Accounting for Law

Delayed payment costs insurer

An Ontario case shows the danger to insurers for delaying payment of claims involving suspicious circumstances, says Vancouver insurance lawyer Sean Lerner.

In J.I.L.M. Enterprises & Investments Limited v INTACT Insurance, 2017 ONSC 357 (CanLII)an Ontario Superior Court judge ordered Intact to pay the owner of a fire-damaged motel punitive damages after finding it breached the insurance contract by delaying payment for two years after its adjuster’s arson investigation.

“The key lesson for insurers is this:  do your investigation promptly and impartially;  and if there is no compelling evidence to support a denial, pay the claim,” Lerner, principal of Lerner Law Corporation, tells

It’s not a new idea, but it’s a good reminder because I’ve seen this happen plenty of times. There’s a claim, and the insurer is skeptical for one reason or another, but an investigation doesn’t produce any evidence to support their suspicions. Then they do nothing for months or even years, which is a bad-faith claim waiting to happen.”

The motel in the case, which had a history as a gas bar complex and also operated as a restaurant and store, was partially destroyed by fire in May 2009. According to the decision, the adjuster was suspicious that the fire was started deliberately, and also received an anonymous tip that supported this view.

However, the investigation closed in the spring of 2010 without turning up any evidence of arson. Still, the owner didn’t see any money until April 2012, almost three years after the fire, when he received a $1 million payment representing the actual cash value (ACV) of the building.

“I find that the failure to pay until almost two years later is a breach of the contract,” Justice Danial Newton wrote in his decision.  

In an effort to deter insurers from similar conduct in future, he ordered punitive damages of just over $200,000, or 10 per cent of the amount the owner should have received for every year it remained unpaid.

“The plaintiff had an ongoing business. Instead of dispatch, there was delay. The plaintiff was vulnerable in that it had ongoing losses. The conduct was not even-handed.  It was high-handed and a marked departure from how an insurer should handle a serious claim like this,” the judge concluded.

Newton also awarded the motel’s owner an additional $250,000 in damages for lost profits in the period the business would have been operational had it received its ACV payment on time.

“Policies will often have a cut-off for business interruption losses. In this case, the limit was one year, but the judge essentially rewrote the cut-off period because of the breach by the insurer,” Lerner says. “It’s a good illustration that judges can make awards outside the contract if there is a significant delay in paying a claim."

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