COURT OF APPEAL FOR BRITISH COLUMBIA  
Citation:  
Stewart v. Lloyd’s Underwriters,  
2022 BCCA 84  
Date: 20220303  
Docket: CA46429  
Between:  
Jennifer Louise Stewart, as Executor of the Estate of Christopher Stewart  
Appellant/  
Respondent on Cross Appeal  
(Plaintiff)  
And  
Lloyd’s Underwriters and Industrial Alliance Insurance and Financial  
Services Inc. / Industrielle Alliance, Assurance et Services Financiers Inc.  
Respondents/  
Appellants on Cross Appeal  
(Defendants)  
Before:  
The Honourable Mr. Justice Fitch  
The Honourable Mr. Justice Abrioux  
The Honourable Mr. Justice Voith  
On appeal from: An order of the Supreme Court of British Columbia, dated  
September 9, 2019 (Stewart v. Lloyd’s Underwriters, 2019 BCSC 1582,  
Vancouver Docket S173123).  
Counsel for the Appellant:  
A.C.R. Parsons  
E.A. Sadowski  
Counsel for the Respondents:  
A.M. Mersey, Q.C.  
E.J. Segal  
Place and Date of Hearing:  
Place and Date of Judgment:  
Vancouver, British Columbia  
September 16, 2021  
Vancouver, British Columbia  
March 3, 2022  
Written Reasons by:  
The Honourable Mr. Justice Abrioux  
Concurred in by:  
The Honourable Mr. Justice Fitch  
The Honourable Mr. Justice Voith  
Stewart v. Lloyd’s Underwriters  
Page 2  
Summary:  
The appellant’s estate appeals from the dismissal of Mr. Stewart’s claim for legal  
expenses as compensatory damages arising from a finding that the respondents  
breached the duty of good faith with respect to his travel medical benefits insurance  
policy. It argues that the judge applied the wrong test and that the legal fees should  
be recoverable in accordance with the framework described in Hadley v. Baxendale  
(1854), 9 Ex. 341, 156 E.R. 145 (Eng. Ex. Div.). The respondents cross appeal the  
judge’s award of $100,000 in punitive damages against them for what was found to  
be their bad faith conduct in the settlement of healthcare bills with foreign medical  
providers and the manner in which they investigated the claims. They say that the  
judge erred in awarding punitive damages based on conduct that was not directed at  
the appellant and that, in any event, the appellant’s death after trial means his estate  
cannot recover the punitive damages.  
Held: Appeal dismissed, cross appeal allowed. The judge was correct to dismiss the  
claim for legal fees as compensatory damages. First, it was not an express or  
implied term of the insurance policy that such fees would be paid. Second,  
compensatory damages for breach of the duty of good faith must be consequential  
to the breach. Third, legal fees are properly dealt with under the costs regime. While  
s. 150(4) of the Wills, Estates, and Succession Act, S.B.C. 2009, c. 13 does not  
prevent an estate from recovering a claim for punitive damages, the cross appeal is  
allowed on the merits. The decision to deny coverage was reversed prior to the trial,  
the insurance policy limits were never in jeopardy, and the outstanding claims were  
resolved. Accordingly, after the insurers reversed their decision to deny coverage,  
there were no conflicts between the appellant’s and respondents’ legal interests and  
the circumstances of this case could not support, at law, an award of punitive  
damages.  
Stewart v. Lloyd’s Underwriters  
Page 3  
Table of Contents  
Paragraph  
I: INTRODUCTION  
[1]  
II: BACKGROUND AND THE TRIAL JUDGE’S FACTUAL [6]  
FINDINGS  
III: THE REASONS FOR JUDGMENT  
[25]  
Claim for Health Care Accounts Less Amounts Paid by the  
Insurers  
[25]  
Claim for Punitive Damages  
[33]  
[38]  
[42]  
[44]  
[46]  
[50]  
Claim for Pecuniary Damages for Legal Fees  
Claim for Mental Distress  
Negligence Against the Respondent Claims  
Special Costs  
IV: THE APPEAL: ARE LEGAL FEES RECOVERABLE  
AS COMPENSATORY DAMAGES ARISING FROM AN  
INSURER’S BREACH OF THE DUTY OF GOOD FAITH  
AND FAIR DEALING?  
Position of the Parties  
Standard of Review  
Discussion  
[50]  
[57]  
[58]  
Conclusion  
[134]  
[135]  
V: THE CROSS APPEALDID THE JUDGE ERR IN  
FINDING THE RESPONDENTS ACTED IN BAD FAITH  
AND BY AWARDING THE APPELLANT PUNITIVE  
DAMAGES?  
Position of the Parties  
[135]  
[137]  
[139]  
[139]  
[165]  
Standard of Review  
Discussion  
Can the estate recover the award of punitive damages?  
Did the judge err in finding the respondents acted in bad  
faith in the settlement of the third-party accounts and by  
awarding punitive damages?  
(1) Introduction  
[165]  
[169]  
[176]  
(2) Did the judge misapprehend the evidence?  
(3) Could this case, at law, support an award of punitive  
damages?  
VII: THE RESPONDENTS’ CLAIM FOR SPECIAL COSTS [230]  
VIII: DISPOSITION [234]  
Stewart v. Lloyd’s Underwriters  
Page 4  
Reasons for Judgment of the Honourable Mr. Justice Abrioux:  
I: INTRODUCTION  
[1]  
These appeals relate to a contract of adhesion, specifically a travel medical  
policy of insurance for out of province medical expenses, purchased by the appellant  
and underwritten by the respondent insurers.  
[2]  
The issue on the appeal is whether, upon a finding that the respondent  
insurers breached their obligation to act in good faith, the appellant insured’s actual  
legal costs can form the basis for an award of compensatory damages. In reasons  
for judgment indexed as 2019 BCSC 1582 (the “Reasons”), the judge found they  
could not.  
[3]  
The principal question on the cross appeal is whether the judge erred in  
awarding $100,000 in punitive damages to the insured for breach of the respondent  
insurers’ duty to act in good faith towards him, in part due to conduct that was  
directed by the respondents to the third-party medical service providers.  
[4]  
Mr. Stewart passed away on March 27, 2020, after the Reasons were  
rendered. The litigation is pursued by the executrix of his estate, his daughter,  
Jennifer Louise Stewart. For clarity, I shall refer to the appellant as Mr. Stewart.  
[5]  
For the reasons that follow, I would dismiss the appeal and allow the cross  
appeal.  
II: BACKGROUND AND THE TRIAL JUDGE’S FACTUAL FINDINGS  
[6]  
Mr. Stewart suffered an accident while on vacation in Reno, Nevada in 2015.  
On May 31, 2015, while drinking at a bar, he experienced a brief loss of  
consciousness (known as “syncope”) which resulted in him falling and hitting his  
neck (the “Incident”). As a result of the Incident, Mr. Stewart was hospitalized.  
He remained in the hospital for 12 days, had a pacemaker inserted, and underwent  
spinal surgery. He was eventually flown to a hospital in British Columbia.  
   
Stewart v. Lloyd’s Underwriters  
Page 5  
[7] Prior to his vacation, Mr. Stewart had purchased travel medical insurance  
(“the policy”) which was underwritten by the respondent insurers (the “Insurers”).  
The policy was issued by North American Air Travel Insurance Agents Ltd., carrying  
on business as TuGo (“TuGo”). OneWorld Assist Inc., carrying on business as  
Claims at TuGo (“Claims”), administers travel insurance claims and provides medical  
assistance for insureds, as authorized by the Insurers. TuGo and Claims were both  
defendants at trial, but the trial judge dismissed the actions against them. In these  
reasons, I will refer interchangeably to the Insurers and the respondents, while  
references to the defendants or trial defendants include TuGo and Claims.  
[8]  
According to the amendments found on the first page of the policy, the limits  
of coverage were $10 million. As a result of the Incident, Mr. Stewart incurred  
significant medical expenses. The healthcare bills from his hospitalization in Reno  
amounted to $293,127.60 US. Of this, Health Insurance B.C. paid $3,574.63 US,  
and the Insurers paid $15,500 US, to fly Mr. Stewart to a hospital in British  
Columbia, leaving a balance of $274,052.97 US.  
[9]  
By letter dated September 10, 2015, Claims communicated to Mr. Stewart its  
decision to deny him coverage on the basis that his injuries were either directly or  
indirectly related to alcohol intoxication. Mr. Stewart denied he was intoxicated.  
However, he acknowledged that it was reasonable for the defendants to investigate  
the potential involvement of alcohol and its relation to the Incident.  
[10] There was conflicting medical evidence with respect to the role played by  
alcohol in the Incident. Several physicians made notes indicating that alcohol was  
not a factor, and one of the defendants’ own physicians raised the possibility that the  
Incident was caused by bradycardia, meaning a lower than normal heart rate, rather  
than alcohol intoxication.  
[11] Claims conducted little investigation into other potential causes of the  
Incident. The trial judge found that the records of the defendants showed a  
“surprising willingness to deny coverage without any adequate investigation”:  
Reasons at para. 43.  
Stewart v. Lloyd’s Underwriters  
Page 6  
[12] The judge found the letter denying coverage to be “opaque” since it did not  
clearly articulate the cardiac basis for the denial. The defendants also did not inform  
Mr. Stewart that one of their consultants had raised the possibility of a third possible  
non-alcohol related cause of the syncope.  
[13] After the denial of coverage in September 2015, the defendants’ records  
show telephone calls with various health care providers, where Claims advised them  
that coverage had been denied. The health care providers, and later collection  
agencies, then contacted Mr. Stewart directly in an attempt to recover payment for  
the outstanding amounts.  
[14] By October 2016, Mr. Stewart had retained legal counsel. His counsel wrote  
to Claims, identifying alleged errors in the calculation of the blood alcohol  
concentration in the denial letter as well as the lack of a causal link between the  
blood alcohol content and the Incident.  
[15] Juliet Zacks, the director of claims administration at Claims, testified that upon  
receiving counsel’s letter, the defendants realized their analysis was perhaps  
incomplete and that they “should look at this again”: Reasons at para. 68.  
[16] It was not until two years later, in November 2018, that the defendants  
obtained the opinion of a blood alcohol specialist, Wayne Jeffery.  
[17] The trial was scheduled to commence six months later, on April 1, 2019.  
[18] Ms. Zacks testified that after receiving Mr. Jeffery’s opinion, Claims realized  
that one of its physicians’ calculation of blood alcohol concentration might not be as  
accurate as had initially been believed. On December 18, 2018, Mr. Stewart was  
advised that the defendants had reversed their coverage decision, and Claims  
began to inquire into what discounts the defendants could potentially obtain from the  
health care providers.  
[19] Ms. Zacks and another Claims employee, Laura Carey, testified that the  
defendants belong to a claims network, and that health care bills are typically settled  
Stewart v. Lloyd’s Underwriters  
Page 7  
for a discount of approximately 20%. The trial judge noted that an early log note in  
June 2015 indicated that the reserve for Mr. Stewart’s file was set at 20% less than  
the total amount of the accounts received.  
[20] Once coverage was accepted, the defendants proceeded to settle the known  
outstanding hospital and third-party provider claims; the last accounts were resolved  
shortly before the commencement of the trial.  
[21] In some instances, significant discounts were obtained. In one example, the  
defendants’ log notes indicated that the largest of the unpaid healthcare bills, the  
hospital bill, had originally been sent to a collection agency and returned unpaid a  
year later. It was re-sent to a collection agency in the amount of $53,374.15 US after  
applying an “uninsured discount” of $160,122.45 US. The account was ultimately  
settled for $47,000 USa 78% discount.  
[22] The satisfaction of the other accounts was either by payment in full of some  
small invoices, or by Ms. Carey confirming with a health care provider or collection  
agency that the account balance was at zero.  
[23] Ms. Carey stated that she did not specifically tell the health care providers  
with whom she had settlement discussions that Mr. Stewart’s claim was now  
insured. She said that in the telephone calls she had with the various providers, she  
identified that she represented Claims and wanted to settle the various outstanding  
bills. She testified she was not instructed to advise the providers that this was now  
an insured claim, assuming coverage would be obvious from the fact that she was  
calling on behalf of Claims and offering to settle the amounts.  
[24] In the result, Claims settled all of the appellant’s health care bills in the United  
States for $56,429.81 US; this represented approximately 20% of the outstanding  
amount of $274,052.97 US.  
Stewart v. Lloyd’s Underwriters  
Page 8  
III: THE REASONS FOR JUDGMENT  
Claim for Health Care Accounts Less Amounts Paid by the Insurers  
[25] At trial, Mr. Stewart’s position was that the conduct of the Insurers in settling  
the health care bills amounted to a breach of the duty of good faith. He submitted  
they received unconscionable discounts on the false premise that the claim was not  
covered. In addition to taking moral issue with this practice, he argued that this  
placed him at legal risk, saying that he could not be released from his debt  
obligations to the health care providers when the Insurers obtained “settlements” by  
concealing facts. He said the appropriate remedy would be for the court to grant him  
judgment for the difference between the amount of the bills and the actual amount  
paid, which he would then pay to the health care providers.  
[26] The trial judge commenced her analysis by observing that the Insurers  
agreed they owed Mr. Stewart a duty of good faith. She then summarized the  
relevant principles as explained in McDonald v. Insurance Corporation of British  
Columbia, 2012 BCSC 283 [McDonald]:  
[201] The following guidelines of good faith emerge from the court’s  
instructive analysis in [Bullock v. Trafalgar Insurance Co. of Canada, [1996]  
O.J. No. 2566]: (1) an insurer must perform a balanced and reasonable  
investigation and assessment of the first party claim; (2) it must be prompt in  
handling and assessing the loss; (3) the insurer must assess the merits of the  
claim in a balanced and reasonable manner; (4) it must give as much  
consideration to the interests of the insured as it does to its own interests and  
is not to do anything to injure the insured’s rights to benefits under the policy;  
and (5) a want of reasonable care in settling a claim suggests an absence of  
good faith.  
[202] Cumming J. also acknowledged the entitlement of an insurer to satisfy  
itself that a claim is bona fide before it covers the insured loss. He cautioned,  
however, that this entitlement does not authorize the insurer to adopt a  
partisan approach in its treatment of the claim. At para. 101, he writes:  
... Scrutiny and challenge of doubtful claims is consistent with the  
insurer’s contractual commitment to pay claims relating to covered,  
and not excluded, risks. However, the insurer may not treat the  
insured as an adversary whose interests may be disregarded. This  
encompasses a duty to settle claims without litigation in appropriate  
cases: This implies a reasonable and competent investigation to  
determine whether a claim will be honoured.  
[Reasons at para. 17; case citations omitted.]  
   
