Case Citation: 1048977 BC Ltd. v Aviva Insurance Company, 2025 BCSC 1532

The plaintiff numbered company brought a claim against its insurer, Aviva, for breach of its duty of good faith in the administration of the plaintiff’s insurance claim and in their litigation conduct.

The plaintiff was in the process of opening a restaurant and special events business in South Surrey when a land subsidence in August 2016 halted its plans to open on October 1, 2016. In December 2016, a flood occurred, which further disrupted the plaintiff’s plans. Ultimately, the business never opened, and the plaintiff sold the property in December 2017. Aviva paid the plaintiff $1,065,937 for business income loss for only the 12-month indemnity period following the subsidence. 

The issues at trial were (1) the indemnity period and valuation of the loss; (2) breach of duty of good faith; and (3) if there was a breach of duty of good faith, the damages caused by that breach.

Indemnity Period and Valuation of Loss

Aviva took the position that the plaintiff would have earned no income because the business would not have ever opened, largely as it was a “foolhardy business plan”. Aviva pointed to two orders nisi that were granted in September 2016 and January 2017 with redemption periods of eight and six months, respectively.

The plaintiff’s position was that absent the subsidence and flood, it would have been able to refinance, as there was significant equity in the property since it was purchased well below market value.

The Court was cautious in assessing the likelihood of the business opening based on the orders nisi, which happened after the subsidence. Even if the orders nisi would have been granted absent the subsidence and flood, final orders would not have necessarily followed. The Court found the business would have opened on October 1, 2016 absent the subsidence.

In administering the insurance claim and during litigation, Aviva took the position that the subsidence and flood were one insured occurrence. In the closing argument at trial, Aviva conceded that they were two separate insured occurrences but argued that the policy did not provide coverage for the flood. The Court found no basis for interpreting the policy to exclude coverage for the second occurrence.

The Court determined that the full indemnity period was from August 2016 to 12 months after the flood. However, the plaintiff would not have suffered business income loss prior to its opening on October 1, 2016, therefore, the operative indemnity period for which compensation was owed for business income loss was October 1, 2016 to 12 months after the flood.

The valuation of the loss of business income was largely a battle of experts from the restaurant and special events industry, called upon by both parties. The plaintiff was only required to show that the amount of future loss was a “real and substantial” possibility beyond mere speculation. The Court ultimately awarded the plaintiff an additional $2,278,000 for the unpaid loss of business income under the policy.

Breach of Duty of Good Faith

An insurer’s duty of good faith requires it to (1) perform a balanced and reasonable investigation and assessment; (2) be prompt in handling and assessing the loss; (3) assess the merits of the claim in a balanced and reasonable manner; (4) give as much consideration to the interests of the insured as it does to its own interests and not do anything to injure the insured’s right to benefits under the policy; and (5) lack of reasonable care in settling a claim suggests an absence of good faith.

The plaintiff argued Aviva breached its duty of good faith for the following reasons:

1. Aviva cancelled and reinstated the policy three times before ultimately cancelling the policy when the plaintiff accepted the actual cash value to settle the claim.
2. Unilateral refusal to consider information submitted by the plaintiff regarding business income loss while being aware that its own valuation was deficient; and
3. During the litigation, Aviva alleged the plaintiff made misrepresentations in its insurance application despite previously concluding the plaintiff made no misrepresentations.

The Court found Aviva had breached its duty of good faith by failing to assess evidence of loss in a fair and balanced manner and cancelling the policy after the plaintiff accepted actual cash value without advising the plaintiff of the consequences of that choice. Aviva’s representative testified that they knew their expert did not have restaurant industry experience and that some aspects of the report were speculative. Aviva also requested supporting information from the plaintiff’s accountant, which was provided but ignored. 

Aviva’s representative further testified that she was aware of Aviva’s internal policy to cancel the insurance policy if the insured elected actual cash value instead of indemnification for repairs. Aviva’s representative testified that she did not advise the plaintiff of this because it was not her role. The Court found the duty of good faith required Aviva to inform the plaintiff of the significant and material consequences of the choice it offered to the plaintiff.

Damages for Breach of Duty of Good Faith

The plaintiff claimed Aviva’s bad faith conduct resulted in delays in repairs, which forced it to sell the property in December 2017 for land value only. The plaintiff claimed this resulted in the property being sold for less than market value. The Court declined to compensate the plaintiff for this because there was no evidence from the engineers that the land was safe for repairs.

The plaintiff also claimed punitive damages for Aviva’s administration of the claim and its conduct at trial. The Court declined to award punitive damages on the basis that the pleadings did not explain how Aviva’s conduct went “beyond the breach of the duty of good faith to the further level of warranting an award of punitive damages” and that Aviva’s litigation conduct was better addressed through costs.

Key Takeaways

• Insurers are required to inform their clients of significant and material consequences of their decisions regarding their policy, such as cancellation of the policy.
• Insurers should review relevant information provided by their clients in assessing a claim, especially when they are aware of deficiencies in their own assessment.
• The valuation of business income loss in an insurance claim is on a real and substantial standard. The absence of historical or established income does not preclude an assessment for business income loss.