Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

In December 1997, the home of an insured ("Sagl") was destroyed by fire. The Insurer refused to pay the losses, claiming the fire was deliberately set by someone acting on Sagl's behalf. The Insurer further claimed the policy was void because Sagl intentionally concealed or misrepresented the material facts before and after the loss. The Insurer submitted that the fire was staged, as Sagl's son was staying elsewhere for the night, Sagl was out for dinner, Sagl's dog was outside and the maid had the night off. The Insurer claimed that Sagl was in bad financial straits and would benefit from having insurance proceeds from the fire. Sagl had claimed that she had significant assets, including jewellery and art, and that her financial position was not dire. It was clear that significant personal assets were lost in the fire.

The Fire Marshall investigated the fire and concluded arson was the likely cause because of the absence of residents, windows were left open and there were no signs of forced entry. The Inspector did not consider statements by firefighters on the scene, who confirmed that the fire started in the basement, in concluding that fires were set in three places in the home. The Investigator did not discuss with Sagl what items in the basement could have started the fire and Sagl's evidence was that there were lamps in the basement which were known to have started fires in other circumstances.

Sagl had purchased insurance by inadequately completing an application form, but neither the brokers nor the Insurer had requested that she complete the form prior to issuing the insurance policy or collecting premiums. Sagl claimed that she lost personal property valued at over $2,200,000 in the fire, including jewellery valued at approximately $925,000. The Insurer offered no evidence to rebut this claim. Sagl provided an appraisal of her art collection, which valued it of over $9,000,000. The Insurer did not prepare a rebuttal report, but challenged many items as fraudulent where no purchase receipts were retained and no pictures of the work provided.

The Court awarded Sagl damages for full replacement cost of the home and the policy limits for contents, jewellery and art. The Court further awarded punitive damages of $500,000 against the Insurer.

The Court found that the Insurer had not established that there was a staging of arson, as all absences from the house on the night of the fire were reasonable. The Insurer did not establish that Sagl had a motive or opportunity to have someone set the fire to her house. The Court found that the Fire Marshall's investigation of the fire was flawed as the investigation proceeded on the assumption that the fire was incendiary. The Investigator did not keep an open mind until the investigation was complete. The Insurer had failed to prove on a balance of probabilities that Sagl was involved in the fire in any way.

The Court found that the Insurer was wrong to suggest that Sagl's claim for personal property losses was fraudulent where evidence showed value of the contents of the home greatly exceeded the policy coverage. The Insurer was faulted for poor business practices in failing to examine the art collection prior to providing coverage. The Insurer failed to show Sagl intentionally concealed or misrepresented material facts relating to the policy after the fire. The Court concluded that the Insurer breached its duty of good faith in failing to determine appropriate coverage for Sagl, then asserting her claims were fraudulent. The Insurer also breached its duty of good faith by failing to properly scrutinise the Fire Marshall's evidence. The Insurer's allegation that Sagl committed the criminal offence of arson without evidence to support the allegation was reprehensible. In denying coverage for ten years after the fire, the Insurer's conduct was malicious, oppressive and high-handed, meriting condemnation of the Court.

The Plaintiff brought an application to amend its Statement of Claim seeking damages for business interruption; mental distress on behalf of the corporate directors; and punitive damages for loss of reputation and loss of business incurred by the Plaintiff corporation. In the underlying action, the Plaintiff, 539091 Ontario Ltd. (c.o.b. Len’s R.V. Sales) ("Len’s R.V. Sales") sued its insurer, Allianz Insurance Co. of Canada ("Allianz") alleging bad faith after a fire broke out at the corporate premises. Mr. and Mrs. Ager were the shareholders and directors of the Plaintiff Len’s R.V. Sales.

The Defendant, Allianz opposed the amendments on the following grounds: counsel for the Plaintiff had already confirmed there would be no claim for business interruption loss which constituted an admission that should not now be withdrawn by the amendment; the corporation’s directors were not named insureds and therefore did not have any claim under the insurance policy; and a claim for punitive damages had already been pleaded in the Statement of Claim.

The first issue was whether the statement by Plaintiff’s counsel that there would be no claim for business interruption loss constituted an admission. Plaintiff’s counsel submitted the statement, contained in a letter following a request made at an examination for discovery, was not an admission as it was not made by Mr. and Mrs. Ager, the company’s shareholders. The Court found that the solicitor’s statement constituted an informal admission that was not binding on the Plaintiff who gave it. The Defendant would not suffer prejudice if the admission was withdrawn and the amendment was permitted.

