Ontario court criticizes insurer for not inspecting fine art collection prior to binding coverage in fire case

The Ontario Superior Court of Justice ruled against awarding punitive damages against Chubb Insurance Company of Canada in a case involving the destruction of a high-end art collection in a 1997 fire.

In doing so, however, the court ruling took the insurer to task for accepting and binding the risk without conducting an inspection of the art collection, valued at approximately $10 million (although this number was under dispute).

Ontario’s Court of Appeal directed the new trial in 2009 to consider a number of questions in Sagl v. Chubb Insurance Company of Canada. Among them, the Ontario Superior Court was asked to consider whether or not Bridgette Sagl’s $2-million insurance policy on her fine art collection was void because, as Chubb argued, Sagl had materially misrepresented the value of her collection.

On the advice of her broker, sometime between 1995 and 1997, Sagl had started to take photos of the art and catalogue the photos for insurance purposes. She had completed this process for approximately $1-million worth of her collection before a 1997 fire destroyed the entire collection.

Chubb denied coverage in part because the insurer suspected arson. The court found Chubb was incorrect about its suspicion, but did not award punitive damages because Chubb’s suspicion was “reasonable,” based on information it received from the Ontario Fire Marshal.

But the court found the insurer did not conduct a thorough inspection of the art collection before it bound the coverage, leading to issues in determining its value.

“Chubb’s practices with respect to the acceptance of this risk deserve to be criticized,” Ontario Superior Court Justice Frank Marrocco wrote. “In the eleven weeks between issuance of the binder of insurance and the date of the fire, Chubb never attended at 2415 Doulton Drive to inspect Ms. Sagl’s fine arts collection.

“One only has to contrast the jewelry claim [for the same 1997 fire] and the fine arts claim to see that Chubb’s practices caused some of the problems in this case. The jewelry [valued at roughly $1 million] was insured as scheduled articles; there has been virtually no controversy about the value of the jewelry.”

Marrocco observed Sagl had started to catalogue the art, and circumstances after the fire made it difficult for the insured to access her records and complete the task. For these and other reasons, the court found Sagl could not be faulted for “intentional misrepresentation” of the art collection’s value.

Marrocco elected not to award punitive damages to emphasize the court’s criticisms of Chubb’s underwriting practices.

The full case is available at:
http://www.canlii.org/en/on/onsc/doc/2011/2011onsc5233/2011onsc5233.html