On May 1, 1973 I walked in the door of Fireman's Fund Insurance Company in Hamilton, Ontario to start a job as an insurance adjuster. At age 20, it is difficult to imagine where you might be 39 years later. I had no idea in those early days that my job would be recognized as a profession. My proudest moment was when I qualified to insert the initials, AIIC, behind my name. When then-Governor General Roland Michener presented me with my diploma, it was the start of a lifetime of continuous learning.
I have been fortunate during my career to reach a global platform to demonstrate business management skills. But I've never forgotten my roots as a loss adjuster. Writing articles and continuing to teach have kept me engaged in my profession. And, continuing to work as an appraisal umpire has accelerated my seamless return into the Canadian marketplace.
Now, on to some recent cases.
Tedford v. TD Insurance Meloche Monnex, Ontario Court of Appeal (Lang, Epstein & Hoy), June 22, 2012
This litigation started with the sale of a house. The seller was alleged to have negligently misrepresented information in the "Seller Property Information Statement." The purchaser sued alleging repair costs and personal injury. The purchaser reported experiencing "anxiety, sleep disturbances, fatigue, stress, headaches and symptoms of depression," all alleged to be related to the purchase of this property.
The seller held a valid homeowner's policy covering the property at the time of the sale. Did the homeowner's insurer owe a duty to defend a lawsuit brought by the purchaser?
An application court judge reviewed the circumstances, concluding that the "property damage" was not covered but that the allegation of the personal injury triggered a duty to defend. The insurer appealed the decision arguing that the true nature of the claim was for an economic loss resulting from a commercial transaction. The injury claim was a derivative loss and therefore should not trigger the seller's homeowner insurer to pay the full defence costs.
The Ontario Court of Appeal, in reviewing this decision, posed some fundamental questions based on case law:
1. Do the pleadings allege facts that, if true, would require the insurer to indemnify the insured?
2. Is there any possibility that the claim falls within coverage?
3. Is the claim advanced entirely "derivative" in nature?
4. Does a reasonable reading of the pleadings infer that there may be coverage?
5. The usual principles governing the construction of insurance contracts apply. Coverage should be interpreted broadly and exclusions narrowly. Where contract language might be considered ambiguous, consideration should be given to the reasonable expectations of the policyholder.
The Court of Appeal noted the only cause of action pleaded was negligent representation. There were no allegations of an intentional tort. The General Damage feature of this claim represented a different category of damages from the negligent representation, BUT was not considered a derivative claim.
The purchaser's claim was for $150,000 in repair costs. The purchaser sought $25,000 in health consequences. The claim for repairs was clearly not covered by the homeowner's policy.
The Ontario Court of Appeal instructed the insurer's lawyer to defend the entire action - both covered and uncovered losses. But the policyholder had to bear the costs of defence that exceeded the reasonable costs associated with defending the covered claims. The court said it would be unfair to the insurer to fix it with disproportionate costs and ordered both parties to seek agreement on allocating costs or return to court for a determination.
This is an interesting case for anyone seeking to sell his or her home. The document that the seller must sign will be treated seriously and the sellers will be reaching into their own pocket to pay for a portion of the defence costs. The case also sets out some rules when a derivative claim pops up, which may bring some portion of the overall plaintiff's claim into coverage.
O'Byrne v. Farmers Mutual Insurance Company (Lindsay), Ontario Superior Court, J. Sproat, May 8, 2012
On March 13, 2005 oil leaked from a second floor furnace in a commercial building in Minden, Ontario. Was the damage covered by the policy of insurance? Almost seven years later, an eight-day trial was needed to determine this issue.
The building owners initially purchased this building as a rental income property. There was commercial space on the main floor and two small apartments on the second floor.
On the evening of the loss, an apartment tenant returned home to discover an extremely strong smell of oil. A furnace repairman attended the next morning and discovered that someone had intentionally placed cardboard between a set of contacts on the furnace thermostat. This meant the furnace continued to run at an excessively high temperature, resulting in the failure of the ignition device. When this happened, oil for the furnace continued pumping and overflowed.
