Denial of Fraudulent Insurance Claim Upheld on Appeal
The Appeal in Legault v. TD General Insurance Company, 2024 ONCA 439, arose from a trial decision dismissing an action brought by Shelley Legault against TD Insurance Company (“TD”) relating to TD’s denial of Ms. Legault’s claim under her homeowner’s insurance policy following a fire at her home. The appeal was dismissed by a panel of the Court of Appeal consisting of Justice Harvison Young, Justice Sossin, and Justice Gomery.
Three issues were raised on appeal:
- Did the trial judge err by failing to consider TD’s alleged breaches of the Policy and by finding that the appellant’s fraud erased these breaches?
- Did the trial judge err in her mid-trial ruling by allowing TD to pay two professional witnesses to testify?
- Did the trial judge err in her cost award?
BACKGROUND
On March 13, 2014, a fire at Ms. Legault’s home rendered it uninhabitable. Ms. Legault’s homeowner’s insurance policy provided coverage for her dwelling, the replacement costs of contents and personal property and additional living expenses (including the cost of temporary accommodations).
One of the claims made by Ms. Legault was for additional living expenses, specifically for her temporary living expenses while her home remained uninhabitable. TD denied Ms. Legault’s claim on that basis of her fraudulent action in making a false declaration with respect to her living expenses, which resulted in forfeiture of coverage under the policy.
Ms. Legault lived in a hotel following the fire, then arranged to live in a house at 268 Bay Street, allegedly owned by Ms. Ogden. Ms. Legault provided a signed tenancy agreement to TD for the Bay Street home and TD agreed to pay $20,000 for four months of rent (payable to Ms. Ogden). Ms. Ogden contacted TD to inform them of an alleged scheme wherein Ms. Legault wouldn’t actually live at the Bay Street address, but she would have access to the $20,000 in funds paid by TD. TD launched an investigation which resulted in them denying the claim in its entirety, on the basis that she made willfully false statements with respect to her claim for additional living expenses.
TRIAL
Ms. Legault commenced this action seeking the replacement value of her dwelling and personal property destroyed by the fire, as well as compensation for the additional damage that occurred to the dwelling while TD was performing its investigation. The trial judge determined that TD’s treatment of the policy was justified in that a fraudulent statement submitted by an insured in a proof of loss may result in complete forfeiture under the Policy (subject to whether the fraudulent statement was considered material).
It was determined that Ms. Legault’s statement regarding the additional living expenses was material, given that the statement related to a cost that was directly covered under the policy, and Ms. Legault’s entire representation with regards to the Bay Street property was fraudulent. The lease of the Bay Street property was designed to appear to create a legitimate tenancy, but was actually a part of a scheme. The trial judge reviewed witness testimony regarding the scheme and video surveillance footage of the bank machine used by Ms. Legault and Ms. Ogden to withdraw from the account that the $20,000 cheque was deposited into.
During the trial, the judge also made a mid-trial ruling refusing to bar two of TD’s witnesses from testifying given that were financially compensated for their preparation time and trial attendance. The trial judge found that the aforementioned witnesses were “professional witnesses” and that it was reasonable in the circumstances to pay them for their time.
APPEAL
Ms. Legault appealed the decision of the trial judge. Three issues were raised in the appeal.
ISSUE #1 – TD’s alleged breach of contract is not a basis to interfere with the trial judge’s decision
Ms. Legault argued that TD should not be permitted to rely on the insurance contract because TD breached the contract by doing the following:
- failing to provide a proof of loss form within 60 days of the loss;
- failing to maintain the appellant’s normal standard of living;
- asking her to execute an interim proof of loss without explaining its significance; and
- conducting a less than thorough investigation.
Ms. Legault alleged that the trial judge did not consider TD’s breaches and that the trial judge held that Ms. Legault’s actions erased TD’s failures.
The Court of Appeal found that it was not necessary to analyze TD’s potential breaches of contract as Ms. Legault had not plead any of the breaches of contract in her statement of claim. It was determined that there was no error with the trial judge’s analysis or conclusions on the question of Ms. Legault’s fraud and its effect on the forfeiture of the policy.
ISSUE #2 – The trial judge did not err by allowing the professional witnesses to testify
The Court of Appeal’s decision did not analyze this issue extensively. It was noted that Ms. Legault submitted that paid professional witnesses create a reasonable apprehension of bias and therefore they should not have been allowed to testify at the trial.
The trial judge had acknowledged that case law did not offer much guidance on the question of paying such professionals for review, preparation and trial attendance. The trial judge further indicated that in a civil care it is acceptable to receive testimony from a paid witness where it is reasonable in the circumstances. The trial judge had provided a non-exhaustive list of relevant factor to consider.
The Court of Appeal determined that the trial judge’s mid-trial decision and reasons with respect to the professional witnesses revealed no error.
ISSUE #3 – The threshold for leave to appeal costs is not met
The threshold for leave to appeal costs is a high burden as outlined in Canadian Tire Corporation, Limited v. Eaton Equipment Ltd. Leave to appeal a costs order will only be granted in obvious cases where there are “strong grounds upon which the appellate court could find that the judge erred in exercising his discretion”.
Ms. Legault argued that the trial judge permitted TD to claim excessively high fees due to the novelty of the issues in the case (in excess of $280,000), she argued that the novelty factor may be used to reduce a losing party’s fees, but could not be used to increase a successful party’s fees.
The Court of Appeal concluded that while it is open to a trial judge to reduce the losing party’s costs on the basis of novelty, it was not an error for a judge to recognize the added costs to a successful party in addressing novel issues as well. In either context, it was up to the judge’s discretion. It was determined that the threshold for leave to appeal costs was not met by Ms. Legault.
Takeaways:
- Any allegations of breach of contract that a plaintiff intends to pursue must be plead in the statement of claim; and
- The threshold for leave to appeal costs is extremely high, and would require a finding that the deciding judge erred in their discretion.