Denials, disputes, and delays. These are the common themes that frustrate policyholders after a property loss. It often comes as a shock to our clients when these issues arise, often from the start of the claim, as it is assumed protection will be available after years of diligently paying premiums. Unfortunately, paying premiums on an insurance policy does not guarantee coverage and by retaining specialized counsel from the start of a claim, policyholders can eliminate or reduce common problems in advancing their claims.
The Insurance Policy
The insurance policy is the most important document to any property loss claim. It is the contract between the parties that outlines both the insurer and insured’s rights and responsibilities. It contains coverages, extensions, exclusions, and statutory conditions that will guide the parties in the payment (or non-payment) of a claim. Engaging counsel that specializes in property loss claims to review the policy at the start can be a vital first step to ensure the matter proceeds efficiently as possible. Counsel can proactively identify potential coverage issues, explain exclusions, highlight sensitive timelines to ensure steps are taken so not to jeopardize coverage, and counsel can help to document the loss before evidence is discarded to avoid delays or denials.
Complicated terms and clauses may also require clarification by counsel regarding how the claim is to be paid. For example, “replacement cost” and “actual cash value” are two of the most common calculations insurers use to pay claims. Most persons reading an insurance policy will likely find it challenging understanding the nuances but the difference between the two calculations can mean the difference of hundreds of thousands of dollars to the insured. Policies can also contain enhanced coverages such as “guaranteed replacement costs” and a “single limit endorsement” which also have the impact of increasing amounts available to insureds.
There are also different factors to consider between residential claims and commercial claims. Commercial policies may have added coverages for things like business interruption, tenant improvements, lost stock, equipment, and professional fees. Some commercial policies may also shorten the limitation period within which to commence a lawsuit. Early engagement of experienced counsel can ensure maximum recovery pursuant to the terms of the policy and ensure rights are properly protected against limitation periods.
Presenting the Claim
All insurance contracts in Ontario must incorporate the Statutory Conditions listed in section 148 of the Insurance Act, R.S.O. 1990, c. I.8. Statutory Condition 6 indicates that after a loss has occurred, the insured must deliver as soon as practicable to the insurer a Proof of Loss verified by a statutory declaration. The Proof of Loss must, inter alia, give a complete inventory of the destroyed and damaged property and show in detail quantities, costs, actual cash value, and particulars of the amount of loss claimed. Great care must be taken when completing the Proof of Loss because when and how the form is completed, along with what is included or excluded, will determine the remaining course of the claim.
Completing the Proof of Loss can be an overwhelming task for policyholders who take on the challenge themselves. Imagine a total house fire where a family has been residing for 20+ years. The family will not only need to make alternate living arrangements while their home is uninhabitable, but they will also need to investigate and obtain estimates to repair their home and prepare an inventory itemizing each piece of damaged personal property accumulated over the past 20 years. These personal items can easily run into the hundreds and pursuant to Statutory Condition 6, insureds are required to provide details and price out the actual cash value of each item.
There is the added burden to ensure claims are not inflated or overstated on a Proof of Loss. As noted above, the Proof of Loss must be verified by a statutory declaration. Statutory Condition 7 indicates that “any fraud or willfully false statement in a statutory declaration in relation to any of the above particulars (as set out in Statutory Condition 6), vitiates the claim of the person making the declaration.”
By operation of Statutory Condition 7, any statement contained in the Proof of Loss which is found to be fraudulent or wilfully false can void the entire claim. Insureds need to be warned about the importance of not overstating values. When explaining this principal to clients, I often use the analogy of a Cadillac versus a Toyota. If the insured owned a Toyota at the time of the loss, they should not state on the Proof of Loss that they owned a Cadillac. While both are indeed vehicles, one is substantially more expensive then the other and policyholders are only entitled to replace items with similar or like quality items.
While it may seem obvious, it also merits mentioning that insureds should not be claiming items they did not own or that were not damaged in the loss. To claim undamaged items or to overstate a lost item can vitiate the entire claim, not just that single item among the hundreds of other personal items being claimed. Even where counsel is not engaged from the onset of the claim, it can be beneficial engaging experienced counsel to review in detail the Proof of Loss with the insured before it is sworn and submitted to the insurance company.
The Appraisal Process
Once a Proof of Loss is submitted, Statutory Condition 12 indicates that the loss is payable within 60 days unless the contract provides for a shorter period. The insurance company can decide to accept the values outlined in the Proof of Loss and pay the claim or it may decide to dispute certain values. The resulting dispute can be negotiated and settled between the parties or it can be taken to appraisal.
Pursuant to Statutory Condition 11 each contract of insurance made in Ontario must contain the following condition:
11. In the event of disagreement as to the value of the property insured, the property saved or the amount of the loss, those questions shall be determined by appraisal as provided under the Insurance Act before there can be any recovery under this contract whether the right to recover on the contract is disputed or not, and independently of all other questions. There shall be no right to an appraisal until a specific demand therefor is made in writing and until after proof of loss has been delivered.
