Wrongful denial of coverage did not constitute bad faith

Insurance law – Property insurance – Landlord and tenant – Coverage – Bad faith – Duties and liabilities of insurer – Delay

688857 Ontario Ltd. (c.o.b. A to Z Properties) v. Aviva Insurance Co. of Canada, [2018] O.J. No. 5269, 2018 ONSC 5891, Ontario Superior Court of Justice, October 11, 2018, D.G. Stinson J.

The insurer denied the insured landlord’s claim following a theft of rental income by its property manager on the basis that the property manager was an independent contractor and thus could not fall within the policy’s employee dishonesty coverage. The insured sued for coverage.

The Court found that in concluding the property manager was an independent contractor, the adjuster went beyond the facts confirmed by the insured and embellished information without giving the insured an opportunity to correct the information. The Court found that the property manager was an employee and therefore the employee dishonesty coverage applied.

The Court found that the insurer did not act in bad faith in denying coverage. The delay of nine months in denying the claim was due to the insured’s difficulties calculating the loss, errors in the calculation, difficulty understanding the insured’s calculation, and the insured’s extended periods out-of-country. The insurer never confirmed coverage and had raised the question of the status of the property manager at the outset with follow-ups in subsequent communications. The investigation was not overwhelmingly inadequate and there was no evidence of improper considerations. There was no evidence the insurer intentionally dragged its heels and the court emphasized that denial of a claim that ultimately succeeds is not in itself bad faith.

This case was digested by Dionne H. Liu, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Dionne H. Liu at dliu@harpergrey.com.

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