By Me Caroline Tremblay, Associate at Gilbert Simard Tremblay LLP
A recent Superior Court1
judgement reminds us yet again that the burden of proof falls on the insurer when it posits the insured’s intentional fault and misrepresentations to justify denying the insured compensation.
THE FACTS OF THE CASE
In 2007, the plaintiffs bought a motor vehicle (henceforth referred to as “MV”), for which they paid $325,000.
In 2016, as he was putting the MV into storage for the winter, Mr. Mallet noticed that the generator was making a strange noise. He decided to unplug the MV and secured it for the winter.
When summer arrived, the MV was fitted with new tires and underwent general maintenance. However, Mr. Mallet had to take it to a garage in Quebec City to fix the electrical problem he had noticed the previous winter, since this type of specialized service was not available in Sept-Îles, where he lived.
After driving over 300 kilometers en route to Quebec City, Mr. Mallet pulled over at a rest stop. He took advantage of this break to inspect his MV, including the motor oil level. It was then that he saw thick black smoke coming out of the front of the MV, which was on fire. The MV was declared a total loss.
THE INSURER’S POSITION
The insurer denied the insureds compensation; it argued that, based on the evaluation, Mr. Mallet had intentionally set fire to his MV.
The insurer attacked the plaintiffs’ credibility, arguing, in particular, that:
- Before the fire, the plaintiffs had unsuccessfully tried to sell the MV;
- The coverage for replacement cost was going to expire in 2017;
- It would have been very costly to fix the generator;
- Mr. Mallet had stopped at an isolated rest stop.
To justify its denial of compensation, the insurer also argued that the insureds contradicted themselves in the various versions of the event that they had given during the investigation, in particular, when Mr. Mallet falsely stated that he had never gone bankrupt.
With respect to intentional fault, the judge pointed out that when an insurer argues an intentional fault, the onus is on the insurer to prove this on a balance of probabilities.
After having heard the parties’ adjusters, the judge preferred the conclusions of the insured’s adjuster over those of the insurer and ruled that the insurer had failed to meet its burden of proof. In addition, he considered that the insureds’ credibility was in no way undermined by the various points the insurer had presented, noting that:
- The plaintiffs’ financial situation was far from precarious;
- The high potential cost of repairing the generator could not have led Mr. Mallet to set fire to his MV, especially since he did not know what the cost would actually be;
- The fact that the MV had been put up for sale before the fire could not prejudice the plaintiffs;
- After having driven over 300 kilometers, there was nothing unusual about Mr. Mallet stopping at a rest area to eat.
It was also up to the insurer to establish that misrepresentations had been made. An inaccurate statement cannot automatically be deemed to be a misrepresentation. In the judge’s words:
 An inaccurate statement is not a misrepresentation. It is recognized that the latter must be fraudulent in nature and intended to defraud and mislead the insurer in order to wrongly receive a financial benefit. Honest mistakes, exaggerations, omissions, hesitations or memory lapses are not misrepresentations. [unofficial translation], (our emphasis).
While admitting from the outset that the various versions given by the insureds contained certain contradictions, the judge was of the opinion that these contradictions were unimportant, and furthermore concerned “facts that were peripheral to the claim, and without any real bearing on it.”
With respect to the issue of Mr. Mallet’s bankruptcy, the judge wrote:
 Yes, there were discrepancies, a major one being that Mr. Mallet initially responded that he had never gone bankrupt, when in fact, this was inaccurate.
 But in the final analysis, what difference does it make?
 He went bankrupt in the 1980s, over 35 years before the claim. Since then, his financial situation has recovered, to say the least.
 The Court in no way criticizes how la Capitale conducted its investigation; however, it believes that the plaintiffs searched their memory for answers to the more or less relevant questions that were asked of them. [unofficial translation]
Since he believed that the insurer did not discharge its burden of proving that the insureds made misrepresentations, the judge allowed the insureds’ claims for replacement cost of the MV and storage fees.
However, the claim for moral and punitive damages was denied due to a lack of evidence. Despite the fact that the insurer’s investigation may have seemed burdensome, it was nevertheless necessary, given the contradictions noted in the insureds’ various versions of the facts.
Finally, with respect to solicitor-client costs, the judge believed that there was no reason to grant them, since the insurer’s investigation had been conducted in a regular and rigorous manner.
REVIEW OF THE PRINCIPLES THAT APPLY TO INTENTIONAL FAULT AND MISREPRESENTATIONS
The insurer cannot simply deny compensation based on its suspicions. When the insurer alleges that the insured has made misrepresentations, it then has to establish that these statements are not only inaccurate, but that they were made deceptively in order to receive a financial benefit.
This decision is also a timely reminder to insurers of the importance of discernment and diligence when carrying out an investigation. Indeed, the courts will not hesitate to order an insurer to pay moral damages, and even punitive damages, when denial of compensation is based on a botched investigation. 2
1. Mallet c. La Capitale, assurances générales inc., 2018 QCCS 2751.
2. Beaudoin c. Compagnie mutuelle d’assurance Wawanesa (2013) C.S. See also Bergeron c. Promutuel Lac St-Pierre–Les Forges (2010) C.Q.