Property Loss Trends

When annual surveys are done in Canada to determine our “Most Admired Professions,” it is usually doctors, nurses and firefighters that top the polls. And why wouldn’t they? They help us in emergency situations during the most traumatic times of our lives.

All front-line property and casualty adjusters have been placed in many of these same emergency situations. They have stood side-by-side policyholders looking at the total, complete destruction of a home or business. During these moments, the emotional toll on the adjuster is similar. Finding the right words to comfort someone in these situations is not easy.

Unlike our most admired professionals, the loss adjuster cannot step away from the emergency call to go onto a new one. They work in the “emergency aftermath,” a journey that is designed to fulfill the insurance promise – in return for the premiums paid by the policyholder, the insurer will honour its obligations under the insurance contract in good faith. The result of fulfilling this obligation is helping policyholders rebuild their lives. As expected, the journey on both sides may resemble a roller coaster ride – some ups and some downs. But once successfully concluded, there is no greater satisfaction than being a part of that journey.

Being an insurance professional may not put you on the most admired list. However, there is no question in my mind that We Help People in different ways than those top three admired professions… but in a very significant way, indeed!

Here are some legal cases for consideration.

Malhotra v State Farm Fire & Casualty
Supreme Court of Canada,
March 27, 2014 

Five different properties owned by the appellant were subject to losses that were discovered in a short period of time. The insurer elected the “Appraisal” process to determine the “amount of loss.” They requested one umpire be appointed to handle the multiple claims.

The insured had several objections that were heard in two separate motions in Superior Court. The insured appealed these decisions to the Ontario Court of Appeal who determined: 

“The power to appoint an umpire, or umpires, under s. 128 is discretionary. Nothing in s. 128 prohibits the court from appointing a single umpire to deal with multiple properties.”

“The appellants did not file affidavit evidence on either motion to challenge the umpires proposed by State Farm. On appeal, the appellant has not identified any form of error on the part of the motion judge that would justify interfering with their discretion.”

The appellant sought leave to appeal to the Supreme Court of Canada. The application was dismissed with costs.

This case evolved from a dispute about selecting an umpire to handle a number of claims. Motions were heard before a judge. It resulted in the appointment of an umpire. The decisions were appealed and as you can see the original decision was affirmed and the matter was referred back to begin the appraisal process.

O’Byrne v. Farmer’s Mutual Insurance Co. (Lyndsay)
Ontario Court of Appeal
July 11, 2014

This is a very interesting decision from the Ontario Court of Appeal for a variety of different reasons.

At trial, the cause of the loss was determined to be the fault of an apartment tenant in a small commercial building in a small town in Ontario. The tenant inserted a piece of cardboard between two sets of contacts on the building thermostat to keep their apartment “hot” while they were away a few days. The ignition on the furnace failed to ignite while the pump continued to deliver oil to the point of overflow and spread within the building causing over $60,000 damage.

Coverage for the loss was denied within a few weeks of the occurrence. The insurer advanced a number of arguments at trial including the applicability of several exclusions.

They were not successful and they appealed. 

Justice Katherine van Rensburg wrote the decision for the Court of Appeal with agreement from companion justices G. Epstein and S.E. Pepall.

Several things stood out in Justice Rensburg’s analysis:

1. A proof of loss form was never filed on this claim. There was an independent adjuster on the loss who recommended denial of coverage within weeks of the event. A blank proof of loss was provided in that denial letter but there was language included suggesting in part, “…in this case coverage is not applicable and therefore completion of same would not be required.”

The trial judge concluded that the language used in the letter constituted a “waiver” by the insurer of the requirement to file a proof of loss. The Court of Appeal agreed.

2. The “mechanical breakdown or derangement exclusion” was utilized to deny coverage for the claim. The insurer’s position was that the furnace breakdown was one of the multiple causes for the loss. The Court of Appeal’s position was that the furnace oil spill was the result of a “chain of events” as opposed to being of one of the cause only. The chain of events started with the cardboard being placed in the thermostat which ultimately caused the oil to be pumping out without burning.

It is critical in these situations to determine the cause of the occurrence. In this case, the failure of the furnace was not the failure of any mechanical element of the furnace but rather something that the tenant had done that interfered with the proper operation of the furnace. There was no internal problem or defect in the furnace itself.

