I’ve been writing on topics that impact front-line loss adjusters for over 25 years. I have now expanded things a bit by adding lawyer Andrew Eckart to form a writing team with me. I had the good fortune to have Andrew do some editing for me and now I hope to utilize his talent to continue to produce articles that I hope are of use to my profession.
The Office of the Fire Marshal in Ontario published an analysis of fire losses between 2006 and 2015. The analysis showed that there has been a 13 percent percent drop in the number of total structure fires over this time span. In the last five years we averaged about 7,200 fires a year. Of more significance is that the frequency of intentionally set fires has dropped by 48 percent over this 10-year period. In 2015, this equated to eight percent of the total fire count.
The National Fire Protection Association (USA) released a report on “Intentional Fires” covering a period from 2010-2014. They reported six percent of these fires were “Insurance Frauds”. Of these fires, there was a two percent conviction rate in criminal court.
When you review the civil legal decisions across Canada it appears quite evident that there has also been a slowdown in litigation on fire losses involving an intentional act of a policyholder. Still, we have a few recent cases that are noteworthy, and this article will provide a historical and legal refresher on the complexity of handling these types of claims.
Civil versus Criminal Courts
The civil and criminal courts in Canada during the 1990s had many significant decisions that resulted in significant changes in how the insurance industry investigated arson-for-profit schemes. Some principles that emerged were:
- The prosecution of a criminal arson case is subject to the Criminal Code of Canada. Each Provincial Insurance Act governs a civil investigation of arson. Precedent set by our courts governs and guides the investigation.
- The insurance investigator must never be seen to be acting as an “agent of the crown”. In other words, the adjuster’s investigation must be on a separate but parallel track to the police and fire marshal officers.
- If the police require information from an adjuster’s file they need to obtain a search warrant.
- In a criminal matter, the Crown is required to prove the accused is guilty “beyond a reasonable doubt.” The accused is not required to give evidence in a criminal trial. The trial will result in either a guilty or not-guilty verdict.
- In most civil matters, the plaintiff is the policyholder. The defendant is the insurer. The burden is on the insurer to show that the intentional act exclusion should apply based on proving their case on a “balance of probabilities”. The insurer must therefore prove it was more likely than not that the intentional act exclusion applies (i.e. that the policyholder intentionally caused the fire).
- In a civil matter, the plaintiff is required to give evidence and present their case first. An insurer should take mind that they are alleging their policyholder has committed a criminal activity, therefore while the insurer must only prove the arson on a balance of probabilities instead of beyond a reasonable doubt, they must do so with clear and cogent evidence.
- In either type of case the accused/policyholder can make an election to have the trial conducted by judge alone or by a jury. In a civil case, the insurer may also propose the case be heard by a jury. Our legal profession doesn’t seem to have a preference in this choice.
- In a civil matter, the insurer should have a very solid case, as they are exposed to not only the direct damage numbers but also to the potential for exemplary or punitive damages and costs. The quality of the insurer investigation is going to be a crucial element of every trial.
Bidart v. The Portage La Prairie Mutual, May 15, 2017
On September 9, 2010, in Sydney, Nova Scotia a fire substantially damaged a house owned by the plaintiff. The insurer subsequently denied the claim based on their investigation, which concluded that the fire was an intentional act of the named insured. Litigation eventually resulted in a civil trial.
The decision follows the three elements of the ‘Arson Triangle’. The onus rests on the insurer to prove:
- What was the cause of the fire? Was it an incendiary fire?
- What is the motive behind the fire?
- Was there exclusive or ample opportunity for the insured to set the fire?
What was the fire cause?
- The fire department called in a deputy fire marshal to investigate the fire who documented the fire scene with assistance from the police on the day following the fire. His scene investigation showed him the smoke alarm was “disconnected” prior to the fire. He concluded the origin area of the fire was beneath the stairs serving the second floor. He initially classified the fire cause as “Undetermined”.
- The insurance company hired a fire expert (an electrical engineer) who attended the scene within days of the fire. He agreed with the fire marshal’s conclusions on the origin of the fire but he went on to conclude that, “…the cause of the fire was not electrical nor any other accidental heat source.”
- Upon receipt of the insurer’s fire expert report, the deputy fire marshal issued a supplemental report concluding this was a deliberately set fire.
- As this matter moved towards a trial the plaintiff hired a fire expert who conducted a scene examination 4 years after the fire. A second fire expert was then engaged who did not inspect the scene until a week prior to the trial. They both provided opinions that the fire was not intentionally set but could have resulted from a variety of other causes.
What was the motive?
- There was a judgment outstanding from the insured’s ex-spouse of over $16,000.
- The insured’s bank accounts were frozen for a time and he ran up debt on his credit cards.
- There was an accumulation of his debt load leading up to the fire.