Stewart v. Lloyd’s Underwriters  
Page 9  
[27] The judge observed that the decision by an insurer to deny coverage should  
be based on a reasonable interpretation of the policy. She also noted that the duty of  
good faith does not necessarily require correctness in assessing coverage, and  
quoted the statement in 702535 Ontario Inc. v. Lloyd’s London, Non-Marine  
Underwriters (2000), 184 D.L.R. (4th) 687 (Ont. C.A.), leave to appeal ref’d [2000]  
S.C.C.A. No. 258 [702535 ONCA] at para. 29, cited with approval in Fidler v. Sun  
Life Assurance Co. of Canada, 2006 SCC 30 at para. 63 [Fidler] that “[m]ere denial  
of a claim that ultimately succeeds is not, in itself, an act of bad faith”: Reasons at  
para. 18.  
[28] Rather, she noted, the question was “whether the denial was the result of the  
overwhelmingly inadequate handling of the claim, or the introduction of improper  
considerations into the claims process”, per para. 71 of Fidler: Reasons at para. 19.  
[29] The judge made the following findings:  
[75]  
In considering the entire history of the investigation, I find that the  
defendants did not meet the Insurers’ duty of good faith and fair dealing to  
Mr. Stewart. There was almost no consideration of the information obtained  
by Dr. McMorran. When Dr. Stahl told Ms. Zacks and Ms. Cockeram he did  
not understand why the trauma physicians would say that alcohol was not a  
factor, they did not ask him to make inquiries, or do it themselves. The  
defendants did not speak with Mr. Stewart or patrons or employees of the  
bar, and as a result they appear to have been under some misapprehension  
regarding the sequence of events of the fall. There was no further follow-up to  
obtain the incident report, if it was available. The written opinion of Dr. Stahl  
only identified possible causes. The subsequent conversations with Dr. Stahl,  
taken together, indicated the defendants needed to do further investigation.  
Ms. Zacks admitted there was no investigation of the third possibility for the  
cause of the syncope that is, that Mr. Stewart’s heart condition alone  
caused the syncope. They did not attempt to speak with the cardiologist in  
Reno. If Dr. Stahl had any difficulty in obtaining information from a physician,  
the defendants could have obtained Mr. Stewart’s consent to receive that  
information. The Insurers have a right under the Policy to obtain medical  
information. They did not retain a cardiologist. The tenor of two of the log  
notes suggest that on those occasions there was not a balanced review, but  
rather a search for a reason to deny coverage. When Mr. Stewart’s counsel  
pointed out the errors in the calculation of the BAC, the defendants did not  
obtain a toxicology opinion for two years. While I find it was reasonable for  
the defendants to conclude that the syncope was possibly directly or  
indirectly a result of intoxication, the information fell short of them being able  
to reasonably conclude that the syncope was probably directly or indirectly a  
result of intoxication. They failed to carry out a balanced and reasonable  
Stewart v. Lloyd’s Underwriters  
Page 10  
investigation, giving as much attention to Mr. Stewart’s interests as their own.  
It was as incumbent on them to investigate the non-alcohol related cause as  
it was open to them to investigate the alcohol related causes. I agree with the  
argument of Mr. Stewart that the purpose of an investigation is “not to look for  
a putative basis for denying the claim and then to stop the investigation”. I  
find that is what happened in this case and for the foregoing reasons, there  
was an overwhelmingly inadequate investigation.  
[30] The trial judge considered the fourth guideline in McDonald, that an insurer  
must give as much consideration to the interests of the insured as it does to its own,  
and concluded that the Insurers’ duty of good faith to Mr. Stewart included a duty to  
negotiate the health care bills in a manner that did not put him at moral or legal risk.  
Because the bills were settled without Mr. Stewart’s input, she found he was placed  
in a position of vulnerability.  
[31] The judge agreed with Mr. Stewart that the defendants had not necessarily  
satisfied all of the health care bills, but noted that there was also no evidence that  
any of the health care providers were pursuing him for payment. Moreover, there  
was no case law in support of, or against, the proposition that in the context of a  
first-party claim, an insurer’s duty of good faith includes negotiating with health care  
providers in a certain manner to settle health care bills of the insured: Reasons at  
para. 107.  
[32] In what was the preface to her analysis of the claim for punitive damages, the  
judge then stated:  
[109] I find it was a breach of the Insurers’ duty of good faith to Mr. Stewart  
for the defendants not to specifically advise the health care providers that the  
decision on coverage had been reversed prior to settling the health care  
claims. However, that does not lead to Mr. Stewart being awarded damages  
for the amount of the health care bills. If the health care providers were not  
aware this was now an insured claim, that is an issue between the  
defendants and the health care providers, and not Mr. Stewart. The Insurers  
have admitted coverage. They are bound to pay the health care bills on  
behalf of Mr. Stewart. If Mr. Stewart is pursued by any health care provider,  
the Insurers are ordered to indemnify him. As a result, I find that Mr. Stewart  
has not established on a balance of probabilities that he has or will suffer  
damages, in the form of the health care bills less amounts already paid,  
arising from breach of the duty of good faith.  
[110] That, however, does not end the matter. In my view, the  
circumstances of the settlement of the health care bills, and the benefit of the  
Stewart v. Lloyd’s Underwriters  
Page 11  
unusually large discounts the Insurers received, is part of the circumstances  
to be considered with respect to the claim for punitive damages for breach of  
good faith, and I turn to that now.  
Claim for Punitive Damages  
[33] Mr. Stewart’s claim for punitive damages was not based on any specific  
malice alleged to be directed toward him; rather, he argued that the Insurers’  
institutional practices favoured their own self-interest at the expense of an insured.  
[34] The trial judge referred to the governing considerations:  
[111] In Whiten v. Pilot Insurance Co., 2002 SCC 18 [Whiten], the majority  
of the Court set out the ten principles that guide punitive damages awards.  
The majority stated:  
94 (1) Punitive damages are very much the exception rather than  
the rule, (2) imposed only if there has been high-handed, malicious,  
arbitrary or highly reprehensible misconduct that departs to a marked  
degree from ordinary standards of decent behaviour. (3) Where they  
are awarded, punitive damages should be assessed in an amount  
reasonably proportionate to such factors as the harm caused, the  
degree of the misconduct, the relative vulnerability of the plaintiff and  
any advantage or profit gained by the defendant, (4) having regard to  
any other fines or penalties suffered by the defendant for the  
misconduct in question. (5) Punitive damages are generally given only  
where the misconduct would otherwise be unpunished or where other  
penalties are or are likely to be inadequate to achieve the objectives  
of retribution, deterrence and denunciation. (6) Their purpose is not to  
compensate the plaintiff, but (7) to give a defendant his or her just  
desert (retribution), to deter the defendant and others from similar  
misconduct in the future (deterrence), and to mark the community’s  
collective condemnation (denunciation) of what has happened. (8)  
Punitive damages are awarded only where compensatory damages,  
which to some extent are punitive, are insufficient to accomplish these  
objectives, and (9) they are given in an amount that is no greater than  
necessary to rationally accomplish their purpose. (10) While normally  
the state would be the recipient of any fine or penalty for misconduct,  
the plaintiff will keep punitive damages as a “windfall” in addition to  
compensatory damages. (11) Judges and juries in our system have  
usually found that moderate awards of punitive damages, which  
inevitably carry a stigma in the broader community, are generally  
sufficient.  
[35] Referring to Asselstine v. Manufacturers Life Insurance Co., 2005 BCCA 292  
at paras. 5357 [Asselstine BCCA], the judge concluded she could award punitive  
 
Stewart v. Lloyd’s Underwriters  
Page 12  
damages against the Insurers for the conduct of Claims in acting as its agent and  
within the scope of its authority.  
[36] I have summarized the judge’s findings and conclusions which provide the  
basis for this award at para. 165 below.  
[37] Accordingly, she found this to be a case where punitive damages were  
warranted, and awarded the appellant $100,000 CAD under this heading.  
Claim for Pecuniary Damages for Legal Fees  
[38] Relying on the principles in Hadley v. Baxendale (1854), 9 Ex. 341, 156 E.R.  
145 (Eng. Ex. Div.), Mr. Stewart sought recovery from the defendants of his actual  
legal fees as compensatory damages.  
[39] At trial, Mr. Stewart’s counsel advised the court that he had been unable to  
find any legal authority in this province in which an award had been made for legal  
fees as a head of damage for breach of an insurance policy. The sole case referred  
to was Saskatchewan Government Insurance v. Wilson, 2012 SKCA 106 [Wilson], in  
which the insured plaintiff sued to preserve her rights under her insurance policy,  
and was awarded the amount of legal costs she incurred to mitigate her losses as an  
award for breach of contract.  
[40] While the judge’s decision was under reserve, this Court’s reasons for  
judgment in West Van Holdings Ltd. v. Economical Mutual Insurance Company,  
2019 BCCA 110 [West Van] were rendered. West Van overturned a trial award to an  
insured of full indemnity costs from the insurer, after the insured was successful in  
establishing that the insurer had a duty to defend under the policy in question.  
Although West Van concerned an award of special costs, the trial judge sought  
submissions from counsel in that certain of the authorities canvassed in West Van  
referred to a contractual basis upon which to award special costs: Reasons at  
para. 124.  
[41] It is of assistance to set out the judge’s analysis:  
 
Stewart v. Lloyd’s Underwriters  
Page 13  
[125] While I recognize, as argued by Mr. Stewart’s counsel, that [West  
Van] addresses special costs and not contractual damages under Hadley v.  
Baxendale, the comments in West Van are instructive with respect to whether  
a contractual term (in that case, to pay special costs) should be implied.  
[126] The Court of Appeal stated:  
[96]  
It is difficult from the authorities to understand the principled  
basis upon which the full indemnity or cost awards have been made  
against insurers. In Reed, the court suggests that an award of  
solicitor-and-client costs is justified on a contractual basis. What is  
troubling about that analysis is that the insurance contract in the case  
at bar is silent in regard to the cost of enforcing coverage. The  
contract is limited to the cost of defending an underlying action  
against an insured. The Economical policies contain the following  
provisions: … [contractual terms deleted.]  
[99]  
The amounts that the insurer has agreed to pay are clearly set  
out in the policy. The insurer agrees to pay the costs to defend until  
the limits of the policy are exhausted. The language in the policy  
cannot be extended to cover legal fees and expenses the insured may  
incur in attempting to enforce its contractual right to coverage.  
[100] There is in the context of the insuring agreement no basis to  
imply a term that the insurer will pay special costs if it unsuccessfully  
resists a claim under the policy. In M.J.B. Enterprises Ltd. v. Defence  
Construction (1951), [1999] 1 S.C.R. 619, the Supreme Court of  
Canada set out the principles governing implied terms:  
[27]  
The second argument of the appellant is that there is  
an implied term in Contract A such that the lowest compliant  
bid must be accepted. The general principles for finding an  
implied contractual term were outlined by this Court in  
Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1  
S.C.R. 711. Le Dain J., for the majority, held that terms may  
be implied in a contract: (1) based on custom or usage; (2) as  
the legal incidents of a particular class or kind of contract; or  
(3) based on the presumed intention of the parties where the  
implied term must be necessary to give business efficacy to a  
contract or as otherwise meeting the officious bystandertest  
as a term which the parties would say, if questioned, that they  
had obviously assumed(p. 775). See also Wallace v. United  
Grain Growers Ltd., [1997] 3 S.C.R. 701, at para. 137, per  
McLachlin J., and Machtinger v. HOJ Industries Ltd., [1992] 1  
S.C.R. 986, at p. 1008, per McLachlin J.  
[101] There is no custom in the insurance industry by which insurers  
are expected to pay the full indemnity costs of a claimant enforcing  
coverage. An implied term is not necessary to give business efficacy  
to the contract. The terms of the contract are meticulously drafted.  
The contract sets out in precise detail what is and what is not covered.  
If the parties intended that the insurer would pay the costs of  
Stewart v. Lloyd’s Underwriters  
Page 14  
enforcing the insurance contract, the contract surely would have said  
so.  
[103] The law clearly recognizes the special nature of insurance  
contracts. A contract of insurance is one of uberrimae fideiutmost or  
overriding good faith. An implied term of good faith and fair dealing is  
imported into every insurance contract: Whiten v. Pilot Insurance Co.,  
2002 SCC 18.  
[104] The obligation of good faith is separate from the obligation to  
compensate the insured for a loss under the policy, and a breach of  
the contractual duty of good faith constitutes an independent  
actionable wrong which can lead to an award of damages. If an  
insurer’s failure to defend an insured or otherwise honour the terms of  
the insurance contract constitutes a breach of the duty of good faith,  
remedies are available to compensate the insured for any loss that  
may be forthcoming. Breach of an insurance agreement may also give  
rise to aggravated damages. This was the outcome in Fidler and C.P.  
Such an award was also made in Tanious and [Godwin v. Desjardins  
Financial Security Investments Inc.].  
[105] The special nature of insurance contracts however does not  
justify the creation of a different costs regime governing all insurance  
claimants. This question was canvassed at some length in a recent  
article in the Canadian Journal of Insurance Law: James Steele,  
“Deterrence not Damages: the Punitive Rationale for Solicitor-Client  
Costs” (2018) 36 Can J Ins L 1. As detailed by Mr. Steele, there is no  
principled reason why a different scale of costs should apply to  
insureds who successfully enforce a contractual obligation than any  
other litigant who is forced to bring an action in order to obtain relief.  
Many such plaintiffs are surely as sympathetic. Why, for example,  
should an insured receive a full or near indemnity while the plaintiff in  
a personal injury lawsuit finds the award eroded because he or she is  
only entitled to a partial indemnity.  
[106] In this regard, it is also important to recall the caution in  
[Marchen v. Dams Ford Lincoln Sales Ltd.] that costs are not a  
remedy for breach of contract.  
[109] There is, in my respectful opinion, no principled reason to  
award costs in a duty to defend case in a manner different than other  
litigation. There already exist other suitable mechanisms to censure  
an insurer’s wrongful conduct: Smithies Holdings at para. 134. If the  
insurer has breached its duty of good faith, or conducts itself in a  
manner that is worthy of rebuke, it will be sanctioned. If not, an insurer  
facing a duty to defend claim should be treated no differently than any  
other litigant who may breach a contract.  
[Emphasis added.]  
Stewart v. Lloyd’s Underwriters  
Page 15  
[127] Turning to this case, was it reasonably in the contemplation of the  
parties at the time of contract formation that if coverage were disputed,  
Mr. Stewart would be able to claim his full legal fees required to establish his  
claim? In my view the answer is “no”. First, there is no term within the policy  
that indicates that legal fees would be payable to a successful party in a  
coverage dispute; the policy is silent on this. If full legal fees had been  
intended to be awarded as a head of damage, surely that would have been in  
the Policy. Second, there is no basis upon which to imply such a term.  
Mr. Stewart did not testify that this was within his contemplation at the time he  
entered into the contract. There is no evidence of a custom in the insurance  
industry that insurers pay full legal fees after an unsuccessful denial of first  
party coverage, so that this might be reasonably expected by the parties.  
There is no authority other than Wilson that counsel refers to where such  
damages have been awarded. Further, there is no need to imply such a term  
to give business efficacy to the Policy. Counsel did not point to any need to  
imply such a term to make the Policy effective. Should such a term be implied  
by law? This involves consideration of policy and necessity. Other than the  
argument that insurance policies are contracts of good faith and that  
Mr. Stewart will not receive the full benefit of the Policy if he has to pay legal  
fees, no argument was advanced as to why such a term should be implied in  
the Policy when full legal fees as a head of damages is not implied in other  
contracts. In my view, there is no compelling reason to imply such a term.  
The argument that Mr. Stewart makes that he will not have the full benefit of  
the Policy if he has to pay legal fees is true of every party who alleges  
breach of contract.  
[128] It follows that Mr. Stewart’s claim for legal fees as a head of damages  
for breach of the Policy and breach of the duty of good faith is dismissed.  
[Emphasis in original.]  
Claim for Mental Distress  
[42] The judge acknowledged that Mr. Stewart had “endured the worry of financial  
ruin at a time when he was trying to recover from potentially devastating injuries”:  
Reasons at para. 139. This included calls from creditors, which caused him distress.  
The judge noted, however, that there was no evidence that the distress was  
significant enough that medical attention was required.  
[43] She awarded Mr. Stewart $10,000 CAD under this head of damages, which  
the respondents do not appeal.  
 
