Reasons Not to Travel With Your Bling

The Ontario Court of Appeal recently released a brief decision in Demetriou v. AIG Insurance Company of Canada, overturning a decision on a summary judgment motion.

The claim involved a man who had traveled to a resort in Punta Cana, Dominican Republic. Unfortunately he did no leave his ring at home, and wore it on a gold chain around his neck. This was a special ring, one that had been passed on to him by his maternal grandmother, and he had been provided it by his parents so that one day he could give it to one of his own children.

One night, when he was walking late at night on the beach while smoking a cigar, he claims that a strange man approached him with a knife, and demanded that he provide the ring and the chain.

Fortunately, he had appraised the ring prior to his departure for a whopping $550,000 (plus HST). He made sure that he insured this ring for $581,951, with an annual premium of $10,011. The chain was only worth a measly $10,000, barely enough to cover a single year of the ring’s insurance premium.

What makes this story interesting, aside from the cautionary tale about travel tips, is that the previous year the plaintiff had lost another very valuable ring, his wife’s engagement ring, and had recovered a sizable amount from an insurer.

If your spidey senses are tingling, you’re not alone.

The insurer had expressly disclaimed any reliance on fraud or deliberate acts. On that basis, the motion judge ordered the insurer to pay the claim, and awarded the plaintiff punitive damages for bad faith.

On appeal, the insurer claimed the motion judge erred by failing to allow the insurer to amend its pleadings to rely on exclusions in the coverage for deliberate acts or fraud, and for overlooking the suspicious circumstances in the case.

One of the reasons why fraud may not be plead at the outset of a proceeding is Rule 25.06(8), which states,

25.06(8) Where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred.

Pleading fraud prematurely, without any factual knowledge, can itself be a basis for claiming bad faith and punitive damages.

The insurer did include a paragraph in their defence that included a reliance on the insurer’s policies, which included a Declaration Page, Amended Declaration Page, and policy wordings, including the following exclusion clauses,

21. Intentional Acts

We do not cover any loss caused by an act, whose consequences could have been foreseen by a reasonable person, committed:

a. By or at the direction of an insured person; and

b. With the intent to cause loss or damage.

22. Dishonest Acts

We do cover any loss caused by any dishonest or criminal act by, or at the direction, of you or an insured person.

…

F. Intentional Act

An Intentional act is one whose consequences could have been foreseen by a reasonable person.

We do not cover any loss caused by any intentional act committed:

1. By or at the direction of you or a family member; and

2.With the intent to cause loss.

G. Dishonest Acts

We do not cover any loss caused by any dishonest or criminal act(s) by or at the direction of you or any family member.

The plaintiff did request particulars, specifically asking whether the insurer was taking the position that there was any fraud by the plaintiff. The insurer confirmed it was not specifically relying on those exclusions, but reserved the right to rely on them if further information was available.

The motion judge should not have ignored the circumstances of the missing ring, and interpreted these circumstances improperly in light of a potential claim for fraud. The Court of Appeal stated,

[6] The motion judge reversed the burden of proof by ignoring those “suspicious circumstances” in relation to whether the respondent had proven his claim. In Shakur v. Pilot Insurance Co.(1990), 1990 CanLII 6671 (ON CA), 74 O.R. (2d) 673 (C.A.), a similar case where the insurer did not accept that the insured had proved that her jewellery was stolen, this court stated at p. 681:

It is fundamental insurance law that the burden of proof rests on the insured to establish a right to recover under the terms of the policy. In this case, the burden rested on the respondent and remained on the respondent to prove on the balance of probabilities that a theft of her jewellery had occurred. That the appellant, in denying the allegation of theft, impliedly alleged that the respondent was fraudulent in putting forward the claim in no way shifted the basic burden of proof resting on the respondent.

[7] The motion judge in this case found that Shakur did not apply and was distinguishable because in this case the insurer had disclaimed reliance on fraud. He erred in so doing. While the appellant did not invoke the policy exclusions relating to fraud, the appellant was clearly challenging the respondent’s version of events. Shakur is binding and applies to this case. The primary issue was not whether the insurer had established fraud, but whether the insured had proved on a balance of probabilities that theft of the ring had “occurred within the meaning of the policy”: Shakur, at pp. 681-682.

The motions judge refused to allow an amendment to plead fraud, because this relief came at a late stage in the proceedings,

[76] While, pursuant to Rule 26.01, the court is to grant leave to amend at any stage of an action, there comes a point where prejudice is presumed, and amendments will not be allowed: 1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., 2017 ONCA 42 (CanLII), 135 O.R. (3d) 681; and Family Delicatessen Ltd. v. London (City), 2006 CanLII 5135 (ON CA), [2006] O.J. No.669 (C.A.).

…

[79] In the case before me, putting aside the fact that there is no actual motion before me to amend the statement of defence, the case has been conducted to date on the basis that there is no allegation of fraud notwithstanding an order of the court that required AIG to allege fraud and it declined to do so. Examinations for discovery have been conducted on that basis, and the action has been readied for trial or a summary judgment motion on that basis. It is simply too late to reverse course now.

The Court of Appeal disagreed with this interpretation of Rule 26.01,

[9] In our view, the motion judge was required to take a hard look at the entire record on the summary judgment motion in order to determine whether there was a genuine issue requiring a trial or whether he could decide the case on summary judgment. Because he did not do so, it is up to this court to do so on the record. In our view, it is clear that the credibility of the claim and of the claimant was squarely in issue and requires a trial.

That story of the long walk on the beach, with over half a million dollars around your neck, is certainly a story worthy of a full trial. It’s a trial a few, I’m sure, would love to observe.