The second amendment sought was to add a claim for damages for the mental distress of Mr. and Mrs. Ager caused by the nature of the claim and the handling of it by the Defendant insurer. The Defendant argued that this claim was not tenable at law because the shareholders were not named as insureds under the Policy. The Court found that Mr. and Mrs. Agers were not named insureds under the Policy. However, it could not be said that there was no contractual nexus between the Agers and the insurer given the limited scope of coverage extended to officers and shareholders. Whether it is sufficient to ground the duty of care is an issue that should be left for trial to be decided on a full evidentiary record.

 Accordingly, the Plaintiff was granted leave to amend its Statement of Claim to seek damages for mental distress on behalf of the Agers as officers of the Plaintiff corporation.

The Insured was sued by his passenger after a motor vehicle accident in which he drove his vehicle off of the road. ICBC hired an investigator who concluded that the preponderance of the evidence suggested that the Insured was intoxicated at the time of the accident. ICBC therefore issued a Third Party Notice putting the Insured on notice that he was in breach of his policy for being "incapable of proper control of his vehicle by reason of consumption of alcohol". The Insured hired independent legal counsel to defend him in the third party claim.

ICBC later withdrew the Third Party Notice and retained counsel to defend the Insured. As the litigation matured, ICBC put the Insured on notice that the third party claim might exceed his policy limit and the Insured again retained independent legal counsel.

After the third party claim was settled for the policy limit, the Insured brought this claim against ICBC for damages to cover the cost of his independent legal counsel.

In rejecting the Insured’s claim, Mr. Justice Rogers held that it was not necessary for ICBC to have an "iron clad case" against the Insured before putting him on notice that it believed he was in breach of the policy. Justice Rogers concluded that there was nothing unreasonable in ICBC issuing the Third Party Notice to its Insured, which necessitated him retaining independent legal counsel.

The Court also rejected the Insured’s claim that ICBC breached its duty to instruct and retain independent counsel to advise the Insured on the possibility of liability in excess of his policy limit. The Court found that there was no actual conflict between ICBC and the Insured as ICBC and appointed defence counsel had, at all times, conducted themselves entirely in keeping with the Insurer’s obligation to give equal consideration to its own interests and to those of the Insured. In reaching this conclusion, Justice Rogers referred to the case of Fredrickson v. ICBC (1990), 44 B.C.L.R. (2d) 303, which he said was indistinguishable from the present case. Fredrickson stands for the proposition that an exposure in excess of policy limits sets up a potential conflict between the Insurer and Insured, but that potential does not in and of itself give rise to a requirement that the Insurer retain independent counsel for its Insured.

In 1995, Connor McIlvenna (the "Infant Plaintiff") was hit by a car. He was six years old. He suffered a head injury. Initially he appeared to make a full recovery. In the months immediately following the accident, the Insurance Corporation of British Columbia ("ICBC") paid a small amount of benefits under its First Party Insurance provision. In 2001, intellectual and learning impairments became apparent in the Infant Plaintiff and his mother requested rehabilitation assistance from ICBC. ICBC refused to provide any benefits because the two-year limitation period set out in the Regulations had expired. The limitation period applies even if a child is involved.

The Infant Plaintiff commenced an action against ICBC for failing to advise the Infant Plaintiff’s mother about his entitlements to first party benefits, including advice about the kind of therapy and treatment that could have been funded and the existence of a limitation period; and for failing to recognise the possible future implications of a brain injury in a child, including a failure to make further inquiries and, if necessary, specifically recommend or initiate appropriate therapy or treatment. ICBC brought a summary application to have the Statement of Claim struck on the basis that the pleadings did not disclose a reasonable cause of action.

In determining whether a viable cause of action existed, Smith J. relied upon Cooper v. Hobart et al, [2001] 3 S.C.R. 537, for the proposition that the Court must apply a two-part test set out in Anns v. Merton London Borough Council, [1978] A.C. 728. The two part test requires the Court to first decide whether there was sufficient proximity between the parties to create a prima facie duty of care, and if so, whether there were any factors negating such a duty.

Smith J. concluded that the first pleading, the duty to advise the Infant Plaintiff’s mother about his entitlement to benefits, fit within a well established category of negligent misstatement in circumstances where one party is reasonably relying on another parties superior knowledge or expertise. Smith J. noted that Fletcher v. Manitoba Public Insurance Corp., [1990] 3 S.C.R. 191, is an example of such a case. In Fletcher, the Supreme Court of Canada held that a public insurer had a duty to advise purchasers of liability insurance that underinsured motorist coverage was also available. The Court held that the relationship between the insurance customer was of sufficient proximity to impose liability for negligent misstatement. Smith J. distinguished this situation from Esau v. Co-operators Life Insurance Co., 2006 BCCA 249 and Pekarek v. Manufacturer’s Life, 2006 BCCA 250 on the basis that the Plaintiffs in those cases knew or ought to have known that the insurer was taking a position adverse to their interest. The adversity changed the relationships between the parties and negated any suggestion of reasonable reliance on advice from the insurance companies.