An independent adjuster attended the loss site. Within several weeks, a determination was made that the loss was not covered by the commercial policy due to a pollution exclusion. A letter denying coverage was sent to the insured. The trial judge accepted the plaintiff's evidence that no blank proof of loss form was attached to the letter.
At the time coverage was denied, there was considerable suspicion that the tenant of one apartment had tampered with the furnace thermostat. The local mental health services had 'placed' this tenant in the building and were subsequently named in the action started by the plaintiff. On the eve of this trial, the insurers of the mental health firm settled their case with the plaintiff. No terms were disclosed.
As the matter moved to litigation, the insurer of the building owner amended their Statement of Defence to include new arguments. One issue related to the failure to file a proof of loss form. The second was introducing a second exclusion (mechanical breakdown). The plaintiffs, not to be outdone, introduced an argument that they had never received a copy of the policy of insurance.
The trial judge did not seem impressed with the new amendments to the Statement of Claim or the Statement of Defence. His rulings reflected this with some key points:
1. The adjuster obtained a non-waiver agreement immediately after the loss. The insurer seemed quite confident the pollution exclusion applied to the claim and relied on this in early denial of coverage. The adjuster did not provide a blank proof of loss. The trial judge felt the insurer had "waived" any requirement for a proof of loss to be filed the minute they denied the claim.
2. Up to trial, the plaintiffs had not completed repairs to the building. The insureds led evidence that they did not have the financial ability to execute on repairs. In this situation, given the judge felt coverage was wrongfully denied, the insurer forfeited its right to argue that the insureds had failed to mitigate their damage claim.
3. The judge reviewed the pollution exclusion. He relied heavily on the Ontario Court of Appeal decision of Zurich Insurance v. 686234 Ont. Inc. (2002) No. 4496. The trial judge referred to traditional environmental contamination situations as the risk the insurer was seeking to exclude. In this situation, he did not view it as a traditional environmental loss, pointing out the oil spill was within a 30-foot area of the furnace and did not escape the building.
4. Justice Sprout then examined the mechanical exclusion. The judge referred to the premium charged by the insurer for a commercial policy where it knew apartments were rented to tenants who might do "stupid" things. He gave examples where tenant's acts - such as a grease fire or running water - would result in a covered claim. This situation was not the result of an internal defect to the furnace; therefore the mechanical exclusion did not apply.
The judge determined that the loss was covered by the policy of insurance and awarded damages for the building repairs and rental income loss that would result while the repairs were being performed. The judge also noted that the sums awarded would be adjusted by recoveries agreed upon prior to trial by the tenant's insurer.
This is an interesting read to see this particular judge's views on how two different exclusions should be interpreted. The decision seems to follow the "Doctrine of Reasonable Expectations." What was the intent of the policy? In this case, it was to provide protection to a building owner from the stupid act(s) of a tenant.
Mourits Trucking Ltd. V Sovereign General Insurance Co., Alberta Queen's Bench, Belzil R.P., March 28, 2012
On June 6, 2004 a wiring defect caused a fire that destroyed a vacant farm property. There was an early dispute as to whether the policy was underwritten with a building replacement cost endorsement. That issue went to trial. Justice Belzil was appointed as the case management judge. He was able to convince the policyholder that there was no replacement cost coverage on the building. The insured accepted that he had an actual cash value (ACV) policy with limits of $545,000. But what was the ACV?
The case turned to determining the ACV. Key points raised by the insurer:
1. Two years prior to the loss, the insured purchased the property for $80,000.
2. A few months prior to the fire, the insured listed the property for sale at $109,500.
3. Prior to the fire, the insured agreed to sell the property for $105,000.
The insured hired a real estate appraisal firm, which determined the ACV was $325,000. This matter was referred to the appraisal process under the Insurance Act, RSA 2000. The appraisers for both sides selected a respected lawyer as the umpire. The umpire made a decision that was agreed to by the insured's appraiser. With two of three people in the process agreeing to a position the matter was concluded. The award was for $325,000.
The insurer was not happy with the result. It filed an application for a "Judicial Review" of the umpire's award.
