If an insurer suspects fraud in a house fire contents claim, it might be better to deny the claim within 60 days, alleging fraud, rather than to prolong the claims investigation indefinitely while asking for documentation from the insured that isn’t forthcoming.
That’s one key takeaway from a Supreme Court of British Columbia case in which a claimant, then an aspiring claims adjuster, received a $30,000 bad faith award from Sonnet Insurance. The insurer was ordered to pay for the disputed amount of contents lost in a house fire.
“Sonnet cannot avoid its obligation under [the Insurance Act to pay a claim within 60 days of receiving a notice of loss], by purporting to investigate indefinitely, particularly where no further investigative steps are contemplated,” the B.C. Supreme Court ruled in Lambright v Sonnet Insurance Company.
On May 23, 2019, a fire destroyed the house in which the claimant, Cindy Lambright, was residing. The house had been owned by Lambright’s late mother, Judy Green, until Green’s death just over a month before. Lambright is the executor of Green’s estate.
Sonnet Insurance issued a home policy that covered against fire losses. Lambright, on her own and the estate’s behalf, submitted a proof of loss to Sonnet for the building and its contents. Sonnet has since paid just under $311,000 for rebuilding the house, about $18,000 for lost contents, and almost $50,000 for rent for alternative accommodations.
But Sonnet has not agreed to pay the total contents loss ($189,538), pending receipt of further documentation.
At the request of the insurer, Lambright filed five different proof of loss documents – on Sept. 26, 2019, May 15, 2020, Sept. 4, 2020, Aug. 19, 2021, and Jan. 5, 2022. Each time, the insurer advised Lambright that it required additional documentation.
On July 2020, before the third proof of loss was filed, the insurer sent Lambright a message requesting:
“Copies of all purchase receipts for all items claimed by the Estate of Judy Green….Any available photographs of any items listed with the Schedules of Loss….Any photographs of the wood stove being claimed by the Estate of Judy Green and Ms. Lambright as this does not appear to have been included in our Scope of Work. Documentation to show what was brought to the landfill on behalf of the Estate of Judy Green when Ms. Lambright cleaned the home after her mother’s passing.”
Lambright retained a lawyer, who wrote back to the insurer, saying it’s not practical for her to provide the documentation it was seeking. “…[T]he majority of these receipts are either not kept or were destroyed in the fire.” The lawyer’s letter added Lambright was unable to respond to “a blanket request for receipts for every item.”
Finally, Lambright brought a court motion for the insurer to pay for the disputed cost of the contents, saying the delays were unreasonable and breached S. 12 of the Insurance Act, which requires an insured loss to be paid “within 60 days after the proof of loss is completed…and delivered to the insurer.”
Sonnet said it required the information because Lambright’s credibility was at issue. It told the court it couldn’t accept Lambright’s successive schedules of loss at face value without further documentary support because, it alleged, she made inconsistent statements about the losses under oath in other proceedings.
Lambright acknowledged the 60-day deadline in statutory condition #12 is not absolute but can be extended as reasonably necessary to allow the insurer to investigate and assess the claim. However, she says the delay in issue here was not reasonable under the circumstances.
The B.C. Court essentially found the credibility of Lambright was not, in fact, in question, because the insurer had never actually denied the claim on the basis of fraud. It simply prolonged the investigation indefinitely.
“In this case…Sonnet has not formally challenged Ms. Lambright’s version of events, let alone alleged fraud, so as to raise a triable issue,” the B.C. Supreme Court found. “It has merely refused to pay the outstanding balance of the claim pending receipt of further documentation that it has already been told will not be forthcoming.”
The bad faith award was not based on the insurer’s suspicions, the court noted. Rather, it was because the insurer had stopped rebuilding the house while the contents dispute was ongoing, even though the rebuilding costs were not part of the dispute.
Feature photo courtesy of iStock.com/Jirapong Manustrong