Litigation strategy gone bad

July 30th, 2012 by

August 8, 2000, is not a date that the Brandiferri family is likely ever to forget. On that date, a fire started in their garage, destroying it and its contents as well as causing significant smoke damage to their home.

They reported the fire to their home insurer.  It arranged for two contractors to prepare estimates. One contractor was chosen, and it got to work.

Things did not go well.  As work proceeded, it became clear that the damage to the home, a lot of which was hidden, was much worse than had been anticipated.  Further, the Brandiferris and the contractor had several disputes, there was a significant back and forth with the insurer about what was covered under the insurance policy and what was not, the insurer made a payment to the contractor in spite of the Brandiferris’ direction that this was not to be done, and they were not able to return to their home until 2004, several years after the fire.

They commenced an action against the insurer and the contractor for, among other things, deficiencies in the repair work.  Matters then got worse: in response, the insurer instituted a claim against the Brandiferris for $600,000, something which raised the specter of financial ruin, and accused them of fraud in the proof of loss, the document which they had submitted to the insurer setting out the details of their claim.

Mr. Justice Lauwers presided over the trial and released his decision in June of this year.  In effectively allowing the Brandiferris’ claim and ordering the insurer to pay $100,000 in punitive damages (which are for punishing reprehensible conduct), the court found that the insurer’s $600,000 claim against the Brandiferris, which was abandoned just before trial, was “opportunistic” and part of a “high-stakes litigation strategy designed to intimidate”  them. This strategy, which even in the adversarial context of a law suit, breached the insurer’s obligations to the Brandiferris, cost the former an additional $100,000 in damages as well as a very public condemnation by the court.

The court’s decision merits careful reading for anyone involved in handling of property insurance claims, particularly if such claims end up in a court.  It highlights the very special nature of the relationship, described by the courts as one of “utmost good faith”, between an insurance company and its policyholder, and how the implications of this relationship should and can have an impact on the conduct of a legal action and its outcome.


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