False Statements in a Proof of Loss: Important Insurance Decisions

Case Review: Abbas v Esurance Insurance Company of Canada, 2023 ABCA 36

An important Court of Appeal of Alberta insurance law decision came out on February 6, 2023: how do we know it is important? Because the first line of the reasons for judgment reserved says so:

[1] This is an important insurance case. It declares that the common-law-fraudulent-claims rule – an insurer is relieved of the obligation to indemnify an insured for any loss arising from the same event and under the same insurance policy if the insured files a fraudulent proof of loss that is material with respect to one or more parts of the claim whether or not some part of the proof of loss is not tainted by fraud – is still good law in Alberta. This severe rule has existed for roughly 200 years. And the rationale for the fraudulent claims rule has remained constant.

Mr. Abbas was injured as a passenger in an automobile operated by an uninsured driver. However, Mr. Abbas’ own insurance policy with Esurance had standard Section B coverage (benefits available to an insured who has suffered injuries in any car accident) as well as what is known as “SEF No. 44 coverage” which requires the injured party’s insurer to make up for the uninsured driver’s lack of coverage.

However, Mr. Abbas lied in his proof of claim form for Section B benefits about his employment, and later admitted it. As a result, Esurance denied his claim for benefits, and his SEF 44 claim as well. The insured sued the insurer for SEF No. 44 benefits. On the insurer’s application to dismiss Mr. Abbas claim, Master Summers denied it, saying it would be “patently unfair” to the insured to deprive him of SEF 44 benefits when the subject matter of the fraud was entirely unrelated to the eligibility criteria for SEF 44 benefits. On appeal, Justice Johnston granted the insurer summary judgment. The Court of Appeal sided with the insurer, upholding the dismissal and thereby denying Mr. Abbas any coverage.

The relevant section 554 in the Insurance Act reads “If… the insured contravenes a term of the contract or commits a fraud, or… willfully makes a false statement in respect of a claim under the contracta claim by the insured is invalid and the right of the insured to recover indemnity is forfeited [underline added]”. The question was whether the lie by the insured in his Section B benefits claim (re his employment status) is not material for the purpose of his entitlement to SEF 44 benefits, which have nothing to do with his employment status. Is the claim for SEF 44 benefits “a claim” under s. 554, because the Section B claim and the SEF 44 claim arise out of the same accident, and the same insurance contract? The Court of Appeal says yes: “An insured who files a fraudulent proof of loss under that circumstance is not entitled to a single dime from the insurer.

To demonstrate that the Court “has imposed harsh consequences on an insured [for] fraud” before, “even if the insured’s fraud did not prejudice the insurer directly”, it referenced a 1977 Alberta appeal decision, Swan Hills Emporium & Lumber Co. v. Royal General Insurance Co. of Canada, where a fire loss claim was denied where the insured falsely listed three televisions as fire losses when they were not, even though the coverage was for up to $30,000, and it was clear that the actual loss exceeded that amount. Quoting Chief Justice McGillivray’s decision in Swan Hills:

The court will not undertake for him the offensive task of separating his true from his false assertions. Fraud, in any part of his formal statement of his loss taints the whole. Thus corrupted, it should be wholly rejected, and the suitor left to repent that he destroyed his actual claim by the poison of his false claim.

Although in Swan Hills the false statement was “material” (it related directly to the insured’s claim), as have been the cases that have followed Swan Hills, the Court of Appeal has in Abbas now confirmed that the same principles requiring good faith and honesty on the part pf insured’s applied even where the wilfully  fraudulent statements are not material to the specific claim being denied (here, the SEF 44 claim). Also noted was that other provisions of the Insurance Act, such as in relation to an application for life insurance, does incorporate the materiality concept, suggesting that its absence from s. 554 is telling.

However, not all false statements in a proof of claim will vitiate coverage, there is still a common law principle of materiality that flows from the requirement that the false statement be “in respect of a claim under the contract”. The Court provides this comment and pithy example:

[91] This does not mean that any false statement an insured makes in support of a claim will deprive the insured of the benefit of insurance coverage. Suppose an insured files a proof of loss claiming that a thief broke into his Cadillac Escalade while the insured was having dinner with his wife and stole his golf clubs and his computer. He was not having dinner with his wife – he was having dinner with his mistress. Not only must an insurer prove on a balance of probabilities that the insured knew the information the insured provided the insurer was false or was reckless, it must also prove that it was material to one of the claims.[98] It must be more than a “collateral lie” designed to bolster an otherwise valid claim that, while false, has no impact on the claim.

Ultimately, this decision should be an important message to all insured persons, when any accident or loss arises, and they must prepare and submit a proof of loss. It is important to be as honest and thorough as possible in submitting that claim and in all dealings with the insurer in relation to the claims, knowing that where there are multiple claims or losses, being untruthful on one aspect may then result in all claims being denied.

If you have questions or concerns about your rights, obligations, or other duties under and insurance contract, please contact McCuaig Desrochers LLP’s Personal Injury or Insurance Law Practice Groups for guidance and assistance.

This article was written by Frank PK Friesacher, KC

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