Both courts relied heavily on the case of Caneast Foods Ltd. V. Lombard General Insurance Co., 2008, Ont. Ct. of Appeal, 368, 91 O.R. (3d) 438.

The Pollution Exclusion was also at play in this case. The trial judge felt that since the oil remained within the building the spill “…did not amount to a traditional environmental exclusion.”

The Court of Appeal followed a different path but came to the same conclusion. hey placed great weight on the fact that this was an All Risk Policy. Their review of the wordings suggested that there must be an operative exclusion at play before the pollution exclusion applies. The only other exclusion was the one for “mechanical breakdown.” Since the appeal court had already ruled that the mechanical breakdown exclusion did not apply, then it stood to reason that this position must also fail.

Case Summary

This decision provides strong guidance in several areas. There was a lot of attention paid to the importance of a proof of loss form. The importance of that document being served on an insured in compliance with the requirements of the Insurance Act should never be overlooked or underestimated. By serving the proof of loss form on the insured, the onus is now on the insured to complete it and return it as designated in the Insurance Act. The choice of what they put on the form and when they file it is entirely up to them.

This judgment provides a good analysis on how to interpret two exclusions that don’t pop up very often in the volume of claims that the industry handles. You can see how a relatively small loss in rural Ontario triggered a bona fide contract dispute, one with complex issues that required the reasoning of the Ontario Court of Appeal to resolve.

Dumitrascu v. State Farm
Ontario Superior Court, Healy J.
April 9, 2014

A motion heard in front of Justice Healey in the aftermath of a
fire loss with a claim being advanced against the property insurer. This motion involved some novel arguments where the insurer was making demands to:

1. Compel the insured to file a proof of loss form.

2. Require the plaintiff and her spouse to attend an Examination Under Oath (EUO).

3. Stay any legal matter until after a proof of loss and the EUO are concluded.

The first issue relating to the proof of loss was dealt with quickly on consent. Agreement was reached to deliver a sworn proof within 9-days of this motion decision.

The second issue was more complicated. The State Farm homeowner’s policy had a policy condition that said the policyholders were obligated to attend an Examination Under Oath if requested by the insurer. The policyholders had refused this request.

In Canada, an EUO is not part of our provincial Insurance Act Statutory Conditions contained within property policies. Of interest, our auto policies do contain a EUO requirement. Many insurers in Canada however, have been writing a EUO condition into their property policies as a separate Condition.

This judgment confirms established principles that statutory conditions applicable to fire policies are NOT applicable to multi-peril policies (KP Pacific Holdings Ltd. V Guardian Insurance Co. of Canada -2003- Supreme Court of Canada and Boyce V Cooperators, 2012, ONSC 6381). 

The impact of these cases is that State Farm was not offside in adding a EUO condition to their policy wording. They were not attempting to add to existing Statutory Conditions that had a clause that prohibited any “…variation or omission of or addition to any statutory condition.”

The court ordered a sworn proof of loss be submitted in 9-days and an EUO within 60-days.

 A. Merei, B. El-Attar, N. Merei v. State Farm
Ontario Superior Court, Carey T.
May 15, 2014

A fire destroyed a house in Windsor on March 4, 2010. The insurer maintained that the fire took place 8-days after the policy of insurance had been cancelled.

The plaintiffs first bought a policy in 2006. It went through several renewal cycles. There were also two claims in 2007 that resulted in an increased deductible. Within days of the policy renewing in February 2009 the plaintiffs had another claim. This triggered a policy review at a time when there were several late payments of premiums. The insurer made a decision in December 2009 that they were not going to renew the policy and on January 25, 2010 they sent a cancellation notice by registered mail to both the policyholders and the mortgagee.

The plaintiffs had a large uninsured loss. They argued strongly that the policy language said that the language of the contract required the insurer to automatically renew their coverage. They focused on the language of the “automatic renewal” section of the policy. The judge felt this clause “….clearly operates for the convenience of both policyholders and the insurer. It is cost efficient and provides unbroken coverage for the insured when there are no circumstances that would change any conditions of the policy.”

