Insurer Bad Faith Damages: A USA-Canada Comparison

Members of the Clark Wilson LLP Insurance Group recently spoke at a seminar in Seattle dealing with cross-border litigation issues. One subject presented at the seminar was a comparison of bad faith punitive damage awards available in both countries, an exercise that leads to some startling conclusions.

A recent U.S. study of some 557 bad faith cases in that country produces the following data, which will surprise many Canadian observers:

• more than half (57%) of bad faith claims which go to trial against insurers in the U.S. result in verdicts for the plaintiff insureds;

• while average awards for compensatory damages in such cases range from $600,000 to $1 million, the average punitive damage award for insurer bad faith is 10 times that figure, in the range of $7-10 million;

• bad faith findings on third party liability policies account for the highest damage awards; but

• claims on first party policies account for most of the volume in U.S. bad faith litigation

For their part, U.S. claims examiners are dumbfounded to learn that up to June 2004 in Canada,

• there are only 3 reported cases involving awards against liability insurers for bad faith “refusal to settle” within policy limits (and none in the past decade);

• there are a mere 20 bad faith damage awards against first party property or disability insurers in total, only 10 of which actually included punitive damages (either with or without aggravated damages); and

• the highest punitive damage award sustained by a Canadian appellate court is only $1 million (and even that number is 10 times higher than the most recent award upheld by the B.C. Court of Appeal).

For sure, it must also be noted that in recent years there has been a substantial increase in the number of procedural rulings in insurer bad faith cases. This indicates there are many bad faith cases which have been, or are being, pursued in the Canadian courts and which have not made it to trial. It is now commonplace for coverage enforcement litigation to incorporate bad faith claims against insurers as a matter of course, and it is probable that the trend of increasing aggravated or punitive damage awards by Canadian judges will increase the “settlement value” of most such cases from the perspective of many insurers.

A complete copy of the article on the subject can be accessed at:
http://www.cwilson.com/pubs/insurance/npk12/

For the cross-border seminar, the Insurance Group completely revised and updated their “Manual for Out-of-Province Claims Examiners” addressing MVA claims in B.C. but which also has practical application to most types of liability claims in this province. This volume, which now contains over 300 pages of useful information affecting B.C. litigation, can also be accessed and downloaded in its entirety from the firm’s website at:
http://www.cwilson.com/pubs/insurance/npk6/

Another useful text which was also updated for the seminar and which many Claims Examiners may find useful in respect of complicated construction defect litigation is “Insurance Coverage for Construction Deficiency Claims: Lessons From B.C.'s Leaky Condo Wars” which can be found at:
http://www.cwilson.com/pubs/insurance/njt1/

Readers with questions are invited to contact Nigel Kent by phone at 604-643-3135, or by email at npk@cwilson.com.