Overview
Every Canadian insurance contract carries an implied duty of good faith and fair dealing — the insurer must handle your claim honestly, promptly, and reasonably. When an insurer fails this duty by unreasonably denying a claim, making lowball offers, stalling without justification, or misrepresenting your policy, you may have a bad faith claim that allows you to recover:
- The original claim amount you were owed
- Aggravated damages for mental distress caused by the insurer’s conduct
- Punitive damages designed to punish egregious insurer behaviour and deter future misconduct
Canadian courts — particularly since the Supreme Court’s decision in Whiten v. Pilot Insurance Co. [2002 SCC 18] — have upheld substantial damages against insurers that act in bad faith. The Supreme Court upheld a $1 million punitive damages award in Whiten, a landmark that put insurers on notice.
What Constitutes Bad Faith
Canadian courts have found bad faith where an insurer:
- Denies a valid claim without reasonable basis — especially when internal documents show the insurer knew the claim was valid
- Fails to investigate promptly or properly — ignoring evidence that supports the claim, relying on biased experts, or conducting a one-sided investigation
- Makes unreasonably low settlement offers knowing the claimant has no choice but to settle
- Delays payment unreasonably without legitimate justification
- Misrepresents policy coverage to avoid paying
- Reverses course on coverage after initially approving the claim without new evidence
- Puts its own financial interests above the insured’s valid rights
How to Build and Advance a Bad Faith Claim
Step 1 — Document everything from the start. Keep records of all communications with your insurer: dates, names, what was said. Save every letter, email, and denial notice. Note any promises made and whether they were kept.
Step 2 — Get the denial in writing. If your claim is denied, demand a written explanation citing the specific policy provision(s) relied upon. Vague denials are themselves evidence of bad faith.
Step 3 — Request your full claim file. In most provinces, you have the right to see your insurer’s claim file. This can reveal internal notes, adjuster reports, and communications that contradict the stated reason for denial.
Step 4 — File a complaint with your provincial insurance regulator. Each province has an insurance regulatory body:
- Ontario: Financial Services Regulatory Authority (FSRA)
- BC: BC Financial Services Authority (BCFSA)
- Alberta: Alberta Insurance Council / Financial and Consumer Affairs Authority
- Quebec: Autorité des marchés financiers (AMF)
- Other provinces: Often the Superintendent of Insurance
Step 5 — Consider the OmbudService. The General Insurance OmbudService (GIO) and OmbudService for Life & Health Insurance (OLHI) offer free dispute resolution for consumers — not legally binding but often effective for straightforward disputes.
Step 6 — Retain a plaintiff’s insurance lawyer. For significant bad faith claims, consult a lawyer who specializes in policyholder-side insurance disputes. Many take cases on contingency. Provide all documentation from Steps 1–3.
Damages Available
| Type | Description |
|---|---|
| Contract damages | The original claim amount you were owed |
| Aggravated damages | Compensation for mental distress, anxiety, hardship caused by the bad faith conduct |
| Punitive damages | Punishment for malicious, oppressive, or high-handed conduct — can exceed the contract amount |
| Interest | Prejudgment interest on unpaid amounts from the date of denial |
| Costs | Legal fees — courts may award substantial costs against insurers who litigate without merit |
What Most People Don’t Know
- The “genuine dispute” defence is the insurer’s main shield — if there was a legitimate reason to deny (even if wrong), courts are less likely to find bad faith. The key is showing the denial was unreasonable, not merely incorrect.
- Most bad faith claims never go to trial — the threat of punitive damages creates significant settlement pressure once a lawyer is retained and internal documents are obtained through discovery.
- Limitation periods vary by province — typically 2 years from when you knew or ought to have known of the bad faith conduct, but insurance contracts may specify shorter periods. Act quickly.
- Health and disability insurers are frequent bad faith defendants — long-term disability (LTD) claims are a particularly common setting for bad faith litigation.
- Small bad faith claims are harder — punitive damages are calibrated to the insurer’s conduct and the need for deterrence, not to harm the insurer financially. For small policies, the calculus on litigation may not favour you even with strong evidence.
Frequently Asked Questions
What’s the difference between an insurer being wrong about my claim versus acting in bad faith?
An insurer can be wrong without acting in bad faith — if there was a legitimate, reasonable basis for the denial (even one a court later disagrees with), courts generally won’t find bad faith. Bad faith requires showing the denial was unreasonable given what the insurer knew, or that the insurer deliberately ignored evidence, conducted a biased investigation, or prioritized its own financial interests over your valid claim.
Can I get punitive damages on top of what my policy covers?
Yes, if you can prove the insurer’s conduct was “high-handed, malicious, arbitrary, or highly reprehensible.” The Supreme Court of Canada upheld a $1 million punitive damages award in Whiten v. Pilot Insurance Co. (2002 SCC 18), establishing that punitive damages in insurance bad faith cases can substantially exceed the policy value. However, such awards are reserved for egregious conduct — not every unfair denial qualifies.
How do I get my insurer’s internal claim file to build a bad faith case?
In most provinces you can request your claim file directly from your insurer — they are generally required to provide it. Once you retain a lawyer and litigation begins, full disclosure is available through the discovery process, which often reveals internal adjuster notes and communications that contradict the stated denial reason.
What is the limitation period for filing a bad faith insurance lawsuit?
Generally two years from when you knew or ought to have known about the bad faith conduct — but your insurance policy may specify a shorter limitation period (sometimes as little as one year). Act promptly. Missing a limitation period extinguishes your claim entirely, regardless of how strong the underlying bad faith evidence is.
Are long-term disability (LTD) claim denials a common setting for bad faith?
Yes. LTD insurers are among the most frequent defendants in Canadian bad faith litigation. Common bad faith patterns include denying claims based on paper reviews without physical examination, using biased surveillance, applying inappropriate occupational definitions, and reversing prior approvals without new medical evidence. If your LTD claim has been denied or cut off, a plaintiff’s disability insurance lawyer should review whether bad faith applies.