RECENT DEVELOPMENTS INFRAUD AND ARSON CASES

These materials were prepared by David Gerrand of Gerrand Rath Johnson Regina, Sask. for theSaskatchewan Legal Education Society Inc. seminar, Insurance Law Update, March 1999.

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TABLE OF CONTENTS

Prevalence ofInsurance Fraud in Canada

Page

1

II. Foundation for Denying Fraud and Arson Claims

1.

2.

3.

Based on violation of statutory conditions of The SaskatchewanInsurance Actor specific policy exclusion

Breach of common law principle with respect to utmost good faith

Denial ofClaim

2

4

5

m. Evidentiary Issues

1.2.

Onus of proofStandard ofproof

67

IV. Recent Decision involving claims where fraud or arson has been allegedby insurers 8

1. Dorosh v. The Co-operators General Insurance Company (1992),96 Sask. R. 30 8

2. Morcos v. The Co-operators General Insurance Company (1991),44 C.C.L.I. 245 10

3: Westendorp v. Wawanesa Mutual Insurance Company (1993), 114Sask. R. 281 13

4. Wigmore v. The Canadian Surety Company, D.A. ScrivenerAdjusters Ltd (1994), 124 Sask. R. 113 (Q.B.); 144 Sask. R. 285(C.A.) 13

5. Hashem v. Allstate Insurance Co. ofCanada [1998] O.I. 2779,Bell J., Judgment dated June 29, 1998 18

6. Brown v. WawanesaMutual Insurance Company, [1995] 4W.W.R. 435 (Q.B.) 18

7. Springer v. Saskatchewan Government Insurance [1998] S.J. No.539 Q.B.G. No. 2272 of 1996. 19

RECENT DEVELOPMENTS IN FRAUD AND ARSON CASES

I. PREVALENCE OF INSURANCE FRAUD IN CANADA

Insurers, both public and private, in Canada view the problem of fraudulent insurance claims

very seriously. Statistics compiled by the Insurance Bureau of Canada show that in the 1990's

fraudulent insurance claims cost the industry in excess of a billion dollars per year. The indirect

cost for police investigations, court services, corrections, medical investigations and legal aid is

estimated to be a further billion dollars in additional costs each year.

The Insurance Bureau estimates that fraudulent insurance claims increase the cost of insurance to

Canadian consumers by a factor of 10 to 15 percent.

Why is insurance fraud such an extensive problem? In my opinion, it is as a result of a

combination of factors. We live in difficult economic times. Especially in the prairie regions,

there is low economic growth and significant levels of poverty and unemployment. I believe

there is a general perception in the consuming members of the public that insurance fraud may

not be morally wrong and that the prospect of getting caught committing an insurance fraud is

very slight.

Insurance fraud can occur in a number ofdifferent ways:

1. There can be deliberate acts of insured's causing losses -- insureds candeliberately set fires or damage goods and claim that the damage occurredby accident.

2. Insureds can "set up" false occurrences ofbreak and enters or thefts.

3. Insureds can suffer a legitimate loss in an occurrence, but may proceed tofalsely exaggerate or inflate the extent of the damages actually suffered asa result of the occurrence under the policy.

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The potential for insurance fraud is very great. There is an epidemic number of break-and-enters

occurring in Canada. For example, in recent years in Regina there have been an average of

approximately 5,500 break-and-enters each year. This is an average in excess of 15 break and

enters every day.

Further, there seems to be an increase in the natural type of disaster that promotes widespread

insurance claims, such as hail and flood, in the last number ofyears.

Each property claim presents a potential for an insured to falsely inflate or exaggerate the extent

ofhis loss.

Significant steps are being taken by insurers in Canada affected by the problem of insurance

fraud. The Insurance Bureau of Canada has established a National Task Force on Insurance

Fraud. They have a full-time staff member co-ordinating activity and strategies, one of which is

the formation of the Canadian Coalition Against Insurance Fraud, which has approximately 70

participant organizations including virtually all major Canadian public and private insurers. The

Task Force is attempting to deal with the problem by means of:

1. Public education;2. Underwriting awareness;3. Education ofthe claims adjusting industry;4. Co-ordination of efforts through the legal system and criminal courts.

