before the LAT, which has its own penalties for benefit payments that are unreasonably withheld or delayed, including a lump-sum award of up to 50 per cent of the denied entitlement, plus interest of two per cent per month from the time they became payable.

But Rashid says the LAT’s special awards are “very difficult to get,” and amount to little more than a “slap on the wrist” for insurers even if they are granted.

“There’s virtually no exposure for insurance companies in a dispute before the LAT,” she says. “When you sue in court, you can get compensatory damages for bad faith, and you can also get legal costs, none of which are available at the LAT.”

The woman in the case was injured in a car accident and acknowledged that the Insurance Act barred her from suing for accident benefits. However, she claimed damages for mental distress and aggravated and punitive damages, arguing that the Act allowed for independent claims for bad faith in the administration of accident benefits.

In his decision, the judge agreed with the defendant insurer that the claim fell entirely within the jurisdiction of the LAT, and dismissed it summarily. He concluded that s. 280 of the Act must be read broadly in order to achieve the goals of the legislative changes.

“There is no reason to doubt that the legislature, in enacting the present s. 280 of the Insurance Act, intended to deprive a claimant of resort to the court at first instance whenever the claim is based on denial of accident benefits, no matter how the denial is characterized in legal terms,” the judge wrote.

Rashid says the decision leaves open the possibility, at least in theory, that a plaintiff could sue in court if they were able to demonstrate that the claim for bad faith represented an “independent, actionable wrong.”

“You would have to show that the issue of termination or the amount was not in question, which is probably going to be a bit of a stretch because the reality is that most bad-faith conduct arises in the context of a termination of benefits,” Rashid says.