Insured award significant unpaid business losses and insurer found to have breached duty of good faith in contractual performance.

Insured awarded significant unpaid business losses and insurer found to have breached duty of good faith in contractual performance.

Insurance law – Business interruption insurance – Good faith; Damages – Economic loss – Punitive damages.

1048977 B.C. Ltd. v. Aviva Insurance Co. of Canada, [2025] B.C.J. No. 1528, British Columbia Supreme Court, August 11, 2025, M.M. Giltrow J.

The insured brought a claim against its insurer for underpayment of business losses payable under a policy of insurance issued by the insurer. The claim related to a land subsidence which halted the insured’s progress toward opening a restaurant and special event business. After the land subsidence, caused by construction activity on the neighbouring property, there was also a hydrogen sulphide gas escape and a flood from burst pipes. The business never opened and the insured sold the property about 16 months later.

The insurer paid the insured approximately $1 million in business losses for the year following the subsidence.  The insured took issue with this on the basis that it undervalued the income loss of the business and failed to compensate the insured for the full indemnity period.

The insured brought a claim for breach of good faith of contractual performance based on the insurer’s conduct in adjusting the claim and in the litigation. The insured sought compensatory and punitive damages.

The court granted judgment for the insured for $2,278,000 in unpaid business income loss based on an assessment of the evidence.

The court declared that the insurer had breached its duty of good faith in the administration of the claim and its exercise of discretion to cancel the insured’s policy.  The court held that the insurer failed to assess evidence of loss in a fair and balanced manner and it cancelled the insured’s policy based on the insured’s choice to accept actual cash value rather than indemnity for repairs without advising the insured of the consequences of this choice.

The court dismissed the claim for compensatory and punitive damages for the breach of duty of good faith on the basis of a lack of a causal connection between the insurer’s breach and the damages claimed.  The court held that a finding of a breach of duty of good faith does not automatically result in an award of punitive damages.

This case was digested by Cameron B. Elder and edited by Steven W. Abramson of Harper Grey LLP.  If you would like to discuss this case further, please feel free to contact them directly at [email protected] or [email protected].