Smith J. determined that the second duty alleged by the Plaintiff, that in addition to his duty to advise about what benefits are available, the insurer owes a duty to independently recognise treatment and therapy needs and take the initiative in recommending or providing them, does not fall within the same established category. Smith J. noted that the Claimant’s own treating doctors and therapists did not recognise any care that was needed at the time that the benefits were denied. He determined that an independent duty on ICBC to ensure treatment could create an intolerable situation for a claimant if ICBC, in furtherance of its duties, recommended or initiated a course of treatment that the Claimant’s own doctor did not agree with. Smith J. struck the second cause of action on the basis that it did not disclose a reasonable cause of action, but allowed the first cause of action.

Fidler worked as a bank receptionist and was covered by a group policy that included long-term disability benefits. At the age of 36, she became ill and was eventually diagnosed with chronic fatigue syndrome and fibromyalgia and began receiving long-term disability benefits in January 1991. Under the terms of the policy, Fidler was entitled to continued benefits after two years only if she was unable to do any job. In May 1997, Sun Life informed Fidler that her benefit payments would be terminated and indicated that it had conducted video surveillance of Fidler detailing activities inconsistent with Fidler’s claim that she was incapable of performing light or sedentary work. Sun Life’s denial of benefits was followed by almost two years of correspondence with Fidler and medical professionals. Sun Life received medical evidence to the effect that Fidler was not yet capable of doing any work. However, Sun Life elected to rely on its own consultants and experts and confirmed its decision to terminate benefits in December 1998. Fidler then commenced an action and, one week before trial, Sun Life offered to reinstate Fidler’s benefits and to pay all arrears with interest. The only issue to proceed at trial was Fidler’s entitlement to damages.

At trial, the trial judge awarded Fidler $20,000 in aggravated damages for mental distress, but refused to make a punitive damages award against Sun Life finding that Sun Life had not acted in bad faith. On appeal, the Court of Appeal unanimously upheld the award for mental distress and a majority of the Court awarded Fidler an additional $100,000 in punitive damages finding that the trial judge had made a palpable and overriding error on the question of bad faith. Sun Life appealed this decision.

The Supreme Court of Canada held that damages for mental distress for breach of contract may be recovered where they are established on the evidence and shown to have been within the reasonable contemplation of the parties at the time the contract was made. There is no requirement for an independent actionable wrong. In order to be successful, a plaintiff must prove his or her loss and the Court must be satisfied that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation. In this case, given the nature of a disability insurance contract, it would have been within the reasonable contemplation of the parties at the time the contract was made that mental distress would likely flow from a failure to pay the required benefits. The mental distress at issue here was of a degree sufficient to warrant compensation and the trial judge’s award of $20,000 in aggravated damages to compensate Fidler for the psychological consequences of Sun Life’s breach of contract was upheld.

The Supreme Court of Canada set aside the Court of Appeal’s award of punitive damages. The Court noted that punitive damages are not compensatory and are designed to address the purposes of retribution, deterrence and denunciation. However, an insurer will not necessarily be liable for such damages by incorrectly denying a claim that is eventually conceded, or judicially determined, to be legitimate. The question in each case is whether the denial was a result of the overwhelmingly inadequate handling of the claim, or the introduction of improper consideration into the claim’s process. In this case, the trial judge had reviewed the evidence thoroughly and found that Sun Life had not acted in bad faith. The conduct of Sun Life in its consideration of the matter was troubling but not sufficiently so as to justify interfering with the trial judge’s conclusion that there was no bad faith.

This was an appeal from a judgment by a jury against the Insurer, Wawanesa for damages totalling $1,000,000 which included an award for aggravated damages of $175,000 and an award for punitive damages of $525,000. The Insureds, Terry and Cecile Plester, owned and operated a furniture store. Terry Plester’s father, Norman Plester, operated an antique furniture business from the premises of the furniture store. The Plesters insured the building and the business with Wawanesa. When the building and much of its contents were severely damaged in a fire, Wawanesa denied the claim by the Insureds on the grounds that they had set the fire themselves. The Insureds were successful at trial in their action against Wawanesa.