Stewart v. Lloyd’s Underwriters  
Page 16  
Negligence Against the Respondent Claims  
[44] Mr. Stewart alleged that Claims owed him a duty of care. The judge found  
there was no evidence in relation to the alleged standard of care or as to the  
dealings between the Insurers and Claims.  
[45] Accordingly, she concluded that a breach of the Insurers’ duty of good faith in  
which Claims participated was insufficient to result in a finding of negligence. The  
judge’s conclusion with respect to the negligence claim is also not under appeal.  
Special Costs  
[46] Having been unsuccessful in having his actual legal costs awarded as  
compensatory damages, Mr. Stewart sought special costs.  
[47] In reasons for judgment indexed as 2020 BCSC 669 [Costs Reasons], the  
judge observed that Mr. Stewart was not seeking special costs on a punitive basis  
but rather in the interests of justice: Costs Reasons at para. 45.  
[48] In the result she declined to award special costs either on that basis or  
resulting from litigation misconduct: Costs Reasons at paras. 46, 62.  
[49] I shall refer to certain of her conclusions below.  
IV: THE APPEAL: ARE LEGAL FEES RECOVERABLE AS COMPENSATORY  
DAMAGES ARISING FROM AN INSURER’S BREACH OF THE DUTY OF GOOD  
FAITH AND FAIR DEALING?  
Position of the Parties  
[50] The appellant takes the position that the trial judge erred in law in failing to  
apply the appropriate test in determining whether legal fees are recoverable as  
damages by reason of the Insurers’ breach of the duty of good faith and fair dealing.  
[51] Relying on West Van and 702535 ONCA, he argues that a breach of the duty  
to act in good faith gives rise to a separate cause of action which may result in an  
award of damages that is distinct from the proceeds payable under the policy for the  
insured’s loss, and is not restricted by the limits of the policy.  
       
Stewart v. Lloyd’s Underwriters  
Page 17  
[52] He also submits that the remedy for such a breach of contract, per Hadley as  
applied in Fidler, are damages placing the plaintiff in the same position as if the  
contract had been performed. This includes actual legal fees incurred in order to  
compel the insurer to perform its contractual obligations. The appellant places  
particular emphasis on Wilson and submits the judge was wrong not to reach the  
same result in this case.  
[53] The appellant also asserts that the judge erred in focusing on the wrong  
question: whether the payment of legal fees was an implied term of the policy should  
coverage be denied. He submits that Mr. Stewart did not seek legal fees as  
damages simply by reason of the Insurersbreach of contract, nor did he seek to  
have the court imply such a term in the contract. Rather, he sought damages by  
reason of the Insurers’ breach of the duty of good faith, an independent actionable  
wrong compensable by an award of pecuniary damages, per West Van at para. 104.  
[54] The Insurers take the position that the trial judge was correct in dismissing the  
claim for an award for legal fees as damages for either or both of the breach of  
contract and the breach of the duty of good faith.  
[55] They assert that the appellant’s legal fees arose not from the breach of  
contract but from bringing this proceeding, as is the case in every action. They say  
that what was provided for in the contract, and ultimately paid by the Insurers, was  
coverage for medical expenses. They assert that this was what was contemplated  
by the parties in entering into the contract.  
[56] The Insurers argue that what flows from Hadley and Fidler is that damages  
“arising naturally” from a breach of contract refers to a benefit or other object of the  
contract that was bargained for, but not provided by, the breaching party. Examples  
include legal costs arising when an insurer breaches its specific obligation to provide  
a defence and damages for mental distress in “peace of mind” contracts. The  
Insurers’ position is that Mr. Stewart’s legal fees in this case did not “arise naturally”  
from a similar breach and that compensation for his legal fees was properly dealt  
with as costs in the proceeding.  
Stewart v. Lloyd’s Underwriters  
Page 18  
Standard of Review  
[57] The issue raised on appeal is one of law with a standard of review of  
correctness.  
Discussion  
[58] In my view, there are two principal issues relating to the payment of the  
appellant’s legal expenses in this action, which are:  
the principles underlying the costs regime; and  
remedies for breach of contract, in particular for breach of the duty of good  
faith and fair dealing.  
[59] The appellant submits that his argument presents, for consideration by this  
Court for the first time, an important issue of law concerning the damages to be  
awarded by reason of an insurer’s breach of the duty of good faith.  
[60] The framework governing the advancement of novel claims was explained by  
the Court in R. v. Salituro, [1991] 3 S.C.R. 654 at 666:  
In keeping with these developments, this Court has signalled its willingness to  
adapt and develop common law rules to reflect changing circumstances in  
society at large. In four recent cases, Ares v. Venner, [1970] S.C.R.  
608, Watkins v. Olafson, supra, R. v. Khan, [1990] 2 S.C.R. 531, and  
R. v. Seaboyer, [1991] 2 S.C.R. 577, this Court has laid down guidelines for  
the exercise of the power to develop the common law. The common theme of  
these cases is that, while complex changes to the law with uncertain  
ramifications should be left to the legislature, the courts can and should make  
incremental changes to the common law to bring legal rules into step with a  
changing society.  
[Emphasis added.]  
And later, at 670:  
These cases reflect the flexible approach that this Court has taken to the  
development of the common law. Judges can and should adapt the common  
law to reflect the changing social, moral and economic fabric of the country.  
Judges should not be quick to perpetuate rules whose social foundation has  
long since disappeared. Nonetheless, there are significant constraints on the  
power of the judiciary to change the law. As McLachlin J.  
indicated in Watkins, supra, in a constitutional democracy such as ours it is  
   
