Case Summary: Malcolm Silver & Co. Ltd, Et Al. v State Farm Fire And Casualty Company

The Court held that a fraudster's unauthorized use of the insured's online banking system to make payments against her own credit card debts did not qualify as forgery or alteration under the terms of the policy in question.

Malcolm Silver & Co. Ltd., et al., v State Farm Fire and Casualty Company, 2019 ONSC 4264, per Sossin, J.

Facts + Issues

The Plaintiff insured Malcolm Silver & Co. Ltd. was the victim of sophisticated fraud perpetrated by Martinez and suffered losses in excess of $1,000,000. The fraud included forgery of cheques and also Martinez's use of Malcolm Silver's online banking services without authorization to pay her personal credit card debts.

Malcolm Silver obtained default judgment against Martinez but nothing was collected.

Malcolm Silver claimed for the losses from State Farm under the “forgery or Alteration” endorsement, which provided as follows:

We will pay for loss resulting directly from forgery or alteration of any cheque, draft, promissory note, bill of exchange or similar promises payment in 'money' that you or your agent has issued, or that was issued by someone who impersonates you or your agent.

The policy defined the term “money” as “currency, coins, and bank notes in current use and having a face value, travelers' cheques, registered cheques and money orders held for sale to the public.”

State Farm indemnified the insured regarding losses due to cheques forged by Martinez but refused to cover the losses due to online banking activity (which totalled $101,474.15), taking the position that they were not covered by the “Forgery or Alteration” endorsement.

The insured applied for a declaration that the online banking transaction losses were covered.

HELD: For the insurer; application dismissed.

The Court summarized the general principles regarding the interpretation of insurance policies:

12 The general principles applicable to the interpretation of an insurance policy are not in dispute. In Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, [2017] 1 S.C.R. 121 (S.C.C.), Justice Karakatsanis summarized these principles as follows (at paras. 12-13):

[12] In Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, this Court confirmed the principles of contract interpretation applicable to standard form insurance contracts. The overriding principle is that where the language of the disputed clause is unambiguous, reading the contract as a whole, effect should be...