The bottom line was that the judge did not feel the policy wording was ambiguous. A plain reading of the policy had to conclude the insurer was correct in taking the position it did. The plaintiff’s claim was dismissed.

It was interesting to see that the trial judge only awarded $4,000 in costs against the plaintiff in losing this case. The judge felt that the plaintiff had chosen the most expeditious way to resolve the matter by going for a summary judgment motion. He thought the insurer could use the results of this case in the future if this argument ever arose again.

This case is a victory for ensuring the contract language is clear and simple to understand.

L. Stilwell / M. Neale V World Kitchen et al
Ontario Superior Court, Leich I.J.
June 6, 2013

The Plaintiff, Larry Stilwell suffered severe lacerations to his wrist when he was alone in his kitchen attempting to clean a “Visions Dutch Oven” in the sink. It allegedly broke into 4 pieces during the incident.

The plaintiff’s wife had cleaned up the kitchen immediately after the event. While her husband was being prepared for surgery, he instructed his wife to get rid of the broken pot out of their house or he wasn’t coming home. There was no thought at that time to a lawsuit. The evidence led at trial seemed to be accepted that there was no attempt to dispose of the items to “…gain advantage in a lawsuit or claim.”

It was 16 days after the incident that the plaintiff’s wife initiated an email to one of the defendants complaining about the product(s), while outlining the severity of the cuts.

The plaintiffs did not retain legal counsel until 16-months after the incident. This eventually led to a 22-day jury trial.

Before the jury began deliberations, the trial judge provided both counsel with “draft” copies of his intended charge to the jury. The defendants felt that the jury should be counseled on “spoliation issues” before they began their deliberations.

“Spoliation” is a legal doctrine. If an act is determined to involve the intentional destruction of relevant evidence when litigation exists or is pending to the jeopardy of the opposing side, the court may instruct the trier of fact (in this case a jury) that it may draw an adverse inference against the party who performed the destruction. But just because something is destroyed doesn’t mean it is intentional. The adjuster’s “spoliation” investigation will require evidence and a deep understanding of the offending parties intent. These investigations are usually assisted by the involvement of experts.

In this case, there was no question the product was disposed of by the plaintiff before the defendants could examine it. Was it, in fact, a Visions Dutch Oven? What was the cause of the failure? But what was the intent behind the act?

The judge ruled that he would not charge the jury on the doctrine of spoliation, including the drawing of an adverse inference or presumption. He also instructed counsel not to make reference to it in their submissions to the jury. He did not take away defence counsel’s right to argue that the product involved was not a Visions Dutch Oven or the cause of its failure or the difficulties they had at trial because they did not have the evidence available to challenge the plaintiff’s claims.

The jury heard 19 witnesses for the plaintiff and 7 for the defendants. The case was hard fought and ended with a conclusion that it was a Visions Dutch Oven and the defendants were liable for a “…failure to adequately warn.”

The jury awarded damages exceeding $1.1 million and deducted 25% for the contributory negligence of Mr. Stilwell. The outcome was less than what the plaintiff’s offered to settle for before the trial. It was also more than what the defendants offered to settle before the trial. The judge felt the pre-trial offers had little impact on his decision relating to how he was going to award “costs.” There was nothing in the conduct of the defendants to award costs on a substantial indemnity basis.

There is a long endorsement post-trial dealing with the matter of costs. Of interest was that the plaintiff law-firm was awarded about $387,000 in fees and another $157,500 in disbursements.

I don’t often write about “casualty” cases but this was an interesting legal decision involving a jury trial and the issue of “spoliation.” If you have a fire loss and you believe the cause of the fire may be a result of a faulty product, you should secure the scene and allow the other parties the oppor
tunity to make their own determination if their product caused the loss. We are seeing more cases in this area that follow a rich history of significant litigation on this topic in the United States over the past decade.

Conclusion

It appears from looking across the land at the output from our courts that litigation involving property/casualty insurance cases have declined. That trend might suggest insurers are making greater use of the “Appraisal” process or other ADR mechanisms. You can see some of the trial costs involved from the Stilwell decision are substantial, so you certainly have to pick your spots. 

 Glenn Gibson is Chief Executive Officer of Crawford & Company Consulting and can be reached at glenn.gibson@crawco.ca