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Monday Morning Case Bites for May 3, 2021

Last Week’s Court Rulings from the Alberta Court of Queen’s Bench, Court of Appeal and SCC.

Edited by Tony Slemko Q.C. & Steven Graham

Abbas v Esurance Insurance Company of Canada, 2021 ABQB 303
Fraud | SEF 44

The Plaintiff held an insurance policy and SEF 44 endorsement through the Defendant, Esurance. Following a motor vehicle collision in which the at fault driver did not have insurance, the Plaintiff applied for Section B benefits and SEF 44 coverage. It was discovered that the Plaintiff lied about his employment situation and provided falsified documents to demonstrate his employment. The Defendant was denied Section B benefits because he did not qualify, and denied SEF 44 coverage as a result of his false statements. The Plaintiff sued for SEF 44 coverage. 

The Defendant applied to summarily dismiss the Plaintiff’s claim. The Master in Chambers denied the application to dismiss, determining that the Plaintiff’s false statements in regard to his application for Section B benefits were immaterial to SEF 44 coverage, and that fairness dictated the Plaintiff not be denied his SEF 44 coverage.  

On appeal, the Justice in Chambers first considered section 554 of the Insurance Act:  

[19]           Sections 554 (1) (b) and (c) of the Insurance Act state: 

554(1) If 

 

(b) the insured contravenes a term of the contract or commits a fraud, or 

(c) the insured wilfully makes a false statement in respect of a claim under the contract, 

a claim by the insured is invalid and the right of the insured to recover indemnity is forfeited. 

Esurance argued that since the application for section B benefits and SEF 44 coverage arose out of the same motor vehicle accident, there was only one ‘claim’. The Plaintiff advanced the same argument that was successful  before the Master – that the misrepresentations were limited to the Section B claim: 

[26]           Esurance further asserts that the claim under Section B of SPF No. 1 and the SEF 44 endorsement arose from the same motor vehicle accident and arose under the same policy. Esurance argues that there is only one claim. Regardless, Esurance asserts that the language of forfeiture under section 554(1) arises whether or not there is more than one claim. 

[27]           Mr. Abbas acknowledges he willfully made false and misleading statements and his conduct was fraudulent. He notes his conduct was inappropriate and regrettable. He also acknowledges that he owed Esurance a duty of good faith. However, Mr. Abbas claims that the lies that he perpetrated were with respect to his Section B benefits and not with respect to the indemnity under the SEF 44 endorsement. Specifically, he argues that the SEF 44 endorsement is not part of an SPF No. 1 policy, but is optional coverage to protect an insured against the risk of being injured by an uninsured or under-insured motorist. Therefore, only his claim for Section B benefits is affected and he should not lose his right to indemnity under the SEF 44 endorsement as it is a different claim. Additionally, he argues that his misrepresentation was materially related to his claim for Section B benefits and not to the SEF 44 claim. 

The Justice in Chambers, after citing longstanding authority on statutory interpretation, maintained that statutes must be read “in their entire context… [and] harmoniously with the scheme of the Act…and the intention of Parliament”. The Court ultimately rejected the Plaintiff’s argument that the SEF 44 coverage and Section B coverage were separate for the purpose of determining the application of s.544: 

[35]           Mr. Abbas argues that a plain reading of “a claim” in section 554 means that two types of coverage under a single policy are not contemplated. Therefore, the invalidation of a claim or forfeiture of the indemnity provided by the policy would be confined to the claim in which the insured perpetrated the fraud. I disagree. The analysis does not stop at the lack of definition of “a claim”. 

[36]           A plain reading of section 554(1) confirms that if there is a violation of (b) “or” (c), a claim by the insured is invalid “and” the right of the insured to recover indemnity is forfeited. 

 

[40]           Therefore, the reference to “contract” in section 554(1) confirms that the section is to be read as meaning a claim under the entirety of the contract of insurance and not simply under one section of the policy. Hence, “a term” of the contract includes “any term” of the contract of insurance and “a claim” means “any claim” under the contract of insurance. 

[41]           Applying this meaning results in the invalidation of claims and the forfeiture of an insured’s right to recover indemnity for contravention of any term of the contract or wilfully making a false claim in respect of any claim under the contract. 

[42]           The policy of insurance itself is consistent with the plain and ordinary interpretation of section 554 of the Insurance Act, in that a claim under a policy, includes a claim under the SEF 44 endorsement. I note that the SEF 44 endorsement is “attached to and forms part of the policy”: SEF 44 at section 11. 

