In Abbas v. Esurance Insurance Company of Canada, the Alberta Court of Appeal recently confirmed that the "fraudulent claims rule" is still alive and well in Alberta.1 The Court resolutely stated that "an insured who files a fraudulent proof of loss under that circumstance is not entitled to a single dime from the insurer."2
After a motor vehicle accident, Mr. Abbas made a claim to his insurer for Section B and SEF 44 benefits. In doing so, he lied about his income in support of his claim for Section B benefits and as a result, the insurer denied coverage for both the Section B and the SEF 44 benefits. Although Mr. Abbas admitted he lied, he argued that the lie should not affect his entitlement to SEF 44 benefits since his income was not relevant to that claim.
The Court considered the Insurance Act and the previous Alberta decision of Swan Hills and concluded that any fraudulent or false statement made in a proof of loss relieves the insurer of indemnifying the fraudulent insured for the entire claim so long as the claim is related to one event, under the same insurance policy.
In Swan Hills, the Appellate Division of the Supreme Court of Alberta held that the insurer was relieved of its obligation to indemnify an insured for a loss relating to a fire.3 The insured had falsely listed three television sets as losses from the fire. At trial, the insured argued that the loss was worth more than the policy limits and therefore the lie was not material to his claim. Regardless, the Court held that the whole claim was properly denied due to the false statement made by the insured, quoting from Dolloff v Phoenix Insurance Co.:4
The court will not undertake for him the offensive task of separating his true from his false assertions. Fraud, in any part of his formal statement of his loss taints the whole. Thus corrupted, it should be wholly rejected, and the suitor left to repent that he destroyed his actual claim by the poison of his false claim.
Alberta's Insurance Act contains the following provisions with respect to misrepresentation and fraud:5
Section 540:
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 void as to any property in relation to which the misrepresentation or omission is material.
Section 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 a contract,
A claim by the insured is invalid and the right of the insured to recover indemnity is forfeited.
This case has important implications for insurers and insureds as insurers may be relieved of their obligation to indemnify an insured for the entire claim if the insured files a fraudulent or false proof of loss for part of the claim. The rule is purposely strict in an effort to deter insureds from making false or fraudulent claims which have the effect of increasing insurance costs for everyone. In this regard, the Court held:6
The evolved consensus of the common law to the present time sends an unequivocal message to would-be-insured fraudsters -- 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. A bright-line rule is undoubtedly essential.
Ultimately, both insurers and insureds must exhibit good faith in dealing with each other during all stages of the relationship. Given the foregoing, insureds should take great care when swearing the statutory declaration at the end of the proof of loss form as any misrepresentation, misstatement, falsity, or exaggeration may have the effect of invalidating the whole claim.
Footnotes
1. Abbas v Esurance Insurance Company of Canada, 2023 ABCA 36 [Abbas].
2. Abbas at para 23.
3. Swan Hills Emporium & Lumber Co. Ltd. v Royal, 1977 AltaSCAD 13 [Swan Hills].
4. Swan Hills at para 27.
5. Insurance Act, RSA 2000, c I-3.
6. Abbas at para 90.
Originally published by 15 February, 2023
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