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Fire Losses and Investigations

When investigating a fire loss there is a great deal of information the insurer has to take into consideration during the course of its investigation. In this article, we help insurers become aware and familiar with the terms and exclusions of the policy in questions, the steps to follow and key the questions to ask during the investigation.

Content

  1. Fire Loss Policies
  2. Statutory Conditions
  3. Unjust Terms and Relief from Forfeiture
  4. Investigation of Claims
  5. Conclusion

Article and research by: Debra G. WoodskeJ. Faye Garries and Hayley C. Tarnasky

Fire Loss Policies

Unlike Automobile Policies, the contents of Homeowners Policies are not standardized. Policies often have different wording and, even where the differences are subtle, this can lead to very different outcomes. As a result, the interpretation of Homeowner’s policies is very complex and uncertain. It is often not clear whether an exclusion clause can be relied upon.

This has been apparent in the interpretation of vacancy exclusions. For example, in Cody v Beaver Insurance Co. (1964), 45 D.L.R. (2d) 531 (Alta. C.A.), the insured property was not considered vacant while the house had furniture and possessions in it even though the insured was not actually living there. Similarly, in Ritchie (Litigation Guardian of) v Sun Alliance Insurance Co. (1992), 122 N.B.R. (2d) 322 (Q.B.), the court held the property was not vacant because it was being checked on almost daily.

The opposite conclusion was reached in Lambert v Wawanesa Mutual Insurance Co., [1945] 1 D.L.R. 694 (Ont. C.A.). In Lambert, the policy used the term “unoccupied” rather than “vacant”. The Ontario Court of Appeal found the house was unoccupied even though it contained possessions. At paragraph 6, it concluded for a dwelling-house to be occupied, it must be a person’s “customary place of abode… [or] place of usual return and habitual stoppage”. The distinction between the words “vacant” and “unoccupied” was also discussed in Miller v Portage La Prairie Mutual Insurance Co., [1936] 2 D.L.R. 787 (Sask. C.A.), where Gordon J.A. stated at para. 17: “’Vacant’ I take to apply to inanimate objects and ‘unoccupied’ to animate occupancy.”

Another clause which has led to divergent results is the Innocent Co-Insured exclusion clause. Homeowner’s Policies frequently contain terms excluding coverage for loss or damage to property caused by a criminal or intentional act. This has led to cases where one insured intentionally causes damage to a property and the insurer denies coverage to the innocent co-insured. A leading case on this issue is Scott v Wawanesa Mutual Insurance Company, [1989] 1 S.C.R. 1445. In this case, the Insured’s minor son intentionally set fire to the Insured’s premises. The Supreme Court of Canada considered whether the exclusion for loss or damage applied only to the Insured responsible for the criminal or intentional act or whether it applied to all innocent insureds. The majority judgment concluded the terms of the policy clearly excluded the damages suffered by the parents.

A more recent Alberta Court of Queen’s Bench decision, Charles v Peace Hills Insurance Co., 2007 ABQB 515, involved a situation where a husband set fire to a matrimonial home. Although the husband and wife had separated, they were still legally married. It was determined the husband still had an insurable interest in the home even though he no longer resided there. The Court held the policy precluded coverage to any and all insured persons “even if the intentional or criminal act was the result of the actions of only one of the insured” (para. 32).

In a decision of the Saskatchewan Court of Appeal in Wigmore v Canadian Surety Co. (1996), 144 Sask. R. 285 (C.A.), the Court felt the wording of the clause was sufficiently different from Scott and could allow the innocent Co-Insured to claim under the policy even though the other Insured had lied on a Proof of Loss. The Court even went so far as to allow the innocent Co-Insured to recover 100% of the loss rather than only half as was argued by the Insurer.

Shortly after the Supreme Court of Canada’s decision in Scott, the Alberta Legislature amended the Insurance Act, RSA 2000, c I-3, in an attempt to resolve the uncertainty of innocent co-insured clauses. As a result of this change, which came into force in 2012, s. 541 now reads:

541 (1) If a contract contains a term or condition excluding coverage for loss or damage to property caused by a criminal or intentional act or omission of an insured or any other person, the exclusion applies only to the claim of a person

(a) whose act or omission caused the damage,
(b) who abetted or colluded in the act or omission,
(c) who

(i) consented to the act or omission, and
(ii) knew or ought to have known that the act or omission would cause the loss or damage,
or

(d) who is in a class prescribed by regulation.