Stewart v. Lloyd’s Underwriters  
Page 19  
the legislature and not the courts which has the major responsibility for law  
reform; and for any changes to the law which may have complex  
ramifications, however necessary or desirable such changes may be, they  
should be left to the legislature. The judiciary should confine itself to those  
incremental changes which are necessary to keep the common law in step  
with the dynamic and evolving fabric of our society.  
[Emphasis added.]  
See also: Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19 at para. 35.  
[61] Mr. Stewart’s principal challenge to the judge’s finding that his legal fees were  
not recoverable is based on her alleged failure to appreciate that the claim was  
advanced on the basis that the fees were compensatory damages arising from the  
Insurers’ breach of their duty of good faith and fair dealingan independent  
actionable wrong for which compensation could be recovered.  
[62] His submissions are largely grounded on what he asserts to be a logical  
analysis flowing from Hadley, Fidler, 702535 ONCA and West Van. He says that  
damages which arise from a breach of contract should place him in the same  
position as if the contract had been performed. It bears noting that in Fidler, the  
Court, in applying the Hadley framework, determined that mental distress could  
provide the basis for an award of compensatory damages.  
[63] However, the only authority which the appellant says is on point in relation to  
the payment of legal fees is the Saskatchewan’s Court of Appeal’s decision in  
Wilson, which he asserts is authority for the proposition that the reasonable legal  
fees incurred in bringing an action to enforce coverage can be recovered as  
compensatory damages for breach of the duty of good faith.  
[64] In addressing this novel argument, the judge addressed and relied on the  
principles enunciated in West Van. As I shall explain, in my view she overstated the  
applicability of these principles to the specific issue in question.  
[65] In West Van, the Court considered whether a contractual term to pay special  
costs should be implied in the insurance contract; the trial judge in this case  
performed a similar analysis in considering whether a term should be implied in the  
Stewart v. Lloyd’s Underwriters  
Page 20  
policy such that Mr. Stewart would be able to claim his full legal fees if coverage was  
wrongly disputed.  
[66] I consider a different analysis to be required. Having said that, the judge, in  
my view, made the correct decision in dismissing this claim.  
[67] I will first deal with the costs regime in British Columbia.  
[68] In West Van, Justice Goepel, at paras. 6373, provides a helpful summary of  
the principles underlying the costs regime:  
[63]  
The rules governing costs are set out in R. 14-1 of the Supreme Court  
Civil Rules (the Rules”). The Rules recognize two categories of costs: party  
and party costs and special costs. Prior to the 1990 rule amendments, special  
costs were known as solicitor-and-client costs.  
[64]  
Costs awards should be predictable and consistent across similar  
cases: MacKenzie v. Rogalasky, 2014 BCCA 446 at para. 82, leave to appeal  
ref’d [2015] S.C.C.A. No. 24. A trial judge cannot impose costs sanctions that  
are not authorized by the Rules: Kurtakis v. Canadian Northern Shield  
Insurance Co. (1995), 17 B.C.L.R. (3d) 197 (C.A)…  
[65]  
Costs play an important role in civil litigation. They have a purpose  
beyond indemnification of the successful party in the litigation: Catalyst Paper  
Corporation v. Companhia de Navegaçao Norsul, 2009 BCCA 16 at para. 13.  
[66]  
Party and party costs are the default option. They serve several  
functions. They partially indemnify the successful litigant, deter frivolous  
actions and defences, encourage both parties to deliver reasonable offers to  
settle, and discourage improper or unnecessary steps in the  
litigation: Skidmore v. Blackmore (1995), 2 B.C.L.R. (3d) 201 at para. 37  
(C.A.).  
[67]  
Party and party costs are assessed in accordance with Appendix B of  
the Rules. An award of party and party costs provides only a partial indemnity  
to a successful party. One purpose of a fixed tariff is to allow parties to  
forecast with some degree of precision what penalty they face should they be  
unsuccessful: Houweling Nurseries Ltd. v. Fisons Western Corp. (1988), 37  
B.C.L.R. (2d) 2 at 25 (C.A.), leave to appeal ref’d [1988] S.C.C.A. No. 200.  
[68]  
Special costs are usually awarded when there has been some form of  
reprehensible conduct on the part of one of the parties: Young v. Young,  
[1993] 4 S.C.R. 3 at 134135. While a special cost award, by its very nature,  
will provide a litigant with a greater degree of indemnity against its actual  
legal expenses, in the ordinary course “special costs are not compensatory;  
they are punitive”: Smithies Holdings Inc. v. RCV Holdings Ltd., 2017 BCCA  
177 at para. 56. … Pre-litigation conduct is not to be considered in  
determining whether special costs should be ordered: Smithies Holdings at  
para. 134.  
Stewart v. Lloyd’s Underwriters  
[69] There are limited circumstances when special costs may be ordered  
Page 21  
where there has been no wrongdoing: [Gichuru v. Smith, 2014 BCCA 414] at  
para. 90. These situations include when the parties have made provision in a  
contract for special costs.  
[70]  
Special costs are not a substitute for damages. They are not a  
remedy for breach of contract and should not be conflated with punitive  
damages. In Marchen v. Dams Ford Lincoln Sales Ltd., 2010 BCCA 29, this  
Court explained:  
… Punitive damages are a remedy for breach of contract that reflects  
the conduct of a party at the time of the breach. Costs reflect the  
results and conduct of parties leading to and in the course of litigation.  
They are not a remedy for breach of contract.  
[71]  
On an assessment of special costs, a party is entitled to those fees  
that were proper or reasonably necessary to conduct the proceeding. While  
there may be a close relationship between actual legal fees and special  
costs, they are not necessarily identical.  
[72]  
The award of costs, including the appropriate scale of costs, is a  
matter of judicial discretion. This Court should not interfere with that  
discretion unless the trial judge made an error in principle or the cost award is  
plainly wrong: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9 at  
para. 27.  
[73]  
In exercising that discretion, a judge must act judicially. A judge  
cannot fix costs arbitrarily or capriciously. The judge must act in a manner  
consistent with the Rules and the principles that have long governed such  
awards. In Stiles v. B.C. (W.C.B.) (1989), 38 B.C.L.R. (2d) 307 at 310 (C.A.),  
Lambert J.A. articulated the limits on the judge’s power to award costs:  
... Generally, the decisions on costs, including both whether to award  
costs, and, if awarded, how to calculate them, are decisions governed  
by a wide measure of discretion. See Oasis Hotel Ltd. v. Zurich Ins.  
Co., 28 B.C.L.R. 230, [1981] 5 W.W.R. 24, 21 C.P.C. 260, [1982]  
I.L.R. 1-1459, 124 D.L.R. (3d) 455 (C.A.). The discretion must be  
exercised judicially, i.e., not arbitrarily or capriciously. And, as I have  
said, it must be exercised consistently with the Rules of Court….  
[69] To this summary I would add:  
a) The traditional purpose of a costs award is to indemnify the successful party  
in respect of the expenses sustained in pursuing a valid claim or defending an  
unfounded one: British Columbia (Minister of Forests) v. Okanagan Indian  
Band, 2003 SCC 71 at para. 21 [Okanagan Indian Band];  
Stewart v. Lloyd’s Underwriters  
Page 22  
b) The modern costs regime has broader purposes than merely indemnification.  
Modern costs rules also act to ensure that the justice system works fairly and  
efficiently: Okanagan Indian Band at para. 26;  
c) Provincial legislation has created a regime in which all costs decisions are at  
the discretion of the court; while a successful party may reasonably expect a  
costs award, this is subject to the court’s absolute and unfettered discretion  
and the applicable rules of court: Mark M. Orkin & Robert G. Schipper,  
Orkin on the Law of Costs, 2nd ed. (Toronto: Thomson Reuters, 2021) at  
§1:1; and  
d) An order of special costs is exceptional: Downtown Eastside Sex Workers  
United Against Violence Society v. Canada (Attorney General), 2011 BCCA  
515 at para. 12.  
[70] I will now turn to the framework governing the claim for compensatory  
damages arising from an insurer’s breach of its duty to an insured of good faith and  
fair dealing.  
[71] The starting point is a specifically articulated duty of good faith owed in cases  
of insurance contracts, whereby an insurer must act in good faith in dealing with an  
insured’s claim both in the manner in which it investigates and assesses the claim as  
well as in the decision of whether or not to pay it: Fidler at para. 63, citing 702535  
ONCA.  
[72] This duty is separate from the duty to compensate the insured for a loss  
covered by the policy, and its breach is an independent actionable wrong: Whiten v.  
Pilot Insurance Co., 2002 SCC 18 at para. 82 [Whiten].  
[73] As was observed by the Court of Appeal for Ontario in 702535 ONCA:  
[32]  
A breach of the duty of good faith may result in an award of damages  
which is distinct from the proceeds payable under the policy for the insured  
loss and which are not restricted by the limits in the policy.  
Stewart v. Lloyd’s Underwriters  
Page 23  
[74] The rule by which compensatory damages for breach of contract, including  
breach of the duty of good faith, should be assessed is the well-established principle  
outlined in Hadley at 151:  
Where two parties have made a contract which one of them has broken, the  
damages which the other party ought to receive in respect of such breach of  
contract should be such as may fairly and reasonably be considered either  
arising naturally, i.e., according to the usual course of things, from such  
breach of contract itself, or such as may reasonably be supposed to have  
been in the contemplation of both parties, at the time they made the contract,  
as the probable result of the breach of it.  
[75] The issue then becomes whether the judge, having determined that the  
Insurers did not act in good faith in the manner in which they investigated and settled  
Mr. Stewart’s medical costs, was correct in concluding that Mr. Stewart could not  
recover his actual legal fees in the underlying action as compensatory damages  
arising from the breach of that duty.  
[76] As I have outlined at para. 41 above, relying in large part on the principles  
outlined in West Van, the judge found he could not.  
[77] There can be no question that in a case involving the principles of contractual  
interpretation, the question to be asked is “what did the contract promise?”;  
compensation should only be awarded for the failure to provide for those promises:  
Fidler at para. 44.  
[78] The insurance policy in this case did not explicitly provide for the payment of  
the insured’s actual legal fees in obtaining the coverage contracted for in the policy.  
It is evident from Mr. Stewart’s position at trial and in this Court that his claim for  
recovery of his actual legal fees is not based on a breach of contract simpliciter. It is  
the breach of that contract “and the breach of the duty of good faith”: Reasons at  
para. 128.  
[79] In other words, the appellant appears to accept that a breach of contract  
simpliciter in this case would not result in an award of legal costs as compensatory  
Stewart v. Lloyd’s Underwriters  
Page 24  
damages. Rather, in that event, they would be considered in the context of the costs  
regime.  
[80] The judge specifically referred to Mr. Stewart’s submission that there is a  
distinction between breach of a commercial contract, where legal fees as damages  
are usually not awarded to a successful party, and breach of a contract of good faith,  
and that in the latter they should be awarded: Reasons at para. 122.  
[81] It is necessary, therefore, to consider those cases where legal fees as  
damages have been awarded in a “breach of a commercial contract” where there  
has been no breach of the insurer’s duty of good faith, and to consider if and when  
they have been awarded following a finding of a breach of that duty.  
[82] While I am of the view the judge was correct in her Hadley analysis for the  
reasons set out at paras. 127 and 128 of the Reasonsthat there is no term in the  
policy indicating that fees would be awarded, and no basis to imply a term based on  
industry custom, business efficacy, or lawher analysis provides only a partial  
explanation for why the appellant cannot succeed.  
[83] In that regard, I agree with the appellant that the judge focussed on the wrong  
question, being whether the payment of actual legal fees was an implied term of the  
policy. Rather, the proper question posed by the appellant’s self-stated “novel”  
argument is: absent an explicit or implied term in a policy of insurance, are actual  
legal fees recoverable as compensable damages when an insurer breaches its duty  
of good faith to an insured?  
[84] When the issue is framed this way, I find the duty to defend line of authorities,  
particularly West Van, to be of limited assistance, except for the useful summary of  
the application of contractual interpretation principles in insurance coverage cases  
(at paras. 96101) and the costs regime in this province (paras. 6373) quoted at  
para. 68 above.  
[85] West Van concerned a dry-cleaning business and the owner of the lands it  
was situated on (collectively, “West Van”), who had proceedings commenced  
Stewart v. Lloyd’s Underwriters  
Page 25  
against them for alleged contamination of adjacent premises through their use and  
disposal of various chemicals in the course of their business. Their insurers refused  
to defend them in that action, based on exclusion clauses for property damage  
related to pollution. West Van brought an action seeking declarations that their  
insurers were required to defend them; the chambers judge ordered as such and  
awarded costs on a solicitor-and-client basis.  
[86] The insurers appealed that order, challenging both the judge’s finding that the  
duty to defend was triggered, as well as the costs award itself. On appeal, this Court  
concluded that there was no duty to defend, as the claims brought against West Van  
either did not fall within the initial grant of coverage contained in the policies, or  
because they were excluded.  
[87] Given that finding, this Court was not required to deal with the issue of costs.  
However, given the importance of the issue, Justice Goepel considered it  
appropriate to determine the correctness of the costs ruling.  
[88] In doing so, he first reviewed the principles governing costs in British  
Columbia. He noted that the question for determination was “whether an award of  
special costs in the absence of conduct deserving of rebuke in a duty to defend  
claim is consistent with the guiding principles upon which costs awards are made”  
and that most cases making such an award had not addressed the issue in any  
detail: West Van at para. 94.  
[89] Goepel J.A. further noted, at para. 95:  
[T]he judges in [Gore Mutual Insurance Company v. Paterson (30  
September 2011, Vancouver S1101676 (B.C.S.C.)], [Williams v. Canales,  
2016 BCSC 1811] and [Blue Mountain Log Sales Ltd. v. Lloyd’s Underwriters,  
2017 BCSC 1872] awarded special costs. The judges in the case at bar,  
Tanious and [Co-operators General Insurance Company v. Kane, 2017  
BCSC 1720] awarded either a full indemnity or costs on a solicitor-and-own-  
client basis. As noted in para. 64 above, a judge cannot impose costs  
sanctions that are not authorized by the Rules. Full indemnity or solicitor-and-  
own-client costs awards are not authorized by the Rules and accordingly the  
costs awards in this case, Kane and Tanious are, at least to that extent,  
wrong in principle, as is West Van’s submission that it is entitled to receive a  
full indemnity…  
Stewart v. Lloyd’s Underwriters  
Page 26  
[90] Based on his review of the jurisprudence, Justice Goepel concluded that  
there was no principled basis on which full indemnity awards could have been made.  
He was also troubled by the analysis in E.M. v. Reed (2003), 49 C.C.L.I. (3d) 57  
(Ont. C.A.), leave to appeal ref’d [2003] S.C.C.A. No. 334 [Reed] which suggested  
that the basis was contractual, as in West Van there was no reference in the  
insurance contract of the cost of enforcing coverage. He thus found no basis for  
implying a term into the policy that the insurer would pay special costs if it  
unsuccessfully resisted a claim under the policy. He concluded, at para. 99:  
The amounts that the insurer has agreed to pay are clearly set out in the  
policy. The insurer agrees to pay the costs to defend until the limits of the  
policy are exhausted. The language in the policy cannot be extended to cover  
legal fees and expenses the insured may incur in attempting to enforce its  
contractual right to coverage.  
[Emphasis added.]  
[91] In my view, what flows from West Van is that, at least where the insurer’s duty  
to defend is alleged, the court must examine the policy in question to determine  
whether the insurer is required to indemnify the insured for expenditures arising from  
a proceeding enforcing coverage and, if so, order that the insurer pay the insured on  
this basis. See also: Reed at para. 22; Pagé v. Rogers Communications Inc., 2017  
ONSC 2341; Yanaky v. Arch Insurance (Canada), 2014 ONSC 4719; Kelowna (City)  
v. AXA Pacific Insurance Company, 2010 BCSC 904.  
[92] This accords with the approach seen in contractual cases which do not  
involve a policy of insurance, such as Eisler Estate v. GWR Resources Inc., 2021  
BCCA 247, where full indemnity costs were awarded by the trial judge, and upheld  
by this Court, on the basis that the parties had a contract with a specific clause  
requiring full indemnification.  
[93] In an insurance context, if a duty to defend is found to exist, a court may order  
that the insurer indemnify the insured for the legal fees and disbursements incurred  
until that point, make a declaration and, if necessary, order that the insurer must  
assume the conduct of the insured’s defence.  
Stewart v. Lloyd’s Underwriters  
Page 27  
[94] Where special costs have been awarded absent litigation conduct warranting  
punitive measures, this has occurred on a non-contractual basis. For instance, in  
Tanious v. The Empire Life Insurance Company, 2019 BCCA 329 [Tanious], this  
Court upheld an award of special costs against an insurer after the insured brought a  
claim to enforce coverage. In upholding the award, this Court relied not on a  
contractual basis for doing sorecognizing that none existedbut rather on the  
interests of justice.  
[95] In Tanious, Justice Dickson recognized that special costs are not to be  
conflated with damages for mental distress, punitive damages, or contractual costs:  
Tanious at para. 51. In doing so she referred to the statement in West Van that  
“special costs awards in duty to defend cases are not based on an implied  
contractual term”: Tanious at para. 68. However, she also recognized that, in  
exceptional circumstances, special costs may be awarded for non-punitive  
purposes: Tanious at para. 54.  
[96] What can be concluded from these authorities, in my view, is that legal fees  
have not been awarded on the basis of compensatory damages under the Hadley  
framework even where the court finds a breach of the duty of good faith: See, e.g.,  
Sidhu v. The Wawanesa Mutual Insurance Co., 2011 BCSC 1117; Fernandes v.  
Penncorp Life Insurance Co., 2013 ONSC 1637, partially rev’d on other grounds  
2014 ONCA 615.  
[97] The same result has arisen in “peace of mind” insurance contracts, such as  
the payment of disability benefits or, as in this case, medical benefits or expenses.  
Upon a finding of the breach of duty to act in good faith, damages for mental distress  
are considered to be the appropriate remedy on the basis that they are a logical  
extension of the general principles of compensatory damages in Hadley: Fidler at  
paras. 4344.  
[98] In fact, viewed through the Hadley analytical lens, it is not difficult to  
understand why the breach of a “peace of mind” insurance contract could cause  
mental distress. So the issue then becomes: absent an express or implied term in  
Stewart v. Lloyd’s Underwriters  
Page 28  
the contract, can a similar causal connection be found with respect to actual legal  
fees? In my view the answer is “no”. It is noteworthy that legal fees associated with  
bringing an action have not been awarded as compensatory damages, with the  
exception of Wilson, which I will discuss below.  
[99] Accordingly, the “peace of mind” cases are of limited assistance in  
considering the issue on this appeal, although the parties agree that the policy in  
question is a “peace of mind” contract and that mental distress is a form of damage  
that was reasonably in the contemplation of the parties: Reasons at para. 130.  
[100] This then leads to a consideration of the appellant’s reliance on para. 32 of  
702535 ONCAcited with approval in Fidlerwhich for convenience I shall repeat  
here:  
[32]  
A breach of the duty of good faith may result in an award of damages  
which is distinct from the proceeds payable under the policy for the insured  
loss and which are not restricted by the limits in the policy.  
[101] This raises the question of whether this principle can include compensatory  
damages for actual legal fees incurred, effectively providing full indemnity costs  
outside of the costs regime which would otherwise be available to a successful  
litigant.  
[102] With the exception of Wilson, I have not been referred to or become aware of  
any cases where a plaintiff has recovered their legal fees in whole or in part as  
damages, regardless of a finding of the breach of the insurer’s duty of good faith.  
Rather, such awards have occurred through an application of the costs regime.  
[103] The circumstances in Wilson were summarized by the judge in the Reasons:  
[123] In support of the argument that legal fees are recoverable for breach  
of an insurance contact, the sole case Mr. Stewart refers to is Saskatchewan  
Government Insurance v. Wilson, 2012 SKCA 106 [Wilson]. The facts  
of Wilson are unusual. The insurer had advised the insured it would be  
terminating rehabilitation benefits at a point of time in the future. The insured  
sued to preserve her rights. Before trial the insurer reinstated benefits. The  
insured was awarded punitive damages in the amount of $7,833.26 for legal  
fees and disbursements. On appeal, the Court of Appeal set aside the  
punitive damages award because they had not been claimed in the  
Stewart v. Lloyd’s Underwriters  
Page 29  
pleadings, but characterized the legal bill as the costs incurred by the plaintiff  
to mitigate her losses, and substituted this same amount as an award for  
breach of contract.  
[104] I would add that the “breach of an insurance contract” referred to by the judge  
was the insurer’s breach of the duty of good faith.  
[105] In my view, Wilson is readily distinguishable from this case in that:  
the result turned primarily on its particular circumstances including the fact  
that the nature of the contract of insurance and the statutory regime required  
Ms. Wilson to commence legal proceedings in order to mitigate the loss of  
benefits, as well as the deficiency in her pleadings regarding punitive  
damages; and  
the legal fees were considered by the Court of Appeal as “mitigation  
expenses” with respect to the breach of the duty of good faith.  
[106] Indeed, in Wilson, the Saskatchewan Court of Appeal recognized that it was  
“unaware of any Canadian case in which a court has awarded a sum [for legal fees]  
as damages for breach of the duty of good faith simpliciter”: Wilson at para. 54.  
[107] Nor does 702535 ONCA, in my view, assist the appellant. In that case the  
respondent insurer, Lloyd’s, had delayed the appellant’s payment under its fire  
insurance policy for over 18 months. After the appellant had filed proof of loss,  
Lloyd’s took the position that prior policies underwritten by other insurers were still in  
effect at the time of the fires and accordingly did not pay. It also defended the action  
on the basis of allegations of the insured’s misrepresentations and fraudulent  
omission to communicate material information. The trial judge dismissed the claim  
for punitive damages for the delay in payment, finding that the failure to pay the  
claims promptly neither breached the insurance contract nor constituted an act of  
bad faith.  
[108] On appeal, the Ontario Court of Appeal agreed that Lloyd’s did not breach the  
duty of good faith by taking the position that the original policies were in effect at the  
Stewart v. Lloyd’s Underwriters  
Page 30  
time of the fires, but concluded that this only entitled it to withhold 50% of the  
claimed amount. Accordingly, the court found it was a breach of the duty of good  
faith for Lloyd’s to fail to pay 50% of the claim amount within a reasonable period of  
time after the claimants filed their proof of loss.  
[109] Nonetheless, the Court of Appeal found that Lloyd’s failure to pay did not  
result in any additional loss, concluding at para. 67:  
There is no evidence to support a conclusion that anything different would  
have occurred to the benefit of the appellants if that payment had been made.  
It appears that the land would have been sold at the same price; the  
mortgagees would have continued their action to recover the balance of the  
loss and incurred legal expenses in doing so; the loss would have been  
assessed at the same amount; and the appellants would have incurred legal  
expenses defending the mortgagees’ action against them.  
[110] From this, it is apparent that compensatory damages for breach of the duty of  
good faith must be consequential to the breach. Had the plaintiff proven damages in  
relation to the sale of the hotel, that is damages which were connected to or  
consequential to the breach of the duty then those would have been “distinct from  
the proceeds payable under the policy for the insured loss and which are not  
restricted by the limits in the policy” per 702535 ONCA. See also Fidler at para. 27,  
referring to the principle in Hadley that damages must be connected to the breach,  
which in Fidler were based on mental distress.  
[111] The same result would occur if an insurer were found to have acted in bad  
faith in failing to reasonably settle a claim brought against an insured defendant  
within the policy limits. In an action brought by that insured defendant against the  
insurer which arose from a judgment against them in excess of the policy limits,  
there would be a clear connection between the insured’s personal exposure—the  
excess judgmentand the insurer’s breach of duty. That loss would necessarily be  
in addition to the policy limits: see Shea v. Manitoba Public Insurance Corp. (1991),  
55 B.C.L.R. (2d) 15 (S.C) [Shea], particularly at paras. 158, 188, 238, 263, and 311.  
In my view, such a situation provides a cogent example of what was contemplated in  
para. 32 of 702535 ONCA. The same would be the case for damages for mental  
distress or punitive damages. For obvious reasons, these heads of damage cannot  
Stewart v. Lloyd’s Underwriters  
Page 31  
be subject to the policy limits related to the coverage of the agreed upon insured  
risk(s) and other contractual terms which may include the duty to defend.  
[112] Furthermore, as was the case in 702535 ONCA, there was no evidence in  
this case “that anything different would have occurred to the benefit of the  
appellants(emphasis added): 702535 ONCA at para. 67. That is because coverage  
was ultimately provided to Mr. Stewart for the health care providers’ costs which  
were satisfied by the respondents; if any remain then they are subject to the  
indemnification order made by the judge, which is presumably subject to the policy  
limits.  
[113] What was not claimed as consequential damages in 702535 ONCA for  
breach of the duty of good faith were the insured’s actual legal fees incurred in  
advancing the claim for coverage.  
[114] Those costs were determined under the costs regime. The trial decision in  
702535 Ontario Inc. v. Non-Marine Underwriters, Lloyds London, England (1997),  
50 C.C.L.I. (2d) 87 (Ont. Ct. J. (Gen. Div.)) did not consider the issue of costs.  
Written submissions were then received by the court and in supplementary reasons  
indexed at 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyds London,  
England, 1997 CarswellOnt 5988 (Ct. J. (Gen. Div.)) party-and-party costs were  
awarded: at para. 4.  
[115] In 702535 ONCA there was no reference to the trial court’s award of party  
and party costs. However, with respect to costs on appeal the court held that “…[i]n  
view of my finding that Lloyds did breach the duty of good faith, albeit not in a way  
that resulted in any damages, I would make no order as to costs of the appeal: at  
para. 73.  
[116] Nor does Whiten assist the appellant on this issue.  
[117] In Whiten, the insured’s home was destroyed in a fire. She claimed for the  
loss but her insurer refused to pay, alleging that she committed arson. After a  
four week trial, during which the insurer maintained its position that the fire was  
Stewart v. Lloyd’s Underwriters  
Page 32  
caused by arson, the jury found in Ms. Whiten’s favour. She was awarded $287,200  
for the fire loss and $1,000,000 in punitive damages, together with costs on a  
solicitor-and-client scale.  
[118] The insurer appealed the $1,000,000 punitive damage award. On appeal, the  
Ontario Court of Appeal reduced the punitive damage award to $100,000 on the  
basis that the amount was excessive. That court saw no reason for such a “radical  
departure from precedent” that the jury award represented: Whiten v. Pilot Insurance  
Co. (1999), 170 D.L.R. (4th) 280 (Ont. C.A.) at para. 51.  
[119] Ms. Whiten appealed this determination to the Supreme Court of Canada,  
which reinstated the $1,000,000 award. Justice Binnie specifically commented on  
the conduct of the insurer, noting that it “persisted …over a lengthy period of time  
(two years to trial) without any rational justification, and despite the defendants  
awareness of the hardship it knew it was inflicting (indeed, the respondent  
anticipated that the greater the hardship to the appellant, the lower the settlement  
she would ultimately be forced to accept)”: Whiten at para. 112. He also noted, at  
para. 129, Ms. Whiten’s vulnerability and the fact that this was taken advantage of  
by the insurer.  
[120] It is notable that even in these circumstances, which involved a breach of the  
duty of good faith that was described by the Supreme Court of Canada as  
“egregious misconduct”, the plaintiff’s legal expenses were considered within the  
costs regime, as opposed to as an award of compensatory damages. Unlike this  
case, special costs were awarded.  
[121] Fidler is also of assistance in the analysis. Although I shall return to Fidler  
when I consider the cross appeal, it is of assistance to set out the background at this  
juncture. In that case, Ms. Fidler’s insurer informed her that it would be terminating  
her long-term disability benefits. The insurer engaged in conduct that was described  
as “extremely troubling”, including conducting surveillance of Ms. Fidler and  
maintaining its denial for several years. One week prior to trial, the insurer offered to  
Stewart v. Lloyd’s Underwriters  
Page 33  
reinstate Ms. Fidler’s benefits and pay the outstanding retroactive amounts.  
Accordingly, the trial dealt only with aggravated and punitive damages.  
[122] The trial judge, in reasons indexed as 2002 BCSC 1336 [Fidler BCSC] found  
that the insurer’s conduct did not constitute a breach of the duty of good faith. He  
awarded Ms. Fidler $20,000 in aggravated damages but dismissed the claim for  
punitive damages. On appeal, in reasons indexed as 2004 BCCA 273, this Court  
upheld the award of aggravated damages and imposed a punitive damage award of  
$100,000 on the grounds that the insurer’s arbitrary denial of long-term disability  
benefits to a vulnerable insured for over five years must be denounced and deterred.  
The punitive damage award was reversed by the Supreme Court of Canada on the  
basis that deference should be given to the trial judge’s conclusion that there was no  
breach of the duty of good faith. Yet, even under those circumstances, the plaintiff’s  
legal expenses throughout were decided under the costs regime then in place.  
[123] In her discussion of punitive damages, the judge referred to Asselstine BCCA:  
Reasons at paras. 118119.  
[124] The trial decision is indexed as Asselstine v. The Manufacturers Life  
Insurance Company et al, 2003 BCSC 1119 [Asselstine BCSC]. The plaintiff had  
brought a claim against her former employer and her insurer seeking specific  
performance of her disability insurance contract, as well as aggravated and punitive  
damages. Following a trial during which the insurer maintained its denial of  
coverage, Ms. Asselstine was awarded $100,000 in punitive damages against the  
defendants for failing to deal with her in good faith: Asselstine BCSC at para. 192.  
In the reasons for judgment on costs, indexed at 2004 BCSC 725 [Asselstine Costs],  
she sought special costs or, in the alternative, increased costs, with the latter  
awarded by the judge.  
[125] The insurers appealed the punitive damage award while the plaintiff cross  
appealed that the award should have been higher. On appeal, the order for  
increased costs was set aside because the Rules of Court then in place had recently  
been amended to preclude awards of increased costs; instead, this Court awarded  
Stewart v. Lloyd’s Underwriters  
Page 34  
the plaintiff costs at Scale 4. The punitive damage award of $100,000 was upheld  
notwithstanding the plaintiff’s argument that it should be increased due to the  
decrease in the costs award. Justices Donald and Huddart stated, at para. 65 of  
Asselstine BCCA: “…punitive damages should not be used to cure perceived  
deficiencies in the scheme of costs.”  
[126] In my view, a similar conclusion should be reached here. Damages for breach  
of the respondents’ duty of good faith to Mr. Stewart should not be used to cure  
perceived deficiencies in the scheme of costs; it bears noting that in dismissing the  
appellant’s claim for special costs, the judge found that her award of punitive  
damages was not a relevant consideration in the analysis and there was no  
additional conduct during the litigation which would be deserving of rebuke by way of  
special costs: Costs Reasons at para. 59.  
[127] The appellant also submits that if he is not awarded his actual legal expenses  
as compensatory damages then it will be difficult, if not impossible, for plaintiffs to be  
made whole in these types of claims. Essentially, his argument raises access to or  
interests of justice considerations. That is because if an insurer agrees, effectively at  
the last moment, to provide the coverage which was “promised” in the policy, then  
the legal fees incurred will be restricted to the regime of costs. Furthermore, a  
contingency fee, if that was the basis of the lawyer’s retainer, will have a negligible  
value since no amount will be recovered.  
[128] But, as the judge noted in the Costs Reasons:  
[36]  
The nature of the litigation is that it concerns a travel insurance policy  
for expenses that have already been incurred. This is different from a  
disability policy that is intended to provide past and prospective replacement  
income for an insured who is unable to work. Mr. Stewart incurred a debt for  
health care services. He was not relying upon insurance funds for income for  
the necessaries of life. Nonetheless, the financial repercussions to  
Mr. Stewart were significant.  
[37]  
The work of counsel enabled Mr. Stewart to obtain a significant  
benefit, which was settlement or purported settlement of up to the full amount  
of the unpaid health care expenses. A term of the policy is that the Insurers  
may pay those sums directly to the health care providers. The fact that there  
is no sum against which Mr. Stewart’s counsel may attach his fee is a result  
of that term of the contract, to which Mr. Stewart agreed. There are many  
Stewart v. Lloyd’s Underwriters  
Page 35  
types of actions where the remedy sought is not a damage award and  
therefore, there is not a fund against which a lawyer can obtain fees.  
However, those circumstances do not by themselves result in an award of  
special costs.  
[38]  
I accept that it may be difficult for some litigants to retain counsel  
when there is not the possibility of a lump sum damage award, but  
Mr. Stewart was not in the same sort of financial situation as Ms. Tanious.  
Mr. Stewart said he was referred to Mr. Parsons by a friend. There is no  
evidence he consulted any other lawyer. He understood it may take up to  
$100,000 to prosecute the claim and that there was no guarantee he would  
be successful. He stated that with the amount of health care bills it was  
“difficult to commit” that kind of money to address the problem. He hoped  
Mr. Parsons would take the file on a contingency basis, which he did.  
Mr. Stewart also gave evidence that he had approximately $600,000 in  
investments and received approximately $40,000 per year in investment  
income in addition to his pensions. He also had another $60,000 in retained  
earnings in a company. At the time of his injury, his net worth was  
approximately $700,000. Mr. Stewart chose not to use those funds to  
negotiate with the health care providers or pay his lawyer an hourly rate. I am  
not persuaded Mr. Stewart’s financial circumstances prevented him from  
retaining a lawyer and accessing the courts. I conclude that it was his  
preference not to risk his investments in the conduct of this litigation.  
[129] There are also valid policy reasons in my view for not acceding to the  
appellant’s novel argument.  
[130] In Bhasin v. Hrynew, 2014 SCC 71 the Court identified a general organizing  
principle of good faith in the law of contract, which requires parties to “perform their  
contractual duties honestly and reasonably and not capriciously or arbitrarily”:  
Bhasin at paras. 6263. While a contracting party is expected to give due  
consideration to the other’s legitimate interests, it is generally not required to  
subordinate its own interests: Wastech Services Ltd. v. Greater Vancouver  
Sewerage and Drainage District, 2021 SCC 7 at paras. 6, 52.  
[131] If the appellant is correct that a breach of the duty of good faith in an  
insurance policy context should result in a party’s actual legal expenses being  
awarded as consequential compensatory damages, then the question arises as to  
why this would not extend to other cases involving a breach of the duty enunciated  
in Bhasin.  
Stewart v. Lloyd’s Underwriters  
Page 36  
[132] There would be no principled reason, in my view, for the same result not to  
occur in any situation where a breach of that duty arose in a contractual context.  
[133] It is clear that such a development in the law of damages cannot be described  
as an “incremental change” which is “necessary to keep the common law in step  
with the dynamic and evolving fabric of our society”: Salituro at 670. Rather, if the  
appellant’s argument is accepted, this could well lead to complex ramifications  
including the circumvention of the law of costs that exists in this province and which  
is based on legislative enactments and a robust jurisprudence developed over many  
years.  
Conclusion  
[134] Accordingly, I am of the view that the judge was correct in not awarding  
Mr. Stewart his actual legal expenses as compensatory damages for the  
respondents’ breach of duty of good faith and would dismiss the appeal.  
V: THE CROSS APPEALDID THE JUDGE ERR IN FINDING THE  
RESPONDENTS ACTED IN BAD FAITH AND BY AWARDING THE APPELLANT  
PUNITIVE DAMAGES?  
Position of the Parties  
[135] The respondents challenge the judge’s award of punitive damages on several  
bases including:  
a) The appellant’s estate cannot recover the punitive damage award;  
b) The judge made palpable and overriding errors in concluding that they had  
acted in bad faith in the manner in which they settled the third-party providers’  
accounts;  
c) The award of punitive damages was made notwithstanding the judge’s  
conclusion that there was no malice directed at Mr. Stewart. Awarding  
punitive damages to the appellant for conduct directed at third parties is an  
error of law;  
     
