The Alberta Court of Appeal describes its new decision in Abbas v Esurance Insurance Company of Canada as "an important insurance case." This case is important to insurers in Alberta because it reaffirms and reinforces the importance of a "severe rule [that] has existed for roughly 200 years" concerning the consequences for insureds who commit fraud and make willfully false statements when making a claim under a policy.

Facts

Esurance Insurance Company of Canada ("Esurance") insured Abbas under a Standard Alberta Automobile Policy (SPF 1) that included a SEF 44 Family Protection Endorsement. Following an accident, Abbas made a claim under his Policy for Section B Accident Benefits. He later made a claim for recovery under the SEF 44 because the at-fault driver was inadequately insured. While investigating the Section B claim, Esurance determined that Abbas claimed income replacement benefits based on falsified employment information. Esurance denied Abbas both types of recovery.

Abbas admitted that his false employment information in support of the Section B claim qualified both as "fraud" and a "willfully false statement" and therefore ran afoul of Section 554(1)(b) and (c) of the Alberta Insurance Act. However, Abbas argued that this should not affect his entitlement to recover SEF 44 benefits, which is a separate claim under a separate coverage. The false employment information had no material connection to the SEF 44 claim.

Esurance argued that there was no requirement for a materiality connection. They took the position that Abbas's claim for Section B and SEF 44 benefits constitute a claim under s. 554(1) "because they both arise from the same event—the automobile accident caused by the uninsured motorist – and are made under the same insurance contract." Therefore coverage for both was properly denied. 

Section 554(1) appears in the automobile insurance subpart of the Insurance Act and states: 

554(1) If

…

(b) the insured contravenes a term of the contract or commits a fraud, or

(c) the insured wilfully makes a false statement in respect of a claim under the contract,

a claim by the insured is invalid and the right of the insured to recover indemnity is forfeited.

A Master of the Court of Queen's Bench decided in favour of Abbas in August 2020, concluding that it was unfair to deprive the insured of SEF 44 benefits when the subject matter of the fraud was unrelated to the eligibility criteria for SEF 44 recovery. On appeal, a Justice of the Court of Queen's Bench sided with Esurance and reversed the Master's decision, finding that the severe sanction of causing the insured to lose all recovery under the policy was justified under the utmost good faith doctrine and finding that the conduct of the insured was "reprehensible."

Court of Appeal Decision

In its decision handed down on February 6, 2023, all three Justices of the Court of Appeal agreed with the decision of the Queen's Bench Justice and dismissed Abbas's appeal.

The Court of Appeal majority traced the origin of Section 554 to common-law jurisprudence dating back 200 years. From an 1886 UK decision, the Court quoted:

The law is, that a person who has made such a fraudulent claim could not be permitted to recover at all. The contract of insurance is one of perfect good faith on both sides, and it is most important that such good faith should be maintained.…[If] there is willful falsehood and fraud in the claim, the insured forfeits all claim whatever upon the Policy. 

The majority relied on the 1977 Alberta Appellate decision in Swan Hills Emporium and Lumber v. Royal General Insurance, which dealt with a fire policy rather than an automobile policy. In Swan Hills, the insurer proved that the insured had inflated his proof of loss by claiming for the loss of several televisions that never existed. In the end, this inflation of the claim was immaterial because the loss's total value already exceeded the policy's limits in any event. 

Nonetheless, the Court in Swan Hills found that "an insurer is relieved of the obligation to pay any claim made by an insured who makes a willfully false statement in a proof of loss that is material, including any claims untainted by the fraud." Swan Hills remains good law in Alberta to this day. 

The majority then described s. 554 as a codification of the common-law which it should interpret in a manner consistent with common-law jurisprudence and set out a "bright-line rule" that "any false statement in a proof of loss will deprive an insured of all benefits linked to the same loss-causing events claimed under the same insurance Policy, including those benefits not tainted by the false statement. This is a draconian doctrine but it needs to be. Nothing less will have the desired effect."

The majority recognized an exception where the false statement has no material connection to any claim, giving a hypothetical example of an insured claiming to have had items stolen from his vehicle while having dinner with his wife. If the items were stolen, it makes no difference that the insured was having dinner with his mistress rather than his wife. The Court described this as a mere "collateral lie" to bolster an otherwise valid claim.

Takeaway for Insurers

While s. 554 appears in the automobile insurance subpart of the Alberta Insurance Act, the Court of Appeal's decision will nonetheless have significant persuasive force in other areas of insurance because of the connection the Court of Appeal has drawn between the common law and the purpose of s. 554. However, the greatest impact of this decision is undoubtedly in the context of automobile insurance. The standard Alberta Automobile Policy grants several different forms of coverage, each of which can support a claim following a motor vehicle accident. The same accident can give rise to a claim by the insured for vehicle damage under Section C, no-fault accident benefits under Section B, third-party defense and indemnity under Section A, and inadequately insured motorist coverage if the insured has purchased an SEF 44. The bright-line rule in Abbas v. Esurance is that a willfully false statement made by an insured to the insurer and material to any of these coverages can result in the insurer denying all types of recovery to the insured.  

Please contact Michael Doerksen in Calgary, Peter Gibson in Edmonton, or any member of Field Law's Insurance Group if you are an insurer who needs assistance with the investigation, analysis and litigation of insurance coverage issues.

Link to decision: Abbas v Esurance Insurance Company of Canada, 2023 ABCA 36