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April 23, 2014

Substantial Indemnity Costs for Unsubstantiated Bad Faith Claim

In Sagan v. Dominion of Canada General Insurance Company, 2014 CanLII 16478 (SC.J.), the defendant insurer successfully moved to dismiss the plaintiff's claim for non-earner benefits and mental distress.  The claim continued "a litany of unsupported allegations of bad faith, misconduct and incompetence against the defendant".  There was no evidence to support the allegations and they were maintained right up until the hearing of the motion.

Justice Lofchik awarded substantial indemnity costs for the motion itself, and partial indemnity costs for the remainder of the action.  He held that substantial indemnity costs may be appropriate where a party makes empty bad faith allegations.  The purpose is to diminish frivolous and speculative litigation, to cause litigants to focus on the real issues and to foster sober reflection above that of an emotional response.

Although brief, Sagan is a useful decision, especially where plaintiffs commonly throw in allegations of bad faith where an insurer denies a claim.

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