What Is Bad Faith Denial? When Your Insurer Crosses the Line

Not every denial is bad faith. But some are.

When your insurance company denies your long-term disability claim, it hurts. It feels wrong. And if you're like most people, your first thought is: "They can't do this to me."

But here's the thing: insurers do have the right to deny claims. They have the right to investigate. They have the right to request medical evidence and have your condition assessed. A denial, by itself, isn't illegal.

Bad faith is different. Bad faith is when the insurer doesn't just deny your claim — they do it dishonestly, unreasonably, or in a way that deliberately harms you. It's when they cross the line from "we disagree with your claim" to "we're actively working against you."

And when that happens, the law in Ontario gives you the right to hold them accountable — not just for the benefits they owe, but for the damage they caused by the way they handled your claim.

What "bad faith" means in Ontario disability law

In Ontario, an insurance company has a duty of good faith and fair dealing toward its policyholders. This means the insurer is legally required to handle your claim honestly, promptly, and fairly. They must assess your claim on its merits. They must consider all relevant evidence. And they must not put their own financial interests ahead of their obligations to you.

When an insurer violates this duty — when they act dishonestly, unreasonably, or with a callous disregard for your rights — that's bad faith. It transforms an ordinary contract dispute into something more serious. And it can dramatically increase what the insurer owes you.

Common examples of insurer bad faith

Bad faith doesn't always look the same. But certain patterns show up again and again in disability cases across Ontario. If any of these sound familiar, pay attention.

1. Ignoring medical evidence from your treating doctors. Your family doctor, psychiatrist, or specialist has documented your condition and its impact on your ability to work. The insurer disregards their opinions entirely and relies instead on a single IME report from a doctor who spent 30 minutes with you. Courts have found this to be bad faith when the insurer had no reasonable basis to prefer the IME over years of treatment records.

2. Unreasonable delays. The insurer takes months to respond to your communications, process your claim, or provide a decision. They request the same documents repeatedly. They transfer your file between adjusters. Every delay is another month without income — and they know it.

3. Surveillance abuse. Insurance companies are allowed to conduct surveillance. But when they hire investigators to follow you for weeks, film you on your best days while ignoring the other 29 days of the month, and then use that footage to argue you're not disabled — that can cross into bad faith territory. One client at another firm described it as: "The insurance company did everything they could to make my life literally miserable."

4. Cherry-picking evidence. The insurer selectively uses only the evidence that supports denial and ignores the evidence that supports your claim. One reviewer described it as the insurer "cherry-picking 3 pages out of 351" from a medical file. If the insurer looked at your records and only saw what they wanted to see, that's not a fair assessment — it's a predetermined outcome.

5. Misrepresenting your policy terms. The insurer tells you that your condition isn't covered, that you missed a deadline, or that a particular exclusion applies — when the policy language says otherwise. They're counting on the fact that most people don't read (or understand) their 80-page policy documents.

6. Pressuring you to accept a lowball settlement. The insurer offers a lump sum far below the true value of your claim and pressures you to accept quickly. They may use language like "this offer expires soon" or imply that things will get worse for you if you don't take it. Exploiting a vulnerable person's desperation is a hallmark of bad faith conduct.

How Ontario courts treat bad faith claims

Ontario courts take bad faith seriously. When an insurer is found to have acted in bad faith, the financial consequences go well beyond the policy benefits. The court can award additional categories of damages that are specifically designed to address the harm caused by the insurer's conduct.

This is important because it changes the math for the insurer. A straightforward denial costs them the benefits owed. A bad faith denial can cost them significantly more — which is exactly why holding them accountable matters.

Aggravated damages for mental distress

When an insurer's bad faith causes you mental distress — anxiety, depression, worsening of your existing condition, humiliation — Ontario courts can award aggravated damages. These are separate from the benefits owed. They compensate you for the emotional harm the insurer inflicted by handling your claim the way they did.

This is especially relevant in disability cases because the claimant is already vulnerable. You're already dealing with a serious health condition. When the insurer's conduct makes that worse — when the denial "actually made my mental health much worse," as one claimant described — the courts recognize that the insurer caused additional harm that deserves compensation.

Aggravated damages in Ontario disability cases have been awarded in amounts ranging from tens of thousands to over $100,000, depending on the severity of the insurer's conduct and the impact on the claimant.

Punitive damages — when courts punish insurers

Punitive damages are rare — but when they're awarded, they send a message. Unlike aggravated damages, which compensate the claimant, punitive damages exist to punish the insurer for conduct that is so outrageous, so egregious, that the court decides a financial penalty is necessary to deter the insurer from doing it again.

The landmark case in Canada is Whiten v. Pilot Insurance Co., a 2002 Supreme Court of Canada decision. In that case, the insurer denied a fire insurance claim and maintained the denial for years despite knowing it had no basis. The Supreme Court upheld a punitive damages award of $1 million — one of the largest in Canadian insurance history.

While not every case reaches that level, the Whiten decision established that Canadian courts will impose serious financial consequences on insurers who act in bad faith. It put every insurance company in Canada on notice: there are limits to how you can treat your policyholders.

In disability cases, punitive damages have been awarded when insurers engaged in particularly egregious conduct — such as denying claims they knew were valid, conducting invasive and unnecessary surveillance, or deliberately prolonging the process to pressure claimants into giving up.

How to document bad faith as it happens

If you suspect your insurer is acting in bad faith, the most important thing you can do is document everything. Bad faith claims succeed or fail based on the evidence of how the insurer behaved. Here's what to track:

1. Keep every piece of correspondence. Emails, letters, voicemails — save everything. If a phone conversation happens, write down what was said, who said it, and the date and time. Do this immediately after the call while it's fresh in your memory.

2. Note delays and unresponsiveness. If you send a document and don't hear back for weeks, document the timeline. If you call and can't reach anyone, note the date and time. A pattern of delays is powerful evidence.

3. Track requests for information you've already provided. Insurers sometimes ask for the same documents repeatedly. This can be a deliberate delay tactic. Keep a log of what you've sent and when.

4. Document the impact on your health. If the insurer's conduct is worsening your condition — more anxiety, trouble sleeping, depression worsening — tell your doctor. Make sure it's in your medical records. This is the evidence that supports aggravated damages.

5. Note surveillance activity. If you notice someone following you, taking photos, or sitting in a car outside your home, write down the date, time, location, and description. Don't confront them. Just document.

What to do if you suspect bad faith

If you believe your insurance company is crossing the line — ignoring your doctors, delaying unreasonably, conducting abusive surveillance, or pressuring you to settle for less than you're owed — contact a disability lawyer as soon as possible.

Bad faith claims are built over time. The earlier a lawyer is involved, the better they can identify the misconduct, advise you on documentation, and ensure that nothing is lost. Waiting until after the damage is done makes the case harder to build.

Insurance companies like Manulife, Sun Life, Canada Life, and Desjardins have teams of adjusters, medical consultants, and lawyers working to protect their interests. When they cross the line, you need someone who knows how to hold them accountable.

If you've been denied long-term disability benefits — or if you think your insurer is acting in bad faith — you don't have to figure this out alone. A free consultation costs you nothing. And if your insurer crossed the line, we'll make sure they answer for it.