II. FOUNDATION FOR DENYING FRAUD AND ARSON CLA.JJ.\iIS

1. Based on a· violation of the statutory conditions of The SaskatchewanInsurance Act or specific policy exclusion of damage caused by intentionalacts

Fire policies in Saskatchewan are subject to statutory conditions that are. similar to those in the

insurance Acts of other western provinces under our Section 128. The relevant provisions are as

follows:

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6. (1) Upon the occurrence of any loss ofor damage to the insured property, the insured shall, ifsuch loss or damage is covered by the contract, in addition to observing the requirementsof conditions 9, 10 and 11:

(a) Forthwith give notice thereof in writing to the insurer,

(b) Deliver as soon as practicable to the insurer a proof of loss verified by statutorydeclaration:

(i) Giving a complete inventory of the destroyed and damaged propertyand showing in detail quantities, costs, actual cash value and particularsof the amount ofloss claimed; ...

(iii) Stating that the loss did not occur through any wilful act or neglect orthe procurement, means or connivance of the insured; ...

(vii) Showing the place where the property insured was. at the time of theloss.

7. Any fraud or wilfully false statement in a statutory declaration in relation to any of theabove particulars shall vitiate the claim ofthe person making the declaration.

Additionally, there is invariably a specific exclusion in fire policies that provides that there is no

coverage for an occurrence caused by the deliberate act of the insured. The wording is often as

follows:

"This policy does not insure loss or damage caused by the intentional or criminal acts of theinsured."

Accordingly, if the loss is deliberately caused by the insured and the insurer can establish this to

the necessary standard ofproof, the insurer can deny the claim on the basis that:

a) The loss is not covered by application of the specific exclusion forwrongful or deliberate act ofthe insured; or

b) The insured, upon completing a standard form ofProof of Loss, will havemade a wilful false statement in his Proof, which contains the specificprovision that the loss did not occur through any wilful act or neglect orthe procurement, means or connivance ofthe insured.

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If the reason for the denial is the fraudulent presentation or exaggeration of a claim with respect

to a legitimate occurrence, then there must be a specific false statement in the Proof ofLoss, or

the particulars related to items particularized in that Proof, that it can be established is false, for a

denial based on a breach ofpolicy conditions.

2. Breach of.common law principle with respect to utmost good faith.

In addition to denials based on breach of policy condition, express or statutory, there is autvority .

for the proposition that if an insured advances a claim fraudulently or dishdnestly, the insurer can

deny the claim on the basis that the insured has breached his common law duty of utmost good

faith, even if the insured cannot establish a specific breach ofa policy condition.

The leading Canadian case with respect to this principle is Anastasov v. Halifax Insurance

Company (1987), 26 C.C.L.I. 7 (B.C. c.A.). In Anastasov, Mr. Justice MacFarlane said as

follows at page 15:

The fraud ot wilful misstatement which will vitiate the claim is placed by statutory condition 70na narrow basis, but it is of statutory recognition, in my opinion, of a wider rule that the utmostgood faith is fundamental to every insurance policy and that fraud on the part of the insured willvitiate the policy. In my opinion, a specific condition such as we will find in statutory condition 7,and which was present in the Britton case as well, does not and cannot oust the general rule, whichis so fundamental to insurance contracts.

In Anastasov, the insureds had jointly submitted a schedule of loss to the insurer with respect to

items that they claimed had been replaced following a loss. In fact, the items had not been

replaced. The schedule was not reduced to particulars under a Proof ofLoss and the insureds did

not swear a false ProofofLoss particularizing the items in dispute.

Accordingly, if clear evidence offraud is encountered with respect to the presentation of a claim,

even if the insureds have not given a wilful false statement in a Proof with respect to the matter

in dispute, the claim may still be denied, provided that the fraud has been committed by all

insureds covered by the policy and advancing the claim. .See: Dorosh v. Co-operators General

Insurance Company (1992), 96 Sask. R. 30.

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3. Denial of the claim of a plaintiff for personal injury damages, in tort, on thebasis of significant exaggeration of injuries or damages, or lying with respectto the advancement of a claim.

In a number of Saskatchewan Queen's Bench cases over the past few years, Judgeshavebeerr

prepared to award damages to Plaintiffs in situations where they have made findings that the

Plaintiffs evidence on some aspects with respect to their claim for damages cannot be believed.

The Courts have taken the position that even though they are prepared to accept that the Plaintiff

has lied or significantly exaggerated his claim in some areas, if there is positive, credible

evidence of injury and loss, the Court is prepared to compensate the Plaintiff for the "proved"

losses and disregard those aspects ofthe claim where the Plaintiff gave false evidence.

