An action by insureds to recover the proceeds from a fire insurance policy from their insurer after a fire, as well as aggravated and punitive damages for the insurer's refusal to pay. The action was allowed.
Sidhu v. Wawanesa Mutual Insurance Co.  B.C.J. No. 1573, August 17, 2011, British Columbia Supreme Court, T.C. Armstrong J.
In the early hours of February 7, 2005, the Sidhu’s family home was damaged by a fire. The plaintiff, Hardip Sidhu, was in the master bedroom with his wife and infant son before the fire started. He asked them to leave shortly before he heard something hit the bedroom window. He got dressed and looked around. His wife also looked outside to the front yard, but did not see anyone. The smoke alarm began to beep. They looked upstairs and saw smoke in the hallway where the bedrooms were before Hardip Sidhu called 911 and the family evacuated the home. It was determined that the master bedroom contained accelerant and that the fire was incendiary in nature.
At the time of the fire, the plaintiffs had a fire insurance policy with the defendant, Wawanesa Mutual Insurance Co. (“Wawanesa”). Wawanesa refused to pay the plaintiffs for the loss and alleged that they had deliberately set the fire in order to recover the insurance money. Wawanesa had delayed two years in dealing with the family's claim and had not denied coverage until January 2007.
The plaintiffs asserted that they were not responsible for the fire and that Wawanesa acted wrongfully, in bad faith, and there was a high handed and disrespectful denial of their claim. They sought aggravated and punitive damages.
The Court noted that burden of proof rests with the insurer to establish that the insured deliberately caused the fire. In order to succeed, Wawanesa must prove on the balance of probabilities that there was an incendiary fire, caused by a person, that the insureds had the opportunity to start the fire, and that they had a motive to set fire to their house. The Court also confirmed that following the decision of the Supreme Court of Canada in F.H. v. McDougall, 2008 SCC 53, the standard of proof to be applied is the balance of probabilities.
The Court confirmed that in order for the plaintiffs to succeed in their claim for punitive damages they must prove that Wawanesa did not act in good faith and that it failed to fairly investigate and assess their claim.
The Court allowed the plaintiffs’ claim. Wawanesa had not proven on a balance of probabilities that Hardip Sindhu set the fire. While his evidence with respect to the timeline of events was inconsistent at times, the Court found that this could be attributable to a language barrier, the chaos prevailing at the time of the fire and the passage of time since the fire. The Court was not satisfied that the source of the accelerant was not from a person outside the house.
Wawanesa’s assertion that the plaintiffs’ had a motive to set the fire was rejected. There was no evidence of financial stress on the family, no evidence of creditors demanding payment, no evidence that the Sidhus wanted a new house, and no evidence that their mortgage was in arrears. The fact that the plaintiffs had increased their mortgage did not amount to evidence that they were in financial difficulty, particularly since they had used some of that money to purchase investment property. The fact that the plaintiffs had suffered from two previous fire losses was not circumstantial evidence that they were in financial hardship.
The claim for punitive damages was allowed and the plaintiffs were awarded $50,000.00. The Court held that Wawanesa was entitled to take all necessary steps to assess the merits of the claim in a balanced and reasonable manner. However, they were not permitted to deny or delay payment in order to take advantage of the insureds' vulnerability or to gain bargaining leverage in negotiating a settlement. The Court found that Wawanesa did not undertake the investigation or assess the claim in a reasonable fashion. The delay of over 2 years in denying the claim was unexplained and was unfair to the plaintiffs.
The plaintiffs’ claim for aggravated damages was rejected as the plaintiffs failed to establish that the delay in receiving protection from the policy of insurance caused them mental suffering.