Our first case deals with an exaggerated proof of loss from which an insurer levelled allegations of fraud against its insured, and a resulting claim for punitive damages against the insurer.
Our second case deals with the treatment of the phrase “authorized by law” under the Statutory Conditions of the Insurance Act applicable to motor vehicle insurance policies.
Our third case is a recent Supreme Court of Canada decision that reviewed the law on causation in negligence cases.
Brandiferri v. Wawanesa Mutual Insurance et al., 2012 ONSC 2206
This case arose following a fire which occurred at the plaintiffs’ home inside a detached garage, causing extensive damage to the garage and smoke damage to the inside of the home.
The plaintiffs submitted a claim for the loss to their insurer, Wawanesa. A housing contractor, Strone Construction, was hired by the homeowners to undertake remedial work.
While the contractor was undertaking the remediation work, there were disputes between it and the plaintiffs over the quality and scope of the work to be completed. The plaintiffs also disagreed with the insurer over the valuation of the claim. The insurer stopped issuing payments to the contractor and the work was left unfinished. Due to the unsatisfactory and unfinished work, the homeowners were unable to return to the home until approximately 5 years after the fire.
The plaintiffs commenced an action against the contractor for deficient remedial construction, and against their insurer for further damages, including punitive damages. The insurer counterclaimed against the plaintiffs for $600,000, alleging fraud on the part of the plaintiffs for presenting an inflated and false proof of loss.
At trial, the Judge awarded the plaintiffs $108,257 for additional repairs to the home to return it to the condition it was in before the fire; this was payable severally by the contractor and the insurer for their respective shares of the additional cost of the remediation. The Judge also awarded damages for additional living expenses and personal property over and above what the insurer had already paid out, albeit not as much as the plaintiffs had been seeking in their claim.
The plaintiffs were also awarded punitive damages of $100,000 from the insurer for its late- breaking allegations of fraud, referred to by the Judge as “a high-stakes litigation strategy designed to intimidate [the plaintiffs].” The Court stated that it is not automatically fraud for a plaintiff to put in a claim that might be seen as exaggerated, as the law is tolerant, within limits, of the “natural human tendency of claimants to seek to maximize their recovery and to exaggerate.”
Kereluik v. Jevco Insurance Company, 2012 ONCA 338
In February 2003, the insured, Paul Kereluik, was arrested for impaired driving causing bodily harm following a motor vehicle accident. He was released from custody after giving an undertaking to police to abstain from possession and consumption of any alcoholic beverages.
On December 12, 2003, the insured was involved in a second motor vehicle accident wherein a third party was injured. The insured was impaired at the time of the second accident, and as a result was subsequently charged and convicted of impaired driving and breach of an undertaking.
The injured third party commenced an action against the insured related to injuries sustained in the second motor vehicle accident. At the time of the second accident, the insured held a valid standard motor vehicle insurance policy issued by Jevco, which accordingly defended the insured for several years.
However, upon learning of the conviction for breach of the undertaking, the insurer notified the insured that it would no longer provide a defence or indemnify him against any damages awarded against him.
Eventually an application was filed with the Court, seeking a declaration that the insurer was required to defend and indemnify the insured. The insurer took the position that the insured had breached Condition Four of the policy, which reads as follows:
The insured shall not drive or operate or permit any other person to drive or operate the automobile unless the insured or other person is authorized by law to drive or operate it.
The application judge granted the declaration, concluding that the insured was “authorized by law” to drive since (1) he held a valid driver’s licence; (2) he was in compliance with the terms of that licence; (3) his licence did not contain an alcohol related condition or prohibition; and (4) his licence was in good standing. The insurer appealed.
The Court of Appeal upheld the application judge’s decision, ruling that there was nothing in Condition Four which stated that it was intended to apply to breaches of the law not directly connected with violations of driving licence conditions. The Court of Appeal did stipulate, however, that this situation could be distinguished from a driver involved in a graduated driver program, since the novice driver’s licence itself would include a restriction on alcohol consumption.
In the result, the appeal was dismissed.
Clements v. Clements, 2012 SCC 32.
A husband and wife were travelling on a motorcycle when they were involved in an accident. Unknown to the husband, who was driving, a nail had punctured the motorcycle’s rear tire. As the couple were passing a vehicle on the highway, the nail fell out, causing the rear tire to deflate resulting in the husband losing control of the motorcycle. The wife was severely injured. The motorcycle was found to be overloaded by 100 pounds. The wife brought an action against her husband, claiming her injury was caused by his negligence by overloading the motorcycle. The issue was whether or not his negligent act was the cause of the wife’s injury.
An expert witness testified at trial that the accident would have happened even if the motorcycle was not overloaded. The trial judge relied heavily on this witness and other scientific evidence, and was unable to find causation using the standard “but for” test. The trial judge applied a material contribution test instead, and found the husband liable to the wife on that basis. On appeal, the Court of Appeal set aside the judgment and dismissed the action on the basis that “but for” causation had not been proved and the material contribution test did not apply.
At the Supreme Court of Canada, Chief Justice McLachlin for a seven-judge majority affirmed that the test for causation is the “but for” test, and clarified the law surrounding the rarely used material contribution test. The main question was distinguishing between a case of true impossibility of factual proof, meaning the material contribution test should apply, and a situation where a plaintiff has failed to meet the burden of establishing a “but for” causation on the evidence.
To use the standard “but for” test of causation, a plaintiff must show on a balance of probabilities that “but for” the defendant’s negligent act, the injury would not have occurred. If the plaintiff cannot establish this on a balance of probabilities, then the action against the defendant must fail. For its part, the material contribution test should only be applied when it is impossible to apply the “but for” test, such as when two tortfeasors can escape liability by ‘pointing a finger’ at another.
The Chief Justice also clarified that the standard “but for” test for causation does require scientific proof. Scientific precision is not necessary to establish “but for” causation on a balance of probabilities. Here, the trial judge erred by insisting on scientific precision.
The majority allowed the appeal and ordered a new trial.
Justices LeBel and Rothstein, in dissent, disagreed that a new trial was needed, since in their view the plaintiff had failed to establish “but for” causation. The two dissenting justices would have dismissed the appeal with costs.