See: 1. Oleskiw v. The City ofRegina (1992), 103 Sask. R. 231

2. Paquette v. LastMountain Co-operative Association Ltd.(1994), 115 Sask. R. 161

3. Fareid v. Battiste andSkinner[1994] Sask. D. 3398-03

There is authority from the trial division of British Columbia for the proposition that an

untruthful Plaintiff in a personal injury case should not be entitled to damages if the Court is, as a

consequence of the lack of credibility of the Plaintiff, unable to determine the true extent of the

Plaintiffs injuries. In Lehl v. Boschman, (Sept. 21, 1984), Vancouver B30277 (B.C.S.C.),

liability was admitted. The Plaintiffwas involved in a motor vehicle accident and claimed that a

previous back injury had been significantly aggravated. The Plaintiff stated that he had not

worked after the accident. The evidence established that in fact he had worked as a janitor a

week after the accident. As the Plaintiff was untruthful, the Court was unable to determine

whether the injury he complained of resulted from the accident. As the Plaintiff s claims were

subjective, the Court held that it was unable to put much faith in the medical evidence which

was, in large part, based upon the Plaintiff's credibility. Mr. Justice Bouck concluded as follows

at page three of the Judgment:

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Nonetheless, the Defendants say that even though the Plaintiff lied to this Court about the extentof his disability, they are prepared to pay him up to $3,000.00 for his pain, injury and suffering,but nothing for this past wage loss. Notwithstanding such a concession, I think this case should bedismissed. This Court should not be seen to condone sham Claims. Nor should it easily forgivefalse testimony even though the Defendant may be willing to overlook that type ofevidence.

See also: Sarai v. Nicklen (July 3, 1986), New Westminster C840809/C841412 (B.C. S.C.) where

Mr. Justice D.B. McKinnon considered a motor vehicle personal injury claim where he made a

finding that the Plaintiff, Debbie Sarai, had lied with respect to the issue of whether or not her

co-Plaintiff, her mother, was present with her in the car at the time of the accident. The Court

concluded that the Plaintiffs mother was in fact not in the car. Mr. Justice D.B. McKinnon

stated at page fout:

This Court has an inherent jurisdiction to ensure that it is not abused by litigants. It must remainan instrument for dispensing justice and not a party to injustice. Debbie Sarai suffered someinjuries in this accident Debbie Sarai was also a party in an attempt to perpetmte a fraud on thisCourt I refuse to further that fraud by rewarding her with a monetary award. The Plaintiff'sclaim is accordingly dismissed with costs.

Fraud against an insurer, pursuant to breach of statutory condition, breach of policy condition or

breach of common law provision, will vitiate an entire claim even if the fraud only relates to a

party of the claim. It is submitted that with respect to a claim in tort where the Plaintiff has no

contractual connection with the Defendant, even stronger considerations should apply to lead to

the conclusion that fraudulent evidence or false evidence with respect to a portion of the claim

should result in the vitiation ofthe entire claim.

ID. EVIDENTIARY ISSUES

1. Onus of proof

The onus will be on the insured to satisfy the Court on a simple balance of probabilities

that a loss occurred, or that an article was damaged or destroyed. The leading case with respect

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to this proposition is Shakur v. Pilot Insurance Co. (1990),41 O.A.C. 51; 74 O.R. (2nd) 673 (Ont.

c.A.). Mr. Justice Griffith said as follows at page 681:

It is fundamental insurance law that the burden of proof rests on the insured to establish a right torecover under the tenns of the policy. In this case, the burden rested on the Respondent andremained on the Respondent to prove on the balance of probabilities that a theft of her jewelry hadoccurred. That the Appellant, in denying the allegation of theft, impliedly alleged that theRespondent was fraudulent in putting forward the claim in no way shifted the basic burden ofproof resting on the Respondent

Generally, this onus is easily met by an insured in the first instance. The sworn evidence of an

insured that an occurrence (a theft, break-and-enter or fire) occurred and that property was lost

will generally be sufficient to shift the onus of proofonto the insurer to establish that the insured

has been fraudulent with respect to the occurrence of the loss or with respect to the presentation

of the claim for damages.

2. Standard of proof

The standard of proof that the insurer must meet is not the criminal standard of proof beyond a '

reasonable doubt. The standard the insurer must meet is that required with respect to civil

actions, namely, the insurer must establish a proposition on the basis of a balance of

probabilities. The insurer must establish that it is more likely than not that a proposition

occurred. However, when an allegation of fraud or misconduct is made, the standard of proof is

higher and proof will be required of a standard commensurate with the occasion. (See: Grover

Holdings v. SGI (1982), 18 Sask. R. 373).· The more unlikely or improbable the allegation

required to be proved, the more cogent is the evidence required to overcome the unlikelihood or

improbability.

I have the following general comments about onus of proof in insurance fraud cases:

a) Insurers must be aware they face a difficult task in establishing a denial.They will usually bear a high standard of proof to establish fraud on astandard that in reality approaches the criminal standard of proof beyond areasonable doubt.