(2) Nothing in subsection (1) allows a person whose property is insured under the contract to recover more than the person’s proportionate interest in the lost or damaged property.
(3) A person whose coverage under a contract would be excluded but for subsection (1) must comply with the requirements prescribed in the regulations.

As discussed at paragraph 17 of Haraba v Wawanesa Mutual Insurance Co., 2017 ABQB 190, this legislation effectively abrogates the majority decision in Scott and adopts La Forest J.’s reasoning in the minority judgment. When damage is caused, “exclusionary clauses for criminal or intentional acts or omissions [apply] only to the responsible insureds”. In situations where one insured intentionally destroys joint property, the indemnification obligation of an insurer will be several rather than joint. Without express language in a statute or insurance contract indicating a policy will be void against an innocent co-insured, a wrongful act by one insured will no longer disentitle innocent co-insureds from indemnification. For example, in a situation where a husband burns down the matrimonial home, the wife can still recover damages as long as she did not allow or participate in the arson. However, it is clear from the wording of the new clause she would only be entitled to recover her half of the damages and would not be awarded the windfall of the husband’s share as was the case in Wigmore.

Statutory Conditions

The Insurance Act, RSA 2000, c I-3 contains fourteen Statutory Conditions which are deemed to be a part of every contract of insurance in force in Alberta. They are printed in every policy under the heading “Statutory Conditions”. They set out the obligations of the insured and insurer in policies which insure against loss of or damage to property arising from fire.

These provisions are found under Part 5, Subpart 1, section 540 of the Insurance Act as follows:

MISREPRESENTATION:

1 If a person applying for insurance falsely describes the property to the prejudice of the insurer, or misrepresents or fraudulently omits to communicate any circumstance that is material to be made known to the insurer in order to enable it to judge the risk to be undertaken, the contract is be void as to any property in relation to which the misrepresentation or omission is material.

A material misrepresentation in an application for insurance need not be fraudulent to void insurance coverage. As long as it is material to the risk, an innocent misrepresentation will result in the same outcome (Smith v Co-operative Fire & Casualty Co. (1977), 5 A.R. 116 (Q.B.). Materiality is considered from the point of view of the insurer, not from that of the insured. As stated in paragraph 48 of Coulter v Co-operators Life Insurance Co., 2014 ABQB 689, “[t]he test for materiality is … whether the insurer would have accepted the risk without further investigation, had it known the misrepresented or non-disclosed facts”. A misrepresentation is only material if it would affect the conduct of a reasonable insurer in accepting the risk or establishing the premium (Security Mutual Casualty Co. v Cunningham, [1980] I.L.R. 1-1178 (N.B.C.A.)).

It is also important to remember the insurer has burden to prove information given during an application for insurance is incorrect (Mutual Life Insurance Co. v Ontario Metal Products Co., [1923] S.C.R. 35).

Examples of misrepresentations which have been found to be material include:

  • Not disclosing prior losses
    Ford v Dominion of Canada General Insurance Co., [1991] 1 S.C.R. 136 (S.C.C.) Sholidis v Economical Mutual Insurance Co., [2003] O.J. No. 2242 (Ont. S.C.)
  • Failing to disclose the cancellation of previous policies
    Lyons v Gore Mutual Insurance Co. (2000), 51 O.R. (3d) 528 (S.C.J.)
  • Incorrectly describing the use of the property
    Johnson v AXA Pacific Insurance Co., 2011 BCSC 305 Vimhel v Archibald Clarke and Defieux Ltd. (1979), 1 A.C.W.S. (2d) 10 (B.C.S.C.)
  • Not accurately describing the heating source for the property
    Wolfe v Western General Mutual Insurance, [2000] O.J. No. 2673 (S.C.J.)
  • Failing to correctly describe the construction of the property
    Marsh Canada Ltd. v Grafton Connor Property Inc., 2017 NSCA 54
  • Misrepresenting the identity of the property owner
    Amherst Credit Union Ltd. v Quebec Assurance Co. (1981), 47 N.S.R. (2d) 573 (T.D.)
  • Misrepresenting the occupancy of the property
    Voloudakis v Allstate Insurance Co. of Canada, [1998] O.J. No. 354 (Gen. Div.)