- Family members were concerned about the insured’s drinking habits.
Was there opportunity?
- The front door was locked.
- The back doors were closed but not locked.
- There was alarm and smoke detector in the home. They had not been turned on in three to four months.
- The insured was at home at 5 p.m. He was working in his garage adjoining the house. He left the garage to take a break while it was still daylight at 8-8.30 p.m. As he stood in the driveway near his home a neighbor saw smoke coming from the house.
In reaching her decision the judge paid particular attention to the competing fire experts. The judge was persuaded that the insurer had proved that the fire was an incendiary one largely due to the strength of the insurer’s expert’s immediate, thorough, and knowledgeable investigation, which corresponded with the opinion of the deputy fire marshal.
There was clear evidence of motive given the condition of the insured’s finances.
In terms of opportunity a great deal of attention was paid to the statement that the adjuster took from the insured within days of the fire because it was the only evidence available given the insured was deceased prior to discoveries and un able to testify in court. The judge gave little weight to the evidence of the insured in the statement as it was self-serving, unsworn, not subject to cross-examination, and contradicted the evidence of his neighbors. She did believe the evidence of neighbors who both observed and spoke to the insured on the night of the fire.
The judge concluded that the insurer had proven their case. The matter was dismissed and an award of costs was made against the plaintiff.
Several things are noteworthy in this case:
- The public authority (fire marshal) concluded this was an “incendiary” fire. In reaching that conclusion, the fire marshal relied upon the expert opinion of the electrical engineer hired by the insurance company. The judge found nothing wrong with this approach.
- Normally a statement, which was unsigned and not sworn to, might not be admissible evidence. But because the insured had died, it was accepted as necessary, but not very reliable. Little did the adjuster know at the time that over 6 years later that he would be in a court of law introducing evidence and providing testimony on this case.
- The speed by which the insurer investigated the fire by questioning the insured and sending out an investigator to determine the origin and cause of the fire was crucial. Evidence obtained in the days following a fire is much more persuasive than that discovered or “remembered” years later.
- The insurer was fortunate that the fire investigator they chose to determine the cause of this fire was also an electrical engineer. This proved to be a critical piece in how the judge weighed the evidence.
- The credibility of all witnesses is of fundamental importance.
- Good facts lead to good decisions.
W.Soczek v. J. Soczek and Allstate Insurance Co. of Canada, April 13, 2017
On Feb. 3, 2010, during an argument with his wife, Mr. Soczek suddenly poured gasoline onto her and ignited it. He continued during the assault to stab her repeatedly. The house ignited causing significant damage. Mrs. Soczek survived this vicious attack and sued her husband and insurer.
The insurer brought a summary judgment in a civil action brought by Mrs. Soczek questioning: Did the intentional act exclusion apply to an innocent co-insured?
The Supreme Court of Canada examined this type of situation and the exclusion in a landmark decision in 1989 called Scott v. Wawanesa Mutual Insurance Co.,  1 SCR 1445 [Scott]. The upper court’s view was that the exclusion itself was unambiguous. It did not attract a contra preferentum argument. The intention of the exclusion was clear.
In his judgment on the motion, Justice Morgan introduced the dissenting opinion in the Scott case. The dissent was critical of the exclusion clause applying to an innocent insured and in particular addressed the notion of what the reasonable expectations of a typical purchaser of an insurance product would be.
While the motion’s judge was sympathetic to the plaintiff, he was bound to the majority opinion in Scott that the exclusionary clause was unambiguous and applied. He had little choice but to align himself with the top court but he made it clear that he was doing so with great reluctance. He pointed out that:
- Ontario is one of the few remaining provinces in Canada which still allows this particular exclusion in insurance policies.
- The plaintiff had suffered terribly through no fault of her own.
- There were questions of “fairness and fundamental decency” in applying the exclusion.
The judge dismissed the claim but refused to allow costs against the plaintiff even though they had lost the decision. He was critical of the insurer’s “corporate conduct” as it knew that such exclusion clauses were “unfair to its innocent customers”.
This is not the only time that insurer has relied upon this exclusion to the detriment of an innocent co-insured. This case caused some media attention leading the Insurance Bureau of Canada to release a statement encouraging all insurers in Ontario and Atlantic provinces to voluntarily align their home insurance policies in order to protect innocent co-insureds. The CBC news also reported that the insurer had reached out to the plaintiff and was making an offer to settle the case. The purpose of the insurance product is to help people restore their lives after a loss. This clearly should be front of mind as insurers seek to align their policy wordings across our country.
Good Faith / Bad Faith
Without any doubt, a civil lawsuit against an insurer for denying a claim based on an ‘arson’ defence is going to include a claim that the insurer acted in “bad faith” and the policyholder was entitled to receive a significant award for punitive or exemplary damages.