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b) It is more difficult to prove a negative proposition than a positive one.The insurer will have to establish that something did not occur. Forexample, the insured may allege that a break and enter or theft occurredand will have perhaps minimal evidence, apart from his verbal evidence,that this happened. The insurer will then bear the onus of proving that theinsured's version of events is inaccurate. By way of further example, ifproperty or equipment is stolen in an alleged break and enter and theinsurer alleges that the property was not in the house at the time of thebreak-in, the insurer will bear the onus of establishing the negativeproposition that the articles were not there as alleged.

c) To some extent, there is a bias against named insurers when actions arebrought by consumers. Insurance companies are often viewed as large,impersonal corporations having large amounts ofmoney. An insured paida premium for coverage to the insurance company. The Courts seem onoccasion reluctant to find against individual Plaintiffs under thesecircumstances. Further, in my experience Judges are very reluctant tomake a specific finding that someone is a cheat and/or a liar, even whenthe evidence supporting this proposition seems overwhelming.

IV. RECENT DECISIONS INVOLVING CLAIMS WHERE FRAUD ORARSON HAS BEEN ALLEGED BY INSURERS

1. Dorosh v. The Co-operators General Insurance Company (1992), 96 Sask. R. 30.

Mr. Dorosh, the sole insured, had a fire policy on his home and contents. He alleged he suffered

a break-and-enter in his house, with the leftofa large quantity of stereo and electronic

equipment. The break and enter seemed legitimate. There·was forced entry and the occurrence

had been immediately reported to the police. A list of the equipment allegedly stolen was

informally obtained by the insurer's adjuster. One of the items allegedly stolen was a Yamaha

model CDX 500 CD player. Mr. Dorosh advised the adjuster that he had bought the CD player

from Audio Warehouse in the "Spring of 1989" for an amount slightly in excess of $500.00.

Dorosh had had a previous break-and-enter, and had received a payment with respect to a CD

player stolen from the Co-operators.

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The adjuster checked with Audio Warehouse and was advised that Audio had no record or

invoice of a sale to Dorosh at relevant times. Further, Audio Warehouse had not sold that model

of Yamaha CD player at the time Dorosh said he had bought it. Further, Audio Warehouse

advised they had never sold Yamaha CD players for a purchase price in excess of$500.00.

Dorosh swore a Proof of Loss particularizing, on a schedule, that he had purchased the Yamaha

CDX 500 CD player from Audio Warehouse in the Spring of 1989. The claim was denied on the

basis that he had made a wilful false statement in the Proof

At trial Dorosh testified that he had paid cash for the CD player at Audio Warehouse. He could

not produce a receipt or invoice with respect to its purchase. Further, he could not produce

operator's manuals or instructions with respect to the unit. He had kept other operating manuals

with respect to other pieces of stereo equipment in a common area that were unaffected by the

break and enter.

Mr. Dorosh was a credible, clean-cut young man with a good work history. The insurer was

faced with a difficult task of convincing the Court of the negative proposition that the CD player

was not purchased from Audio Warehouse as the Plaintiff alleged.

However, the evidence against Dorosh was overwhelming. Audio Warehouse kept copies of its

sale invoices, numerically, and hundreds of invoices were checked for the three to four month

period around the time ofthe sale, to determine if any cash sale had been made of a Yamaha CD

player. The evidence of the Audio Warehouse employee was tendered in Court that showed no

sale of a CD player to Dorosh.

The Court concluded that Dorosh had made a deliberate false statement on his Proof of Loss.

Because that statement related to relevant particulars, namely, the nature, value and place of

purchase of an item allegedly lost, that the insurer needed to reasonably know to evaluate the

claim, the whole claim was vitiated.

Judge Armstrong went on to say that even if there had been no statutory condition 7 in the policy

or any provision in the contract with respect to false statements, a false statement in the

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advancement ofhis claim would vitiate the whole of the insured's claim. Mr. Justice Armstrong

quoted Ivamy, General Principles ofInsurance Law, 4th Edition, page 433 as follows:

Since it is the duty of the assured to observe the utmost good faith in his dealings with the insurersthroughout, the claim which he puts forward must be honestly made; and, if it is fraudulent, hewill forfeit all benefit under the policy ,,:hether there is a condition to that effect or not.

