Ontario court awards punitive damages against insurer, distinguishing between fraud and maximizing insurance recovery

Wawanesa Mutual Insurance Company employed a high-stakes litigation strategy designed to intimidate homeowners seeking damages, a choice that demands significant, but proportionate punishment, an Ontario court has ruled.

In Brandiferri v. Wawanesa Mutual Insurance, et al., Ontario Superior Court Justice P.D. Lauwers dismissed the insurer’s allegations of fraud against the policyholders in a decision related to a fire at the home of Salvatore and Linda Brandiferri on Aug. 8, 2000. The fire destroyed the home’s contents and resulted in smoke penetrating the house.

The Brandiferris sued Wawanesa and Strone Construction, arguing the latter is liable for deficient remedial construction work and the insurer was also liable because it selected the contractor that provided the poor work.

The homeowner’s insurance policy provided “guaranteed replacement cost” coverage for the house and contents, and included a “single inclusive limit” of $564.000. Wawanesa paid slightly more than $479,000, but the Brandiferris sought $178,093.74 from Wawanesa and Strone for the house not being completely or acceptably restored.

Counsel for Wawanesa submitted that the Brandiferris had brought an action without determining the amount at issue by way of appraisal. Pina Naccarato, the Brandiferris’ daughter, prepared the proofs of loss. Once completed, they were submitted to the Bradiferris’ lawyer. 

The proofs of loss prepared on the Brandiferris’ behalf were completed by someone who had never done these before and had no instructions on how to do so, the court determined.

The court notes that everything in the house — which had earlier been taken away — was included on the list. Naccarato did not know which items were damaged.

“By swearing the proof of loss, the Brandiferris swear that the items listed were destroyed in the fire,” counsel for Wawanesa submitted. As such, those statements were false. “They were not claiming these items in the context of an honest claim for indemnity, but rather in an attempt to secure the maximum payout from the policy and turn this fire as a source of gain.”

Justice Lauwers notes the law in Ontario is that it is not automatically fraud for a plaintiff to put in a claim that might be seen as exaggerated. “I am not persuaded on the evidence that the Brandiferris committed fraud in preparing and filing the first or subsequent proofs of loss, even though they did seek to maximize their recovery.”

Justice Lauwers determined that, in light of correspondence, it was plain that Wawanesa, through its counsel, “waived its right to insist on an appraisal, in writing, and therefore cannot now insist that it is a condition precedent to the plaintiffs’ right to recovery in this action.”

The decision further notes: “The fraud allegation was late-breaking and was only made after the action was started in the statement of defence and counterclaim.” Part of an insurer’s duty of utmost good faith in investigating, assessing and attempting to resolve claims must attach to the insurer’s litigation strategy against the insured when the claims is disputed, the ruling adds.

Justice Lauwers calculated $108,257.78 as the amount needed to put the home in the condition it was before the fire. He ordered Wawanesa to pay $100,000 in punitive damages.