PROPERTY OF OTHERS:

2 The insurer is not liable for loss or damage to property owned by a person other than the insured unless (a) otherwise specifically stated in the contract, or (b) the interest of the insured in that property is stated in the contract.

CHANGE OF INTEREST

3 The insurer is liable for loss or damage occurring after an authorized assignment under the Bankruptcy and Insolvency Act (Canada) or change of title by succession, by operation of law or by death.

MATERIAL CHANGE IN RISK:

4 (1) The insured must promptly give notice in writing to the insurer or its agent of a change that is
(a) material to the risk, and
(b) within the control and knowledge of the insured.
(2) If an insurer or its agent is not promptly notified of a change under subparagraph (1) of this condition, the contract is void as to the part affected by the change.
(3) If an insurer or its agent is notified of a change under subparagraph (1) of this condition, the insurer may

(a) terminate the contract in accordance with Statutory Condition 5, or
(b) notify the insured in writing that, if the insured desires the contract to continue in force, the insured must, within 15 days after receipt of the notice, pay to the insurer an additional premium specified in the notice.

(4) If the insured fails to pay an additional premium when required to do so under subparagraph (3)(b) of this condition, the contract is terminated at that time and Statutory Condition 5(2)(a) applies in respect of the unearned portion of the premium.

As in misrepresentation, in order to deny coverage based on a material change, an insurer must demonstrate the unreported change would have affected the decision to provide coverage or would have altered the premium charged.

One of the most common material changes which void an insurance contract is vacancy. An example of this is Royal Bank v Safeco Insurance Co. of America (1988), 58 Alta. L.R. (2d) 239 (Q.B.). Other instances where the Courts have voided fire insurance policies as a result of a material change in risk are as follows:

  • Where the insured failed to disclose a decision to rent the premises to tenants, regardless of whether the insured continued to live there or not
    Zheng v John Galon Insurance Services Ltd., 2016 SKPC 90 (2016) Walsh v Allstate Insurance Co. (1998), 169 N.S.R. (2d) 99 (S.C.)
  • Where the insured did not inform the insurer a home-based business or commercial operation on the property had been commenced
    Keizer v Portage LaPrairie Mutual Insurance Co., 2013 NSSC 118 Schmidt v Aetna Casualty Co. of Canada (1982), 15 A.C.W.S. (2d) 121 (Alta. Q.B) Grabowski v State Farm Fire and Casualty Company, 2003 ABQB 18
  • Where there was a change in the occupation of the premises
    528852 Ontario Inc. v Royal Insurance Co. (2000), 51 O.R. (3d) 470 (S.C.J.)
  • Where the insured failed to inform the insurer of the deterioration of the condition of the property, including the continued possibility of access to the property by former tenants
    Wu v Gore Mutual Insurance Co. (2009), 100 O.R. (3d) 131 (S.C.J.)

Some examples where the Court did not void the policy are:

  • Where the insured omitted to tell insurers of changes made to the electrical system
    Bay Bulls Sea Products Ltd. v Insurance Corp. of Newfoundland Ltd. (2003), 690 Nfld. & P.E.I.R. 183 (N.L. T.D.)
  • Where an insured repaired automobiles and small machinery in his garage as a hobby, not as a business or commercial purposes
    Wharton v Citadel General Assurance Co. (1984), 5 C.C.L.I. 297 (Ont. Co. Ct.)
  • Where an insured moved out and left the premises in the care and control of her alcoholic husband
    Lewandowski v Waterloo Mutual Insurance Co., [1985], O.J. No. 430 (S.C.)
  • Where an insured did not inform his insurer of reduced occupancy of the premises when he left his home for less than 30 consecutive days
    Peebles v Wawanesa Mutual Insurance Co., 2013 BCCA 479

TERMINATION OF INSURANCE

5 (1) The contract may be terminated

(a) by the insurer giving to the insured 15 days’ notice of termination by recorded mail or 5 days’ written notice of termination personally delivered, or

(b) by the insured at any time on request

(2) If the contract is terminated by the insurer,

(a) the insurer must refund the excess of premium actually paid by the insured over the prorated premium for the expired time, but in no event may the prorated premium for the expired time be less than any minimum retained premium specified in the contract, and

(b) the refund must accompany the notice unless the premium is subject to adjustment or determination as to amount, in which case the refund must be made as soon as practicable.

