It shouldn’t come as a surprise that, as insurance lawyers, we don’t recommend lying to an insurance company when filing a claim. Not only is it unethical, but as we will see, doing so can lead to significant financial loss if discovered. 

A recent decision from the Court of Appeal of Alberta serves as a reminder that significant risks come with being untruthful. Those risks extend beyond what an insurance policyholder understands those risks to be. 

False claims made to insurance company

The facts leading to the litigation being discussed today arose from an automobile accident in which the appellant was the passenger in one of the vehicles. An uninsured driver was operating the vehicle he was a passenger in. However, the appellant had an insurance policy of his own, and that contract was in place with the respondent’s insurance company. There were two benefits in the insurance policy that are relevant to the case. The first is “Section B” benefits, which are no-fault benefits available to someone who has suffered injuries in an automobile accident. These benefits can include payment for lost income caused by the accident. The second set of benefits was SEF. No. 44 benefits provide coverage for an insured person injured in an automobile accident that an uninsured or underinsured driver causes. In these situations, the injured party’s insurance provider steps “into the shoes” of the uninsured driver. 

The issue arose when the appellant lied in his application for Section B benefits. The scope of the lie was that he stated he had been employed for some time when he did not have employment. In addition to making that claim, he also provided a false employer’s certificate and a hiring letter to support it. When the respondent insurer discovered this, they told the appellant they were refusing to provide him with either Section 4 or SEF No. 44 benefits, stating lying in relation to one type of benefit meant he forfeited his rights to any benefits under the policy. 

At the original hearing, the Master who ruled on the application found that it would be “patently unfair” for the insured to be deprived of his SEF 44 benefits when it was his Section B benefits that he had been dishonest about. The insurer successfully appealed this, with the judge who heard the appeal writing that the insured and insurer must act in utmost good faith and that severe sanctions are warranted when fraudulent behaviour occurs. She wrote that the appellant’s conduct was “reprehensible.”

What does the Insurance Act state?

The court was tasked with answering whether an insurer is relieved of their obligation to provide benefits to an insured for any loss arising from a single event if the insured files fraudulent proof of loss concerning one or more parts of the claim. 

The appellant admitted that his statements filed in relation to his Section B claim qualify as “fraud” as applicable to the Insurance Act (“the Act”). 

The court stated that the Act allows an insurance provider to gain relief from their obligation to provide SEF No. 44 benefits, adding there were two reasons for this. The first was that the appellant’s lie when he submitted his proof of loss for Section B benefits constituted fraud under Section 554(1) of the Act. The second reason was that the claims for Section B and SEF No. 44 benefits constituted a single claim under the Act because they both arose from the same event, specifically the automobile accident caused by the uninsured motorist operating the car. Finally, the claims were also made under the same insurance contract. The court wrote, “an insured who files a fraudulent proof of loss under that circumstance is not entitled to a single dime from the insurer.”

The court took an interesting approach in its analysis, which began by asking lawyers for both parties to say whether or not the insurer should provide coverage under two hypothetical situations. The first situation presented by the court involved a family who had their home broken into. During the break-in, the insured filed a claim for 25 pieces of jewelry valued at $2.5 million. The insured listed all 25 pieces of jewelry as stolen, neglecting to mention that he had given two of his children ten pieces each. He answered negatively when asked if he had given away or disposed of any of the jewelry. The lawyers for both parties agreed that in this situation, the insurer should not have to pay for the five pieces that had been stolen. 

In a second hypothetical situation, the court presented the lawyers with a set of facts in which the same family was the victim of a house fire that started in the mechanical room of the house after their vacation. The fire did not damage the safe, and when it was opened, the insured realized the five pieces of jewelry he had not given his children were stolen. He submitted a claim for the damages caused by the fire and 25 pieces of jewelry. In this situation, the lawyers agreed that the insurer did not have to indemnify the insured for the jewelry, but did have to indemnify him for the damage caused by the fire. The reason for this is that the loss related to jewelry had no bearing on the insured’s obligation to provide coverage for the loss related to the fire.

Contact HMC Lawyers in Calgary to ensure your insurance claims give you the best chance of success

The experienced insurance law team at HMC Lawyers has decades of collective experience in representing clients in matters related to insurance law, including but not limited to those injured in motor vehicle accidents. We understand the risks involved in every step of the litigation process and work with our clients to help identify and avoid potential problems with their claims. To find out what you might be able to expect from an insurance-related dispute or to find out how we might be able to help you through the negotiation or litigation process, please don’t hesitate to contact us online or by phone at 403-269-7220.