Case Closed: An Umpire has the Final Word on the Valuation of a Claim
Overview
In Truscott v. Co-Operators General Insurance, 2022 ONSC 829, the Court considered the finality of an umpire’s decision following an appraisal pursuant to section 128 of the Insurance Act, and its impact on subsequent claims flowing from the same loss.
Background
The plaintiffs were the owners of a building in Hamilton, and an accounting firm housed within it. Both were insured under a policy of property insurance with Co-Operators.
On January 20, 2017, a fire occurred at the Premises. Co-operators investigated the fire, and confirmed coverage for the resulting property losses.
The plaintiffs’ policy was a multi-peril policy, which provided insurance coverage for different specified types of property damage, including damage or loss to the building, its contents, and “valuable papers”, or special, unique and original documents that are vital to the operation of a business.
Co-operators paid out the plaintiff’s policy limits for the contents loss resulting from the fire. With respect to the damage to the building itself, the plaintiffs sought to submit an interim proof of loss in order to secure initial funding for the building repairs, rather than a signed final proof of loss for the full amount of repairing the building.
Co-operators advised that it would not accept an interim proofs of loss, and required a final, sworn proof of loss for the full amount of the loss before it would pay for repairs. The insureds accordingly provided a fully executed and final sworn proof of loss.
The submitted proof of loss valued the damage to the building itself (“the Building Loss”) at $615,952.43 (Replacement Cost) or $523,559 (Actual Cash Value). Co-operators disagreed with the plaintiffs’ assessment, and made a payment to the insureds for $296,694.30, the amount of Co-operators’ assessment.
The plaintiffs subsequently served Co-operators with notice seeking a formal appraisal of the building loss, as provided for under section 128 of the Insurance Act.
Steve Agnew, an Executive General Adjuster and National Property Specialist with Claims Pro, was appointed by the parties as the Umpire for the appraisal hearing to decide the value of the building loss. Mr. Agnew appraised the plaintiffs’ building loss claim in the amount of $507,130.09 (Replacement Cost) and $431,060.58 (Actual Cash Value).
Co-operators promptly paid the insureds the balance of $134,366.28 for the actual cash value of the building, as determined by Mr. Agnew. Following completion of the repairs at the premises, Co-operators paid the insureds an additional $76,069.51, representing the balance of the full amount of the replacement cost of the building.
More than six months after Mr. Agnew rendered his decision, the plaintiffs submitted a new proof of loss for the building loss, seeking reimbursement for property damage to “Valuable Papers”. The plaintiffs alleged that boxes of client materials had been damaged by the fire, and that the papers contained in those boxes had to be replaced for their business to continue to operate.
The “Valuable Papers” claim was submitted for appraisal with Mr. Agnew as Umpire. Mr. Agnew issued an Appraisal award for the Valuable Papers claim, and Co-operators paid the Insureds the appraised amount in full.
On January 18, 2018, the plaintiffs issued a Statement of Claim against Co-operators, the adjuster handling their claim, and another defendant against whom the claim was subsequently discontinued, seeking reimbursement of additional costs of remediating the damage to the building and the “Valuable Papers”. Prior to issuing the claim, the plaintiffs had not sought to have the assessment award for the building loss set aside or altered, nor had they sought judicial review of the award.
Issues
The defendants brought a motion for:
- a declaration that Co-operators had paid all amounts due and owing for the repair and replacement of the Valuable Papers and of the building, in accordance with the Proof of Loss submitted by the plaintiffs and the Umpire’s ruling; and
- summary dismissal of the claims advanced by the plaintiffs relating to reimbursement of costs or expenses associated with the repair or replacement of the Valuable Papers and of the building.
The Parties Positions
The defendants advanced the position that they had agreed to the Appraisal process, which had been commenced by the plaintiffs as contemplated by the Insurance Act. The Umpire had heard the Appraisals, and ultimately came to a final decision. The Umpire had rendered appraisal awards, and Co-operators had paid them. The Co-operators therefore did not owe any further amounts for these losses.
