Limitations on Good Faith

Limitations on Good Faith: Usanovic and Insurers’ Obligations in Respect of Statutory Limitation Periods

Ontario law imposes a duty of good faith and fair dealing on both insurers and those whom they insure. However, the parameters of this duty are not always clear. While it is established law that insurers must adjudicate their claims fairly and in a timely manner, courts are left to determine additional elements of the duty of good faith on a fact-specific basis.
Recently, the Ontario Court of Appeal was asked to extend the duty of good faith to require an insurer to notify an insured of a statutory limitation period under the Limitations Act, 2002. Generally speaking under the Act, plaintiffs seeking to commence legal proceedings must do so within 2 years of the date on which they discovered the injury, damage, or loss in question. In Usanovic v. Penncorp Life Insurance Co. , the Ontario Court of Appeal held that insurers are not obligated as part of their duty of good faith to notify insureds of this limitation period.

The Facts

Fadil Usanovic purchased an insurance policy from Penncorp Life Insurance Co. in 1999. The Policy insured Usanovic against disability arising from accidents and sickness, among other things.
In September 2007, Usanovic fell from a roof and suffered various injuries. He made a claim under the Policy and received disability benefits until November 2011, when Penncorp terminated his benefits because he was no longer “totally disabled” as defined in the Policy. Through counsel in January 2012, Penncorp advised Usanovic that in order to receive further benefits, he was required to submit medical records to prove that he was “unable to engage in any and every occupation for which he was reasonably fit by reason of his education, training, and experience.” Usanovic did not provide Penncorp with any medical records.
In early 2015 Usanovic consulted a lawyer who advised him of the limitation period under the Act. At this time, Usanovic became aware that he should have commenced an action against Penncorp within 2 years of the day on which he discovered the “injury, loss or damage”. Usanovic commenced an action against Penncorp in April 2015, approximately 3.5 years after Penncorp terminated his benefits.

The Arguments and the Decision

In the lower court, Usanovic argued that Penncorp was bound by its duty of good faith to notify him of the limitation period under the Act when it denied his claim. He argued that the limitation period did not begin to run until Penncorp gave such a notice. The motion judge rejected these arguments, stating that (1) the limitation period began to run when Usanovic received Penncorp’s denial letter on January 12, 2012; and, (2) requiring Penncorp to notify Usanovic of this fact would create a “substantial shift” in the boundaries of an insurer’s duty of good faith.
In the Ontario Court of Appeal, Usanovic argued on the basis of consumer protection legislation that the duty of good faith should require insurers to notify insureds of the applicable statutory limitation period. The Court of Appeal upheld the motion judge’s decision. Strathy C.J.O. declined to invoke consumer protection law in this context. He stated that while an insurer’s duty of good faith requires it to “give as much consideration to the welfare of the insured as to its own interests” , this did not rise to the level of a fiduciary duty, wherein the insurer would be required to hold the insured’s interests as paramount to its own interests.
Strathy C.J.O. further held that Usanovic’s proposed expansion of the insurer’s duty of good faith would in essence overrule the discoverability provisions of the Act. If Usanovic’s argument was to stand, then in every case the insurer’s notification of the limitation period would trigger the start of the limitation period, as opposed to the insured’s discovery of his or her loss, injury, or damage. This would bring ambiguity – rather than clarity – to the understanding of the statute.

What Does Usanovic Mean for Insurers in Ontario?

While the Court of Appeal declined to expand the duty of good faith in this case, it did recognize that legislatures in other Canadian provinces have imposed this requirement on insurers. Specifically, in British Columbia and Alberta, regulations require insurers to give written notice to insureds of the applicable limitation period within a certain time period after denying their claim.
Though Ontario insurers are not required to notify each insured of the applicable limitation period, the Ontario Insurance Act requires certain insurers – including life and disability insurers – to include the following statement in their insurance policies:
Every action or proceeding against an insurer for the recovery of insurance money payable under the contract is absolutely barred unless commenced within the time set out in the Limitations Act, 2002.
Nonetheless, the Court commented, the Ontario legislature has not chosen to adopt the approach of Alberta or British Columbia by expressly requiring insurers to notify insureds of the limitation period.
It remains open to the Ontario legislature to change the Insurance Act to impose further requirements on insurers (as has occurred in other provinces). However, as of this moment, insurers are not required by Ontario law to inform insureds of the applicable limitation period under the Limitations Act, 2002.