This page is part of the overview of international insurance case law. It collects 14 decisions of foreign courts on this topic, in chronological order, with a short synthesis. Foreign decisions are not binding in Estonia. Citation conventions and links are explained on the overview page.
Synthesis
In US and Canadian law the insurer's duty of good faith has developed into an independent liability: bad faith refusal to settle within limits or to pay benefits exposes the insurer to the whole loss, legal costs and, exceptionally, punitive damages (Comunale, Gruenberg, Brandt, Whiten, Fidler). In English law a collateral lie does not forfeit a claim that is valid on the true facts (Versloot). German and French law address fault through proportionate reduction and autonomous forms of intent (BGH IV ZR 225/10; Cass. 2nd civ. 20.05.2020). Under Estonian law the insurer's duty to handle claims in good faith follows from VÕS § 6 and the contract; consequences of delay or refusal are governed by the general rules on breach and VÕS § 451 (late payment interest), not by a tort of bad faith.
Decisions
Comunale v. Traders & General Insurance Co., 50 Cal.2d 654 (1958)
Supreme Court of California, 22.07.1958 · United States, California · pp 658-663 · duty to settle; covenant of good faith; excess judgment; bad faith
The insurer wrongfully refused to defend and rejected a reasonable settlement offer within the policy limits; a judgment exceeding the limits was entered against the insured. The Supreme Court of California held that the implied covenant of good faith and fair dealing requires the insurer to give the insured's interests at least as much consideration as its own (pp 658-659); an insurer in breach is liable for the entire judgment, including the excess (pp 660-661). Relevance: the insurer's good faith duty in claims handling (VÕS § 6).
Text of the decision: scocal.stanford.edu (reprint)
Gruenberg v. Aetna Insurance Co., 9 Cal.3d 566 (1973)
Supreme Court of California, 11.06.1973 · United States, California · pp 573-581 · first-party insurance; bad faith; tort liability; emotional distress
The insured's business was destroyed by fire and the insurers refused to pay. The Supreme Court of California held that the duty of good faith applies to first-party benefits as well (pp 573-574); unreasonable, bad faith withholding of benefits due to the insured gives rise to tort liability (p 575), and the duty is independent of the insured's own performance (p 578). Where substantial property loss is involved, emotional distress may be compensated (pp 579-581). Relevance: consequences of defective claims handling as breach of contract and VÕS § 451.
Text of the decision: scocal.stanford.edu (reprint)
Darner Motor Sales, Inc. v. Universal Underwriters Insurance Co., 140 Ariz. 383 (1984)
Supreme Court of Arizona, 29.03.1984 · United States, Arizona · pp 392-400 · reasonable expectations; standard terms; agent's representations; estoppel
A car dealer renewed its insurance through an agent who assured it that the liability limits were adequate, but the standard policy terms provided for lower limits. The Supreme Court of Arizona adopted Restatement (Second) of Contracts § 211: non-negotiated boilerplate that conflicts with the bargained-for deal or reasonable expectations will not be enforced (pp 392-394). The agent's representations could support estoppel or reformation (pp 395-396), and failure to read the policy did not bar a fraud claim (pp 398-399). Relevance: VÕS § 37 and intermediaries' liability.
Text of the decision: law.justia.com (reprint)
Brandt v. Superior Court, 37 Cal.3d 813 (1985)
Supreme Court of California, 28.01.1985 · United States, California · pp 816-820 · bad faith; attorney fees as damages; policy benefits
The insurer withheld policy benefits in bad faith, and the insured had to retain a lawyer to obtain them. The Supreme Court of California held that attorney fees reasonably incurred to obtain the policy benefits are damages proximately caused by the tort and recoverable (pp 816, 818); fees for prosecuting the bad faith claim itself and those attributable to recovery above the policy amount are not (pp 818, 820). Relevance: legal costs as damages for breach of contract and the rules on procedural costs.