The purpose of the appraisal process is to provide an expeditious and simple procedure to settle claims under a policy of insurance. Appraisal is designed to provide a final and binding determination of the value of loss suffered by the insured. Even where there are questions of coverage, entitlement, and defences to recovery under the policy, appraisal must be completed once elected by a party to determine the value of the loss (unless otherwise court ordered). Often the appraisal process will take place concurrently with a lawsuit.
Insureds can represent themselves at the appraisal hearing or elect to retain counsel or a public adjuster as their appraiser. There is limited legislation on how appraisals are to be conducted. Section 128 of the Insurance Act indicates that the parties shall each appoint an appraiser, and the two appraisers appoint an umpire. The appraisers shall determine matters in disagreement, and if they fail to agree, those differences are submitted to the umpire and the finding in writing of any two determines the matters. Section 128 also indicates that a judge can appoint an appraiser for a party that fails to do so or an umpire where there is a disagreement on who should be selected for the job. Also, the parties each shall bear equally the expense of the appraisal. The Insurance Act says nothing else as to how appraisals are to be completed and any remaining guidance comes from case law.
Despite the limited legislation governing appraisals, one thing that is very clearly understood by those practicing in this area is that the courts will give substantial deference to an appraisal under the Insurance Act. Unless there is evidence of misconduct or jurisdiction has been exceeded, the decision is final and binding and will be difficult to overturn on judicial review. Given the seriousness of an appraisal award, it can be invaluable to have expert counsel in the policyholder’s (and their appraisers’) corner to consult with during the process to ensure the appraisal is being conducted appropriately and that only value is being addressed at the hearing while leaving questions of coverage, causation, and extent of damage to be determined through litigation.
There may also be instances where the appraisers and the umpire require the court’s direction on how the appraisal should be conducted. We have brought a number of recent applications and motions seeking the court’s direction where disputes arise to enable the parties to move the appraisal process forward.
Damages not covered by the policy
After a claim is submitted it may be discovered that there is insufficient coverage under the policy to properly cover the policyholder’s losses. This can have a devasting impact on the policyholder’s ability to rebuild their home or resume their business operations. In such circumstances, experienced counsel specializing in property loss claims will know to explore a potential case against the broker. Brokers can be found liable when the advice given to insureds falls below the prescribed standard. The Court of Appeal in the leading decision of Fine's Flowers Ltd. et al. v. General Accident Assurance Co. of Canada et al.  O.J. No. 2435, stated:
“[where] the client gives no such specific instructions but rather relies upon his agent to see that he is protected and, if the agent agrees to do business with him on those terms, then he cannot afterwards, when an uninsured loss arises, shrug off the responsibility he assumed. If this requires him to inform himself about his client’s business in order to assess the foreseeable risks and insure his client against them, then this he must do.”
This passage from Fine’s Flower makes clear that the broker must inform him or herself of an insured’s needs, particularly when an insured has demonstrated a reliance upon the broker to provide all necessary coverages.
We commonly pursue brokers where there are gaps in coverage or an outright failure to obtain adequate coverage for insureds. There are several ways such negligence may arise. For example, where a policy has been in place for a number of years, the broker may fail to revisit coverages over the years and increase them accordingly based on increasing costs.
Another example, and the most common example, is where the broker simply fails to ask the appropriate questions. In the commercial context, appropriate questions may not have been asked to understand the business model leading to the failure to understand the level of business interruption, equipment, and stock coverages needed or even that certain exclusions in the policy will have a devastating impact on the insured in the event a claim is made. In the residential context, failing to ask important questions about tenants, use of the property, and any recent renovations and additions can lead to straight out denials based on material misrepresentations.
Where there has been a mishandling of the claim or a wrongful denial, the insured may also be entitled to extra-contractual damages, mental distress, aggravated and punitive damages. Our firm has been successful in obtaining four punitive damage awards against insurers where there has been a breach of the duty of good faith and high-handed behaviour displayed towards insureds.
As a dedicated lawyer for Singer Kwinter, Susan K. Dhaliwal is passionate about obtaining fair compensation for injured victims. She knows firsthand that the legal process can be complicated to navigate and uses a positive and compassionate approach when assisting her clients.
Following her call to the Bar in 2012, Susan has limited her practice exclusively to the area of personal injury and property loss. She frequently appears before the Superior Court of Justice and has successfully represented clients at arbitration before the Financial Services Commission of Ontario and the Licence Appeal Tribunal. In 2017, Susan received her Certificate in Negotiation from Harvard Law, which is offered to lawyers and executives.
She is fluent in Punjabi, a skill she looks forward to offering to new clients in her community.