(3) If the contract is terminated by the insured, the insurer must refund as soon as practicable the excess of premium actually paid by the insured over the short rate premium for the expired time specified in the contract, but in no event may the short rate premium for the expired time be less than any minimum retained premium specified in the contract.
(4) The 15 day period referred to in subparagraph (1)(a) of this condition starts to run on the day the recorded mail or notification of it is delivered to the insured’s postal address.

The Courts have insisted on strict compliance with this Statutory Condition when an insurer wants to terminate a policy. If there is only part compliance, the Courts will likely find there is still coverage, even in cases where an insured considers the policy cancelled. For example, in Cariboo Western Lumber Ltd. v Symons General Insurance Co., [1991] B.C.W.L.D. 1201 (S.C.), the Insurer sent notice of cancellation and the Plaintiff obtained another policy. However, the Insurer did not return the unearned portion of the premium for two months after the notice of cancellation. A fire occurred and the Court held both policies were in force at the time of the loss.

REQUIREMENTS AFTER LOSS

6 (1) On the happening of any loss or damage to insured property, the insured must, if the loss or damage is covered by the contract, in addition to observing the requirements of Statutory Condition 9,

(a) immediately give notice in writing to the insurer,

(b) deliver as soon as practicable to the insurer a proof of loss in respect of the loss or damage to the insured property verified by statutory declaration

(i) giving a complete inventory of that property and showing in detail quantities and costs of that property and particulars of the amount of loss claimed,
(ii) stating when and how the loss occurred, and if caused by fire or explosion due to ignition, how the fire or explosion originated, so far as the insured knows or believes,
(iii) stating that the loss did not occur through any wilful act or neglect or the procurement, means or connivance of the insured,
(iv) stating the amount of other insurances and the names of other insurers,
(v) stating the interest of the insured and of all others in that property with particulars of all liens, encumbrances and other charges on that property,
(vi) stating any changes in title, use, occupation, location, possession or exposure of the property since the contract was issued, and
(vii) stating the place where the insured property was at the time of loss,

(c) if required by the insurer, give a complete inventory of undamaged property showing in detail quantities and cost of that property, and

(d) if required by the insurer and if practicable,

(i) produce books of account and inventory lists,
(ii) furnish invoices and other vouchers verified by statutory declaration, and (iii) furnish a copy of the written portion of any other relevant contract.

(2) The evidence given, produced or furnished under subparagraph (1)(c) and (d) of this condition must not be considered proofs of loss within the meaning of Statutory Conditions 12 and 13.

As long as there is a valid reason for a delay and there has been no prejudice to an insurer, the Courts have been flexible with the timeframe within which a proof of loss or damage can be delivered to an insurer. For instance, in Performance Factory Inc. v Atlantic Insurance Co., 2003 NLSCTD 91, a Proof of Loss was not received by the Insurer until almost two years after a fire loss. The Insurer sought to have the Insured’s action dismissed but the Court denied this request, noting there was no bad faith; misrepresentation; concealment by the Insured; and no actual prejudice to the Insurer.

FRAUD

7 Any fraud or wilfully false statement in a statutory declaration in relation to the particulars required under Statutory Condition 6 invalidates the claim of the person who made the declaration.

A common example of fraud is where an insured submits a claim for property he or she did not own or was not actually destroyed in the fire. In these situations the Court will vitiate coverage under the entire policy. Another example of fraud is where an insured intentionally sets fire to his or her property and then makes a claim. In cases where the insured is convicted of arson a prima facie case is established against the insured.

