When Zealous Claims Adjustment Becomes Bad Faith

Punitive damages awarded against jewelry insurer for requiring proof of pre-policy ownership of jewelry despite not alleging misrepresentation by the insureds at the time of policy application as to that fact.

Insurance law – Property insurance – Ownership of property – Valuation of property – Actual cash value – Replacement value – Insurers – Duties – Bad faith – Damages – Punitive damages – Appraisals – Practice – Appeals 

Truong v. Jeweler’s Mutual Insurance Co., [2024] O.J. No. 4537, Ontario Court of Appeal, October 7, 2024, B. Zarnett, P.J. Monahan and R.M. Pomerance JJ.A.

A jewelry insurer appealed from the trial judge’s decision awarding punitive damages in respect of the insurer’s handling of a claim of stolen jewelry. The insurer took the position that the insureds had to prove that they ever actually owned the jewelry and failed to do so. The appeal was dismissed.

At the time of the application for insurance, the insurer did not request evidence of ownership or insurable interest other than the insured’s online attestation. After the jewelry was stolen, the insurer’s adjuster conducted an investigation, including interviewing the insureds and having them take the adjuster to the jewelry stores where the jewelry was purchased. The insureds attended interviews under oath in which they were asked where they purchased the jewelry and to give undertakings. After the investigation, the insurer refused to indemnify. In the proceedings, the insurer did not allege any material misrepresentation in the application for the insurance policy.

While the insured must have an insurable interest in the property at the time of the loss, it does not follow that the insurer was engaged in good faith handling of the claim in refusing payment, up to the end of trial, on the basis that the insureds did not prove pre-Policy ownership. It is one thing to question whether an insured who owned property at the time of the Policy thereafter disposed of or encumbered it before the alleged loss occurred, affecting the existence or extent of their insurable interest at the time of the loss. It is quite another to challenge whether the insured ever owned the property at the time it obtained the policy. It was open to the trial judge to find that the insurer, by accepting that there had been no misrepresentation at the time of application for the insurance policy, had accepted that the respondents owned the jewelry at the time. It was also open to the trial judge to interpret the terms of the policy as not requiring substantiation of an already accepted matter – pre-policy ownership – and to consider demands for further information and documentation to prove pre-policy ownership to go beyond information that it could “reasonably require”.

The trial judge also did not err in the quantum of compensatory damages, which was based on the replacement cost. While the quantum could be the lower of the replacement cost or actual cash value, no evidence of a lower actual cash value of the jewelry was presented.

This case was digested by Dionne H. Liu and edited by Steven W. Abramson of Harper Grey LLP and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please feel free to contact them directly at [email protected] or [email protected].