Property Loss Trends

Since my last update I have taken on an additional role as the President of Business Operations for the Hamilton Tiger-Cats. That was something most of my family and friends did not see coming… and, neither did I. How did it happen? That is a bit of a story…

When you are 20-years old and starting a job as a “Claims Representative” you are not sure where your life is headed. While I have always taken pride in keeping my hand in my profession as a loss adjuster (yes, I have a few files), I’ve also had a unique opportunity to become a business professional. My employers have always supported my pathway of continuous learning. My last venture was to become accredited as a “Certified Corporate Director” (ICD.D) at the Rotman’s School of Management- University of Toronto. That was a bit daunting, given written and oral examinations were involved.

So… all of this background led to me volunteering to serve on the board of directors for the Hamilton Hurricanes Junior Football Team. They are one of Canada’s premiere junior teams. This was about giving back to a team that provided a place for me to play in my college days.

My work on that board led me into strategic discussions with the Hamilton Tiger Cat organization. In turn, that created an opportunity to get to know owner Bob Young, and CEO Scott Mitchell. Providing some “advice” on a few things suddenly opened up a discussion about taking on a new role.

This new venture at this stage in my life has shown me how much I learned in the “insurance world” that represent transferable skills into any business, profession or occupation. For me, this new work experience has validated what a vibrant, wonderful sector we work in.

In 2014, the Tiger-Cats open a new stadium (for the first time in the Hamilton since 1928!) and will play hard for our fans to reach another Grey Cup game…hopefully with a better result this time!

In the meantime, I continue to write, lecture and participate as much as I can in our great industry. Here are some cases to ponder as you march into a New Year.

Bronfman et al v. BFL Canada Risk
Ontario Superior Court
Stewart J., Nov. 13, 2013

A break and entry took place on November 8, 2008 in a large, expensive house in central Toronto. A 310-pound safe containing over $2 million in jewelry and cash was taken from the house. No arrests or recoveries were ever made.

In short order, the policyholder discovered they had coverage in place for $20,000 for jewelry and $1,500 for cash. This resulted in a significant uninsured loss and a lawsuit against the insurance broker for allegedly failing to warn the insured about the policy limits that were in place.

A 20-day trial resulted. There was considerable evidence led. There were some significant points illustrated in the judgment including:

1. There was significant reference to the broker’s marketing brochure. Included was reference to the broker’s role to, “To be alert to any issue affecting the client’s risk profile.”

2. The evidence showed that the broker on risk in 2008 had taken over the dwelling policy in 2004. At no time had he visited the risk prior to the loss. At no time had there been a discussion about “…their home insurance needs.”

3. The insured did receive annual renewal letters where coverage was spelled out. It was argued that the insured had a duty to review these letters but an insurance broker “expert” indicated at the trial that, “…in his experience few clients ever read their insurance policies or, if they do, rarely do they understand their complex provisions.”

4. There was considerable attention paid by the trial judge to a change in a renewal letter that was sent out after the break-in took place. This letter was more explicit in explaining the limitations of the policy with respect to jewelry etc.

The trial judge found that the broker had not gone far enough in the standard of care expected of an insurance broker in these circumstances.

There are some interesting arguments in the decision relating to whether the insureds were “contributory negligent” for failing to read the form letters. Some of this related to how the case was pleaded but the end result was the trial judge accepted the evidence of the expert and felt the letters … “contained language and provisions which are complicated and contradictory to the lay reader (and arguably to even someone with a legal background).”

Damages

There were several key issues for the trial judge to determine:

1. A schedule of loss was submitted that totaled in excess of $2.3 million. The insured’s detailed “list” of jewelry items was in the safe that was stolen. What value was the judge going to place on each item?

2. If the insured’s had received the right advice and put appropriate coverage in place what would they have received in the way of indemnity? His view was that, “This ultimate figure is the total amount for which the items of jewelry would have been listed and scheduled, less the cost of purchasing insurance coverage.”

Evidence was led at trial from both sides as to the value of the jewelry. The trial judge preferred the evidence of the insured’s expert. And in reviewing a ‘range’ of value he chose the middle figure as the “fairest and most reasonable method.” Of interest was:

1. The judge felt that any jewelry item that had a value less than $20,000 was not likely to have been a scheduled item. Therefore, he concluded the insured’s would have not specifically insured the item and would have accepted it under their $20,000 blanket coverage. The judge felt that for these less expensive items a reasonable person would not pay the extra premiums but self-insure the risk.

2. On items where there was insufficient information to permit a value he omitted it from the list.

3. The judge agreed that the cost of the additional premium to pay for the scheduled items should be deducted. That price was to be worked out by both parties after his judgment was released.

4. And the amount paid by the insurer of their policy limits was also to be deducted from the final sum.

It appears from the judgment that the initial claim of over $2.3 million was reduced by the trial judge to about $790,000 less some of the deductions mentioned.

Summary

This was an interesting case from several different points of view:

1. The policyholders in this instance were wealthy. They had accumulated expensive things including jewelry. There was no question the trial judge felt that this kind of policyholder should have had a personal home inspection and any restrictions of coverage on their policy should have been pointed out to them.

2. It was very interesting to see –after the fact – that the judge chose to recreate the policy the insured’s would have purchased as “reasonable” people. This led to a significant discount in the original amount being claimed.

Malhotra v. State Farm Fire & Casualty,
Ontario Court of Appeal
May 16, 2013

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 to be appointed to handle the multiple claims.

