Insureds beware: Fib not, lest you forfeit entirely your right to indemnity

Insurance law – Automobile insurance – Uninsured motorist – Fraud – Benefits – Statutory provisions – Practice – Leave to appeal – Summary judgments

Abbas v. Esurance Insurance Co. of Canada, [2023] A.J. No. 111, 2023 ABCA 36, Alberta Court of Appeal, February 6, 2023, J. Watson, T.W. Wakeling and J. Antonio JJ.A.

The insured was injured while a passenger in a vehicle driven by an uninsured driver. He filed a proof of loss claiming coverage for Section B no-fault benefits available to an injured insured, which include a modest income replacement amount. He also applied for SEF No. 44 benefits, which assist an insured who is injured in an accident caused by an uninsured or under-insured driver. The insured later admitted he had lied on his application for Section B income replacement benefits, but he persisted with his claim for SEF No. 44 benefits. The insurer applied for summary dismissal of the whole of the insured’s claim.

At first instance a Master dismissed the insurer’s application on the basis that it would be “patently unfair” to the insured to deprive him of income replacement benefits when the subject matter of the fraud was not related to the eligibility criteria for such benefits.

The insurer appealed successfully to a justice of the Court of King’s Bench, who held that both insurers and insureds must act in utmost good faith, and that “severe sanctions must be visited upon fraudster insureds to deter them from filing false proofs of loss”. Undeterred, the insured appealed.

The Alberta Court of Appeal dismissed the appeal holding that the insured’s fraudulent statements in connection with his claim for section B benefits vitiated his action entirely.

The Court noted that, according to the longstanding 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, regardless of whether any other part of the proof of loss is not tainted by fraud.

The court also considered section 554 of the Alberta Insurance Act, which provides (in the specific context of automobile insurance) that a claim is rendered invalid if the insured commits a fraud or wilfully makes a false statement with respect to a claim. The court described this as a codification of the common law which ought to be interpreted in a manner consistent with the common law jurisprudence, saying: “any false statement in a proof of loss will deprive an insured of all benefits linked to the same loss-causing events claimed under the same insurance policy, including those benefits not tainted by the false statement. This is a draconian doctrine but it needs to be. Nothing less will have the desired effect.”

This case was first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter.

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