And footnote No. 17 cited for the above, in part:

Britton v. Royal Insurance Co. (1866), 4 F. & F. 905, per Wills, I, at p. 909: The contract ofinsurance is one of perfect good faith on both sides, and it is most important that such good faithshould be maintained. It is the common practice to insert in fire policies conditions that they shallbe void in the event of a fraudulent claim, and there was such a condition in the present case. Buta condition is only in accordance with legal principle and sound policy ... if there is a wilfulfalsehood or fraud in the claim, the insured forfeits all claim whatever upon the policy. See alsoThurtell v. Beaumont (1823), 1 Bing. 339 (fire insurance); Goulstone v. Royal Insurance Co.(1858), 1 F. & F. 276 (fire insurance) per Pollock, C.B., at p. 279: lfthe claim was fraudulent, thePlaintiff cannot recover.

2. Morcos v. The Co-operators General Insurance Company (1991),44 C.C.L.I. 245.

Mr. Morcos was an immigrant with a poor employment history. He had been unemployed for

some time. He was married with children. The family was on Social Assistance. They rented a

small house in a poorer area ofRegina. For a considerable period of time prior to October 1988,

they had had no insurance on their belongings. On October 25, 1988, Mr. Morcos applied for

and was issued an insurance policy by the Co-operators with respect to the contents ofhis rented

premises. One week later, on November 1, 1988, the insured Morcos claimed that he suffered a

break-and-enter with significant loss of cash, camera equipment and a VCR.

The police were called. There was some evidence of damage to a screen on a door that would

have allowed access to the premises. The insured's story was that he had gone with his wife and

children to a counselling session and then to MacDonald's. When he got home, he found the

front door open, evidence of forced entry on the rear door, and items missing.

After the· loss occurred, the insurer received information from anonymous sources that the claim

was fraudulent -- there had not in fact been a break-and-enter or items stolen. Accordingly, the

insurer was very suspicious, but it had no hard evidence of fraud on the part of the insured. The

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insurer attempted to "stall" the insured, and he hired a lawyer and sued. The insurer had obtained

particulars of the VCR allegedly stolen. They had its make, model and serial number on a Proof

that had been completed by the insured.

The insurer then received a further anonymous tip that the VCR was with the insured's wife, who

had since separated from the insured. A statement was formally obtained from her at her house

where the VCR, with an identical serial number to that allegedly taken in the break-in, was

located. In the statement, Mrs. Morcos stated that the VCR was on the television on the day of

the break-and-enter when she left with her husband, and she didn't look for it or see it when she

returned. She said in her statement that the insured's mother had given her the VCR when she

moved out of the insured1s home with the children in early 1989.

Based on the evidence that the VCR allegedly stolen in the break-in was still in the family's

possession after the B & E, it was felt that the insurer's case was very strong. At the pre-trial

conference, the Plaintiff Morcos applied for leave to amend his claim to delete the claim for the

VCR, advising the Court that he had first learned at the time of the Examination for Discovery

that the VCR was with his estranged wife and accordingly acknowledged that he could not claim

for the value of the same. The pre-trial Judge had difficulty not laughing aloud at the absurdity

of the foolish position that was being taken given the facts. In my opinion, the only credible

explanation was that Morcos had staged the break-at\d-enter and claimed for items that had

cleared not been stolen.

For trial, I had subpoenaed Mrs. Morcos, who was still living apart from her husband. I believed

that I had her evidence reasonably tied up as a consequence of the fact that I had a clear written

statement from her in which she had stated that the VCR, which her husband claimed to have

been previously stolen, had in fact been given to her by her mother-in-law after the break-and­

enter. However, Mrs. Morcos was, to my surprise, called as a witness for her husband. She

changed her story at trial, saying that on the day of the break and enter she made a quick· trip

back to the house, in the absence of her husband, and put the VCR in the basement, hiding it. It

was her intention to pawn the VCR later to get drug money. She testified that when she came

home with her husband, there was evidence of a break-and-enter and other items missing, and

she accordingly decided she could not pawn the VCR that she had put downstairs, as the police

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would have known that it was stolen. Mrs. Morcos had no real explanation for giving what she

said at trial was a false statement to the insurance investigators some months previously.

To my great surprise, the trial Judge was prepared to accept this "new" version of events from

Mrs. Morcos, over the clearly logical explanation that the break and enter and loss of damage

was staged by Mr. and Mrs. Morcos. Judgment was given in favour ofMr. Morcos.

As the trial Judge had made clear findings of fact that he believed the evidence of Mrs. Morcos

given at trial, the decision could effectively not be appealed and the insurer was forced to live

with it.

The insurer and I received some comfort from a case comment of the Editor of the Canadian

Cases On The Law of Insurance, Mr. James A. Rendall, who quite critically reviewed the

decision and wondered why the trial Judge would make such strange findings of fact without any

real explanation.