Wawanesa brought the appeal, alleging that the trial judge erred in the following ways: in ruling that a pre-trial settlement offer by Wawanesa was admissible; in permitting the Plesters to call evidence of good character; in ruling that the evidence of the financial status of Wawanesa was admissible; in refusing to bifurcate the trial in respect of liability and punitive damages; and in leaving the issue of aggravated damages to the jury when there was no evidence to substantiate such an award. Wawanesa also alleged that the amount of punitive damages awarded to the Insureds by the jury was wholly unreasonable.

The appeal was allowed in part on the issue of aggravated damages and dismissed in all other respects. The Court of Appeal found that while the trial judge erred when he admitted the evidence of the pre-trial settlement offer and the evidence of Wawanesa’s financial status, these did not result in any substantial wrong or miscarriage of justice. As for the punitive damages, there was no evidence to establish arson on the part of Norman Plester, and only suspicion on the part of Terry and Cecile Plester. Under these circumstances, punitive damages were warranted. In the case of the Estate of Norman Plester, s. 38 of the Trustee Act permitted an award of punitive damages. While the award as to punitive damages was fairly high, it was not so exorbitant or grossly disproportionate as to warrant being overturned or reduced. As to the issue of aggravated damages, while there was a case for the jury based upon the allegation of arson and the ultimate finding of bad faith on the part of Wawanesa by the jury, the award of $175,000 was grossly excessive. The Court reduced the award to $50,000.

In August 1993, a fire destroyed an industrial building that also housed two residential units. The building had been used as a mushroom growing facility prior to 1991 and was insured under a standard commercial loss policy. No mushrooms were grown between February 10, 1993 and the date of the fire. The Insurer claimed the lack of activity demonstrated that the farm was completely shut down and indicated that the Insureds represented that the farm was back in business when the policy was issued. The owners and tenants of the building brought actions against the Insurer for recovery which were heard before a jury. The jury awarded to the Insureds full compensation for the fire loss and also awarded $2.5 million in punitive damages against the Insurer. The Insurer appealed the decision.

On appeal, the Insurer argued that the trial judge misdirected the jury in respect of Statutory Condition 1 which concerned misrepresentations by an applicant for insurance, by indicating that an element of dishonesty was required in a misrepresentation. The Insurer further argued that the trial judge misdirected the jury on the policy’s "shut down" clause which excluded coverage for loss or damage to property at locations that had been shut down for more than 30 consecutive days.

The Ontario Court of Appeal allowed the appeal, set the judgment aside and ordered that a new trial take place. The Court found that the trial judge had misdirected the jury in respect of the misrepresentation defence. The errors in the instructions to the jury relating to the misrepresentation were compounded by further misdirection and non-direction in respect of the shut down exclusion clause. The Court noted that the trial judge’s discussion of fraudulent omissions was unnecessary because it was not part of the Insurer’s case. Statutory Condition 1 was engaged by innocent misrepresentations and no element of fraud or deceit was required. The Court held that the Insurer was entitled to rely on the statement that the farm was back in business, particularly because it came from an insurance agent who would have known that the status of the farm was important. The Court held that the Insurer was not required to conduct a further investigation. The Court noted that the policy contained a shut down exclusion which demonstrated that the state of business was material to the Insurer and that this was known by the insurance agent.

The Court found that the trial judge’s instructions did not respect the proper roles of judge and jury and consistently left the jury to decide competing legal propositions put forward by the parties. In the result, the judgment was set aside and a new trial ordered.

The Hazans had a homeowner’s policy (the "Policy") with ING Insurance Co. of Canada ("ING"). They suffered a loss when a frozen water supply pipe burst causing water damage to their home. They made an application for benefits under the Policy. The application was denied by ING. They commenced an action for a declaration of entitlement to benefits under the Policy.

The Policy contained a clause that stated that a loss or damage which occurred as a result of freezing or flooding was not covered by the Policy unless arrangements were made for a competent person to enter the premises each day to ensure adequate heating, or the water pipes were drained and shut off, or the plumbing and heating systems were monitored by an alarm station 24 hours a day. The Hazans claimed that they had not received a copy of the Policy and therefore had no knowledge of the clause. ING says the policy booklet would have been mailed to the Hazens when the policy was issued.

