It was a good day for Barry Percival, who had cast aside the defence hat that he usually wears and was acting for the plaintiff. In Sagl v. Cosburn, Griffiths & Brandham et al., an action by a policyholder against Chubb Insurance, Mr. Justice Blenus Wright awarded the plaintiff over $5 million, including punitive damages of $500,000. (Thanks to David Fournier of Ecclesiastical Insurance, who passed along this significant decision, which has not yet been reported. A PDF of the reasons appears above.)
The case arose out of a fire at the plaintiff’s Mississauga home on December 16, 1997. Her claim to her insurer, Chubb, was denied. Chubb took the position that the fire had been deliberately set by the plaintiff or by persons acting on her behalf. It also contended that the plaintiff had misrepresented material facts prior to the loss, with the result that the policy was void.
Also named as defendants in the action were the plaintiff’s insurance brokers, but the action was dismissed as against them.
In 37 pages of reasons, Justice Wright methodically rejected each of Chubb’s arguments on motive and opportunity and points of origin. For example, the plaintiff was a collector of expensive art and other objects (she had $2 million coverage for “fine arts” and $1 million for jewellery), yet had allowed her mortgages to go into default. The insurer relied on this in support of the “motive” component of its arson theory. But Wright J. said, “[w]hat Chubb failed to understand was the plaintiff’s obsession with and attachment to her possessions.”
Chubb also alleged that the plaintiff’s policy was void for misrepresentation. Justice Wright was harshly critical of this defence:
Only an insurer knows what it considers a “material fact” in relation to a risk it is assuming. How does an insured know what a “material fact” is unless so advised by the insurer? I am incensed that an insurer can hide behind this express condition without advising an insured of what the insurer considers to be a “material fact”.
The three material facts alleged to have been misrepresented were: (1) that the plaintiff’s husband was a joint owner of the home; (2) that there was a mortgage on the home that was in default; and (3) Chubb’s “VIP coverage” was directed at “wealthy clients” and the plaintiff was not wealthy but in financial distress. Justice Wright disposed of all of these in short order. He concluded:
I agree that an insurer expects an applicant for insurance to act in the utmost good faith in seeking insurance coverage. But, fairness requires that an insurer also act in the utmost good faith. It is my view that an insurer cannot rely on the above express condition unless the applicant for insurance is advised of what the insurer considers to be material facts, and the consequences of concealment and misrepresentation. Chubb failed to act in the utmost good faith toward the plaintiff at the time she requested insurance coverage.
The insurer also argued that the plaintiff had inflated her claim, “to the point of intentionally misrepresenting the value of what was lost and, therefore, the plaintiff’s claims are fraudulent”. Justice Wright went through a number of specific parts of the claim and concluded that “Chubb’s position that the plaintiff’s contents claim is fraudulent is just plain wrong”.
In relation to a claim for the full $1 million coverage for jewellery, Justice Wright conceded to having some “reservations” about the claim. But he criticized the insurer for having failed to provide evidence to rebut the plaintiff’s evidence about this aspect of the claim and awarded the full $1 million claimed.
The insurer fared a little better on the $2 million claim for fine art pieces destroyed in the fire. His Honour said, “Chubb’s counsel makes persuasive submissions to support allegations of fraud”. But ultimately, he concluded that the insurer’s failure to have its expert review the report of the plaintiff’s expert and prepare a rebuttal report, was fatal to its defence:
The plaintiff, to the best of her knowledge and memory, prepared a list of her fine art lost or damaged in the fire. The plaintiff retained Elliott to prepare a replacement cost estimate for the lost items. Elliott utilized a certain methodology to come to his values which he does not warrant as being true or accurate. Chubb presented no expert report to refute Elliott’s methodology or conclusions.
On the issue of punitive damages, Justice Wright accused the insurer of having had “tunnel vision” and of having “failed to consider the evidence in an impartial and common sense way”. He said that accusing the insured of a criminal offence without putting forward any direct evidence to prove the allegation was a breach of the duty of good faith. Likewise, accusing the insured of misrepresentation without telling the insured what facts it considered “material” was, said His Honour, a breach of the duty of good faith.
In the end, Justice Wright found that “Chubb’s conduct has been malicious, oppressive and high-handed and merits the condemnation of the Court”.
Interestingly, counsel for the plaintiff referred to an earlier fire insurance case, Kogan v. Chubb, in which an award of $100,000 had been made for punitive damages. He argued that “Chubb had not learned from the Kogan case”. Whether that was a factor or not is hard to tell from the decision, but Justice Wright ruled that an award of $500,000 for punitive damages was “not unreasonable”.
What to take from this decision? Other than the difficulty of proving arson (nothing new there), three things. First, before disputing a claim, particularly one of this size, an insurer would be well-advised to have its underwriting house in order. Justice Wright was very critical of what he considered to be underwriting failures on Chubb’s part.
Secondly, the decision makes it clear that an insurer is on dangerous ground if it fails to call its own evidence to respond to that presented by the insured.
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.
It will be interesting to see how insurers respond to this decision at an underwriting level.