The trial Judge referred to wording in the application for insurance in his Judgment that made

reference to the fact that the insurer could have sought a consumer report containing personal

credit, factual or investigative information about the applicant, before issuing the policy. This

application and the wording on it were not specifically referred to in evidence or discussed in

argument at the triaL I speculate that the Judge may have been trying to give the insurer a

message that it should not have insured this person. Because they did, the insurer should not

now be allowed to complain that they received a speculative claim that they should honour. In

my opinion, this is not a good rationale. Poor people are entitled to insuranc~. People who lie

and cheat with respect to their insurance should not be allowed to benefit if the evidence

establishes clearly that that is the design ofthe insured with respect to the claim.

The lesson from Morcos is that insurers must be very meticulous and careful in the preparation

and presentation of a case involving fraud. You may struggle to obtain an impartial hearing.

The case will hinge on credibility of witnesses. If the findings of credibility are not in the

insurer's favour, the decision will likely not be appealable.

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3. Westendorp v. WawanesaMutual Insurance Company (1993), 114 Sask. R. 281.·

Mr. and Mrs. Westendorp claimed under a Wawanesa insurance policy as a consequence of a

theft of personal property from their home in a break-in. The Plaintiffs had several adult

children. The Plaintiffs claimed that several rifles and a black leather jacket were stolen during

the break-in, when they particularized approximately $54,000.00 in property that was allegedly

lost. By chance, some time after the break-in a police raid under a Warrant of a house in Regina

where one of the Plaintiffs' children was residing, turned up the rifles and leather jacket that had

been claimed by the Plaintiffs with respect to the insurance claim.

The Court concluded on the basis of the evidence led at trial that the Plaintiff, Hendry

Westendorp, knowingly submitted a false claim with respect to the three rifles and the black

leather jacket that were found at the residence ofhis child in Regina by the police.

The whole claim ofthe Plaintiffs was vitiated as a consequence of the fraudulent presentation of

a portion of the same. There was no indication that Mrs. Westendorp was involved in the fraud.

Had the case been tried after Wigmore, infra, a different result would likely have occurred.

4. Wigmore v. The Canadian Surety Company, D.A. Scrivener Adjusters Ltd (1994),124 Sask. R. 113 (Q.B.); 144 Sask. R. 285 (C.A.)

Mr. and Mrs. Wigmore had a fire insurance policy with Canadian Surety that covered their

jointly owned home and furnishings. It specifically provided coverage for sewer backup. While

the policy was issued in both names, there was no specific description or definition inthe policy

as to whether the interest ofthe insureds in the insured property was joint or several.

The Wigmores had a sewer backup in the Summer of 1991. The insurer appointed a Regina

based independent insurance adjuster to adjust the claim, as they had no local adjusters. The

claim was legitimate. There was a loss in a well-developed basement. The basement had two

bedrooms and recreation room downstairs. There was a large contents claim with respect to

items that were either damaged or destroyed.

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In the days following the loss, the insurance adjuster attended to the house and started working

on the valuation of the loss and the identification of the extent of repairs necessary to the

basement. The Wigmores had three children and Mrs. Wigmore was busy with household

duties. Mr. Wigmore was an "accountant" and he took charge of dealing with the insurance

adjuster, completing detailed Schedules of Loss and obtaining quotations from general

contractors with respect to the building repairs.

The adjuster and Mr. Wigmore discussed the basis of the carpet replacement in the basement.

Discussions were held as to the value of carpet that had been put into the basement several years

before the sewer backup. Mr. Wigmore produced an invoice from a carpet supplier that had been

altered from the figure of $2,273.00 to $~,273.00, showing the original cost ofthe carpet.

The adjuster confirmed this alteration with the supplier's records and sought instructions from the

insurer. A decision was made to reduce the "fraud" ofMr. Wigmore to writing and into a Proof

ofLoss. Mr. Wigmore:

1. Signed a statement "confirming" the false number ofthe invoice; and

2. Swore a Proof of Loss, which contained carpet "particulars" in the alteredamount of$8,273.00.

Mrs. Wigmore had no dealings with this aspect of the claim. The adjuster made no attempt to

discuss the matter of the carpets with her or have her jointly sign the statement of Mr. Wigmore

or jointly swear the Proof of Loss. The insurer had no evidence that Mrs. Wigmore had any

knowledge of or had participated in her husband's fraud.

After the fraud was reduced to writing, a decision was made to deny the claim. This was done

knowing that the face amount of the claim as presented was in the approximate amount of

$35,000.00 with respect to the building repairs and $65,000.00 with respect to the contents

claim.

Page 15

The insurer advised the Wigmores of the denial and took no further steps to identify the

appropriate amount of the claim or to adjuster the insured's loss.

