Ontario Superior Court: $500,000 Punitive Damages Award Against Fire Insurer For Refusal to Pay Claim

UPDATE: The ruling discussed in this post was overturned by the Ontario Court of Appeal in a May 2009 ruling. A new trial has been ordered.

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Continuing in the trend established by the landmark 2002 decision of the Supreme Court of Canada in Whiten v. Pilot Insurance Co, an Ontario Superior Court Judge at Toronto has awarded an Oakville woman $500,000 in punitive damages after her insurer, alleging arson, refused to pay a legitimate fire-damage claim.

Punitive damages are only awarded in Ontario in exceptional cases where the conduct of a party "offends the court’s sense of decency" to a level requiring "condemnation by the court."

In Sagl v. Cosburn, Griffiths & Brandham Insurance Brokers Limited, Mr. Justice Blenus Wright of the Ontario Superior Court of Justice rejected the insurer's allegation that the home fire had been intentionally set:

I also have difficulty visualizing someone setting four separate fires. That person has to enter the home and go to the second floor and set one fire which fails and then set a fire in the storage area, and then go to the basement and set two more fires, or vice versa, and exit the house as quickly as possible without being seen.

... Even if the fire was deliberately set there is not a shred of evidence that the fire was deliberately set, “on her behalf or at her direction”. I do not believe that the plaintiff is capable of having her home, with all her possessions torched by someone just to obtain insurance proceeds. It just does not make sense in the circumstances of this case.

Noting Plaintiffs' counsel's advice that Chubb had previously been on the receiving end of a punitive damages award, and "did not learn," the Court imposed a stiff, punitive damages award against the insurer:

In the end, Chubb has failed to prove that the plaintiff was in any way implicated in the alleged arson.

In my view, Chubb had tunnel vision and failed to consider the evidence in an impartial and common sense way. There was no direct evidence implicating the plaintiff in any way with the fire. Chubb knew the high standard of proof required to support its allegations of criminal activity by the plaintiff, and without any proof Chubb persisted in persecuting the plaintiff with false allegations.

It is a serious matter to allege that a plaintiff has committed a criminal offence without putting forth any direct evidence to prove the allegation. That is a breach of the duty and good faith and is reprehensible conduct.

Chubb continued its reprehensible conduct when it alleged that the plaintiff “misrepresented and/or concealed” material facts relevant to the risk that Chubb was assuming. I have already found that because of Chubb’s poor underwriting procedures it breached its duty of good faith to the plaintiff. Chubb failed to have the plaintiff complete a proper application form which should have set out in question form the information which Chubb considered to be “material facts” upon which it would determine whether to grant coverage.

It is a breach of the duty of good faith by an insurer to allege misrepresentation and concealment against an insured, when an insured has no opportunity to know or provide the facts which an insurer considers “material” to the risk it is assuming.

Chubb even went further in its breach of duty of good faith in alleging that the plaintiff has committed fraud in her proof of loss for contents and fine art. I have already found that the plaintiff was likely underinsured for contents.

With respect to the fine art, Chubb has failed to provide proof that the plaintiff’s fine art claim is fraudulent. In fact, Chubb failed to provide an expert opinion challenging the methodology used by Elliott to come to his estimate of the value of fine art items.

Almost ten years have passed since the fire. I find that Chubb’s conduct has been malicious, oppressive and high-handed and merits the condemnation of the Court.

In the Kogan case the award for punitive damages was $100,000. Counsel for the plaintiff submits that Chubb did not learn from the Kogan case.

In the circumstances of this case over the ten years, I find that an award of $500,000 is not unreasonable. Therefore, the judgment will include an amount of $500,000 for punitive damages.

The decision may be appealed.

Ottawa law firm Cavanaugh Williams has an interesting blog on the case, and notes the likely dilemma this judgment will create for insurance underwriters:

But perhaps most significant (and most troubling for insurers), this decision suggests that it is incumbent on an insurer to advise the insured, in advance, as to what facts it would consider “material” to its underwriting decisions. Insurers will argue that it is unduly burdensome to ask them to anticipate every fact that is material, particularly when it comes to information that is not conveyed to them.

The Toronto Star also has coverage of the Sagl and Chubb decision here.

- Garry J. Wise, Toronto

Visit our Toronto Law Firm website: www.wiselaw.net

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