Text of the decision: scocal.stanford.edu (reprint)
Morton International, Inc. v. General Accident Insurance Co. of America, 134 N.J. 1 (1993)
Supreme Court of New Jersey, 21.07.1993 · United States, New Jersey · pp 29-31, 36-39, 78, 88, 95 · pollution exclusion; regulatory estoppel; intentional discharge; occurrence
A chemical company's predecessors had for years discharged mercury-bearing waste into the environment, and the dispute concerned the standard pollution exclusion. The Supreme Court of New Jersey held that, because the insurance industry had misrepresented the exclusion's effect to regulators, it would not be enforced as written; it was limited to the intentional discharge of a known pollutant by the insured (pp 29-31, 36-39, 78). Applying that test, the predecessors had regularly and intentionally discharged pollutants, so there was no cover (pp 88, 95). Relevance: the drafter's representations to regulators in interpreting standard terms.
Text of the decision: law.justia.com (reprint)
Humana Inc. v. Forsyth, 525 U.S. 299 (1999)
Supreme Court of the United States, 20.01.1999 · United States, federal law (Nevada) · pp 307-314 · McCarran-Ferguson Act; RICO; fraud on policyholders; state insurance law
Health insurance beneficiaries alleged that the insurer concealed discounts negotiated with a hospital, so that their co-payments were calculated too high, and sued under the federal Racketeer Influenced and Corrupt Organizations Act (RICO). The US Supreme Court held that the McCarran-Ferguson Act does not bar the RICO claim, since applying RICO does not invalidate, impair or supersede Nevada insurance law (pp 307-310) but complements state remedies (pp 310-313). The Ninth Circuit was affirmed (p 314). Relevance: interaction of insurance law with general fraud and consumer remedies.
Text of the decision: govinfo.gov
Whiten v. Pilot Insurance Co., 2002 SCC 18
Supreme Court of Canada, 22.02.2002 · Canada · paras 4, 141, 169 · punitive damages; arson allegation; breach of good faith
A family's house was destroyed by fire in winter, and the insurer accused the insured of arson, though the evidence did not support it, to force an unfair settlement. The Supreme Court of Canada restored the jury's award of CAD 1 million in punitive damages: the insurer's conduct, planned and persisted in over two years, was exceptionally reprehensible, and the award, while high, was within rational limits (paras 4, 141). One judge dissented (para 169). Relevance: Estonian law does not recognise punitive damages; see VÕS § 6 and general remedies for breach.
Text of the decision: decisions.scc-csc.ca
Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30
Supreme Court of Canada, 29.06.2006 · Canada · paras 44, 49, 59 · disability insurance; mental distress for breach of contract; foreseeability
The insurer wrongfully terminated disability benefits, and the insured also claimed damages for mental distress. The Supreme Court of Canada held that mental distress damages for breach of contract are recoverable where proved and within the parties' reasonable contemplation at contracting, without an independent actionable wrong (paras 44, 49). Since disability insurance aims to provide peace of mind, distress from non-payment was foreseeable, and the CAD 20,000 award was upheld (para 59). Relevance: non-pecuniary damages for breach of a contract with a non-pecuniary purpose.
Text of the decision: decisions.scc-csc.ca
CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36
High Court of Australia, 29.08.2007 · Australia · paras 8, 10, 13, 15-16, 24-32 · professional indemnity; settlements with investors; insurer's representations; utmost good faith (s 13)
A financial planning firm compensated investors under a protocol agreed on a 'prudent uninsured' basis and then claimed from its PI insurer. The High Court held that the insurer's conduct and the protocol amounted to a representation that it would not rely on a particular condition or the absence of a formal claim (para 8), but not that the insured need not prove its liability to investors (paras 10, 13); the insured did not prove that the settlements were reasonable (paras 24-29). The statutory duty of utmost good faith (s 13) is broader than a prohibition of dishonesty but does not create punitive liability (paras 15-16). The appeal was allowed (paras 31-32).