For fraud to be established with respect to a proof of loss there needs to be proof the insured made willfully false statements. Carelessness or negligence in the preparation of a proof of loss does not meet this requirement (Laurie v Aetna Casualty Co. of Canada, 1982 CarswellNS 378). Similarly, minor exaggerations or inaccuracies may not vitiate the policy. For example, in Gross v Wawanesa Mutual Insurance Co. (2001), 209 Sask. R. 288 (Q.B.), the Insurer denied coverage for fraudulent statements and misrepresentations of the value of the items in the Proof of Loss. The Court, however, held the information provided was not so grossly inaccurate or inflated so as to mislead. As a result, the Insurer could not void the contract.

WHO MAY GIVE NOTICE AND PROOF

8 Notice of loss under Statutory Condition 6(1)(a) may be given and the proof of loss under Statutory Condition 6)1)(b) may be made

(a) by the agent of the insured if

(i) the insured is absent or unable to give the notice or make the proof, and

(ii) the absence or inability is satisfactorily accounted for, or

(b) by a person to whom any part of the insurance money is payable, if the insured refuses to do so, or in the circumstances described in clause (a) of this condition.

SALVAGE

9 (1) In the event of loss or damage to insured property, the insured must take all reasonable steps to prevent further loss or damage to that property and to prevent loss or damage to other property insured under the contract, including, if necessary, removing the property to prevent loss or damage or further loss or damage to the property. (2) The insurer must contribute on a prorated basis towards any reasonable and proper expenses in connection with steps taken by the insured under subparagraph (1) of this condition.

This Statutory Condition places significant responsibility on an insured to take steps to mitigate damage. For example, in Zaidi v Alliance Assurance Co. (1974), 6 Nfld. & P.E.I.R. 521 (S.C.), firefighters cut off the electricity during a fire. The owner failed to restart the furnace and the water pipes froze and burst. The court held the Insured failed to take reasonable steps to protect the property from further loss.

In situations where an insured prevents others from attempting to put out a fire the court has vitiated the entire policy even where portions of the damage could not have been prevented (Gibson v North British & Mercantile Insurance Co. (1875), 16 N.B.R. 83 (S.C.)).

ENTRY, CONTROL, ABANDONMENT

10 After loss or damage to insured property, the insurer has

(a) an immediate right of access and entry by accredited representatives sufficient to enable them to survey and examine the property, and to make an estimate of the loss or damage, and
(b) after the insured has secured the property, a further right of access and entry by accredited representatives sufficient to enable them to appraise or estimate the loss or damage, but

(i) without the insured’s consent, the insurer is not entitled to the control or possession of the insured property, and
(ii) without the insurer`s consent, there can be no abandonment to it of the insured property.

IN CASE OF DISAGREEMENT

11 (1) In the event of disagreement as to the value of the insured property, the value of the property saved, the nature and extent of the repairs or replacements required or, if made, their adequacy, or the amount of the loss or damage, those questions must be determined using the applicable dispute resolution process set out in the Insurance Act whether or not the insured’s right to recover under the contract is disputed, and independently of all other questions.

(2) There is no right to a dispute resolution process under this condition until

(a) a specific demand is made for it in writing, and
(b) the proof of loss has been delivered to the insurer.

When a disagreement arises between an insured and an insurer over the value of a loss, the Insurance Act provides a remedy outside of litigation. Section 519 of the Insurance Act sets out the steps to be taken in this dispute resolution process. The insured and the insurer each appoint a dispute resolution representative and these two representatives will then select an umpire. The representatives will determine the matter in dispute and if they fail to agree, their differences will be submitted to the umpire. The written decision of any two of these parties will then determine the matter. The insured and the insurer are to split the cost of the representatives and umpire. The determination will be binding as long as it is found to be reasonable and there is no proof of fraud; collusion; bias; partiality; or defects in the appraisal process (O’Brien v Non-Marine Underwriters (1991), 128 A.R. 165 (Q.B.); Mourits Trucking Ltd. v Sovereign General Insurance Co, 2012 ABQB 206).

