Insurance contracts... are sold by the insurance industry and purchased by members of the public for peace of mind. The more devastating the loss, the more the insured may be at the financial mercy of the insurer, and the more difficult it may be to challenge a wrongful refusal to pay the claim. Deterrence is required. The obligation of good faith dealing means that the appellant's peace of mind should have been Pilot's objective, and her vulnerability ought not to have been aggravated as a negotiating tactic. It is this relationship of reliance and vulnerability that was outrageously exploited by Pilot in this case. The jury, it appears, decided a powerful message of retribution, deterrence and denunciation had to be sent to the respondent and they sent it. Whiten v Pilot Insurance Co., 2002 SCC 18 at para 129 Introduction
Keith and Daphne Whiten met in England in the 1970s where they both worked as nurses. They relocated to Canada after their marriage. They bought a modest home in Haliburton County, Ontario in 1985. Keith started a locksmith business but it failed in 1993.
Both Whitens were unemployed in the early hours of January 18, 1994 when they discovered a fire in their house. They fled in their bedclothes, along with their young daughter, Louise, to the street outside in the -18C winter night. Keith froze the bottom of his feet--having given his footwear to his daughter so she could summon assistance--as they watched their home, three cats and everything they owned go up in flames.
Their house insurer, Pilot Insurance Co., founded in 1927, provided property and automobile insurance exclusively in the Ontario market. It paid only $5,000 to the Whitens and covered a few months of rent on the cottage the family rented nearby while Pilot processed the Whitens' claim.
The fire chief thought a malfunctioning kerosene heater caused the fire. An independent adjustor and Pilot's own expert engineer found no evidence of arson. Nevertheless, Pilot denied the Whitens' insurance claim.
Thus began the case that would rock the insurance industry in Canada for decades and set an enhanced standard for handling insurance claims.
Duty of Good Faith and Fair Dealing in Handling Insurance Claims
In Carter v Boehm (1766), English common law first recognized that an insurance contract is clothed in the duty of good faith ("uberrimae fidei"), including throughout the claims handling process. Claimants are bound to provide the insurer with all relevant...