What is the current state of the law in Canada on the doctrine of bad faith refusal to settle?

The law in the United States has developed differently. As Esson C.J.S.C. said in Fredrikson: To sum up, I am not persuaded that it would be either analytically correct or in any sense in the interests of justice to import into our law the general doctrine of "bad faith refusal to settle" in any of its forms. That is not to say that liability insurers are under no obligation to consider the interests of their insured in deciding whether to settle. Where there is a potential for a judgment over the limits, the interests of the insured are significant. The insurer has assumed by contract the power of deciding whether to settle. Although, for the reasons which I have already stated, I would not find the insurer to be under a fiduciary duty in the strict sense applied in cases such as Guerin, it is clear that certain of the fundamental elements which give rise to fiduciary duty are present in the relationship of insurer and insured. In the words of Dickson J. in the passage from Guerin quoted at p. 50 [pp. 331-32] one party "has an obligation to act for the benefit of" the other, and that obligation "carries with it a discretionary power". In the language of Lambert J.A. in Burns v. Kelly Peters, supra, at p. 25, the relationship is one in which the insured is "in a vulnerable position with respect to" the insurer. Those circumstances are a basis for holding that, although the insurer is not subject to the strict duty of a fiduciary, it must nevertheless exercise its power having regard to the interests of its insured, and in a manner entailing, in some sense, an obligation of good faith. That obligation does not arise from a general doctrine that every contract includes a term of good faith and fair dealing, but rather from the particular circumstances of the class of transactions.