There have been situations where umpires have been asked to determine other issues such as whether there is coverage or if there has been a fraudulent claim. However, an umpire only has the authority to value the property of an insured. Disputes with respect to coverage or exclusions to coverage are outside the jurisdiction of an umpire and must be decided in Court (Ferrier v Maplex General Insurance Co. (1991), 60 B.C.L.R. (2d) 261 (S.C.); Agro’s Foods Inc. v Economical Mutual Insurance Co., 2016 ONSC 1169).

WHEN LOSS PAYABLE

12 Unless the contract provides for a shorter period, the loss is payable within 60 days after the proof of loss is completed in accordance with Statutory Condition 6 and delivered to the insurer.

REPAIR OR REPLACEMENT

13 (1) Unless a dispute resolution process has been initiate, the insurer, instead of making payment, may repair, rebuild or replace the insured property lost or damaged, on giving written notice of its intention to do so within 30 days after receiving the proof of loss. (2) If the insurer gives notice under subparagraph (1) of this condition, the insurer must begin to repair, rebuild or replace the property within 45 days after receiving the proof of loss and must proceed with all due diligence to complete the work within a reasonable time.

NOTICE

14 (1) Written notice to the insurer may be delivered at, or sent by recorded mail to, the chief agency or head office of the insurer in the province. (2) Written notice to the insured may be personally delivered at, or sent by recorded mail addressed to, the insured’s last known address as provided to the insurer by the insured.

Unjust Terms and Relief from Forfeiture

Section 545(1) of the Insurance Act reads as follows:

545(1) If a contract contains a stipulation, condition, term, proviso or warranty, other than a prescribed exclusion referred to in subsection (3)(a), that is or may be material to the risk, including, but not restricted to, a provision in respect of the use, condition, location or maintenance of the insured property, the stipulation, condition, term, proviso or warranty is not binding on the insured if it is held to be unjust or unreasonable by the Court before which a question relating to it is tried.

This section gives the Courts the power to refuse to apply terms of a contract of insurance when it would seem unfair to do so. Historically, this provision has been used fairly conservatively. However, the Supreme Court of Canada arguably widened the use of these clauses in Marche v Halifax Insurance Co., [2005] 1 S.C.R. 47, when the Court held the section could be invoked to negate a Statutory Condition. In Marche, the Insured left the premises vacant without notifying the Insurer. After an extended vacancy, the property was rented out to tenants and subsequently, a fire occurred. The Insurer invoked the material risk Statutory Condition; however, the Court held since the premises was no longer vacant at the time of the fire it was “unjust and unreasonable” to terminate the contract.

Another example of this can be found in Davidson v Wawanesa Insurance Co., 2015 BCSC 1383, where the Insurer denied coverage on the basis of misrepresentation and material change after arson resulted in the loss of an insured residence. It was established there was a marijuana grow operation in the residence. The Insured had control over the residence; was the registered owner of the home; was maintaining it as his principal residence; and gave permission for other individuals to move in. Despite this, it was determined the Insured did not have knowledge of the grow operation or any other illegal activities in the relevant period of time leading up to the fire. As such, the Insured was relieved of any consequences arising from his failure to advise the Insurer of what he discovered at the residence.

Section 746 of the Insurance Act allows the court to provide relief against a breach of Statutory Conditions in situations where the Court finds it would be inequitable that the insurance should be forfeited. This section states:

746 If there has been imperfect compliance with a statutory condition as to any matter or thing done or omitted to be done by the insured, person insured or claimant with respect to the loss insured against and as a consequence the insurance is forfeited or avoided in whole or in part, and a court before which a question relating to the imperfect compliance is tried considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on any terms it considers just.

This section applies only to imperfect compliance rather than non-compliance with an obligation. Further, relief may only be granted where it would be considered inequitable to forfeit the claim. In practice, this means the Court will examine both the conduct of an insured; whether there had been rectification of the breach of a Statutory Condition; whether there was a nexus between the fire loss and the breach; and whether there has been prejudice to the insurer (Falk Bros. Industries Ltd. v Elance Steel Fabricating Co., [1989] 2 S.C.R. 778; Keizer v Portage LaPrairie Mutual Insurance Co.). Where there is a breach which brings the contract to an end such as a failure to pay premiums, the Court cannot use this relief provision (Pluzak v Gerling Global Life Insurance Co. (2001), 52 O.R. (3d) 520 (C.A.)).

