Is an Unfair Investigation within the “Manner of Termination”

The B.C. Supreme Court trial decision, Vernon, discussed previously, drew the distinction between the manner of termination and the investigative process which preceded it. This case was decided in January of 2012, well after the date of Elgert in April of 2011. No reference was made to this opposite conclusion of the Alberta Court of Appeal.

In the Vernon case, the process of the investigation was resoundly criticized, yet the trial judge refused to allow this as grounds for aggravated damages, on the reasoning that it did not hit the mark of, “manner of termination”. Aggravated damages were awarded, yet not due to the unfairness of the investigation:

In this case, for reasons I have already set out, the investigation of the complaint was unfair. Ms. Vernon was given no real opportunity to deal with the allegations in the complaint and no opportunity at all to deal with the allegations made in the course of the interviews. The unfair investigation, however, does not give rise to aggravated damages.[2]

This very issue was addressed ¹ by the same B.C. Supreme Court in which it was determined that a broader interpretation of the, “manner of termination” was in order. This encompassed the pre-termination process and the apparent failure of the Bank to conduct a proper investigation of the alleged improprieties.

There should be absolutely no debate about the need to do so, again in the given context, and that the failure to do so may be compensable in aggravated or punitive damages. In this instance liability was found, but not assessed, for aggravated damages. ²

The Supreme Court of Canada in its November 2014 decision in Bhasin referenced above also spoke to the issue of “honest performance” throughout the entirety of the relationship and that this duty of good faith is no longer limited to the “moment of termination”, as it arguably once was so confined. ³

The Nova Scotia Court of Appeal in its November 2015 decision ⁴also provided an interesting application of Bhasin principles in a case involving the interpretation of the good faith requirement of a disability insurer.

One of the issues in dispute between the parties was the conduct of the insurer in providing rehabilitation services and then reversing its decision. The policy did not mandate the provision of such services, but the company did provide such in view of the young age of the insured and the possibility that he may never work again.

Thirty months after the services had been provided, the insurer elected to terminate them, following receipt of its IME. The trial judge was critical of the manner of this decision being made, which was contrary to the view of its IME.

The issue presented on appeal was hence how could the insurer be determined to have acted in bad faith upon terminating a benefit which it was not contractually obliged to provide?

The Court of Appeal referenced the Supreme Court of Canada decision in Bhasin to determine that it was not necessary to find a specific contractual term which had been violated, but rather the court could look to the “independent implied contractual obligations”: ⁵

Bhasin’s broad organizing principle and its outgrowth duties do not just tack an extra sanction onto the breach of an explicit contractual term. Neither are the duties of honest dealing in Bhasin, or good faith in the insurance context, just executive summaries of the contract’s written terms. They are independent implied contractual obligations that derive from the existence of the contract. Whether National Life breached its duty of good faith is not predicated on the condition precedent that National Life breached an explicit provision of the Policy.

This is clearly a liberal reading of the Bhasin theme. The reluctance of the Court to rely specifically on the contractual term and instead consider the relationship in its broadest concept is reflective of a generous interpretation of the obligations of the contracting parties to one another. ⁶

The same liberal view may well apply to the determination of this issue of fairness in the investigative process and the evolution of the decision making process, particularly given serious issues at stake.