Case comment on Lambright v. Sonnet Insurance Company, 2022 BCSC 709
In Lambright, Justice Milman considered an award for punitive damages in the context of a home insurance claim following a residential fire.
This case highlights the nature of the duty of good faith that insurance companies must fulfill as part of their contractual responsibilities towards people who purchase property loss insurance.
The facts
In May of 2019, a fire destroyed the house in which the plaintiff, Cindy Lambright was residing. The house was owned by Ms. Lambright’s late mother, Judy Green. Ms. Lambright was the executor of Ms. Green’s estate.
The building and its contents were insured against fire loss under a policy issued by the defendant, Sonnet Insurance Company. Ms. Lambright on her own and the estate’s behalf, submitted a proof of loss to Sonnet in respect of the building and its contents. Sonnet agreed to indemnify Ms. Lambright and the estate for the rebuilding costs of the house, but was unwilling to pay most of the amount claimed in respect of the loss of contents. Ms. Lambright commenced an action seeking to compel Sonnet to indemnify her and the estate for the remaining part of the loss which was $189,538.84. She also sought punitive damages in the amount of $80,000 to address Sonnet’s failure to respond to her claim.
To substantiate her claim for loss of contents, Ms. Lambright swore numerous proof of loss forms; the first on September 26, 2019, the second on May 22, 2020, the third on September 24, 2020, the forth on August 19, 2021, with the fifth and final proof of loss being sworn and filed on January 5, 2022.
Following the filing of the first proof of loss, Sonnet responded with a request for supporting information on the contents claim including purchase receipts, photographs and online purchase history. Sonnet insisted on detailed information presumably because the proof of loss contradicted documents filed to probate the estate of Judy Green, which indicated household contents of $2,000, and also contradicted documents filed in respect of Ms. Lambright’s bankruptcy which swore to personal possessions of $1,200.
With the contents of the house burned and both of Ms. Lambright’s parents deceased, the requested information did not exist. Ms. Lambright communicated this to Sonnet Insurance following which Sonnet stopped the payments for the undisputed building replacement, resulting in a building delay of more than a year. Despite numerous correspondence from Ms. Lambright to Sonnet Insurance, the contents claim “remained under investigation” at the time of trial almost three years after the date of loss.
Justice Milman characterized Sonnet’s approach to the claim as one in which they were trying to avoid their obligations by purporting to investigate indefinitely, particularly where no further investigative steps were contemplated or communicated. Sonnet was ordered to pay $150,059.19 for the contents claim and $25,000 for renting accommodations Ms. Lambright had to incur while awaiting the house to rebuilt.
Insurers have duties to the people they insure
A contract of insurance is one of utmost good faith, where the insurer must deal with all claims from an insured in good faith. This duty requires an insurer to act both promptly and fairly when investigating, assessing and attempting to resolve claims made by its insureds. Whiten v. Pilot insurance Co. (1999), 1999 CanLII 3051 (ON CA), 42 OR (3d) 641 (Ont. C.A.)
The first part of the duty speaks to the timeliness in which a claim is processed by the insurer. The duty obliges the insurer to act with reasonable promptness during each step of the claims process. Included in this duty is the obligation to pay a claim in a timely manner when there is no reasonable basis to contest coverage or withhold payment.
The second part of the duty requires an insurer to deal with its insured’s claim fairly. The duty to act fairly applies both to the manner in which the insurer investigates and assesses the claim and to the decision whether or not to pay the claim. This duty of fairness, however, does not require that an insurer necessarily be correct in making a decision to dispute its obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith. Palmer v. Royal Insurance Co. of Canada (1995), 27 CCLI (2d) 249 (OCGD).
In respect of her claim for punitive damages, Ms. Lambright alleged that Sonnet breached their duty of good faith by:
a) failing to act with reasonable promptness in assessing the claim
b) refusing to pay undisputed parts of the claim; and
c) making unreasonable requests for information and documentation so as to delay payment
Justice Milman found Sonnet to be in breach of the insurance contract by failing to conclude its investigation in a timely manner, but failed to award punitive damages on that basis after accepting that Sonnet honestly believed that it had reason to question the accuracy of the proof of loss in view of apparently contradictory information in the unrelated court filing.
Justice Milman found that Sonnet improperly withheld payment of other parts of the claim that were undisputed as a result of which Ms. Lambright had to wait over a year to return to her residence. Punitive damages of $30,000 were awarded to address this unfair conduct.
If your claim is denied, confirm your options with a lawyer
If your insurer is refusing to pay your property loss claim, contact a lawyer to find out what your rights are. Our lawyers frequently help clients who are facing insurance disputes. We can assess your case, advise you of your options, and represent you in negotiations with your insurer. If your insurer is not being reasonable we are also seasoned trial lawyers and we will not hesitate to take the matter to court if that is in your best interests.
