Ruling against divided loyalties 

Insurer’s investigator held not to owe a duty of care to the insured in investigating the insured’s claim for insurance indemnity.

Insurance law – Commercial general liability insurance – Property damage – Pleadings; Adjusters – Duties and liabilities; Damages – Income loss; Practice – Summary judgments.

Smitten Baby Products Inc. v. FirstOnSite Restoration Ltd., [2025] O.J. No. 3287, Ontario Superior Court of Justice, July 21, 2025, R. Centa J.

FirstOnSite Restoration Limited (“FOS”) was retained by the insurer’s adjuster to investigate the insured’s claim for water damaged contents of a commercial warehouse. The insured was dissatisfied with the time it took the insurers to pay out its claim and sought to recover pure economic loss in the form of economic damages and business losses arising from the insurers’ delay in paying the claim. The insured named FOS as a defendant in the action, claiming that FOS had duties to the insured to, among other things, investigate and secure property in a timely manner. The action against FOS was struck on the basis that FOS, as an insurance investigator retained by the insurer, did not owe a duty of care to the insured.

In respect of the claim of negligent misrepresentation or negligent performance of a service, the pleadings were inadequate to make out a proximate relationship. Specifically, it was not pled that FOS provided any undertaking to provide services to the insured. It was not pled that the insured relied reasonably, or at all, on any undertaking by FOS to perform a service.

There was no analogous category of proximity from a negligence perspective and so the Court assessed whether a novel duty of care could be made out. The Court held that although a prima facie duty of care could be established, policy considerations justified negativing the prima facie duty of care. First, the insureds had contractual claims under their insurance policy which made the case for a new form of liability less compelling. Second, and perhaps more importantly, there was a possibility of conflict between the contractual duties an investigator owes to the insurer and the proposed duty of care the investigator would owe to the insured.

This case was digested by Dionne H. Liu and edited by Steven W. Abramson of Harper Grey LLP.  If you would like to discuss this case further, please feel free to contact them directly at [email protected] or [email protected].