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Court overturns bad faith award against AIG in jewellery theft claim


October 31, 2019   by David Gambrill


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The Court of Appeal for Ontario has overturned a bad faith punitive award against AIG Insurance Company of Canada in a jewellery theft claim, ordering a trial to be held on the merits of the insurer’s contention that the claim was fraudulent.

The Appeal Court ruled that the motion judge had erred in law by ordering the insurance company to pay the claim on a summary judgment, without taking into account the suspicious circumstances of the case, as alleged by the insurer.

The case involved James Demetriou, who took a $500,000 ring to a resort in the Dominican Republic. The court record says he wore the ring on a gold chain around his neck on a late-night walk on the beach, where he claimed it was stolen from him by a man who approached him and demanded his jewellery.

The insurer denied the claim, noting that the circumstances were suspicious. For example, AIG observed that the respondent had lost another very valuable ring and recovered from another insurer the year before. AIG said it was not prepared to pay unless the respondent proved the loss.

The motion judge on summary judgment ordered the insurer to pay the claim. He also awarded punitive damages against the insurer for bad faith dealing and substantial indemnity costs.

AIG appealed, saying that the motion judge did not allow the insurer to amend its pleadings to rely on provisions of the policy that exclude coverage for deliberate acts or fraud. After disallowing the insurer to change its pleadings to include fraud, the motion judge then proceeded to grant summary judgment against the insurer without giving any consideration to the many suspicious circumstances raised on the record; in doing so, the motion judge held that the suspicious circumstances were not relevant without a plea of fraud.

The Appeal Court overturned the decision, ruling that the motion judge should have allowed the insurer to change its pleading to include the denial of coverage on the basis of fraud.

“Rule 26.01 provides that the court shall grant leave to amend a pleading ‘at any stage of an action,’ unless there is prejudice that cannot be compensated by costs or an adjournment,” the Ontario Court of Appeal found. “In our view, there was no such prejudice in this case.

“The motion judge thus erred by denying the amendment and then excluding from his consideration the evidence that raised the credibility issues and concerns regarding the insured’s claim.”

The Appeal Court further concluded that “the credibility of the claim and of the claimant was squarely in issue and requires a trial.”

The Appeal Court ordered a trial, allowing AIG to amend its pleading to include fraud. The punitive award against the insurer is also overturned.


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