The trial ultimately proceeded before Mr. Justice Klebuc in February of 1994. There were three

main issues in the trial:

1. Was Mr. Wigmore guilty of fraud? If so, did that fraud vitiate his claimunder the insurance policy?

2. If Mr. Wigmore was guilty of fraud, did his fraud vitiate Mrs. Wigmore'sclaim under the policy?

3. Did the independent insurance adjuster owe a duty of a fiduciary nature toMrs. Wigmore? If a duty was owed, was it breached? If the duty wasowed and breached, what were the consequences of the breach?

The question of whether or not Mr. Wigmore had been guilty of fraud was contested vigorously

by the Plaintiffs. Most of the lengthy trial was spent dealing with this issue. The insurer was

ultimately able to convince the Court that Wigmore had been fraudulent, and on the basis of

Dorosh v. The Co-operators, that his claim should be wholly vitiated.

However, the Court concluded that the fraud of Mr. Wigmore did not vitiate the claim of Mrs.

Wigmore.

The Court distinguished cases where a joint insured had deliberately or fraudulently caused a

loss from the case under consideration, where the fraud related to the manner of presentation of a

claim where a loss had been legitimately suffered.

The policy wording was not sufficiently clear in the general wording, definitions, or statutory

conditions, to establish that the insurer had not agreed to severally, rather than jointly, insure the

parties. Accordingly, the wilful fraud of one did not vitiate the claim of the other innocent party

pursuant to the standard statutory condition 7.

Accordingly, the claim ofMrs. Wigmore was allowed, even though effectively this benefited Mr.

Wigmore, who had been guilty of fraud, to the extent of 100 percent ofhis loss.

Page 16

The Judge appeared critical at trial of the manner in which the adjuster had put a Proof of Loss

that he "knewll or "suspected" was false to the insured, Mr. Wigmore. Further, the Judge

appeared critical of the manner in which the adjuster had not contacted Mrs. Wigmore to advise

her of his concerns with respect to Mr. Wigmore's actions, before taking the IIfalse" Proof and

recommending the denial ofthe claim to the insurer.

I was surprised at the position taken by the Judge concerning these issues. In my submission, the

adjuster had to proceed in the fashion in which he did. He had caught Mr. Wigmore in a clear

attempt to fraudulently inflate a claim. It was necessary to "reducell the fraud to a written

committment by Mr. Wigmore so that there would be evidence of it to rely on.

If one assumes that exposure of fraudulent insurance claims is in the interests of society

generally, there must be some civil or monetary penalty for trying to cheat, even if there is not a

criminal charge laid.

If the adjuster would have presented the Proof of Loss to Mrs. Wigmore for her signature,

perhaps in the company ofMr. Wigmore saying that Mr. Wigmore had taken the position that the

. figures and information in the Proof of Loss were accurate, and suggested that Mrs. Wigmore

swear the Proof ofLoss as true, there would still not have been a basis for establishing that Mrs.

Wigmore wilfully made a false statement on the ProofofLoss.

Ifthe adjuster would have presented the specific detail of the altered invoice to Mrs. Wigmore in

a sufficient fashion to alert her to the fact that the total amount claimed had been obviously

altered, she, of course, would never have sworn the Proof ofLoss as true.

In my submission, the adjuster did all that he could have and should have done in the case.

The trial Judge also held that the independent insurance adjuster owed a fiduciary duty to Mrs.

Wigmore. The Judge concluded that when the adjuster became aware of Mr. Wigmore's

fraudulent intent, he should have stopped acting for Mrs. Wigmore because her interests

conflicted with that ofthe insurer.

Page 17

In my submission, this was a strange ruling that was not technically necessary to support the

ultimate conclusion that Canadian Surety was liable to Mrs. Wigmore under the policy. As such,

it is not part of the formal rationale of the decision that is viewed as persuasive authority by other

Queen's Bench Courts that deal with similar issues. Accordingly, I would be surprised if other

Judges in Saskatchewan or other provinces in Canada followed this aspect of the decision as the

law.

The decision was appealed to the Saskatchewan Court of Appeal which, after hearing extensive

arguments, deliberated on the matter for eleven months. In August of 1996, the appeal was

ultimately dismissed on the issue of whether or not the fraud ofMr. Wigmore also vitiated Mrs.

Wigmore's claim. The Court ofAppeal agreed with the trial Judge that:

1. The violation of statutory condition 7 by Mr. Wigmore specifically onlyvitiated his claim, as the person actually making the wilful falsedeclaration;

2. The wording ofthe policy was not otherwise sufficiently clear to establishthat the interests of the Wigmores in the insured property was joint ratherthan several;

3. Public policy did not demand that Mrs. Wigmore not receive a completebenefit from the insurance policy in order to avoid Mr. Wigmore receivingsome benefit from his civil wrong.