Stewart v. Lloyd’s Underwriters  
Page 37  
d) Even accepting the judge’s findings of fact, the impugned conduct could not,  
at law, support an award of punitive damages; and  
e) The punitive damage award was excessive.  
[136] The appellant’s position can be summarized as follows:  
a) The award of punitive damages is a debt owing to the estate;  
b) The judge’s award of punitive damages was based on the respondents’  
breaches of the duty of good faith to the appellant both before and after they  
accepted coverage in December 2018. There was a considerable body of  
evidence from which the judge could conclude that the respondents had  
breached their duty of good faith in the manner in which they resolved the  
third-party providers’ accounts;  
c) The impugned misconduct was not just directed at the third-party providers.  
The manner in which the respondents purported to satisfy those accounts  
was in breach of their obligations to the appellant both under the policy and  
their obligation to him of good faith and fair dealing; and  
d) The award of $100,000 was not excessive.  
Standard of Review  
[137] The standard of review for questions of law is one of correctness. Questions  
of fact, and mixed fact and law, are subject to a standard of palpable and overriding  
error, unless it is clear that the trial judge made some extricable error in principle  
with respect to the characterization of the standard or its application, in which case  
the error may amount to an error of law, subject to a standard of correctness:  
Housen v. Nikolaisen, 2002 SCC 33 at paras. 2628.  
[138] In Westbroek v. Brizuela, 2014 BCCA 48 at para. 27, this Court explained that  
an appeal from an assessment of damages, which is a finding of fact, necessitates a  
deferential stance on appellate review. In principle, an appellate court will only  
 
Stewart v. Lloyd’s Underwriters  
Page 38  
intervene in respect of findings of fact if the trial judge made a manifest error, has  
ignored conclusive or relevant evidence, has misunderstood the evidence, or has  
drawn erroneous conclusions from it.  
Discussion  
Can the estate recover the award of punitive damages?  
[139] The respondents/appellants on the cross appeal raise for the first time in this  
Court that if the punitive damage award is upheld, it cannot be recovered by  
Mr. Stewart’s estate (“the Estate”).  
[140] The issue was not raised by the parties before the trial judge, although  
Mr. Stewart passed away well before the trial order was entered in November 2020.  
Yet this Court, in certain circumstances, may hear new issues on appeal. As  
Justice Goepel explained in Rhodes v. Surrey (City), 2018 BCCA 281 at para. 47:  
[47]  
Leave is required to raise a new issue on appeal: Bartch v. Bartch,  
2018 BCCA 271. While this Court does not generally consider submissions  
that were not advanced in the proceeding giving rise to the order appealed, it  
will do so in certain circumstances. In Devine v. Devine, 2012 BCCA 509, this  
Court explained when the court may consider a new issue:  
[45]  
An appeal court should only allow a new issue on appeal  
where “the interests of justice require it and where the court has a  
sufficient evidentiary record and findings of fact” to decide the issue.  
In balancing the interests of justice, the court will consider potential  
prejudice to the other party. As Prowse J.A. stated in O’Bryan v.  
O’Bryan, “the prohibition against permitting one party to raise a new  
issue on appeal for which the evidentiary groundwork was not fully  
laid in the trial court is primarily to prevent prejudice to the party  
against whom the issue is raised” (at para. 24) as “evidence might  
have been led at trial if it had been known that the matter would be an  
issue on appeal” (at para. 23). Issues of pure law are more likely to be  
granted leave than issues that require the leading of evidence.  
[46]  
The onus is on the appellant to persuade the court that all of  
the facts required to address the issue are before the court as fully as  
if the issue had been argued at trial.  
[Citations omitted.]  
[141] In this case, the issue was comprehensively argued by the parties on appeal,  
the evidentiary record is not in dispute, and the question is one of law. There is no  
   