The plaintiffs’ position was that Co-operators effectively forced them to submit an inaccurate proof of loss, and to initiate the formal Appraisal process. They argued that Co-operators was aware that they needed the insurance proceeds to begin the process of demolishing and rebuilding the building, but refused to provide any advance payment without a sworn Proof of Loss.
The plaintiffs further submitted that all parties knew that price estimates were likely to increase once demolition of the building started. The quote obtained by the plaintiffs on which their proof of loss was based contained a page with various disclaimers, including many uncertainties that could not be resolved until construction was commenced.
The plaintiffs argued that at the time of the Appraisal hearing, all parties had contemplated that construction costs would increase once the City became involved and code and by-law issues surfaced. The Appraisal award for the building loss stated, “building by-law issues have not been considered within this award”. The plaintiffs submitted that this was an issue that required findings of credibility by a trier of fact at trial.
Furthermore, the plaintiffs submitted that the Umpire was restricted to assessments of “valuation,” and not determinations of “coverage” as defined in the Policy, and therefore that they could still submit a further proof of loss for coverage, notwithstanding the Appraisal award.
Analysis
The Policy provided that “[i]n the event of a disagreement as to the value of the property insured, the property saved or the amount of 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 […] there shall be no right to an appraisal until a specific demand thereof is made in writing and until proof of loss has been delivered“.
The Court began its analysis by considering section 128 and 148 of the Insurance Act. Section 128 of the Insurance Act governs the appraisal process in the event of a disagreement between the insurer and the insured. Section 148 governs the Statutory Conditions that must be part of every insurance contract in Ontario, which includes the requirement that an insured submit a proof of loss as soon as practicable following a loss.
The Court determined that an Umpire’s decision regarding a sworn and final proof of loss is final and binding. In coming to this decision, the Court considered Campbell v. Desjardins, 2020 ONSC 6630, which provided a summary of case law interpreting sections 128 and 148 of the Insurance Act:
The appraisal process under section 128 of the Act is triggered when the following conditions are met: (1) a specific demand for appraisal is made in writing; and (2) the insured has delivered a proof of loss.
An insured must deliver a proof of loss as soon as practicable. The Court’s assessment of whether the insured has complied with this requirement of delivery “as soon as practicable” is a question of fact, which is to be decided under the circumstances of each case.
Substantial deference to an appraisal under the Act and the appraisal process is given by the Court, unless there is evidence of misconduct or jurisdiction has been exceeded […] the decision is final and a binding determination of the loss.
[emphasis added]
The Court found that the that the plaintiffs had not been improperly compelled to submit a sworn, final proof of loss. Having done so, and having submitted their claims and materials to the Umpire for a determination, that determination was final on the value of the losses appraised.
While the plaintiffs were not content with the Umpire’s final decision, the Court noted that the only route through which a party may challenge the Umpire’s decision is through judicial review. The Court was reluctant to interfere with the Umpire’s decision absent evidence of bias, misconduct, or proof that the umpire exceeded his or her jurisdiction, of which there was none in this case.
Accordingly, the Court found that the plaintiffs had no further entitlement to reimbursement for either the building loss or the “Valuable Papers” loss.
Takeaways
The key takeaway from this case is that where an insured submits a sworn final proof of loss, and the loss is subsequently submitted for formal appraised pursuant to the Insurance Act, the decision of the Umpire as to the value of the loss is final (subject only to judicial review). The insured may not continue to submit additional proof of loss documents for additional reimbursement relating to the same loss.
Additionally, on judicial review, the courts will afford substantial deferenceto an umpire’s appraisal decision under the Insurance Act. Courts are reluctant to interfere with the appraisal process unless there is proof of bias or misconduct, or that the appraisers or umpire have exceeded their jurisdiction.