Fire Investigation and Management of Claims

1. Insurer Obligations

a) Punitive Damages

One of the most important obligations insurers have is the obligation to act in good faith. An insurer has a duty to treat its insureds fairly both in the manner of its investigations and in its assessments. Insurers can deny claims or delay in paying them as long as there are reasonable grounds for doing so. An insurer must base a denial of coverage on a reasonable interpretation of its rights and obligations under the policy. Insurers must also be careful to respond to claims in a timely manner and are must be reasonable in their assessment of the value of a loss.

Where an insurer is found to act in bad faith, one remedy is punitive damages. Punitive damages are awarded when the court has found the insurer’s conduct to be unfair; underhanded; or unsupported by evidence; and so harsh; vindictive; reprehensible; or malicious; as to offend its sense of decency. The intent of punitive damages is to punish an insurer for this conduct and deter other insurers from engaging in similar conduct.

The leading decision on this is Whiten v Pilot Insurance Co., [2002] 1 S.C.R. 595. In Whiten, a fire destroyed everything a family owned. The Insureds were unemployed and had financial difficulties. Several investigations were carried out – all of which concluded the fire was accidental with no suspicion of arson. The Insurer, however, refused to accept this conclusion and manipulated the evidence to maintain a defence of arson. A jury awarded $1,000,000 in punitive damages and this was ultimately upheld by the Supreme Court of Canada.

In Whiten, the court used a “proportional” approach to determine whether the amount of punitive damages was appropriate. This involved a comparison between the amount of damages and the degree of blameworthiness.

Some of the factors examined were:

  • Whether the misconduct was planned and deliberate
  • The intent and motive of the insurer
  • Whether the insurer persisted in the outrageous conduct over a lengthy period of time
  • Whether the insurer concealed or attempted to cover up its misconduct
  • Whether the insurer profited from its misconduct
  • Whether the interest violated by the misconduct was known to be deeply personal to the insured or a thing that was irreplaceable

Other examples of conduct which has attracted punitive damages include:

  • Demanding material in support of a claim to which the insurer was not entitled
    Beninger v Kingsway General Insurance Co. (2000), 2000 ABPC 143, rev’d on other grounds (2001), 439 A.R. 346 (Q.B.)
  • Employing a standard practice of refusing claims based on their amount or the insured’s employment status regardless of the terms of the policy
    Clarfield v Crown Life Insurance Co. (2000), 50 O.R. (3d) 696 (S.C.J.);

Some courts will take into account the insurer’s financial worth in determining an appropriate award of punitive damages. The theory is the more a company is worth, the greater the punitive award will have to be in order for it to make an economic impact. Other lines of authority have taken the position the insurer’s size; worth; or profitability are irrelevant (Barker v Zurich Insurance Co. (2001), 140 O.A.C. 358 (C.A.)).

Punitive damages can also be awarded against an insured. This has occurred in cases involving fraud and bad faith is found on the part of an insured (Andrusiw v Aetna Life Insurance Co. (2001), 289 A.R. 1 (Q.B.); Haiduc v Alberta Motor Association Insurance Co. (2003), 336 A.R. 380 (Prov. Ct.); Al-Asadi v Alberta Motor Association Insurance Co. (2003), 14 Alta. L.R. (4th) 167 (Q.B.)).

b) Aggravated Damages

In cases where an insurer’s conduct is not sufficiently harsh; vindictive; reprehensible; or malicious to justify punitive damages, aggravated damages may still be awarded if an insured suffered distress or humiliation as a result of the insurer’s behaviour (Warrington v Great-West Life Assurance Co., (1996), 24 B.C.L.R. (3d) 1 (C.A.) additional reasons at (1997), 86 B.C.A.C. 42 (C.A.)).

In Fidler v Sun Life Assurance Co., 2004 BCCA 1336, the British Columbia Court of Appeal awarded aggravated damages because the wrongful denial of a claim caused the Insured to suffer anxiety. The Court stated it is the insurer’s job to provide “peace of mind”. This decision to award aggravated damages was upheld on appeal to the Supreme Court of Canada (2006 SCC 30).