Stewart v. Lloyd’s Underwriters  
Page 39  
prejudice to the parties and it is in the interests of justice for it to be considered at  
this time.  
[142] The relevant chronology is as follows.  
[143] The trial in the underlying proceeding took place between April 13, 2019.  
Judgment was reserved with the judge’s reasons being rendered on September 19,  
2019. The notice of appeal was filed on October 10, 2019, and the notice of cross  
appeal was filed on October 15, 2019. The costs hearing took place on February 11,  
2020. Mr. Stewart passed away on March 27, 2020. The costs reasons were  
rendered on April 30, 2020.  
[144] The trial order, which included the decision on costs, was entered on  
November 6, 2020. This is the order under appeal.  
[145] The respondents argue that this appeal is brought by the Estate, by virtue of  
s. 150 of the Wills, Estates and Succession Act, S.B.C. 2009, c. 13 [WESA], which is  
British Columbias statutory enactment regarding the survival of actions.  
[146] Section 150 of WESA provides, in part:  
Proceedings by and against estate  
150 (1) Subject to this section, a cause of action or a proceeding is not  
annulled by reason only of the death of  
(a) a person who had the cause of action, or  
(b) a person who is or may be named as a party to the proceeding.  
(2) Subject to this section, the personal representative of a deceased person  
may commence or continue a proceeding the deceased person could have  
commenced or continued, with the same rights and remedies to which the  
deceased person would have been entitled, if living.  
(4) Recovery in a proceeding under subsection (2) does not extend to  
(a) damages in respect of non-pecuniary loss, or  
(b) damages for loss of future income for a period following death.  
[Emphasis added.]  
Stewart v. Lloyd’s Underwriters  
Page 40  
[147] The respondents rely on s. 150(4)(a) and submit that since punitive damages  
are non-pecuniary in nature, the Estate cannot recover the punitive damages award,  
if upheld.  
[148] In advancing this argument the respondents also rely on Charlton v. The  
Co-operators Life Insurance Co., 1999 BCCA 35 [Charlton] (sub nom. Allan Estate  
(Executors of) v. Co-operators Life Insurance Co.) where the key issue was whether  
a claim for punitive damages against a disability insurer could be brought by an  
estate.  
[149] Charlton concerned an application brought under former Rule 34 of the Rules  
of Court, 1990, B.C. Reg. 221/90 to have the following question of law decided:  
Is the Plaintiffs claim, as set out in the Statement of Claim in this action, for  
punitive damages, barred by section 59(2), (3) and (4) of the Estate  
Administration Act, R.S.B.C. 1996, c.122?  
[150] The chambers judge’s answer was “yes”. This Court dismissed the appeal on  
the basis that the question posed did not lead to a “yes” or “no” answer.  
Justice Lambert stated:  
[88]  
In short, the proper course in categorizing an action following the  
death of a person, in a survival action, or a wrongful death claim, is to  
categorize the cause of action and to decide whether it lies, either at common  
law, under the Estate Administration Act, under the Family Compensation  
Act, or not at all. If it lies, then the second step is to categorize the head of  
damages claimed and to decide whether a claim for damages under that  
head is available for the cause of action brought in the appropriate way.  
[151] The respondents, however, point to Justice Lambert’s analysis and  
conclusion that punitive damages would not have been available under any of the  
claims that had been pleaded, in particular:  
[72]  
…The damages which may be recovered under the Estate  
Administration Act are the damages that reflect a diminution of the personal  
estate of the deceased, whether they are for damage or loss to the person or  
damage or loss to property, and nothing more.  
[73]  
Punitive damages do not fall within the category of damages for  
diminution of the personal estate of the deceased. So punitive damages  
cannot be assessed or recovered in an action under the Estate  
Administration Act of British Columbia.  
Stewart v. Lloyd’s Underwriters  
Page 41  
[152] Mr. Stewart’s position is that Charlton does not apply. The executrix says that  
Charlton concerned a plaintiff who died before trial, while in the present case  
Mr. Stewart passed away after the trial had been completed and judgment  
pronounced. The Estate further relies on Lew v. Lee, [1924] S.C.R. 612, aff’d [1925]  
A.C. 819 (P.C.), and its recent application in Canada (Attorney General) v. Hislop,  
2007 SCC 10, for the proposition that when a judgment is obtained, the cause of  
action upon which it is based merges with the judgment which survives a party’s  
death.  
[153] Mr. Stewart also argues that Charlton is no longer authoritative, given that the  
applicable legislation has changed.  
[154] In my view the respondents’ argument on this issue cannot succeed.  
[155] I agree with Mr. Stewart that WESA has changed the applicable statutory  
framework and that Charlton is no longer authoritative on this issue.  
[156] Justice Lambert’s reasoning in Charlton was grounded in the language of the  
Estate Administration Act, R.S.B.C. 1996, c. 122, in particular s. 59 which provided  
in part:  
Actions for wrongs done to or by deceased  
59 (1) This section and sections 60 and 61 do not apply  
(a) in respect of an action of libel or slander, or  
(b) in respect of loss or damage that occurred before March 29, 1934.  
(2) Subject to subsection (3), the executor or administrator of a deceased  
person may continue or bring and maintain an action for all loss or damage to  
the person or property of the deceased in the same manner and with the  
same rights and remedies as the deceased would, if living, be entitled to,  
including an action in the circumstances referred to in subsection (4).  
(3) Recovery in an action under subsection (2) must not extend to the  
following:  
(a) damages in respect of physical disfigurement or pain or suffering  
caused to the deceased;  
(b) if death results from the injuries, damages for the death, or for the  
loss of expectation of life, unless the death occurred before February 12,  
1942;  
Stewart v. Lloyd’s Underwriters  
Page 42  
(c) damages in respect of expectancy of earnings after the death of  
deceased that might have been sustained if the deceased had not  
the  
died.  
(4) The damages recovered in an action under subsection (2) form part of the  
personal estate of the deceased, but nothing in this section, section 60 or 61  
derogates from any rights conferred by the Family Compensation Act.  
[Emphasis from Charlton.]  
[157] Justice Lambert then contrasted that provision with the English statute and  
noted the differences in the legislation:  
[59]  
I make these observations.  
1. Unlike the English Law Reform (Miscellaneous Provisions) Act, 1934,  
which, as I have said, was conceived and enacted after our Act, s. 59 does  
not purport to confer, confirm, or declare every right of action that may be  
brought by the personal representative of a deceased person after the death.  
It only purports to confer a new right to bring an action in circumstances  
where no action could be brought at common law. So actions in debt and on  
other contracts which could be brought by the personal representative on  
behalf of the estate at common law are not covered or affected by our s.59.  
The right to bring those actions continues to be governed by the common  
law. If there were any doubt on this point, and I do not think that there can be  
after considering the legislative history of the enactment and comparing the  
enactment with the English equivalent, it would be put to rest by the choice of  
the words may continue to bring and maintain an action for all loss or  
damage to the person or property of the deceasedin s-s.59(2) and the  
words of if death results from the injuriesin s-s.59(3)(b). Those words are  
apt to describe causes of action in tort, but only very fancifully could they be  
extended to actions to recover debts or to enforce contractual obligations.  
The exclusion of actions for libel or slander, and the exclusion of damages for  
physical disfigurement, pain and suffering, loss of expectation of life, and  
future earnings, all indicate that the focus of the provision is on actions in tort  
or for similar wrongs.  
2. The provision does not create any new cause of action. Its purpose is  
solely to prevent those causes of action which would have abated with the  
death from suffering that abatement. In short, the provision keeps alive, for  
the benefit of the estate of the deceased, the particular causes of action  
covered by the provision "in the same manner and with the same rights and  
remedies as the deceased would, if living, be entitled to", which would  
otherwise have abated with the death…  
[Italic emphasis in original, underline emphasis added.]  
[158] In my view, s. 150 of WESA is substantively similar to the Law Reform  
(Miscellaneous Provisions) Act, 1934 [1934 Act] such that it cannot be distinguished  
as was its predecessor, the Estate Administration Act, in Charlton. Accordingly,  
Stewart v. Lloyd’s Underwriters  
Page 43  
s. 150 of WESA was, to quote from Charlton, “conceived and enacted to confer,  
confirm, or declare every right of action that may be brought by the personal  
representative of a deceased person after the death. This includes a claim for  
punitive damages.  
[159] I am supported in this conclusion by the Manitoba Court of Appeal’s analysis  
in Grant v. Winnipeg Regional Health Authority, 2015 MBCA 44, which described  
s. 150 of WESA as similar to the English 1934 Act:  
51  
Other Canadian jurisdictions have significantly more expansive  
survival legislation than Manitoba. A majority of common law Canadian  
jurisdictions have survival legislation similar to the 1934 Act which, as  
previously mentioned, allows for all causes of actions to survive for the  
benefit of a deceaseds estate, except as specifically excluded by the relevant  
survival legislation (see Alberta Survival of Actions Act, R.S.A. 2000,  
c. S-27, s. 2; British Columbia Wills, Estates and Succession Act,  
[SBC 2009] c. 13, s. 150; New Brunswick Survival of Actions Act, R.S.N.B.  
2011, c. 227, s. 3; Newfoundland and Labrador Survival of Actions Act,  
R.S.N.L. 1990, c. S-32, s. 2; Nova Scotia Survival of Actions Act, R.S.N.S.  
1989, c. 453, s. 2; Prince Edward Island Survival of Actions Act, R.S.P.E.I.  
1988, c. S-11, s. 4; Saskatchewan The Survival of Actions Act, S.S. 1990-  
91, c. S-66.1, s. 3; and the Yukon Survival of Actions Act, RSY 2002,  
c. 212, s. 2).  
[Emphasis added.]  
See also: Weaver Estate v. Weaver, 2022 BCCA 79 at para. 64.  
[160] I would add that the exception in s. 150(4) of WESA that recovery in a  
proceeding under subsection (2) does not extend to damages in respect of  
non-pecuniary loss is inapplicable to punitive damages in any event.  
[161] In my view, damages which are “pecuniary” or “non-pecuniary” in nature have  
a common feature: they represent compensation for a “loss”. Non-pecuniary  
damages may not be compensatory in the traditional financial sense, as the purpose  
of awarding them is as a substitute for other amenities which have been lost, rather  
than to compensate for a loss that has a specific monetary value: Lindal v. Lindal,  
[1981] 2 S.C.R. 629 at 639640. However, they provide some substitute for what  
has been lost where it cannot be valued meaningfully in financial terms, and in that  
sense are compensatory: G. (B.M.) v. Nova Scotia (Attorney General), 2007 NSCA  
Stewart v. Lloyd’s Underwriters  
Page 44  
120 at para. 121. This accords with the fact that non-pecuniary damages are often  
considered with other compensatory forms of damages, such as pecuniary and  
aggravated damages: see, e.g., Huff v. Price (1990), 51 B.C.L.R. (2d) 282 (C.A.);  
McBeth v. Boldt (1998), 164 D.L.R. (4th) 247 (C.A.); A. (T.W.N.) v. Clarke,  
2003 BCCA 670.  
[162] Punitive damages, on the other hand, do not constitute a claim for damages  
for non-pecuniary loss within the meaning of s. 150 (4)(a) of WESA. Rather, they  
have the objectives of retribution, deterrence, and denunciation: Ojanen v. Acumen  
Law Corporation, 2021 BCCA 189 at para. 77 [Ojanen]. From a policy perspective, it  
should thus not matter whether this “windfall”, as it has been described, is recovered  
by the successful plaintiff themselves, or by their estate.  
[163] In light of my conclusion on this issue, it is not necessary for me to address  
the Estate’s other submissions regarding the merger of the cause of action upon  
which the award is based with the judgment and the entry of the trial order.  
[164] I would not accede to the respondents’ first ground of appeal.  
Did the judge err in finding the respondents acted in bad faith in the  
settlement of the third-party accounts and by awarding punitive  
damages?  
(1)  
Introduction  
[165] The judge’s findings and the factual and legal basis for the award for punitive  
damages included:  
a) The duty of good faith was owed to Mr. Stewart, not the health care providers.  
The Insurers settled the healthcare bills without input from Mr. Stewart, thus  
placing him in a position of vulnerability (Reasons at para. 107);  
b) Claims did not directly tell the health care providers that this was now an  
insured claim, contrary to what the health care providers had previously been  
told (Reasons at para. 108);  
   
Stewart v. Lloyd’s Underwriters  
Page 45  
c) It was a breach of the Insurers’ duty of good faith to Mr. Stewart for the  
defendants not to specifically advise the health care providers that the  
decision on coverage had been reversed prior to settling the health care  
claims. However, if the health care providers were not aware the claim was  
now insured, that is an issue between the defendants and the health care  
providers, and not Mr. Stewart (Reasons at para. 109);  
d) The circumstances of the settlement of the health care bills, and the benefit of  
the unusually large discounts the Insurers received, form part of the  
circumstances to be considered with respect to the claim for punitive  
damages for breach of good faith (Reasons at para. 110);  
e) Although the appellant did not allege specific malice directed toward him, he  
argued that “this case is about institutional practices”. The evidence did not  
establish institutional practices which favour the Insurers (Reasons at  
para. 112);  
f) The investigation up until the obtaining of Mr. Jeffery’s report did not reach  
the level of high-handed, malicious, arbitrary or highly reprehensible  
misconduct; however, the manner of settling the claims did reach this level  
(Reasons at para. 114);  
g) A significant factor militating in favour of a punitive damage award is the  
“profit” the Insurers have gained as a result of their denial and the subsequent  
settlement of these claims for 20% of the original amount (Reasons at  
para. 115);  
h) If punitive damages were not awarded, the breach of bad faith would be  
unpunished (Reasons at para. 116); and  
i) Having considered proportionality and other factors, an appropriate award of  
punitive damages was $100,000 (Reasons at para. 117).  
Stewart v. Lloyd’s Underwriters  
Page 46  
[166] In her introduction to the Reasons the judge noted that the total cost of the  
healthcare bills from Mr. Stewart’s hospitalization in Reno amounted to  
$293,127.60 US, but that the Insurers paid $56,429.81 US, or approximately  
21 cents on the dollar, to settle the accounts: Reasons at paras. 6, 9.  
[167] It appears from these paragraphs of the Reasons that the policy limits were  
clearly not in jeopardy. Furthermore, the Notice of Civil Claim and Amended Notice  
of Civil Claim do not allege that they were, all of which may explain why the amount  
of the policy limits does not appear in the Reasons. In other words, there was no  
issue that the policy limits would be sufficient to cover the reasonable claims  
advanced by the health care providers if and when coverage was accepted by the  
Insurers.  
[168] I have concluded that, in light of the acceptance of coverage by the Insurers  
in mid-December 2018, the judge’s failure to consider that the policy limits were not  
in jeopardy fundamentally undermined her conclusion that punitive damages should  
be awarded in this case, such that the cross appeal should be allowed.  
(2)  
Did the judge misapprehend the evidence?  
[169] Central to the judge’s analysis of the respondents’ conduct rising to the level  
required to award punitive damages were her conclusions that it was a breach of the  
Insurers’ duty of good faith to Mr. Stewart for them:  
not to specifically advise the health care providers that the decision on  
coverage had been reversed prior to settling their claims; and  
not involve Mr. Stewart nor keep him advised of what was taking place with  
the health care providers in negotiating and settling their accounts.  
[170] The respondents submit that the judge misapprehended the evidence in  
concluding that in the negotiations which resulted in the settlement of the  
outstanding claims after December 18, 2018, the health care providers were not  
aware that coverage was then in place. They refer, in part, to the following finding:  
 
