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Arson Case Sent Back for New Trial
Published in the May 2009 issue of Litigation Notes - View Article
The Ontario court of Appeal has ordered a new trial in a case where insurers denied coverage on grounds of arson and material misrepresentation.
In the September 2007 edition of Litigation Notes we reported on a decision of the Ontario Superior Court of Justice, which awarded Bridgette Sagl damages in the amount of approximately $4.5 million dollars and $500,000 in punitive damages against her insurer, Chubb Insurance Company of Canada (“Chubb”). The Ontario Court of Appeal has now ordered a new trial.
The claim arose from the destruction by fire of the Plaintiff’s home in December of 1997. Chubb treated the fire as suspicious. Barely two months earlier Ms. Sagl had purchased insurance coverage on her home for $630,000, insurance on the contents for $600,000, insurance on her art collection in the amount of $2 million and insurance on her jewellery for $1 million. On the night of the fire no one was home. Ms. Sagl was out for dinner with a friend. Her young son was staying overnight with a schoolmate, even though it was a weeknight. The live-in maid had been given the night off and even the dog had been left outside. Chubb retained an investigator who concluded that the fire had been deliberately set and Chubb therefore denied coverage on the basis of arson.
Chubb also denied coverage on the basis of material misrepresentations allegedly made by Sagl in her application for coverage and in presenting her claim under the policy. With respect to the application, Sagl’s sub-broker had represented to Chubb that she was a wealthy individual with a fabulous art collection and expensive jewellery. It was not revealed that she had recently undergone an acrimonious divorce, that she owed substantial amounts of money to law firms and friends, as well as a significant amount in back taxes. Furthermore, her husband remained registered as joint owner on her home.
The trial Judge dismissed Chubb’s arson defence, preferring the testimony of the Plaintiff’s expert to the effect that the fire did not appear to have been deliberately set. Chubb did not appeal this finding. The trial Judge also dismissed Chubb’s defence to the effect that Sagl had made misrepresentations in her application for insurance. On this latter point, the Ontario Court of Appeal reviewed the case-law to the effect that the insured and the insurer are held to a standard of utmost good faith in their dealings with each other and that there is a heavy burden on the applicant for insurance to “…provide full disclosure to the insurance company of all information relevant to the nature and extent of the risk that the insurer is being asked to assume”.
Chubb alleged that there were three misrepresentations which, if it had known the truth, would have caused it to declined coverage. These were that Ms. Sagl’s husband was a joint owner of the property, that a mortgagee had commenced proceedings to enforce payment and finally that Sagl had misrepresented herself as wealthy when in fact she was in dire financial straights. The trial Judge found that Chubb had failed to demonstrate the materiality of the supposed misrepresentations and the Court of Appeal agreed stating that “… while the Applicant has a duty to disclose all material facts, an insurer’s conduct may be relevant to the analysis of whether a particular fact is material. An insurer’s failure to ask a question may be evidence that the particular insurer does not consider the issue to be material, even if objectively the information would have been regarded as relevant by a prudent insurer.” Since Chubb had insured Sagl’s home for a considerable amount without making any inquiries about the ownership of the property, the status of the mortgages or the existence of other debts, it was reasonable for the trial Judge to reach the conclusion that these issues were not material to Chubb.
The Court of Appeal did, however, find that the insured had made misrepresentations in her proof of loss. Sagl had admitted to the trial Judge that in her matrimonial proceedings, she had undervalued the value of her artwork in order to extract a better settlement from her husband. For the purposes of her claim against Chubb she re-inflated the value of the same art. She claimed to have been able to remember 2580 items, even though some of them were not on display in her house but were packed away in storage. She also claimed to have had a Rodin sculpture worth $600,000 when there was evidence to the effect that she had purchased it for $6,500.
The trial Judge stated that despite his misgivings about Sagl’s proof of loss, Chubb had failed to adduce any evidence to rebut it. The Court of Appeal held that in doing so, the trial judge “…missed an essential step in the analysis of Sagl’s evidence in relation to her loss. turning to whether Chubb had proved that [her] valuation was flawed, the trial judge first had to satisfy himself that Sagl had proved, on balance, that her evidence in support of her loss was credible and reliable.In ignoring this step the trial judge effectively relieved Sagl of her burden to establish the existence and the amount of her loss”.
The Court reviewed the cases which deal with the necessity for a judge to give sufficient reasons for his or her conclusions. In this case the trial judge failed to explain why he accepted Sagl’s evidence as to her loss in the light of the many problems with her credibility and reliability. This amounted to reversible error and was sufficient reason to order a new trial.
Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388 (CanLII)