With respect to the public policy issue, the Court of Appeal stated that the granting of a benefit

to Mrs. Wigmore did not violate public policy as Mr. Wigmore had not caused the loss and he

accordingly was not benefiting from a wrongful act. The Court reasoned that Mr. Wigmore was

simply not being punished for having misrepresented the amount of the loss. The Court stated he

was in no worse position than ifhe had not done what he did.

The obvious criticism of this approach is that the insurance contract is one of utmost good faith

and that a breach ofthat principle ofgood faith by an insured should have the consequence ofthe

loss ofbenefits under the policy, no matter how severe that consequence is. However, Wigmore

is certainly now clearly the law in Saskatchewan and very persuasive authority in other trial

divisions in Canada. Accordingly, unless there are contractual changes to the provisions of

standard fire insurance policies with respect to the description of the interest of insureds and the

Page 18

consequences of fraud or misrepresentation of one insured on the claim or contractual rights of

the other and/or legislative amendments to the statutory conditions in fire policies to reflect more

significant consequences if an insured makes a wilful false statement (to the effect that the wilful

false statement would vitiate the claim of the maker of the statement and also any other joint

owner who has an interest in the presentation of the claim), such false statements will not result

in vitiating claims of an innocent co-insured.

5. Hashem v. Allstate Insurance Co. of Canada [1998] O.J. 2779, Bell, J., Judgment dated

June 29, 1998

In Hashem, the Plaintiff had practiced dentistry in Ottawa since the mid-1980's. He was a

participant in a number of professional associations and had been very active in community .

organizations, receiving several awards. A break-in occurred at Hashem's residence when he

was out. He swore a Proof ofLoss claiming $102,000.00 in property losses as a consequence of

the theft.

Notwithstanding the Plaintiff, Dr. Hashem's, professional status and position in the community,

the Court had no hesitation in finding that he had misrepresented the nature and extent of his

losses by providing false receipts and incorrect statements, with an attempt to inflate his claim.

With respect to several ofthe items claimed to have been stolen, the Plaintiff provided receipts to

the insurer, Allstate, which had been provided to another insurer on a previous occasion with

respect to a break-in.

6. Brown v. WawanesaMutual Insurance Company, [1995] 4 W.W.R. 435 (Q.B.)

Here, a fire occurred in a Prince Albert residence, starting when the three insureds were home.

All three denied knowledge of how the fire started. There was evidence of the presence of an

accelerant, and the insured denied the claim. The Plaintiffs sued Wawanesa.

Page 19

The headnote of the Western Weekly Report summarizes the decision as follows:

Where an insurer alleges arson in denying coverage, the civil standard of reasonable probabilityoperates in tandem with the presumption against a crime having been committed. The evidencemust be cogent enough to overcome the presumption and satisfy the Court that as a probability thealleged act had, in fact, occurred. The four factors to be considered are motive, credibility,opportunity, and arson as opposed to accidental fire. The salient question here was whether thefire was arson. The rapidity with which it spread was itself evidence of an accelerant's use, andimpeached the insureds' assertion that none of them set the fire. They were the only people in thehouse. On the highest degree ofprobability approaching proofbeyond a reasonable doubt, the firewas set using an accelerant and one of the three insured set it. Their motive was irrelevant.

7. Springer v. Saskatchewan Government Insurance [1998] S.l No. 539 Q.B.G. No.2272 of 1996.

In Springer, the Plaintiff sued his insurer as a consequence of the destruction by fire of his mobile

home, located on his grandparents' farm site in rural Saskatchewan.

The Plaintiff testified that he was alone in the trailer in the early morning hours and was

awakened by a -smoke detector. He testified he found the mobile home already in flames and

rushed out of the mobile home to have the fire department called. The Plaintiff had given a

similar account ofthe circumstances ofthe start ofthe fire to R.C.M.P. on the day of the fire.

A fire investigator retained by the Plaintiff found the presence of hydrocarbons in the debris of

the mobile home. Further, a second fire investigator retained by the Defendant expressed the

opinion that had the Plaintiff encountered the circumstances he described in his testimony and

initial statement, he would have been suffering to some extent from carbon monoxide poisoning,

would have had singed hair, would have had soot on his face and would have had clothing

smelling of smoke. None of these circumstances were in existence when the Plaintiff dealt with

the police initially after the fire. Mr. Justice Malone concluded that the fire was deliberately set

by the Plaintiff, and the Plaintiff s claim was dismissed.