It is common for insurance companies to face claims arising from questionable circumstances and reasonable for adjusters and claims handlers to investigate claims with a certain amount of skepticism. With the spread of fraudulent claims across Canada — and worldwide — it is critical to investigate with vigour to ensure proper claims are paid out while fraudulent claims are denied. However, a recent judgment from the Ontario Superior Court of Justice has emphasized the principle of fairness in the investigative process.
In Demetriou v. AIG Insurance Co. of Canada,1 Justice Gray granted summary judgment in the favour of the plaintiff insured, when he sued for the wrongful denial of a claim involving the lord of all rings.
The plaintiff, Mr. Demetriou, inherited a ring with an appraisal value of $550,000. He insured the ring with the defendant insurer on an all-risk basis in the amount of $581,951. While on vacation with his family in the Dominican Republic, the plaintiff was allegedly robbed at knifepoint. His ring, and the gold chain on which the ring was strung, were taken. Mr. Demetriou reported the robbery immediately to the hotel receptionist and local police. He also notified the Toronto Police Services, a representative of the Dominican tour operator, and many other authorities, including Foreign Affairs Canada. Unfortunately, no one could be of any assistance.
Mr. Demetriou made a claim to his insurance company about two months after the robbery on August 4, 2015. Mr. Demetriou participated in two examinations under oath and submitted a proof of loss. His wife and father also attended an examination under oath upon request of the insurer. It wasn’t until February 22, 2016, that the defendant insurer formally denied Mr. Demetriou’s claim on the basis that there was insufficient information to substantiate it, and announced that his file was closed. Mr. Demetriou brought a claim against his insurer soon thereafter.
Arguments & Analysis
Counsel for the insurer relied on previous case law to argue that it was unnecessary for the insurer to plead fraud.2 In addition, counsel for insurer emphasized that there were too many suspicious circumstances surrounding the loss, including the fact that Mr. Demetriou never told his wife about the ring in the first place. Counsel for the insurer claimed that Mr. Demetriou failed to fully cooperate with investigations by refusing to answer some of the questions during his examinations, and informed the court of a potentially fraudulent claim with another insurance company, raising it as “similar fact evidence”.3
In contrast, counsel for Mr. Demetriou argued that his client did everything he possibly could to substantiate his claim, including reporting the claim to various people and undergoing numerous examinations under oath. Counsel for Mr. Demetriou also submitted that the defendant cannot allege fraud at this point in the litigation, as a representative for insurer confirmed at discoveries that the insured would not rely on allegations of fraud and did not provide any particulars of fraud in its pleadings.
Justice Gray was persuaded that Mr. Demetriou did everything he could to further the investigation regarding his ring. He was also unconvinced that Mr. Demetriou’s refusal to answer certain questions during his discovery amounted to a lack of cooperation.
Significantly, Justice Gray indicated that Mr. Demetriou and his counsel developed and proceeded with a litigation strategy based on the basis that the insurer would not allege fraud. Consequently, Justice Gray could not allow the insurer to allege fraud at that point in the litigation. The insurer was ordered to pay $581,950 for the claim, and $4,000 for the gold chain. Also, Mr. Demetriou was awarded punitive damages in the amount of $50,000, since the insurer closed the file yet continued to request particulars. According to Justice Gray, “this was designed to set up the plaintiff with litigation even though it decided very early on that it would not pay the claim”.4
Lawyers – It is important to remember that the courts in Ontario in civil claims take a “no surprises” approach to litigation. Part of this approach includes providing particulars where fraud is alleged and submitting pleadings that reflect their litigation strategy. This case indicates that once a party expressly denies relying on an allegation of fraud in several instances, this allegation is no longer available to them. As such, counsel should be mindful of the future paths their matter may take them and should opt to leave as many doors open as possible while keeping in mind that allegations of fraud are very serious and a failure to prove fraud could lead to adverse cost consequences.
Insurers – All claims, whether they appear questionable or not, must be handled in a fair manner, and in good faith. It is understandable that the insurer, in this case, would suspect an insured that claims to have lost a valuable item of which his wife had no knowledge (especially since there was a similar prior occurrence). Robust investigations should take place and the adjusters/claims handlers should consider whether the insured reported the theft to local authorities, informed the insurer in a timely manner and consistently told the same story from “Day 1”.
In the authors’ view, this was not a case that should have warranted punitive damages. Punitive damages are awarded in insurance cases where the insurer’s behaviour is “malicious, oppressive and high-handed” to the extent that it “offends the court’s sense of decency”.5 Nevertheless, this case should be viewed with caution by insurers – as it is possible now based on the facts that an insurer who continues to request information from an insured, knowing that it will deny his or her claim, may meet the threshold that warrants an award of punitive damages.
Insured Persons Submitting Insurance Claims – Individuals, business or organizations submitting insurance claims for stolen goods should follow the steps taken in this case by reporting the theft right away to local authorities, reporting the theft to the insurer, advising friends and family that can corroborate the situation and cooperating fully with insurers.