The insurer had separate policies of insurance with the plaintiff and the defendant. The plaintiffs argued that because they were also policy holders with the insurer, the insurer owed them a duty of good faith and fair dealing and the insurer was obliged to settle the plaintiffs' action against the defendants. The plaintiffs' action against the insurer was dismissed because the insurer owed no duty to the plaintiffs simply because the plaintiffs had an insurance policy with the insurer.

[2014] S.J. No. 84

2014 SKQB 31

Saskatchewan Court of Queen's Bench

R.C. Mills J.

January 27, 2014

The plaintiffs and defendants are farmers who own adjacent land. The plaintiffs alleged the defendants sprayed herbicide which drifted onto the plaintiffs' farmland and caused crop damage and subsequent financial loss. The plaintiffs initially commenced an action against the defendants for the crop loss. The plaintiffs' and the defendants' insurer engaged in settlement discussions but were unable to come to a settlement agreement. The plaintiffs alleged the insurer refused to settle on a reasonable basis and instead used bad faith "stonewalling" tactics warranting punitive damages.

The plaintiffs then added the insurer as a defendant and alleged that the insurer had breached its duty of good faith and fair dealing. The plaintiffs argued that because the insurer had a policy of insurance with the plaintiffs, the insurer owed the plaintiffs a duty of good faith and fair dealing which obliged the insurer to settle the plaintiffs' claim against the defendants.

The insurer brought an application pursuant to Rule 173(a) of the former Queen's Bench Rules to have the plaintiffs' claim against it struck in its entirety. The test to be applied under Rule 7‑9 for striking a claim as disclosing no reasonable cause of action is found in Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959: "…assuming that the facts as stated in the statement of claim can be proved, is it 'plain and obvious' that the plaintiffs' statement of claim discloses no reasonable cause of action?"

The plaintiffs relied on Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595 and Saskatchewan Government Insurance v. Wilson, 2012 SKCA 106. The Court distinguished Whiten and Wilson and all other cases decided in this area on the basis that they all involved a claim by a plaintiff under its policy of insurance issued by the defendant insurer. The Court noted that there are no authorities that suggest that a duty to act fairly and in good faith arises from the issuance of a policy where no claim is made against it. In our adversarial system, to impose a duty upon an insurer to act fairly and in good faith to its insured in defence of the claim, while at the same time to act fairly and in good faith to the plaintiff in prosecution of the claim, is impossible. An insurer's primary obligation arises from its contractual obligations to its insured under the policy being claimed on and not to a third party who may be insured in circumstances unrelated to the action.

The Court found that it was plain and obvious the plaintiff would not succeed in its claim against the insurer and the plaintiffs' action against the insurer was dismissed.