What Is Bad Faith in My Long Term Disability Claim?

A long term or short term disability claim with an insurer has a contract that outlines the rights and obligations of both parties. Every contract is different and provides different benefits and procedures that must be followed.

Generally speaking, the disabled person must cooperate by communicating with their insurer regarding their treatment and recovery status. The insurer must consider the evidence presented and explain their decision-making process to the insured.

A claim for bad faith arises from the relationship between a disabled person and their insurer – but it is not a part of the wording of the contract. An insured person will not find a section in their policy called ‘bad faith’. It is also known as ‘aggravated damages’ or ‘punitive damages,’ but those sections will not be found in the contract either.

Insured persons making claims for disability benefits should seek the assistance of an OTLA member familiar with long term disability disputes to help them determine if they have a claim for bad faith damages.

Bad faith can be related to the way a claim is handled, the way a decision is made or simply a lack of proper communication between the insurer and the disabled person. It requires a skilled lawyer to review the claims handling to determine if a claim for bad faith can succeed.

Some helpful examples of bad faith conduct include:

In Fidler v. Sun Life [2006] 2 S.C.R. 3 the Supreme Court outlined clearly that disability insurance is meant to provide insured persons with a psychological benefit of knowing they will have income even if disabled. Denying a disabled person their disability benefits can be a separate actionable wrong.

In Whiten v. Pilot Insurance [2002] S.C.J. No. 19, an insurer ignored the opinion of an independent expert and refused to pay a family whose house burned down. Conduct deserving of punitive damages was described as “high-handed, malicious, arbitrary or highly reprehensible misconduct”. These kinds of damages are not normal – they are meant for particularly bad conduct.

In Fernandes v. Penncorp [2014] O.J. No 4039 at paragraph 76 the Ontario Court of Appeal noted insurers must deal with an insured’s claim fairly. It relates to both how a claim is investigated and how the decision is made. Insurers must not take advantage of the economic vulnerability or deny to gain leverage.

In 1964 Justice Stewart of the U.S. Supreme Court wrote in his opinion on an obscenity case: “I know it when I see it”. A skilled lawyer will be able to identify bad faith conduct even though it is not defined in your disability insurance contract.