Justice Braid granted the summary judgement motion in finding there was is no genuine issue for trial for Timothy Watkins’ action for non earner benefits and additional extra-contractual damages. A separate action for damages arising from breach of contract and mental distress, as well as pecuniary damages under the Family Law Act for loss of earning capacity and loss of income for Western’s negligent administration of accident benefits to Deborah Stuckless, Timothy Watkins’ mother, survived:
As a result of Western Assurance Company denying Deborah Stuckless’ claim for income replacement benefits, Timothy Watkins commenced an action for: “Damages for wrongful infliction of mental distress upon Watkins by the use of unlawful claims practices; bad faith for unreasonable conduct in the claims process; and aggravated, punitive and exemplary damages.” Or, “in the alternative, Watkins claims pecuniary damages under the Family Law Act for loss of earning capacity and loss of income for Western’s negligent administration of accident benefits to Stuckless.”
Western Assurance Company brought a motion seeking to strike out the 2011 action on the basis that it did not disclose a reasonable cause of action. The analysis of the motion was confined to the pleadings and the relationship between the parties under contract law.
What proved fatal to Western’s arguments were the 2011 Ontario Court of Appeal decision of McQueen v. Echelon General Insurance Company and the oral reasons of Justice K.A. Carpenter-Gunn in the decision of Sheperdson v. Echelon.
In McQueen v. Echelon General Insurance Company, the Court of Appeal found that the trial judge did not err in awarding damages for mental suffering to the plaintiff, who was not a named insured under the policy but the spouse of the named insured. The Court of Appeal found that damages for mental distress may be awarded to a person who is insured under a standard automobile policy, whether that person is the named party to the insurance contract or not. Mental distress to anyone insured under the policy upon breach would have been within the reasonable contemplation of the insurer and the insured; thus, damages were recoverable pursuant to the basic principle of compensatory damages for breach of contract.
The Ontario Court of Appeal refused the insurer’s leave to appeal in Sheperdson v. Echelon. Sheperdson v. Echelon mirrored the derivative claim brought by Timothy Watkins: Sheperdson brought an action seeking damages for mental distress, bad faith, aggravated and punitive damages and, alternatively, pecuniary damages under the Family Law Act for the negligent administration of benefits to the plaintiff’s wife. Sheperdson’s claim was supported by the fact that a trial had previously taken place for Sheperdson’s wife and the trial judge awarded damages for mental distress due to the improper adversarial approach taken in Echelon’s file handling. Justice Carpenter-Gunn considered the fact that Sheperdson was actually the policy holder on the Echelon policy and found that any ambiguity regarding whether or not Sheperdson was an “insured person” under the contract was eliminated based on the doctrine of contra preferentum. Under section 61 of the Family Law Act, however, the court found that Sheperdson did not need to meet the definition of “insured person.” To prove a cause of action, Sheperdson simply needed prove that the loss was foreseeable and proximate to Echelon’s improper and adversarial file handling. Justice Carpenter-Gunn further commented: “It is logical, therefore, to say that negligent conduct alleged to have been committed by the insurer to the spouse could give rise to a spouse’s claim...”
Despite referencing the Sheperdson’s wife’s trial before Justice Harris, where various negative findings were made against Echelon, Justice Carpenter-Gunn stated that she was not making any findings on the substantive allegations raised. Rather she found only that the test had been met by the plaintiff under Rule 21. Justice Carpenter-Gunn advised that there might have been a future motion, brought under Rule 20 for summary judgement, brought by the insurer to argue the merits of Sheperdson’s claim.
What is glaringly different between Timothy Watkins’ claim and Sheperdson v. Echelon, is that Timothy Watkins was not specifically named on the policy. In keeping with McQueen v. Echelon General Insurance Company, however, Justice Braid concluded that, even though Timothy Watkins was not specifically named on the policy with Western, he was insured under the contract and was entitled to recover in the same manner as if he was the policy holder. Justice Braid found that Timothy Watkins was entitled to recover under the contract if the alleged harm caused by bad faith file handling was foreseeable. Justice Braid made a similar conclusion with respect to Timothy Watkins’s Family Law Act claim.
Considering Justice Carpenter-Gunn’s comments in Sheperdson v. Echelon, regarding the possibility of a Rule 20 for summary judgement for derivative claims, it would be relevant whether Deborah Stuckless alleged bad faith file handling against Western was successful. Further, it would be relevant whether Western wrongfully denied income replacement benefits; whether Deborah Stuckless was dealt with in bad faith; and/or whether the denial of income replacement benefits did adversely affect her son, Timothy Watkins.
In Arsenault v. Dumfries Mutual Insurance Co., the Ontario Court of Appeal held that claims for bad faith are subject to the same limitation period as the claim for accident benefits. Any and all disputes about an insurer’s refusal to pay no-fault benefits, including disputes which allege the insurer’s bad faith in connection with that refusal, must be brought within two years of the refusal. In Watkins v Western Assurance Company, the plaintiff’s claim for breach of contract, mental distress and loss of income was solely contingent on the alleged negligent handling of his mother’s accident benefits claim, and not connected to his own claim for non earner benefits.
The insurers decided to bring motions to strike the action, pursuant to Rule 21, in Stuckless v. Western and Sheperdson v. Echelon. Thus, a summary judgement motion on the merits of derivate claims for mental distress and suffering has yet to be heard by the court.
Contrarily, he case of McQueen v. Echelon General Insurance Company was decided after a trial of the wife’s accident benefits action and the husband’s derivative claim being heard together. Thus the court had already made findings on the merits of bad faith file handling in McQueen v. Echelon General Insurance Company.
This is part two of the Watkins v. Western blog. To read the first part, please click here.