On October 3, the Quebec Court of Appeal allowed in part the appeal of SSQ Financial Group (the Insurer) against a Quebec Superior Court judgment1 ordering it to pay damages due to the biased and substandard investigation that it had carried out regarding the claim made by Denise Dubé (the Insured). This Quebec Court of Appeal’s decision in Tardif c. Succession de Dubé2 relevant for a number of reasons, but particularly based on the court’s teachings concerning the obligation of insurers to manage claims objectively and in good faith.
The context and the investigation carried out by the Insurer
After undergoing surgery, the Insured was granted by the Insurer a period of disability of a few weeks. As her medical condition became more complicated, the Insured submitted, before the end of this disability period, a medical certificate prescribing an additional six-month leave. The Insurer, questioning the duration of this leave, contacted the Insured’s attending surgeon, who pointed out to the Insurer that she did not authorize such a leave, that the certificate was signed by one of her residents and that the Insured could start working again four weeks post-surgery.
The Insurer thus refused to extend the initially authorized period of disability. The Insured then consulted various health professionals and submitted to the Insurer another medical certificate stating her inability to work. The physician who signed the medical certificate nevertheless indicated to the Insurer that he didn’t really examine the Insured and that he would see her again to verify her ability to perform sedentary work. Without waiting for the results of this medical exam, the Insurer referred the file to investigative services and proceeded to shadow the individual, even though a nurse confirmed to it that the Insured was awaiting certain treatments related to her medical condition. At the end of the investigative process, the Insurer upheld its decision not to recognize the Insured’s inability to work.
In this context, the Insured sued the Insurer for damages, in particular for poor management of her insurance file and for infringing upon her right to dignity and honour.
The obligation to manage claims objectively and in good faith
The Quebec Superior Court held that there was fault on the part of the Insurer in managing the Insured’s disability file. The Court determined that the Insurer did not demonstrate objectivity and good faith, since it was convinced [translation] "from the start of the fraudulent nature of the claim," then went about [translation]"gathering facts to validate its decision to put an end to her disability benefits."3 The Court qualified the Insurer’s investigation to be [translation]"biased and substandard."4 The Court therefore ordered the Insurer to pay moral damages to the Insured, on account of its [translation]"generally poor management of the file."5
In its October 3, 2018 decision, the Quebec Court of Appeal upholds the judgment in part. It concludes that the Insurer had been negligent in how it handled the Insured’s file and had breached its contractual obligation to manage claims objectively and in good faith.6 The Court adds that in common law, moral damages may be awarded when an insurer breaches its obligation to act fairly in its investigative process.7 It specifies that it has never had to determine whether these common law principles apply to civil law, but that the same result is reached pursuant to articles 1375 and 1434 of the Civil Code of Québec,which pertain to the duty incumbent on the parties to a contract to act in good faith.8
In considering how the Insurer managed the Insured’s disability file, the Court determines that, under the circumstances, rather than confirming its decision not to extend the disability benefits, the Insurer [translation]"had a responsibility to investigate the medical aspect of the claim more thoroughly."9 The Court holds that, if it didn’t have sufficient information, particularly regarding the Insured’s functional limitations, the Insurer should have followed up with the physician and the nurse with whom it had communicated in the days preceding the decision to refer the file to the investigative services and initiate shadowing.10 This nurse could have referred the Insurer to another physician who had also identified the Insured’s medical condition.11
Interference with the Insured’s fundamental rights
In the trial decision, the Quebec Superior Court had also ordered the Insurer to pay moral damages for interference with the Insured’s right to dignity and honour as guaranteed by the Charter of human rights and freedoms12 (the Charter), on the basis that the Insurer authorized [translation] "a biased and substandard investigation to allow for shadowing to be conducted."13 The trial judge had also ordered the Insurer to pay punitive damages, given that, in her view, the Insurer was aware it was violating the Insured’s fundamental rights by subjecting her to unjustified shadowing.14
The Quebec Court of Appeal quashes these two conclusions by the trial judge. First, the Court holds that the Insurer did not act negligently by deciding to conduct shadowing and, in the absence of an allegation denouncing this shadowing, the trial judge considered beyond what had been requested.15 Second, the Court concludes that, although the Insurer had been negligent, the evidence does not demonstrate it acted with the intention of harming the Insured.16
In the common law provinces, we frequently see the courts sanction insurers for showing bad faith in how they manage an insured’s claim by ordering them to pay punitive damages.17 In Quebec, however, the awarding of punitive damages is more rare in that it cannot be solely justified on the insurer’s breach of its duty to act in good faith.18 In fact, in civil law, these types of damages can only be awarded if there is specific legislation that enables such an award.19 More specifically, the legal ground for an insurer to be ordered to pay punitive damages is section 49 of the Charter, which requires evidence of unlawful and intentional interference with a right guaranteed by the Charter. An analysis of the recent case law nevertheless demonstrates that the courts in Quebec have been less stringent in their interpretation of this legislative provision in an insurance context, so that the amount of cases in which punitive damages claims against insurers are granted is slowly increasing.20
In this case, even though the Quebec Court of Appeal considers that it was not appropriate to order the Insurer to pay punitive damages in the absence of intentional interference with the Insured’s fundamental rights as guaranteed by the Charter, the Court still holds that the Insurer was at fault for the mismanagement of the Insured’s file and awards moral damages. Although the vehicle used by the Court is not that of punitive damages, this decision appears consistent with the courts’ desire to align the culture of Quebec law with that of the common law provinces when it comes to sanctioning an insurer who breaches its obligation to manage claims objectively and in good faith.
The author wishes to thank articling student Emmanuelle Boilard for her help in preparing this legal update.