[43]           Section 554(1)(b) further refers to “commits a fraud” without reference to “a claim” as an instance where a claim will be invalidated, and the right to indemnity is forfeited. This wording covers instances where the fraud is perpetrated in connection with an application for insurance and not just in respect to a claim for benefits under the insurance policy. Hence the focus on just the meaning of “a claim” in interpreting this section is not reasonable. 

[44]           Furthermore, section 554 provides that “a claim by the insured is invalid and the right of the insured to recover indemnity is forfeited.” The use of the word and” is significant. The section provides that the consequence of the insured’s actions listed in (b) and (c), results in not only the invalidation of the insured’s claim but also, the forfeiture of the insured’s right to recover indemnity. 

[45]           A plain reading of sections 554(1)(b) & (c) confirms that a violation of (b) or (c) results in the forfeiture of the right to recover indemnity under a policy of insurance. 

The Justice in Chambers further concluded that the Insurance Act does, in fact, contemplate the forfeiture of indemnity in the face of fraudulent conduct by the insured.  

[46]           The plain reading ascribed above, is in harmony with the scheme of the Insurance Act, the object of the Act and the intention of Parliament. The obvious intention behind section 554 is in keeping with the requirement of utmost good faith between insured and insurer and to provide significant consequences for clearly improper and intentional conduct by the insured. 

[47]           An interpretation that results in fraudulent behaviour forfeiting indemnity under a policy, is consistent with the purpose of the Act and the statute as a whole and what a reasonable person would expect in such circumstances: Scott v Wawanesa Mutual Insurance Co., 1989 CanLII 105 (SCC), [1989] 1 SCR 1445, 1989 CarswellBC 105 at para 13; National Bank of Greece (Canada) v Katsikonouris, 1990 CanLII 92 (SCC), [1990] 2 SCR 1029, 1990 CarswellQue 84 at para 18. 

The Plaintiff argued that the Insurance Act is consumer protection legislation. The Court affirmed that there are protections for both insureds and insurers, provided they act in good faith: 

[50]           If an insured fails to put forward his claim honestly and act in good faith, the consequences of his actions include the forfeiture of indemnity under the policy: Section 554(1); Andrusiw v Aetna Life Insurance Co. of Canada, 2001 CanLII 61004 (AB QB), [2001] A.J No 789 at para 82. I do not find such a consequence to be “draconian”. 

[51]           Even if it could be seen to be draconian, section 554 does not stand alone. The Insurance Act contains provisions that provide balance. Specifically, the Insurance Act protects insureds from forfeiture of an indemnity due to mere inadvertence. Where there is imperfect compliance under the terms of a policy of insurance, rather than non-compliance, the court has the discretion to relieve against forfeiture: Section 520 Insurance Act; Elance Steel Fabricating Co. v Falk Brothers Industries, 1989 CanLII 38 (SCC), [1989] 2 SCR 778 at paras 19-22; Andrusiw at paras 57 and 58. 

[52]           The seriousness with which insurance fraud is taken, is also reflected in the decisions of this court. In Andrusiw, an insured was denied coverage under a policy of disability based on his fraudulent and wilful misrepresentations in his application. The insurer was awarded general damages for benefits improperly paid to Mr. Andrusiw and punitive damages. 

[53]           In upholding the decision of the insurer to deny coverage, the trial judge noted that there is a high onus to establish fraudulent behaviour. Because the Defendant had satisfied the onus, “ the policy [was] invalidated and the Plaintiff forfeit[ed] all claims under it”: Andrusiw at para 53. 

Ultimately, the Justice in Chambers rejected the argument that the section B and SEF 44 claims were distinct enough that one could survive where another was invalidated by fraud: 

[61]           I disagree with the Master that there is a level of materiality required between the claim in which the fraud is present and other claims that may be advanced under the same policy. If this was the case, the legislation ought to have said so. 

[62]           I agree with the concerns raised by the Master, that courts should not lightly restrict the rights of insureds to indemnity under policies of insurance. However, in my view there are protections in place that protect insureds against insurers who fail to appropriately deal with claims advanced in good faith. 

[63]           In cases where fraud is alleged there is a high burden that is not displaced lightly: Andrusiw at para 51. 

[64]           A further protection is embedded in section 520 of the Insurance Act. Specifically, in cases of imperfect compliance, as distinct from non-compliance, the court has the discretion to relieve against forfeiture: Section 520 Insurance Act; Elance Steel at paras 19-22. 

The Justice in Chambers determined that the matter could be determined summarily, and granted the Defendant’s appeal, dismissing the Plaintiff’s claim.