Fire Losses And Investigations

When investigating a fire loss there is a great deal of information the insurer has to take into consideration during the course of its investigation. In this article, we help insurers become aware and familiar with the terms and exclusions of the policy in questions, the steps to follow and key the questions to ask during the investigation.

Fire Loss Policies

Unlike Automobile Policies, the contents of Homeowners Policies are not standardized. Policies often have different wording and, even where the differences are subtle, this can lead to very different outcomes. As a result, the interpretation of Homeowner's policies is very complex and uncertain. It is often not clear whether an exclusion clause can be relied upon.

This has been apparent in the interpretation of vacancy exclusions. For example, in Cody v Beaver Insurance Co. (1964), 45 D.L.R. (2d) 531 (Alta. C.A.), the insured property was not considered vacant while the house had furniture and possessions in it even though the insured was not actually living there. Similarly, in Ritchie (Litigation Guardian of) v Sun Alliance Insurance Co. (1992), 122 N.B.R. (2d) 322 (Q.B.), the court held the property was not vacant because it was being checked on almost daily.

The opposite conclusion was reached in Lambert v Wawanesa Mutual Insurance Co., [1945] 1 D.L.R. 694 (Ont. C.A.). In Lambert, the policy used the term "unoccupied" rather than "vacant". The Ontario Court of Appeal found the house was unoccupied even though it contained possessions. At paragraph 6, it concluded for a dwelling-house to be occupied, it must be a person's "customary place of abode... [or] place of usual return and habitual stoppage". The distinction between the words "vacant" and "unoccupied" was also discussed in Miller v Portage La Prairie Mutual Insurance Co., [1936] 2 D.L.R. 787 (Sask. C.A.), where Gordon J.A. stated at para. 17: "'Vacant' I take to apply to inanimate objects and 'unoccupied' to animate occupancy."

Another clause which has led to divergent results is the Innocent Co-Insured exclusion clause. Homeowner's Policies frequently contain terms excluding coverage for loss or damage to property caused by a criminal or intentional act. This has led to cases where one insured intentionally causes damage to a property and the insurer denies coverage to the innocent co-insured. A leading case on this issue is Scott v Wawanesa Mutual Insurance Company, [1989] 1 S.C.R. 1445. In this case, the Insured's minor son intentionally set fire to the Insured's premises. The Supreme Court of Canada considered whether the exclusion for loss or damage applied only to the Insured responsible for the criminal or intentional act or whether it applied to all innocent insureds. The majority judgment concluded the terms of the policy clearly excluded the damages suffered by the parents.

A more recent Alberta Court of Queen's Bench decision, Charles v Peace Hills Insurance Co., 2007 ABQB 515, involved a situation where a husband set fire to a matrimonial home. Although the husband and wife had separated, they were still legally married. It was determined the husband still had an insurable interest in the home even though he no longer resided there. The Court held the policy precluded coverage to any and all insured persons "even if the intentional or criminal act was the result of the actions of only one of the insured" (para. 32).

In a decision of the Saskatchewan Court of Appeal in Wigmore v Canadian Surety Co. (1996), 144 Sask. R. 285 (C.A.), the Court felt the wording of the clause was sufficiently different from Scott and could allow the innocent Co-Insured to claim under the policy even though the other Insured had lied on a Proof of Loss. The Court even went so far as to allow the innocent Co-Insured to recover 100% of the loss rather than only half as was argued by the Insurer.

Shortly after the Supreme Court of Canada's decision in Scott, the Alberta Legislature amended the Insurance Act, RSA 2000, c I-3, in an attempt to resolve the uncertainty of innocent co-insured clauses. As a result of this change, which came into force in 2012, s. 541 now reads:

541 (1) If a contract contains a term or condition excluding coverage for loss or damage to property caused by a criminal or intentional act or omission of an insured or any other person, the exclusion applies only to the claim of a person

(a) whose act or omission caused the damage, (b) who abetted or colluded in the act or omission, (c) who

(i) consented to the act or omission, and (ii) knew or ought to have known that the act or omission would cause the loss or damage, or

(d) who is in a class prescribed by regulation.

(2) Nothing in subsection (1) allows a person whose property is insured under the contract to recover more than the person's proportionate interest in the lost or damaged property. (3) A person whose coverage under a contract would be excluded but for subsection (1) must comply with the requirements prescribed in the regulations.

As discussed at paragraph 17 of Haraba v Wawanesa Mutual Insurance Co., 2017 ABQB 190, this legislation effectively abrogates the majority decision in Scott and adopts La Forest J.'s reasoning in the minority judgment. When damage is caused, "exclusionary clauses for criminal or intentional acts or omissions [apply] only to the responsible insureds". In situations where one insured intentionally destroys joint property, the indemnification obligation of an insurer will be several rather than joint. Without express language in a statute or insurance contract indicating a policy will be void against an innocent co-insured, a wrongful act by one insured will no longer disentitle innocent co-insureds from indemnification. For example, in a situation where a husband burns down the matrimonial home, the wife can still recover damages as long as she did not allow or participate in the arson. However, it is clear from the wording of the new clause she would only be entitled to recover her half of the damages and would not be awarded the windfall of the husband's share as was the case in Wigmore.

Statutory Conditions

The Insurance Act, RSA 2000, c I-3 contains fourteen Statutory Conditions which are deemed to be a part of every contract of insurance in force in Alberta. They are printed in every policy under the heading "Statutory Conditions". They set out the obligations of the insured and insurer in policies which insure against loss of or damage to property arising from fire.

These provisions are found under Part 5, Subpart 1, section 540 of the Insurance Act as follows:

MISREPRESENTATION:

1 If a person applying for insurance falsely describes the property to the prejudice of the insurer, or misrepresents or fraudulently omits to communicate any circumstance that is material to be made known to the insurer in order to enable it to judge the risk to be undertaken, the contract is be void as to any property in relation to which the misrepresentation or omission is material.

A material misrepresentation in an application for insurance need not be fraudulent to void insurance coverage. As long as it is material to the risk, an innocent misrepresentation will result in the same outcome (Smith v Co-operative Fire & Casualty Co. (1977), 5 A.R. 116 (Q.B.). Materiality is considered from the point of view of the insurer, not from that of the insured. As stated in paragraph 48 of Coulter v Co-operators Life Insurance Co., 2014 ABQB 689, "[t]he test for materiality is ... whether the insurer would have accepted the risk without further investigation, had it known the misrepresented or non-disclosed facts". A misrepresentation is only material if it would affect the conduct of a reasonable insurer in accepting the risk or establishing the premium (Security Mutual Casualty Co. v Cunningham, [1980] I.L.R. 1-1178 (N.B.C.A.)).

It is also important to remember the insurer has burden to prove information given during an application for insurance is incorrect (Mutual Life Insurance Co. v Ontario Metal Products Co., [1923] S.C.R. 35).

Examples of misrepresentations which have been found to be material include:

Not disclosing prior losses Ford v Dominion of Canada General Insurance Co., [1991] 1 S.C.R. 136 (S.C.C.) Sholidis v Economical Mutual Insurance Co., [2003] O.J. No. 2242 (Ont. S.C.) Failing to disclose the cancellation of previous policies Lyons v Gore Mutual Insurance Co. (2000), 51 O.R. (3d) 528 (S.C.J.) Incorrectly describing the use of the property Johnson v AXA Pacific Insurance Co., 2011 BCSC 305 Vimhel v Archibald Clarke and Defieux...