Legislating Goodwill

God forbid the insurance industry would ever want to be generous and do things for policyholders that transcend legal obligations. Because if that happens, you can expect the public will want to see that gesture become a statutory requirement.

A Quebec class action arising out of the 1998 Ice Storm is proving to claims managers across the country that “no good deed goes unpunished,” to quote Marie Audren, a partner at Borden Ladner Gervais in Quebec. Audren is one of the defence lawyers in the case.

As it stands, Canada’s insurance industry will likely have to wait until 2009 to find out whether a Quebec class action lawsuit will add roughly Cdn$1 billion onto the value of claims related to the 1998 Ice Storm (currently estimated at Cdn$1.8 billion).

The class action pits Philippe Lavergne against 19 different insurers over claims for “additional living expenses.” The litigation rests in part on how the courts will interpret the legal status of a public statement made on Jan. 13, 1998 by Quebec’s premier at the time, Lucien Bouchard, who implored people living without heat during the storm to move out of their homes and seek shelter.

Prior to Bouchard’s announcement, the Insurance Bureau of Canada had issued releases saying policyholders would not be compensated for additional living expenses without an evacuation order by the civil authorities. The question thus becomes: does Bouchard’s January 1998 plea constitute a government “order”?

The insurers’ generosity during the Ice Storm may have unintentionally muddied the waters somewhat. On Jan. 22, 1998, the IBC issued a press release suggesting that, even though Bouchard’s statement did not constitute a formal evacuation order ratified in Parliament, insurers might consider it as such for the purpose of resolving some claims people made for “additional living expenses.” These expenses were incurred while people were in the process of temporary relocation.

Lawyers for the insurers maintain that Bouchard’s emotional public statement – including such hyperbolic expressions such as “for the love of God” – hardly constituted a formal evacuation order. They note the premier’s statement was not backed up by any decree from the legislative assembly. Insurers say they were simply doing a good turn for policyholders by recognizing Bouchard’s crie du couer as something it wasn’t (i.e. an evacuation order) so that some people could get some help during the disaster.

Plaintiff lawyers, on the other hand, are of course portraying the IBC’s gesture as a belated, grudging “admission” by the insurance industry that Bouchard’s declaration constituted an evacuation order.

What’s at stake in this decision? Well, a heck of a lot of money for one thing. The petitioner Option Consommateurs is claiming $75 living expenses for each of the 19 insurers’ clients whose homes were rendered uninhabitable during the Ice Storm, plus $250 each for exemplary damages.

Legal principles are also at stake. Some lawyers say this class action is wrongly certified, because the intention of the class action legislation is not to allow plaintiffs recourse against companies with which they have no cause of action. How can Lavergne, for example, use a class action suit to sue for money from 18 insurers with which he has never held any policies or had any dealings?

Of further interest is the “generosity chill” we might expect to see within claims departments across the country should the plaintiffs succeed in their claim. What will a loss in court mean for insurers who want to go beyond their legislative obligations and simply resolve claims on behalf of policyholders? Will they hold back for fear that someone will want such generosity to become the legislative norm?

A loss in this battle would be a shame for insurers. For one thing, Lavergne, if successful, would send a message to insurers that it’s not in their financial best interests to be Good Samaritans.

If a private enterprise or a public body, like the insurers in the Ice Storm scenario above, acts beyond its statutory obligations during a crisis situation, would that mean new legal standards should be created to match the public’s heightened expectations? If yes, then good luck to any government arguing in court that it should be able to cancel a budgeted spending initiative.

And how are insurers supposed to budget in the future for future additional living expense claims if the only “government order” issued amounts to the legal equivalent of a drawing on a cocktail napkin? Claims officers must be able to rely on some kind of objective legislative “trigger” (such as a legislative order) in order to honour the policies they underwrite. Just because the industry didn’t see such a trigger in the Ice Storm, but acted anyway, doesn’t mean the triggers should be erased.

The industry is counting on the courts in the Ice Storm case to prevent insurers from becoming victims of their own laudatory desire to help their policyholders during a time of dire need.