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Insurer Gets Burned
Published in the September 2007 issue of Litigation Notes - View Article
The Ontario Superior Court of Justice recently released a scary decision from the standpoint of insurers. Bridgette Sagl and her husband had a successful business which enabled them to live a lavish lifestyle. They had a 16,000 square foot house in Mississauga, on the outskirts of Toronto. They owned the house next door, which was occupied by their daughter. They had a large house in Barbados, a penthouse apartment in Germany and an apartment in Italy. Ms. Sagl had a large collection of paintings, sculptures, and jewellery. Unfortunately, the bubble burst. Mr. Sagl had an affair with Ms. Sagl’s sister and the marriage collapsed. The recession of the late 80s and early 90s took a serious toll on the revenue of their corporation.
Ms Sagl was living in the Mississauga house and by 1997 the mortgage was in arrears. Ms. Sagl had consented to judgment in a foreclosure action, although the mortgagee was prepared to give her time to attempt to sell the house. Taxes were also in arrears. There may have been equity of as much as $950,000.00 in the two Mississauga houses, but Ms. Sagl owed $800,000.00 to various creditors.
On September 30, 1997, Ms. Sagl obtained a Binder of Insurance issued by Cosburn Griffiths & Brandham Insurance Brokers on behalf of Chubb Insurance Company of Canada (“Chubb”). The policy provided replacement cost coverage on her house, $600,000 on the contents, $1 million for jewellery and $2 million for fine art.
On December 16, 1997 her house was completely destroyed by fire. The fire was investigated by the Ontario Fire Marshall’s office who identified a number of suspicious circumstances. Ms Sagl and a date were out for dinner. Her 13 year old son was staying overnight at a friend’s house in Toronto, on a Tuesday night. The maid had been given the next day off and it was not her regular day off. All the windows were open. Ms. Sagl claimed that this was because it had been a warm day when in fact the daytime temperature had been 6 degrees Celsius. Ms. Sagl claimed that she had lit the fireplace before going out for the evening. She claimed the burglar alarm system was not working. The dog had been left outdoors when Ms. Sagl and her date went to dinner. Furniture had been moved out of the house three to four weeks before the fire. When Ms. Sagl was interviewed at 2:00 a.m. her date insisted on being present. Her date happened to be a judge of the Ontario Court of Justice. The Fire Marshall also concluded that the fire had started in three separate locations, two of which were in the basement and one of which was on the second floor.
Ms. Sagl had some photographs of some of her works of art hanging on the walls of her home. Not all of the art had been photographed, in particular, art which was apparently stored in various cupboards throughout the house. In 1990, the Sagls had valued their art collection at $100,000. At one point Chubb had been advised that the fine art consisted of 250 items. After the loss, Ms. Sagl retained an expert who listed 2,580 items, which he valued at $9,720,980. This list was apparently generated largely from Ms. Sagl’s memory. One of the items claimed was a Rodin bronze valued at $600,000, which was supposedly stored in the back of the basement and never shown to anyone. The only evidence of its provenance appeared to indicate that she had paid $6,500 for the piece.
Chubb denied coverage and Ms. Sagl sued. The trial judge was not of a mind to conclude that the fire had been deliberately set. He felt that the Fire Marshall’s office had leaped to that conclusion on the basis of insufficient evidence and that there was an adequate explanation for all of their suspicions. The maid was given the day off and the son sent to a sleepover, so that the plaintiff and her date could spend a romantic evening alone. The burglar alarm had a history of being finicky. The windows were not left open by the arsonist, in order to fan the flames, but rather left open by the plaintiff because it was a warm day or alternatively by the firefighters in order that they could pour water in the windows. If she was planning to set fire to her house why would the plaintiff leave her dog outside, where it might be run over by the fire truck? She could have taken the dog to her daughter’s house next door. And why would the plaintiff destroy her precious art collection when she could have simply sold it?
On the subject of the claim for the art collection, the trial judge faulted Chubb for having failed to perform an inspection of the art to determine if the amount of coverage requested was reasonable. The trial judge apparently collects antique cars and stated that when he purchases a car his insurer requires a reputable appraisal and photographs which must be updated every five years. “This practice makes common sense and good business practice” stated the trial judge “If a loss occurs, it is unlikely that litigation will be required to resolve a claim. I fault Chubb for its poor business practices”. The trial judge therefore concluded that the art exceeded the insured value of $2 million and awarded the plaintiff that amount.
The trial judge went on to consider whether or not Chubb’s conduct in denying the claim should attract an award of punitive damages. He concluded that although, “…Chubb was supported in its allegations of arson by [the fire marshall] and the Police, Chubb ought to have looked more closely at the arson evidence. I have found that [the fire marshall] evidence was flawed. Chubb’s failure to impartially scrutinize the evidence was a breach of the duty of good faith”. He went on to say that Chubb “had tunnel vision and failed to consider the evidence in an impartial and common sense way”. Without “…direct evidence implicating the plaintiff in any way with the fire and knowing the high standard of proof required to support its allegations of criminal activity..”,Chubb nevertheless “persisted in persecuting the plaintiff with false allegations”. Chubb “…continued its reprehensible conduct by alleging that the plaintiff misrepresented or concealed material facts relevant to the risk” when it had “…not given the plaintiff a proper application form which could have set out in question form the information which Chubb considered to be ‘material facts’ upon which it would rely in determining whether to grant coverage.” As a result he concluded that Chubb’s conduct had been “malicious, oppressive and high-handed” and merited the condemnation of the Court. He awarded punitive damages in an amount of $500,000.00. The case is under appeal.
Sagl v. Cosburn, Griffiths & Brandham Insurance Brokers, 2007 CanLII 36644