Stewart v. Lloyd’s Underwriters  
[96] The unspoken implication is that Mr. Stewart was not insured for the  
Page 47  
claim. Ms. Carey said she was not told and was not aware whether there had  
been a reversal of the coverage decision…  
[Emphasis added.]  
[171] I have considerable reservations regarding the judge’s finding that, after  
December 18, 2018 when their claims were negotiated and resolved, that the health  
care providers were operating under any misapprehension that coverage was now in  
place. This is because:  
It appears to have been accepted by the judge that both Claims and the  
health care providers’ billing departments and/or their representatives were  
sophisticated parties experienced in dealing with the payment of these types  
of accounts;  
The health care providers were clearly part of a network or “industry” as  
described by the judge of insurers and health care providers which negotiated  
and attempted to resolve these types of claims. As such, it is not evident why  
the healthcare providers, as sophisticated members of the industry, needed to  
be formally advised that the coverage decision had been reversed when they  
were later contacted by representatives of the Insurers who were prepared to  
settle the bills; and  
The respondents had been clear in their dealings with the healthcare  
providers in 2015 and 2016 that Mr. Stewart did not have coverage for the  
medical accounts in question. They offered and paid nothing and yet, after  
December 18, 2018 the respondentswhom the judge found were motivated  
by profitcontacted the health care providers essentially out of the blue and  
offered to negotiate their claims.  
[172] The judge also referred to Ms. Carey’s evidence that:  
[98]  
… She was not sure of the status of coverage and assumed coverage  
would be obvious from the fact that she said she was calling on behalf of the  
defendants and they were now offering to pay.  
Stewart v. Lloyd’s Underwriters  
Page 48  
[173] The reasons provide no explanation as to why, under these circumstances, it  
would not have been obviousto the healthcare providers that the respondents  
were now offering to pay”, meaning that coverage was now in place. There was no  
evidence of a practice in this industry that insurers generally, let alone these specific  
respondents, would gratuitously offer to negotiate claims despite maintaining a  
denial of coverage.  
[174] I am of the view, however, that it is preferable to consider the merits of the  
cross appeal on the basis of the respondents’ fourth ground of appeal which is that  
even if the judge’s findings were supportable on the evidence, the impugned conduct  
cannot, at law, provide the basis for an award of punitive damages.  
[175] And as I shall explain, in my view there was no obligation on the respondents  
to consider Mr. Stewart’s motivations or sentiments in negotiating the settlement of  
the claims with the health care providers.  
(3)  
Could this case, at law, support an award of punitive damages?  
[176] This question raises the issue of whether the necessary factual background  
and legal basis exists to support an award of punitive damages, in light of the  
judge’s findings that:  
the respondents’ conduct towards the appellant was not malicious; and  
having decided that coverage would be provided, their actions in settling the  
medical bills was “an issue between the respondents and the health care  
providers”.  
[177] In my view the answer is “no”.  
[178] I summarized the parties’ positions on this issue at paras. 135136 above.  
Reduced to their essentials, they disagree as to whether the award for punitive  
damages was based solely on the respondents’ conduct directed at the health care  
providers or whether it also included conduct directed at the appellant.  
 
