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Bad Faith Claim
Published in the May 2010 issue of Litigation Notes - View Article
The Nova Scotia Court of Appeal awards punitive damages as a result of an insurer’s bad faith in the investigation of a claim for damages to a barn in a windstorm.
The Nova Scotia Court of Appeal recently upheld a jury’s award of punitive damages, arising from an insurer’s bad faith denial of coverage. The Kings Mutual Insurance Company insured the Ackermann’s dairy barn to a maximum of $265,000.00 for various perils including “windstorm”. On October 3, 2003 the Ackermanns notified Kings that their barn had been damaged by Hurricane Juan on September 28 – 29, 2003.
Kings appointed John Nicholls to adjust the claim and Mr. Nicholls retained Archibald Frost, a professional structural engineer, to provide his opinion on the cause and extent of damage to the barn. Mr. Frost concluded that the barn had not been damaged by Hurricane Juan. Mr. Ackermann retained his own expert, David Browning. A visit to the barn was organized involving the two experts, Mr. Ackermann and Mr. Nicholls. Mr. Nicholls was contemptuous of Mr. Browning, reporting that he had appeared “intimidated” by Mr. Frost.
The barn had been inspected by Kings own loss prevention technician, Richard Forsythe, on many occasions prior to the reported loss. The barn had always been in satisfactory condition and suitable for insurance coverage, including against windstorms. After the hurricane, Mr. Forsythe conducted a further inspection of the barn to assess its risk for insurance purposes and reported to Kings that there was definite damage since the last time he was there, that the framing was not safe and that it was intended by Mr. Ackermann to tear it down as soon as his claim was settled. Kings response was to tell him to have no further communication with Mr. Ackermann.
Mr. Ackermann provided letters from several third-party eye witnesses who provided their observations on the condition of the barn prior to and after Hurricane Juan. No attempt was made by Kings to meet with or interview any of these eye witnesses. When Mr. Frost was examined for discovery, he was shown a letter from an individual named Peter Sheehey who had done barn repairs for the Ackermann’s over the years. His letter stated that he had inspected the barn after the Hurricane and that it had separated from the feed bin, whereas they had been in full contact previously. Steel support posts in the barn had been replaced by his firm shortly before the hurricane and after it, two of them had punched right through the cement floor and several others were leaning towards the north end of the barn. No attempt was made to contact Mr. Sheehey.
At trial the jury awarded the Ackermanns the full amount of their insurance claim of $265,000 and punitive damages in the amount of $55,000. Kings appealed the award of punitive damages. The Nova Scotia Court of Appeal considered the standard of review articulated by the Supreme Court of Canada in Whiten v. Pilot Insurance Co., namely “…whether a reasonable jury, properly instructed, could have concluded that an award in that amount and no less, was rationally required to punish the defendant’s misconduct”. The Court was of the view that Kings had demonstrated tunnel vision and had failed to properly investigate the claim. They had not interviewed any of the eye witnesses who were in the best position to have established the state of the barn before and after the hurricane and had deliberately suppressed the information of their own loss prevention expert, Mr. Forsythe. Their adjuster, Mr. Nicholls, had taken a partisan position in support of denial of coverage and the tone phraseology that he used demonstrated disdain for Mr. Browning and for the Ackermanns’ counsel. The jury had concluded that King’s denial of coverage was in bad faith and that its conduct offended the jury’s sense of decency. The Court of Appeal concluded that this was a conclusion that a reasonable jury could reach and that an award of punitive damages was a rational response on the jury’s part to its findings. “Without an award of punitive damages, Kings would not have been required to pay more than its policy required it to pay and there would be nothing to deter it from acting similarly in the future; by not following up on all of the evidence relevant to a claim, withholding critical information from the adjuster engaged to investigate a claim and allowing the adjuster to present the results of his or her investigation in a partisan, bias and unobjective manner.” The appeal was dismissed.
The Kings Mutual Insurance Company v. Ackermann, 2010 NSCA 39 (CanLII)