Text of the decision: hcourt.gov.au
BGH 22.06.2011, IV ZR 225/10
Federal Court of Justice (BGH), IV Civil Senate, 22.06.2011 · Germany · headnote; Rn 13-19, 31-33 · motor own damage insurance; gross negligence; reduction to zero; drunk driving; incapacity
The insured caused an accident while absolutely unfit to drive, and the motor own damage insurer refused payment entirely. The BGH held that under § 81(2) VVG the insurer may exceptionally reduce benefits to zero for gross negligence, but this always requires weighing all the circumstances (Rn 31-33). The court of appeal had, however, failed properly to examine the insured's alleged incapacity due to a very high blood alcohol level (Rn 13-19), so the judgment was set aside and the case remanded. Relevance: proportionality under VÕS § 452 and Estonian Supreme Court case law on gross negligence.
Decision details and text: dejure.org
Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2016] UKSC 45
UK Supreme Court, 20.07.2016 · United Kingdom (English law) · paras 23, 26, 36, 38 · fraudulent claims rule; collateral lie; hull damage
A vessel's engine room flooded and the owner's representative supported the claim with a false statement about a bilge alarm, although the claim was valid on the true facts. The majority of the Supreme Court held that the fraudulent claims rule does not apply to a collateral lie supporting a claim that is in fact valid, since the lie was immaterial to the claim (paras 23, 26, 36); insurers had to pay EUR 3,241,310.60 plus interest (para 38). Lord Mance dissented. Relevance: limits of release from liability for fraud and VÕS § 6.
Text of the decision: supremecourt.uk
Cass. 2e civ., 20.05.2020, nº 19-11.538
French Court of Cassation, Second Civil Chamber, 20.05.2020 · France · paras 5-6 · intentional fault; faute dolosive; Code des assurances Art L113-1; aleatory nature
The insured caused a fire with means far exceeding what was needed to end his own life, and the liability insurer refused cover. The Court of Cassation held that intentional fault and faute dolosive under Article L113-1 of the Code des assurances are autonomous, each excluding cover once it removes the aleatory character of the insurance operation (para 5); the insured's act was a faute dolosive (para 6). The appeal was dismissed. Relevance: the concept of intent under VÕS § 452(1) and the fortuity of the insured event.
Text of the decision: legifrance.gouv.fr
Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Co. of Canada, 2021 SCC 47
Supreme Court of Canada, 18.11.2021 · Canada · paras 14, 39, 81 · waiver; promissory estoppel; insurer's knowledge; breach of policy condition
The insurer defended the estate of a deceased insured in a motor accident action and only later learned facts showing a breach of a policy condition. The majority of the Supreme Court of Canada held that, under the former version of Ontario Insurance Act s. 131(1) applicable to this dispute, waiver had to be in writing, so waiver by conduct was excluded; the Court noted that the provision had since been amended to permit recognition of waiver by conduct (para 14 and footnote 1). Promissory estoppel requires an intention to alter legal relations, which is impossible where the insurer lacked knowledge of the facts showing the breach; constructive knowledge does not count (para 39). The insurer that defended the estate was not estopped; the appeal was dismissed (para 81). Relevance: waiver of insurer defences and VÕS § 6.
Text of the decision: decisions.scc-csc.ca
Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 [2022] HCA 38
High Court of Australia, 14.12.2022 · Australia · paras 7, 37, 54-58, 79-90, 97-102 · non-disclosure defence; revocation of waiver; election and estoppel; utmost good faith
A body corporate claimed for damage to its building; the insurer first stated it would not rely on a defence of non-disclosure of known non-structural building defects (para 7) but later made a conditional offer. The High Court held that the continued operation of the waiver was conditional on acceptance, within a reasonable time, of the terms offered to resolve the dispute (para 37); that no election arose, because waiving the defence did not involve a choice between alternative and inconsistent rights (paras 54-58); that estoppel failed because the insured did not prove detrimental reliance (paras 79-90); and that the insurer did not breach its duty of utmost good faith (paras 97-102). The appeal was allowed and the proceeding dismissed. Relevance: the binding effect of an insurer's waiver of defences and VÕS § 6.