ING brought an application for summary judgment dismissing the action based on the failure of the Hazans to take the necessary precautions as required by the clause. The motions judge determined that there was a credibility issue to be resolved - did the Hazans receive the policy book, which required a trial of the action. ING submitted in the alternative that even if the policy book was not received by the Hazans, they had notice of the exclusions in the Policy based on the fact that the Hazans were provided with renewal receipts which referred to the original policy and its reference number. ING argued that the wording of the policy was incorporated into the Policy by reference of the policy in the renewal receipts that were provided to the Hazans. Therefore the Hazan’s had constructive notice of the exclusion contained in the policy wording through the renewal notice. ING relied upon Hwang v. AXA Pacific Insurance Co. (2001), 91 B.C.L.R. (3d) 34 (B.C.C.A.) as authority for this proposition.

Carnwath J. noted that while the opinion of the British Columbia Court of Appeal was worthy of considerable deference, it was not binding on him. He further noted that when an insured takes no steps to deliver a copy of the policy to the insured, it seems illogical that the insured can rely on exclusions in the policy merely by referring to the document in subsequent communications to the insured. In addition, Carnwath J. noted that the decision of the B.C. Court of Appeal was subject to certain debate amongst other jurisdictions in Canada, including International Movie Conversions Ltd. v. ITT Hartford Canada (2002), 57 O.R. (3d) 652 (C.A.) and Janmohamed v. Co-operators General Insurance Co. (1997), 45 C.C.L.I. (2d) 262, (Alta. Q.B.). Carnwath J. determined that this matter deserved consideration only after a full evidentiary foundation was established at the trial of the action and refused to dismiss the matter onto summary application.

Young was injured in a motor vehicle accident when she was 16 years old. At the time, she was insured by the Insurance Corporation of British Columbia ("ICBC"). After Young turned 19, she signed a release of her claims against the Defendant driver, also insured by ICBC, in relation to her tort claim against him. Subsequently, Young commenced an action against ICBC alleging that it breached various duties owed to Young in failing to provide her with fair and reasonable compensation for the true value of her tort claim.

Young argued that ICBC owed a duty of "fairness and reasonableness" to all third parties claiming against those insured by ICBC. If such a duty did not exist generally, Young argued it arises where, as here, ICBC deals with claimants in two capacities, both as third party claimants and as first party claimants for Part 7 benefits.

ICBC argued that there was no authority to support the proposition that it owed Young a duty of "fairness and reasonableness" in Young’s capacity as a third party claimant such that a breach of that duty would give rise to a cause of action, relying upon the decision of the British Columbia Court of Appeal in Joe (Next Friend of) v. Insurance Corp. of British Columbia (1984), 55 B.C.L.R. 118 (C.A.). In the case at bar, the Court agreed with ICBC, noting that ICBC owed a duty as the insurer of the Defendant driver to investigate the Plaintiff’s claim against him and it was obliged to use reasonable care in discharging that duty. However, as the insurer of the Defendant driver, which was the capacity in which ICBC was acting when it negotiated the damage portion of Young’s claim, ICBC did not owe a duty to Young as the Plaintiff.

In the result, Young’s action was dismissed with costs.

This was an Application brought by an Insured pursuant to s. 530 of the Alberta Insurance Act, R.S.A. 2000, c.I-3, to enforce a judgment obtained against two employees of a company insured under a policy of cargo insurance (the "Policy") with the Respondent Insurer Aviva Insurance Co. ("Aviva"). The Applicant argued that because the employees failed to satisfy her judgment, she was entitled to recover the judgment directly against the Insurer. While the employees were not named as Insured persons under the Policy, the Applicant argued that the Respondent represented that the employees were Insured persons under the policy and was therefore estopped from denying this.

The underlying facts were that the Applicant hired the Respondent to move her property and that during the move a fire broke out, destroying the property. She brought an action against the moving company and the two employees involved in transporting her goods (the "Fire Action"). Neither of the employees was ever served with the Statement of Claim nor did they attend Examinations for Discovery. Consequently, judgment was awarded against the two employees. However, a provision was included in the resulting Order that the moving company was not precluded from defending negligence allegations against it and that the matter of vicarious liability would be open for determination by the trial judge. The judgments remained unsatisfied.

On this Application, the Court held that because the moving company was the only named Insured and there was no ambiguity in the Policy, the employees were not Insured persons under the Cargo Insurance Policy. However, the Insurer was precluded from denying that the employees were Insured persons by the doctrine of estoppel by representation. This was because, while only one of the employees was aware of the litigation and the Insurer’s involvement, that employee was induced by the Insurer’s words and actions to believe that he was insured and that the Insurer would take care of his interests. He was presumed to have acted in reliance on this belief and he suffered prejudice as a result in that judgment had been granted against him.

The Court also found that the Insurer was not entitled to go behind the judgment granted against the Insured employee and defend his liability on the merits. The Applicant was therefore entitled to judgment against the Insurer.