Stewart v. Lloyd’s Underwriters  
Page 49  
[179] From the judge’s findings with respect to the award of punitive damages set  
out at para. 165, above, I consider a reasonable interpretation of the judge’s legal  
basis for the award of punitive damages to be:  
a) The “overwhelmingly inadequate investigation” regarding the denial of the  
claim on the basis of alleged intoxication until receipt of the Jeffery report in  
November 2018, which standing alone did not satisfy the Whiten criteria of  
high-handed, malicious, arbitrary or highly reprehensible misconduct; and  
b) the conduct of the defendants after obtaining the Jeffery report and in  
particular the manner of “satisfying” the health care bills,  
the combination of (a) and (b) meeting the Whiten criteria, also described by the  
judge as “shocking” and “egregious” conduct.  
[180] I would emphasize that the judge was clear that the “overwhelming  
inadequate investigation” was insufficient, standing alone, to warrant an award of  
punitive damages: Reasons: para. 114.  
[181] Whiten is authority for the following propositions:  
a) Punitive damages should only be awarded in exceptional cases and with  
restraint (at para. 69);  
b) An appellate court is entitled to intervene where an award exceeds the outer  
boundaries of the rational and measured response to the facts of the case  
(at para. 76);  
c) In order for a court to award punitive damages, the defendants must have  
committed an independent or separate actionable wrong causing damage to  
the plaintiff, and the defendant’s conduct towards the plaintiff must be either  
harsh, vindictive, reprehensible and malicious, or so high-handed that it  
offends the courts sense of decency (at para. 78).  
See also: Ojanen at para. 77  
Stewart v. Lloyd’s Underwriters  
Page 50  
[182] Some limited assistance can be gained from those authorities which have  
considered punitive damages in the context of actions in negligence.  
[183] For instance, in British Columbia Lightweight Aggregate Ltd. v. Canada  
Cement LaFarge Ltd. (1981), 123 D.L.R. (3d) 66 (B.C.C.A.), rev’d on other grounds  
[1983] 1 S.C.R. 452, punitive damages were not awarded in part because the  
defendants’ actions were not principally directed at the plaintiff. However, in Vlchek  
v. Koshel (1988), 52 D.L.R. (4th) 371 (B.C.S.C.) and McIntyre v. Grigg (2006), 274  
D.L.R. (4th) 28 (Ont. C.A.), the courts took the opposite approach. The Ontario Court  
of Appeal stated that it would “be inappropriate to narrow the scope of punitive  
damages by specifically requiring that the defendants conduct be directed at the  
plaintiff. Rather, it is sufficient if there was an intention to do the act or combination  
of acts that eventually caused the injury: McIntyre at para. 70. From these  
authorities, I conclude that while the conduct does not have to be strictly directed at  
the plaintiff, there must be some nexus between the impugned conduct and the  
harm caused to the plaintiff. I do not find that was the case here.  
[184] I accept the respondents’ submission that even if the judge’s findings which  
formed the basis for this award were supportable on the evidence, this conduct does  
not warrant an award of punitive damages in the appellant’s favour.  
[185] That is because, in part, the “high-handed”, “shocking” and “egregious”  
conduct was directed at the health care providers, not the appellant. The judge erred  
in law, in my view, in essentially “piggybacking” this behaviour to that which she  
found was directed at the insuredthe non-malicious “wholly inadequate  
investigation” which formed the basis of the breach of the duty of good faith and fair  
dealing.  
[186] The focus of a punitive damages award must be the egregious actions of the  
defendant vis-à-vis the appellant.  
Stewart v. Lloyd’s Underwriters  
Page 51  
[187] As Lord Devlin explained in Rookes v. Barnard, [1964] AC 1129, [1964] UKHL  
1 at 411:  
[T]he plaintiff cannot recover exemplary damages unless he is the victim of  
the punishable behaviour. The anomaly inherent in exemplary damages  
would become an absurdity if a plaintiff totally unaffected by some oppressive  
conduct which the jury wished to punish obtained a windfall in consequence.  
[188] I would also accept the reasoning of Master Peppiatt of the Ontario Superior  
Court in Curry v. Advocate General Insurance Co. of Canada, [1986] O.J. No. 2564,  
36 A.C.W.S. (2d) 250 (Ont. Master) at paras. 1016 where, upon an application to  
strike part of a pleading on the basis that the defendant’s conduct with respect to  
other individuals is irrelevant and could not ground an award of damages, he  
commented in respect of a regular practice by the insurer in handling of claims that  
would give rise to a claim in punitive damages:  
11  
[. . .] In all cases, to which I was referred, it was clear that the Courts  
were examining and considering the award of punitive damages for the  
conduct of the defendant towards the plaintiff and not towards other persons.  
12  
In my opinion, punitive damages must be based upon the conduct of  
the defendant which affects the plaintiff without taking into account conduct to  
the world at large.  
[. . .]  
16  
While it may be quite reasonable for a plaintiff to benefit from the  
punishment imposed upon a wrongdoer in respect of its conduct towards him,  
it seems strange that the plaintiff should benefit by reason of wrongdoing in  
respect of some other person entirely unconnected with him.  
[189] Effectively, the judge’s analysis resulted in a conclusion that conduct which  
was clearly directed towards the health care providers within the context of an  
insurance policy, which permitted the respondents to settle and pay the health care  
costs, could be elevated to egregious behaviour directed at Mr. Stewart himself,  
particularly when the policy limits were not in jeopardy.  
[190] In Whiten, Justice Binnie stressed the importance of deterrence as a  
justification for punitive damages, and noted that it would have played a greater role  
in that case had there been evidence that the conduct of the insurers was systemic:  
Stewart v. Lloyd’s Underwriters  
Page 52  
Whiten at para. 120. However, there was no such evidence. Nonetheless, Binnie J.  
found that the conduct of the insurer warranted punitive damages, because:  
the peace of mind of the insured should have been the objective of the  
insurer, but instead her vulnerability was aggravated as a negotiating tactic  
(at para. 129);  
the relationship of reliance and vulnerability was “outrageously exploited” by  
the insurer (at para. 129); and  
while the insurer did not profit financially from its misbehaviour that was “not  
for want of trying”, the insurer “clearly hoped to starve the appellant into a  
cheap settlement(at para. 131).  
[191] In this case, the judge found no systemic bad faith by the insurers in the  
manner in which they negotiated and settled these types of claims, nor was there  
any malice towards the appellant: Reasons at paras. 112114.  
[192] In fact, the judge’s conclusion that the impugned conduct warranted an award  
of punitive damages in Mr. Stewart’s favour is contradicted by her finding that if the  
health care insurers were not aware when the negotiations took place after  
mid-December 2018 that this was now an insured claim, that was an issue between  
the Insurers and the health care providers, and not the appellant: Reasons at  
para. 113.  
[193] Yet she awarded punitive damages against the respondents in effect, on  
behalf of third parties who were part of the “industry”, without any evidence as to the  
providers’ perception of their treatment by the respondents from which it could be  
concluded that the conduct directed at them was high-handed, shocking or  
egregious, and who did not advance claims of their own in relation to this impugned  
conduct.  
[194] Relying on Kogan v. Chubb Insurance Co. of Canada (2001), 27 C.C.L.I (3d)  
16 at para. 60 (Ont. S.C.J.) [Kogan] the appellant submits that an insurer’s failure to  
Stewart v. Lloyd’s Underwriters  
Page 53  
pay policy benefits in a timely and responsible manner is a breach of the duty of  
good faith and fair dealing. Kogan concerned the failure of an insurer to pay benefits  
under a fire insurance policy to its insured. That was also the situation in Whiten.  
[195] In my view, a failure to pay an insured directly for the loss they have suffered  
is distinguishable from what occurred in this case: payments, albeit on the insured’s  
behalf, to a third party, when the policy in question provided that the insurer will pay  
the insured “or the physician and/or hospital of [the insured]’s choice”, thus giving  
the Insurers the authority to settle the claims directly with the third parties.  
[196] I now turn to the judge’s finding that, by not involving Mr. Stewart in the  
negotiations, the respondents took advantage of his vulnerability and placed him in a  
position of “moral or legal risk”.  
[197] In Whiten, although dissenting in the result, Justice Lebel made the following  
comments which I consider to be of assistance in considering this issue:  
[161] …Given the nature of the contract, bad faith may constitute an  
actionable wrong and attract the sting of punitive damages. The challenge  
remains to assess them properly, in a manner consistent with the basic  
purposes of tort law. In the present appeal, an award of damages must reflect  
first of all the narrow objective defined by the facts of this case; as well, it  
must also reflect the relational nature of tort law, although, at times, such an  
award may be viewed as a deterrent to others. (See Hill, supra, at para. 196,  
per Cory J.; Vorvis, supra, at p. 1108, per McIntyre J.) But the need for  
general deterrence is far from clear in the present case. The requirement of a  
proper connection between award and conduct requires a close fit between  
the amount of the award and the misbehaviour of the respondent. An  
important consideration remains the nature of the dispute, which arose in the  
context of a contractual relationship concerning well defined economic  
interests and not with respect to moral or dignity interest as in the case of an  
action for defamation. In addition, concerns about industry practices should  
mainly be addressed through the appropriate regulatory and penal regimes,  
rather than through haphazard punitive damages awards. (See Ontario Law  
Reform Commission, Report on Exemplary Damages (1991), at p. 37.)  
[Emphasis added.]  
[198] Furthermore, the policy provided the respondents with the right to settle the  
health care accounts directly with the providers.  
Stewart v. Lloyd’s Underwriters  
Page 54  
[199] The policy did not provide that Mr. Stewart should be consulted with respect  
to the manner in which the negotiations should take place or “to have the health care  
bills negotiated and settled transparently”. Nor did the judge explain the basis for her  
conclusion that the respondents “took advantage of his vulnerability”.  
[200] It may well be that had Mr. Stewart been consulted “he would have wanted  
his health care providers to be told this was now a covered claim”, but there was no  
requirement in the policyeither express or impliedthat this occur.  
[201] Furthermore, the fact that “Mr. Stewart is disturbed that the people who  
provided him with excellent care received much less than he thinks they deserve” is,  
in my view, irrelevant to what occurred after the reversal of the denial of coverage on  
December 18, 2018. That is because the policy specifically provided the Insurers  
with the right to pay those bills, subject to the policy limits, and it cannot be implied  
that their right to do so was compromised by what the insured “think they deserve”.  
[202] After all, this was “a contractual relationship concerning well defined  
economic interests and not with respect to moral or dignity interest”, per Whiten at  
para. 161.  
[203] I agree with the respondents that, having admitted coverage, there was no  
further role for the insured to play in respect of the terms of settlement between the  
respondents and the health care providers, since they were the parties paying the  
accounts and I would add that the policy limits of $10 million were never in jeopardy.  
In fact, as I shall explain, it was an error of law, in my view, for the judge to consider  
Mr. Stewart’s sentiments at all in the circumstances of this case.  
[204] No authority was provided for the proposition that, when the policy limits are  
not in jeopardy, the respondents owed Mr. Stewart a duty to involve him in the  
negotiations with the health care providers and/or in not doing so placed him in a  
position of “moral or legal” risk.  
[205] The duty of good faith does not require that an insurer agree with an insured’s  
view of the amount of the settlement: Ivarson v. Lloyd’s Underwriters, 2002 BCSC  
Stewart v. Lloyd’s Underwriters  
Page 55  
1627 at para. 34. In fact, once coverage is confirmed, if the claim(s) are well within  
the policy limits, then the insured’s personal views are of no legal significance. They  
may well have been material if the Insurers’ conduct exposed Mr. Stewart to a  
judgment in excess of the policy limits, but that was not the case here.  
[206] It was not a term of the policy that Mr. Stewart be involved in the negotiations  
and in my view, it was also an error of law to imply such a requirement into the duty  
of good faith in the circumstances of this case.  
[207] Shea is a leading authority regarding the legal framework to be applied when  
considering an insurer’s duty to its insured. Justice Finch (as he then was)  
explained:  
[191] I would summarize my view of the law touching on the insurers duty  
to its insureds in the circumstances of this case as follows:  
1. The relationship between insurer and insured is a commercial one,  
in which the parties have their own rights and obligations;  
2. Within the commercial relationship, special duties may arise over  
and above the universal duty of honesty, which do not reach the  
fiduciary standard of selflessness and loyalty;  
3. The exclusive discretionary power to settle liability claims given by  
statute to the insurer in this case, places the insured at the mercy of  
the insurer;  
4. The insuredsposition of vulnerability imposes on the insurer the  
duties:  
a) of good faith and fair dealing;  
b) to give at least as much consideration to the insureds’  
interests as it does to its own interests; and  
c) to disclose with reasonable promptitude to the insured all  
material information touching upon the insuredsposition in the  
litigation, and in the settlement negotiations.  
5. The fact that the insured is at the mercy of the insurer for the  
purposes of settlement negotiations gives rise to a justified  
expectation in the insured that the insurer will not act contrary to the  
interests of the insured, or will at least, fully advise the insured of its  
intention to do so;  
6. While the commercial nature of the relationship permits an insurer  
to assert or defend interests which are opposed to, or are inconsistent  
with, the interests of its insured, the duty to deal fairly and in good  
faith requires the insurer to advise the insured that conflicting interests  
exist, and of the nature and extent of the conflict;  
Stewart v. Lloyd’s Underwriters  
Page 56  
7. The insurers statutory obligation to defend its insured imposes on  
the insurer, where conflicting interests arise, a duty to instruct counsel  
to treat the interests of the insured equally with its own; and where  
one counsel cannot adequately represent both conflicting interests, an  
obligation to instruct separate counsel to act solely for the insureds, at  
the insurers own cost;  
8. The insurers duty to defend includes the obligation to defend on  
the issue of damages, and to attempt to minimize by all lawful means  
the amount of any judgment awarded against the insured. In this case  
that would include arguing that court order interest and no fault  
benefits are payable in addition to the policy limits, where such an  
argument is available in law; and  
9. Defence preparations and settlement negotiations must take place  
in a timely way, and, where last minute negotiations are required,  
advance planning must be made to ensure that the insuredsinterests  
are given equal protection with those of the insurer.  
[Emphasis added.]  
[208] The “circumstances of this case” in Shea involved a situation where the  
insurer’s and the insured’s interests were in conflict in light of the fact that the  
insured was exposed to personal liability in excess of the policy limits. In fact, that  
conflict and the failure of the insurer to act in accordance with its duty of good faith  
resulted in a personal judgment against the insured for an amount well in excess of  
the policy limits.  
[209] Nonetheless, in Shea, the insurer’s ability to settle the claim was said to put  
the insured at its “mercy” and in my view it matters not that in this case the  
respondents’ ability to settle the health care providers’ claims arise not from statute  
but the policy itself.  
[210] Shea is authority, therefore, for the proposition that when the insurer’s and  
insured’s interests are in conflict, the insurer has certain specific obligations to its  
insured when attempting to settle the claim.  
[211] So the issue becomes whether, as of December 18, 2018, the appellant’s and  
the respondents’ interests were in conflict regarding the settlement of the healthcare  
providers’ claims. In my view they were not.  
Stewart v. Lloyd’s Underwriters  
Page 57  
[212] The jurisprudence is clear that an insurer has a duty to its insured to attempt  
to settle third-party claims within the policy limits. That was the case here with the  
health care providers’ accounts after the Insurers accepted coverage in  
mid-December 2018. Even if an insurer is unsuccessful in resolving third-party  
claims within the policy limits such that a judgment in excess of the limits is made  
against its insured, the insurer’s conduct is examined on a reasonableness standard:  
See for example, Shea at paras. 188, 191; Dillon v. Guardian Insurance Co., [1983]  
O.J. No. 2534, 2 C.C.L.I. 227 (Ont. H.C.J.) at para. 9; Fredrikson v. Insurance Corp.  
of British Columbia, [1990] B.C.J. No. 717, 42 C.C.L.I. 250 (B.C.S.C.) at paras. 113–  
115.  
[213] In the circumstances of this case there was no likelihood of Mr. Stewart being  
personally exposed to an amount in excess of the policy limits since the total claims  
advanced were well below that amount of $10 million. As Justice Finch also stated in  
Shea: “… [u]p to the limits of liability coverage the decisions to pay or not to pay, and  
if to pay how much to pay, are the insurers”: at para. 123.  
[214] I would also observe that although the respondents in their factum relied on  
Shea on this appeal, in particular Justice Finch’s conclusions at para. 191, it does  
not appear that para. 123 of that decision was brought to the attention of the trial  
judge. I reach this conclusion because the policy limits are not referenced in the trial  
reasons and there is no analysis as to how the fact they were clearly not in jeopardy  
may have influenced the judge’s conclusion that the respondents breached their  
duty of good faith, thereby warranting the exceptional remedy of punitive damages. I  
would add that para. 123 of Shea was not explicitly referenced by the parties in this  
Court.  
[215] I would add that for the reasons I have explained, once coverage was  
accepted in mid-December 2018 and since the policy limits were not in jeopardy,  
there could be no basis, in law, for the judge to conclude that the failure to involve  
Mr. Stewart in the negotiations or be “transparent” with him in the settlement of the  
claims could ground an award of punitive damages.  
Stewart v. Lloyd’s Underwriters  
Page 58  
[216] It follows that the indemnity ordered by the judge was not required. That is  
because the Insurers, having accepted coverage, were contractually required to  
satisfy any additional claims subject to the policy limits.  
[217] There is also no jurisprudence of which I am aware where an award of  
punitive damages was made against an insurer for conduct that occurred after it  
accepted coverage. For instance, Whiten and Asselstine BCCA both involved  
situations where the insurer denied coverage and maintained that denial throughout  
to the conclusion of the trial.  
[218] It bears emphasizing that the decision to afford coverage in this case was  
made in mid-December 2018, three-and-a-half months before the scheduled trial  
date, and the settlement of the known claims occurred prior to the commencement  
of the trial.  
[219] It is difficult for me to envision a situation where conduct by an insurer which  
resulted in third-party claims against its insured being resolved within the policy  
limits could satisfy the legal requirements for an award of punitive damages in favour  
of the insured. But in any event, I have concluded it could not be this case. That is  
because, in summary:  
The Insurers were entitled to resolve the health care providers’ claims directly  
under the terms of the policy;  
The Insurers had no legal obligation to consult Mr. Stewart in the manner in  
which they did so long as their conduct did not expose him to a claim in  
excess of the policy limits;  
The decision to grant coverage was made well before the scheduled trial date  
and communicated to Mr. Stewart at that time; and  
The known healthcare providers’ accounts were all settled before the trial  
date and within the policy limits.  
Stewart v. Lloyd’s Underwriters  
Page 59  
[220] The circumstances here are clearly distinguishable from Fidler although the  
trial judge’s analysis in that case, in my view, is consistent with the approach I would  
take here. There, although the insurer agreed to provide coverage shortly before the  
commencement of the trial, the judge, in the Fidler BCSC reasons, stated:  
[37]  
In addressing the issue of punitive damages I have considered the  
fact that Ms. Fidler’s own medical advisers, including specialists, were all  
satisfied that Ms. Fidler was incapable of work. Until Ms. Fidler was examined  
by Dr. Wade in 1998, Sun Life had no medical evidence from any other  
person who had physically examined Ms. Fidler. I have also taken into  
account the fact that Sun Life directed the carrying out of extensive  
surveillance of Ms. Fidler and that such surveillance was invasive of  
Ms. Fidler’s privacy.  
[38]  
I must recognize, however, that after two years of benefits had been  
paid to Ms. Fidler, the test for continued coverage was whether Ms. Fidler  
could perform any work at all. Given the fact that the nature of Ms. Fidler’s  
illness is of a type that is not demonstrated by indicators such as an x-ray or  
MRI, I do not think that Sun Life’s conduct should be characterized as an act  
of bad faith. I say this even though Sun Life carried out what would appear to  
be at times a rather zealous approach to refuting Ms. Fidler’s entitlement to  
the long term disability benefits despite strong medical evidence that she  
continued to be disabled.  
[39]  
In comparing the conduct of Sun Life in this case to the conduct of the  
insurers in Whiten v. Pilot Insurance, supra, Adams v. Confederation Life  
Insurance Co., [1994] 6 W.W.R. 662 (Alta. Q.B.) and Clarfield v. Crown Life  
Insurance Co. (2000), 50 O.R. (3d) 696 (Sup. Ct.), it is my view that the  
conduct of Sun Life in the case at bar is of a different variety. I note for  
example that in both Adams and Clarfield there were additional features  
present which contributed to finding that the defendants acted maliciously. In  
Adams the denial of coverage also violated a rehabilitation agreement  
worked out between the parties. In Clarfield the defendant also misled the  
plaintiff about the provisions of the insurance contract and there was  
evidence of similar prior conduct. In Whiten, there was essentially no  
evidentiary basis for denying that the fire was accidental.  
[40]  
While Ms. Fidler is clearly entitled to compensatory damages, I am not  
satisfied that this is one of those exceptional cases where punitive damages  
should be awarded. I therefore decline to award punitive damages.  
[221] I would add that the judge declined to make a finding that the insurer acted in  
bad faith even though Ms. Fidler’s personal circumstances were different than those  
of Mr. Stewart in that she required the disability insurance payments to support  
herself. In any event, this Court’s award of punitive damages was overturned by the  
Supreme Court of Canada on the basis that while the insurer’s conduct was  
Stewart v. Lloyd’s Underwriters  
Page 60  
troubling, it did not rise to the level of bad faith; the Court deferred to the trial judge’s  
findings that punitive damages should not be awarded.  
[222] In C.P. v. RBC Life Insurance Company, 2015 BCCA 30 the plaintiff was  
insured under a disability policy. Those benefits were discontinued for a period of  
time but reinstated prior to the commencement of the underlying proceeding. She  
commenced an action alleging breach of the duty of good faith which caused her  
mental distress. Goepel, J.A., having referred to paras. 6163 of Fidler, stated:  
[68]  
The trial judge’s findings of fact are with respect a complete answer to  
the punitive damage appeal. He found there was no improper purpose on the  
part of RBC. While accepting that the claim handling procedure was sloppy,  
RBC’s actions could not be characterized as malicious, oppressive or high-  
handed. The trial judge saw and heard the witnesses. It is for him to assess  
the evidence and determine its weight and effect. Although he characterized  
the conduct as sloppy, it clearly did not, in his view, depart from the ordinary  
standards of decency. C.P. has not been able to demonstrate that the  
conclusions of the trial judge were unreasonable or palpably wrong.  
[69]  
I would dismiss the claim for punitive damages.  
[223] For the reasons I have identified, I am unable in this case to defer to the  
judge’s conclusion that the respondents’ conduct breached their duty of good faith to  
the extent that punitive damages could be awarded. While it was open to the judge  
to find that the inadequate investigation, standing alone, was sufficient to ground an  
award of punitive damages, she did not make that finding. Rather she juxtaposed  
what occurred after the denial of coverage was reversed in mid-December 2018 and  
the manner in which the third-party accounts were resolved together with the failure  
to involve Mr. Stewart in the negotiations to conclude that the respondents’ conduct  
overall, that is both before and after the reversal of the denial of coverage, warranted  
an award of punitive damages. And she erred by including in her settlement conduct  
analysis aspects of the legal framework which apply to an insurer’s duty to the  
insured when the policy limits are in jeopardy to the situation which existed here  
where clearly they were not.  
[224] When I approach this issue as did the trial judge in Fidler BCSC at para. 39 of  
his reasons quoted above, it is my view that the conduct of the respondents “is of a  
Stewart v. Lloyd’s Underwriters  
Page 61  
different variety” than Whiten and the other authorities to which I have referred.  
While their actions based on the judge’s findings could, from the appellant’s  
perspective, at best be characterized as “troubling”, they fell short of being one of  
those “exceptional cases” which satisfied the level of high-handed and egregious  
behaviour required in order to satisfy the objectives of retribution, deterrence, and  
denunciation which are required to ground an award of punitive damages.  
[225] If the health care providers believed that the amounts which they accepted  
had been obtained on the basis of false premises then, as the judge observed, that  
is an issue between the defendants and the health care providers, and not  
Mr. Stewart”: Reasons at para. 109.  
[226] I also wish to address what I consider to be the judge’s error in considering  
the Insurers’ motivation for “profit” as a basis for the award of punitive damages.  
[227] First of all, there is no legal requirement which prevents a party in a  
commercial contract from being motivated by profit. Indeed, the reality is quite the  
contrary. It also appears that the judge would have found it unobjectionable had the  
healthcare providers’ accounts been settled within the industry standard of 80%; this  
appears to indicate her approbation of a 20% discount or notional “profit”. With  
respect, it was not for the judge to impliedly determine what was an acceptable  
amount of profit.  
[228] In addition, the judge’s consideration of the issue of profit, absent a  
systematic scheme of deception and/or circumstances akin to those outlined in  
Whiten, could lead to insurers having their conduct in settling claims for an amount  
less than the policy limits impugned on the basis that a profit was made. Settling a  
claim for under the policy limits is not, in my view, necessarily synonymous with  
profit. Other considerations come into play such as the amount of the premium, the  
level of risk, the costs in defending a claim and the like. As long as the claim falls  
within the policy limits, the insurer need only consider its own financial interests  
when considering whether and how to settle the claim: Barbara Billingsley, General  
Principles of Canadian Insurance Law, 3rd ed. (Toronto: LexisNexis, 2020) at 246–  
Stewart v. Lloyd’s Underwriters  
Page 62  
247; Shea at para. 123. See also Steven Plitt et al., Couch on Insurance, 3rd ed.  
(Eagan, MN: Thomson Reuters, 1995) (loose-leaf updated December 2020) vol. 14A  
at §203:7; Shea at para. 123.  
[229] In conclusion, in my view, the judge erred in law in finding that the  
respondents breached their duty of good faith to the appellant in the manner they  
settled the health care providers’ accounts; accordingly the punitive damage award  
cannot be sustained.  
VII: THE RESPONDENTSCLAIM FOR SPECIAL COSTS  
[230] The respondents seek special costs from the appellant as a result of  
statements in the factum on the cross appeal that they committed “fraud” on the  
health care providers.  
[231] There is considerable discretion available to a court in whether special costs  
should be awarded: Smithies Holdings Inc. v. RCV Holdings Ltd., 2017 BCCA 177 at  
para. 51; West Van at para. 72.  
[232] While the judge fell short of characterizing the respondents’ conduct as  
fraudulent, her statements that their actions were shocking, egregious and motivated  
by profit could be understood by the parties as approaching that realm.  
[233] The use of the term “fraud” in the factum on cross appeal was at best  
inopportune, and at worse worthy of reproof or rebuke. However, given the context  
and the circumstances of this case on appeal, I would not award the respondents  
special costs in this Court.  
VIII: DISPOSITION  
[234] I would dismiss the appeal, allow the cross appeal and vacate the award of  
punitive damages.  
[235] With respect to the issue of costs, as the respondents have been successful  
on both the appeal and cross appeal, I would not depart from the usual rule that the  
   
Stewart v. Lloyd’s Underwriters  
Page 63  
party who is successful on an appeal is entitled to costs of the appeal: Court of  
Appeal Act, R.S.B.C. 1996, c. 77, s. 23.  
[236] The respondents do not appeal from the trial judge’s award of $10,000 in  
damages for mental distress arising from the breach of the policy. Where the appeal  
is limited to one aspect of the judgment below, the unsuccessful party may still be  
entitled to retain the costs awarded at trial: Zhou v. Hall (1996), 21 B.C.L.R. (3d) 355  
(C.A.) at para. 26. This also arises from this Court’s power to make any order that  
could have been made by the trial court: Court of Appeal Act, s. 9(1)(a).  
[237] Given the conduct of the insurers as reflected in the factual findings made by  
the judge in awarding Mr. Stewart damages for mental distress, it is not in the  
interests of justice, in my view, to vary the order of trial costs.  
The Honourable Mr. Justice Abrioux”  
I agree:  
The Honourable Mr. Justice Fitch”  
I agree:  
The Honourable Mr. Justice Voith”  


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