In 2008, the Supreme Court of Canada in (Dunsmuir v. New Brunswick) took significant steps to revamp the law relating to judicial reviews. They concluded there should be two standards of review for administrative decisions:
1. The deferential standard of review of reasonableness.
2. The standard of review of correctness, which is not differential.
The judge determined in this case that the differential standard of review of reasonableness applies. In using this test, the judge reviewed a number of decisions relating to determination of ACV. The judge concluded that the umpire's decision was based on evidence, was transparent and intelligible. It fell within a range of reasonable decisions that could be reached based on the evidence and the applicable law.
It is interesting to note that the trial judge states in part that, "the umpire will either accept the valuation of the Applicant or Respondent." A simple reading of this statement implies that the umpire was limited to picking one position over the other. In appraisal, an umpire is not restricted to picking one position versus the other. Usually, the process involves a form of mediation approach. This dialogue continues until two parties in the process agree on an outcome either on individual issues or the macro situation.
This judgment does not give the impression that this type of process was followed. Rather, it seems the umpire chose to pick the position that provided, in his mind, the right solution. The actual process to arrive at the agreement of two parties is not spelled out in the Act. The process can be quite flexible and lead to a new number other than the initial starting point of either party.
Collett et al and S. Szilvasy v. Reliance Home Comfort et al, Ontario Superior Court, J. Pardu, December 7, 2011
In two Small Claims Court decisions, the defendant was found liable for the failure of two hot water heaters. An appeal was launched, with both actions being consolidated for review by one judge.
The first issue Justice Pardu dealt with was the "standard of review." The plaintiff's lawyers felt the standard of review was "correctness." They relied on the 2009 Ontario Appeal Court decision in Bell Canada v. The Plan Group. Justice Pardu did not give this case much weight by pointing out that this appeal decision related to the interpretation of an arbitration provision in a written contract.
Justice Pardu pointed out that: "In this case, 'reasonableness' lay at the heart of the issues before the trial judge." He added: "the issues determined by the trial judge raised issues of mixed fact and law, and that a palpable and overriding error must be established to justify appellate intervention."
The judge then examined the facts of this case, which included:
1. All hot water tanks will corrode and eventually leak.
2. There was no plan in place to replace tanks before they leaked at any stage in their life span.
3. There was no process in place to determine when a tank actually might fail.
4. In this instance, the defendant had 1.2 million tanks leased out to customers.
5. In any given year, there was a .005% chance of a tank failure happening.
6. If any tank failed, the defendant would replace it. If it needed to be serviced, the defendant responded. They always retained ownership of the tank.
The judge felt that it would be "illogical to conclude that there was not a continuing warranty as to the proper functioning of the tank." Having reached that conclusion, Justice Pardu felt he was in no position to conclude that the lower court decision(s) involved a "palpable and overriding error."
It was interesting to see this appeal from a Small Claims Court judgment. There do not seem to be many appeals to this court level but, given the increase in limits to $25,000, perhaps we will see more in the future.
Some adjusters consider themselves fortunate that they never have to get "in the box" and give evidence at a trial. But for those who do experience such an event, it can be a life-altering moment. You leave with your eyes wide open, realizing just how high the bar is to become a true professional. You will approach your work differently in many ways, including:
• The quality, volume and style of your note taking.
• The method and quality of how you protect and preserve evidence.
• The importance of proving that you have kept an open mind in your investigation.
• Proving that you acted in good faith to the insurer at every step in your investigation (a different paradigm than defending bad faith allegations).
• Proof that you have eliminated, or confirmed all investigative leads.
• Recognition that rumor, innuendo and speculation are not evidence.
I make these points because it is easy to read judgments and cast opinions from the bleachers. Trials take on a life of their own where the momentum can change quickly. What seemed like a good case for trial can collapse. The best way to manage this risk is by improving the professional quality of your work.
Glenn Gibson, CIP, CLA, FCIAA, CFE, CFEI, CFII-c, is the Chief Executive Officer of Crawford & Company Consulting (Canada).