Alberta decision ‘very modern confirmation’ of common law insurance rule, legal scholar says
Tuesday, February 14, 2023 @ 3:04 PM | By Ian Burns
Last Updated: Wednesday, February 15, 2023 @ 11:15 AM
Ali Alreda Abbas was injured while he was a passenger in an automobile operated by an uninsured driver, and he filed an application for Section B benefits, which outlines the no-fault benefits available to a person who has suffered injuries in an automobile accident — including a modest employment income replacement payment.
Abbas admitted to lying about his employment when he applied for Section B benefits, and as a result the Esurance Insurance Company not only refused to provide them but also denied his application for SEF No. 44 benefits, which assists people who are injured in an accident caused by an uninsured, or inadequately insured, driver. Under s. 554(1)(b) and (c) of Alberta’s Insurance Act, a claim is forfeited if an insured commits fraud or wilfully makes a false statement in a claim.
And Alberta Court of Appeal Justices Jack Watson and Thomas Wakeling sided with the insurance company and dismissed the appeal. The two declared that the common law fraudulent claims rule — which says that an insurer is relieved of the obligation to indemnify an insured for any loss arising from the same event and under the same insurance policy if the insured files a fraudulent proof of loss that is material with respect to one or more parts of the claim, whether or not some part of the proof of loss is not tainted by fraud — is still good law in Alberta.
“While the doctrinal roots of the fraudulent claims rule may be debatable, the rationale for [it] is simple and clear: to deter fraud in insurance claims,” the two wrote. “The evolved consensus of the common law to the present time sends an unequivocal message to would-be-insured fraudsters — any false statement in a proof of loss will deprive an insured of all benefits linked to the same loss-causing events claimed under the same insurance policy, including those benefits not tainted by the false statement.”
That is a draconian doctrine, the court wrote, but added “it needs to be.”
“Nothing less will have the desired effect. A bright-line rule is undoubtedly essential,” Justices Watson and Wakeling wrote. “[But] this does not mean that any false statement an insured makes in support of a claim will deprive the insured of the benefit of insurance coverage. Not only must an insurer prove on a balance of probabilities that the insured knew the information the insured provided the insurer was false or was reckless, it must also prove that it was material to one of the claims. It must be more than a ‘collateral lie’ designed to bolster an otherwise valid claim that, while false, has no impact on the claim.”
For his part, Abbas argued that s. 554(1) was not applicable to him because his employment status was not a relevant material consideration when considering his entitlement to SEF No. 44 benefits. Justices Watson and Wakeling wrote it would have been very easy for the provincial legislature to incorporate the concept of materiality into s. 554(1), “but it did not.”
“There is a presumption that a statute changes the common law only ‘when that disposition is clear.’ The text [of s. 554(1)] does not meet that onerous test,” they wrote.
Justine Jolaine Antonio concurred with her colleagues’ decision, which was issued Feb. 7 (Abbas v. Esurance Insurance Company of Canada, 2023 ABCA 36).
David Pick of Brownlee LLP, who represented Esurance, said insurance contracts are contracts of utmost good faith between both the insurance carrier and the customer “and that means both parties are expected to deal with each other fairly and honestly.”
“And in terms of an insured who is making a claim under an insurance contract all information is coming from that insured,” he said. “So, the courts have historically required insureds to be faithful honest true in their dealings with their insurance carriers based on the premise that they are obligated to deal with each other in good faith.”
Pick said the decision should give insurance carriers some comfort that the courts have their back when it comes to dealing with cases of fraud.
“Insurance companies are often seen as the bad guys with deep pockets, but as a society at large we in the legal system and I think in the courts — and certainly the insurance industry — want to discourage people from making fraudulent claims, because at the end of the day it hurts all of us as it results in higher payouts, and then higher premiums for those of us who are honest in our dealings,” he said.
University of Alberta law dean Barbara Billingsley
“It is such a clear rule, but the place where it becomes an issue in court is because of its draconian potential outcome — the severity of it can mean for the smallest bit of dishonesty on an issue that doesn’t directly impact on the value of the claim you still can’t recover, so it has an enormous impact,” said Billingsley, who teaches insurance law. “There has been some nibbling around the edges on the issue of materiality — so if you falsify information on your claim that is not actually material to the insurance company’s payment, the question arises of should they be able to rely on it and say we are not going to pay you?”
But Billingsley said she agreed with the decision, saying that it was important “because it is a very modern confirmation of the common law rule.”
“And for the purpose of the Alberta statute, it is a very firm statement that the statutory provisions codify and do not change the elements of that rule,” she said. “I think that it is very important for the insurance industry that insureds be held to a high standard of submitting their claims in terms of not attempting to provide incorrect information to the insurance company.”
The decision will be persuasive for courts in provinces that have the same wording as the Alberta statute, said Billingsley.
“And I think more generally it reinforces the notion that if legislators do want to change our common law understandings of these basic rules, and they are putting in legislative provisions intending to do that, they have to be very clear in demonstrating that intention,” she said.
Counsel for Abbas was not immediately available for comment.
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