When faced with this kind of allegation the inclination is to think about: “How do I defend against this allegation?”
To my way of thinking the more correct question which should be addressed on any arson for profit fire claim is to consider on day one: “How can I prove that I acted in good faith in handling this matter?”
The distinction between both of these questions is that in the first situation you are playing on defence. You are defending yourself from attack. In the second scenario, you take the offense and build in exactly how you are going to prove you acted in good faith!
How might you do that? A few thoughts to consider:
- Who is the claim’s examiner who is overseeing the work of the front-line adjuster? Does that person have the right experience level? Can they stand up in court and explain a formal, documented process that the insurer is using to pick the various professionals they will use on the file?
- What is the background of the loss adjuster handling the investigation? Do you have their curriculum vitae? Have you gone through a process of determining the training, skill and education of the adjuster? Can they demonstrate they have sufficient experience to handle this type of an investigation?
- The origin and cause expert is a critical piece to the investigation. Have you completed a background investigation to pre-approve your expert? The effective selection and use of fire experts is critical. (If you wish a complete list of questions to ask contact me for a copy.)
- Remember that the earlier you collect concrete evidence and opinions the better. Photos of the scene the day after are a lot more compelling than those collected years later.
- If you require the use of a private investigator the same types of questions and pre-qualification process should be used.
- If you require a forensic accountant you again need to ensure you have asked the right questions before picking the right resource.
- Have you gone through a process to determine appropriate legal counsel to be overseeing the file? Arson investigations are complex. You are alleging a criminal activity on the part of your policyholder. You need to ensure that you are matching up experience and skill to the situation.
- When viewing the claim file you should see:
- No tunnel vision. The file should reflect a horizontal view of all the case facts to ensure there is no early jumping to conclusions.
- Good facts lead to good decisions. Is what you are seeing in the file direct evidence? Have investigative leads been eliminated or confirmed? Have facts been corroborated?
- Good quality, well-documented interviews of the named insured and witnesses.
- Effective collection and preservation of evidence.
- The fire investigation follows NFPA 921 standards.
- The evidence is accumulated to document the ‘Arson Triangle’. How/who will enter the courtroom to prove the fire cause was incendiary; proof of motive or some form of connecting evidence; and proof of opportunity to set the fire or procuring someone to do it.
- Case management techniques are self-evident in the file. Is there effective use of time-lines / visual link analysis etc.?
- The triers of fact in a case will be a trial judge or a jury. They ‘weigh’ the evidence they are hearing in multiple ways including:
- Was the witness believable?
- Was the witness qualified?
- Was the investigation thorough and complete? Rumour, innuendo and speculation is not evidence.
- Was the investigation properly and professionally conducted?
- Was the witness professional in his or her presentation?
- Was the witness well prepared to present the testimony?
- Was the witness effective in responding to questions while under cross- examination?
- Was the evidence sufficient to prove the case?
- Was the investigation complete?
- Was there proof of evidence continuity/chain of custody?
- Was there an issue of the integrity or contamination of evidence?
- What evidence is corroborated by multiple witnesses?
- Is the witness self-serving and motivated by interested outcome of the case?
- The insurer is obligated to provide a timely professional investigation. The insured has suffered an extensive loss. They are suffering financial distress while the insurer conducts an investigation. It is very important to match the right resources to the handling of this type of file investigation, and to do so quickly.
- Finally, have you given some thought to having a peer review of the investigation work to see if your conclusions are validated?
If your file can mirror these steps you should have no issues with taking a file to trial. I have been a member of the International Association of Arson Investigators (IAAI) for over 35 years. The IAAI has partnered with the U.S. Bureau of Alcohol, Tobacco, Firearms & Explosives (ATF) to deliver a world-class school for police, fire and insurance personnel. It is a six-day adult-based, interactive, and tested program, which teaches fire investigation case management as one of the key deliverables. It is hosted at Redstone Military Base at the National Center for Explosives Training and Research (NCETR) in Huntsville, Alabama. I would encourage anyone who is actively involved in any way with the handling of fire losses and wishes to upgrade their skills to attend this program. Information on the program, curriculum and instructors can be obtained at: www.firearson.com.
You don’t get two chances to do good work. How you start an investigation is usually a good indicator of how you will end up. Doing good work can be enhanced by properly resourcing the investigation. Having one person to conduct the quality of investigation that is required in today’s legal environment is a very difficult task.
Andrew Eckart is a mediator and civil litigation lawyer. He has acted as counsel in all levels of Ontario’s court, including trial counsel in judge alone and jury trials. He is experienced in the areas of personal injury, insurance, employment, class action, construction and commercial litigation and is available for mediation across Ontario. Andrew teaches first year torts at the University of Windsor’s Faculty of Law.