The insured had several objections that were heard in two separate proceedings in front of a Superior Court judge. The insured appealed these decisions to the Ontario Court of Appeal. Our top court in Ontario determined:

1. “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.”

2. “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 justif
y interfering with their discretion.”

The case is being appealed further by the insured but for now it sits as further confirmation that the courts are very supportive of the appraisal process and the power of a judge to use discretion on how it is used.

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 to be appointed to handle the multiple claims.

The insured had several objections that were heard in two separate proceedings in front of a Superior Court judge. The insured appealed these decisions to the Ontario Court of Appeal. Our top court in Ontario determined:

3. “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.”

4. “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 case is being appealed further by the insured but for now it sits as further confirmation that the courts are very supportive of the appraisal process and the power of a judge to use discretion on how it is used.

Royal Sun Alliance V. Araujo et al
B.C. Court of Appeal
June 28, 2013

This is a rather unusual case involving the fire bombing of a house on August 14, 2004. In the fire, a 15-year old grandson of the dwelling owners was seriously burned while sleeping on a living room sofa. The grandson subsequently brought a legal action against his grandparents, father and uncle for the personal injuries he sustained.

The key question – Was this young man an “un-named insured” under the RSA policy? If he were then he would be precluded from coverage under the policy. His legal action was framed both on negligence and on statutory duties under the Occupier’s Liability Act, RSBC 1996, s337.

The insurer argued that the boy had a regular pattern of sleeping over at his grandparents’ home. There was always an intention to return to the house and their view was that this formed the, “….necessary attachment to the insured premises and meets the definition of ‘residing’ as used in the exclusion clause.”

The original trial judge relied on a US appeal court decision in Indiana (Imel) that clarified this area by declaring three elements at play:

1. Did the claimant maintain a physical presence in the insured’s home?

2. Did the claimant have the subjective intent to live there? And… what was the nature of the access to the insured’s home and its contents?

When using these criteria to the case at hand the evidence showed:

1. The young man did not have a room of his own at his grandparent’s home. He always slept on the couch in the living room.

2. He did not keep any clothing in the home.

3. He did not have a key to the house.

4. He did not have access to the security code for the alarm system in the home.

5. At no time was he required to do any chores around the house.

6. Most of his time was spent doing recreational things such as watching TV or going out for meals with his father.

The Appeal Court affirmed the decision of the lower court and found this young man was not a resident of the household within the policy definition.

The matter of liability still has to go to trial. This judgment removes the issue of whether or not the insurer has to provide a defense to their insured’s at trial.

Bennett v. State Farm Fire & Casualty Co
New Brunswick Court of Appeal
January 10, 2013

A fire loss destroyed a property on June 19, 2008. The claim was denied by the insurer on the basis that the property had been vacant for more than 30-consecutive days AND that there had been a material misrepresentation regarding to the failing to disclose the vacancy to the insurer.

Litigation commenced but there were significant delays as arguments were made about the failure of the insured to disclose RCMP information that had been obtained about the fire in question and also a prior break & entry to the same premises. Twice motions brought the parties before the Court of Appeal.

The insured fought extensively to prevent the RCMP information from being passed along to the insurer. The foundation of the decision seems to be rooted in the principle that claiming privilege on documents should not be an impediment to the truth finding process.

The Appeal Court covers a lot of ground in their analysis. The most significant points seem to be that:

1. When the insured initially requested the documents from the RCMP there was a statutory screening process in place. In fact some of the document material was redacted to protect confidential information.

2. There was no evidence that the RCMP had imposed any condition upon the releasing of their information to the policyholder.

The court felt the Motion Court judge made no error in ordering the release of the information to the insurer.

This decision dealt with a series of other arguments including the Privacy Act, Freedom of Information Act, public interest immunity, criminal document disclosure, litigation privilege and use of documents in a civil action. At the end of a long road, the police documents provided to the insured were compelled to be produced for the insurer.

Case summary

Four and a half years later the insurer will view documents that may or may not have a relevance to the reasons the claim was initially denied. This analysis is well written with solid references to relevant case law.

Conclusions

This past year seems to have produced a bit of a ‘slow down’ at the Superior Court level on property cases. As you can see from this analysis there have been a number of cases that have been bumped up to the provincial Courts of Appeal. Most of these cases are not likely going to be granted leave to appeal to the Supreme Court of Canada so they are important decisions to review.

In looking at several of these decisions the messaging seems to be:

1. Go back to the drawing board on policy language.

2. How can we get policies to be clear and direct with no ambiguity?

3. Nothing beats face-to-face communication that is backed up with notes and clear letters of confirmation.

Sounds easy? How does this fit in our new emerging social media world? How can we leverage new communication channels? How can we show due diligence in ensuring that the policyholder understands what is being sold to them?

Managing continuous change is not easy, particularly if you view it from the lens of someone who feels they are in a sea of crisis management. There is no question that it’s important to view the changes as opportunities not problems. And in the midst of doing that make sure you control what you can control. To me, that’s the daily attitude I bring to work and the quality of work I try to do. But the other thing I control is my continuous learning. For those who are seeking to ‘up their game’ please do yourselves a favour and look at the new FCIP program. It is an outstanding program that provides a tremendous foundation to improve your business skills.

Who knows where this might lead you-running the business of a football team? Nah…couldn’t happen! _

Glenn Gibson, CIP, CLA, FCIAA, CFE, CFEI, CFII-c, is the Chief Executive Officer of Crawford & Company Consulting (Canada), and President, Business Operations of the Hamilton Tiger-Cats.