2. Investigating Claims

Given the Court’s willingness to award punitive or aggravated damages, an insurer must proceed carefully when denying a claim on the basis of arson. There must be more than a suspicion or circumstantial evidence. In cases where arson is alleged, the insurer has the onus of proving the insured set the fire or arranged to have it set. The question to be answered is “whether, on all the evidence inculpatory of the insured, including motive and opportunity, the insurer has proven the defence of arson according to the standard of proof … in a civil case” (Rizzo v Hanover Insurance Co., 14 O.R. (3d) 98 (C.A.)). Factors that will be considered include evidence of an incendiary origin; opportunity; and motive. There does not need to be proof of each of these elements in order for the defence of arson to succeed. Instead, a more holistic approach is taken and “the proper inquiry is whether on the basis of all the evidence, arson has been proven on a civil standard” (Roy v TD Home and Auto Insurance Co., 2016 MBQB 9). In the past, courts have required a higher standard of civil proof in cases involving allegations of moral misconduct or dire consequences. However, the Supreme Court of Canada has made it clear there is only one standard of proof in a civil case, proof on a balance of probabilities (C. (R.) v McDougall, 2008 SCC 53).

When determining whether there is enough evidence to support a defence of arson, the Courts will look at a variety of factors including the following:

I. Was the fire caused in an intentional way?

a) Presence of incendiary devices and accelerants These would include anything along the lines of candles; matches; gasoline; and other materials useful for setting fires.

b) Absence of Reasonable Explanation or Accident Cause Was there a reasonable accidental cause such as electrical failure; failure of a natural gas appliance; or spontaneous combustion?

II. Did the insured have the opportunity to set the fire or there is other evidence linking the insured with the fire?

a) Behaviour Prior to the Loss
Were people/pets/special belongings removed from the premises prior to the loss? Was there evidence of behaviour that does not support a finding of a planned fire? For example, did the insured engage in improving the property? Did the insured let the property become run-down?

b) Credibility of the Insured
How cooperative was the insured with the investigators and insurer? Was there any evidence of dishonesty throughout the process?

c) Manner in which the fire was started
Would it have taken a long time to set up the conditions necessary to start the fire? How difficult would it have been for someone other than the insured to start the fire? Evidence of an elaborate fire and intimate knowledge of the premises may point towards the insured as opposed to a random arsonist or thief.

d) Security of the Premises
How secure were the premises? Was there evidence of forced entry?

e) Consideration of possible or speculative suspects
Were there other individuals who would profit from the arson? Did the insured have enemies? Were the premises located in an area prone to acts of vandalism?

f) Familiarity with the Premises
Was the fire started in a way that required a familiarity with the premises? Were certain areas containing more valuable contents targeted?

g) Alibi Evidence
Was the insured present at the time the fire started? Were there other individuals who had access to the property? Did these other individuals have their own alibi?

h) The Status of the Insurance Policy
Was the insurance policy previously in arrears and then brought into good standing shortly before the fire? Were the limits drastically increased by the insured soon before a claim was made? Was the potential payoff greater than the loss to the insureds?

III. Did the Insured have sufficient motive?

a) Financial Difficulty/ Unemployment
Financial difficulty in and of itself is not enough. What the insured stands to gain from the insurance policy should also be considered. For instance, how desperate is the insured’s situation? Has the insured tried to sell the property to get out of debt but has failed?

b) Benefit from the Proceeds vs. Loss of Property
Do the potential proceeds outweigh the loss? Would the proceeds be enough to pay off all of the insured’s obligations and debts? Does the insured have an attachment to the house? Is the property in a state of disrepair that would cost more to fix than to collect insurance proceeds?

Conclusion

When investigating a fire loss there is a great deal of information the insurer has to take into consideration during the course of its investigation. Be aware and familiar with the terms and exclusions of the policy in question. Start from the premise the insured is being truthful and work through the investigation before formulating a conclusion. Be thorough and fair. This is what the Courts are ultimately assessing when they are formulating a decision on a first party claim. The consequences of a results-based investigation can be far-reaching.