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01 Jun 2017

Punitive Damages awarded against insurer for denying coverage in fire loss

by Erika Hachey
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J.I.L.M. Enterprises & Investments Limited v. INTACT Insurance, 2017 ONSC 357

This case stands as a warning to insurers who maintain a denial of insurance benefits on suspicion of arson after no persuasive evidence is led by police or other investigators proving this to be likely.

Here, punitive damages were awarded in the context of a fire loss claim where the insurer took over three years to pay the insured.  As you may recall, the leading case on punitive damages in Canada is Whiten v. Pilot Insurance Co., where a delay to pay out a fire loss cost the insurer over $1 million dollars in punitive damages.

In May 2009, the motel business of the plaintiff was partially destroyed by fire. A claim was promptly made, however the insurer’s adjuster suspected arson. Following an investigation, the claim of arson could not be established. However, no payment was made under the policy for over three years following the loss. The plaintiff brought an action for damages, arguing that they suffered increased damages because of the delay. The plaintiff also claimed for punitive damages. 

The trial judge stated that an insurer is entitled to conduct an appropriate investigation, and a one year investigation is appropriate. However, the failure to pay until almost two years later was a breach of contract. The trial judge also stated it was inappropriate for the insurance adjuster to continue investigating arson after the police and fire department concluded there was no evidence. The trial judge awarded punitive damages in the amount of 10% of the actual cash value (ACV) amount for each delayed year of payment.

The trial judge also awarded lost profits outside of the insurance policy for one year following the loss. At best, the motel business would not have been rebuilt and up and running earlier than a year and a half following the loss, and at the latest five years following the loss. The trial judge awarded lost profits based on this assumption.

You can read J.I.L.M. Enterprises & Investments Limited v. INTACT Insurance, 2017 ONSC 357, in its entirety here.