UPDATE: This decision has since been overturned on appeal.
Mr. Demetriou claimed he was robbed of a $550,000.00 ring (a family heirloom) that he was wearing on a gold chain around his neck while walking alone on a beach in Punta Cana. He had added the ring to his insurance policy with AIG prior to the trip and, upon returning to Canada, he reported the theft and made an insurance claim.
AIG commenced investigations which included meeting with Mr. Demetriou, performing several examinations under oath and obtaining affidavits from Mr. Demetriou and various family members. However, prior to completing these investigations, AIG had already determined that litigation would be required to resolve this claim and had even advised a company that collects and supplies information to the insurance industry that nothing was owing on the claim and the claim file was closed. Ultimately, the claim was formally denied on the basis that there was insufficient information to substantiate the claim. Notably, during the course of its investigation, AIG identified some suspicious circumstances surrounding the loss and also discovered that Mr. Demetriou had made a prior (and extremely similar) claim under a different policy with a different insurer.
Mr. Demetriou subsequently sued AIG. At an early stage in the litigation, counsel for Mr. Demetriou sought to confirm, by way of obtaining an order for particulars, whether AIG was alleging fraud. This was due to the fact that AIG’s statement of defence was largely boilerplate and there were several exclusion clauses in the policy stating that intentional or dishonest acts committed by an insured were not covered. AIG specifically denied that it was relying on the exclusion clauses and refused to provide any particulars of fraud. However, it also advised that it reserved the right to rely on those provisions should further information become available.
Mr. Demetriou brought the subject motion for summary judgment, which was granted, as the judge found he had complied with his obligations under the policy to prove his claim. The judge refused to place any weight on the suspicious evidence put forward by AIG, stating that AIG had “expressly disclaimed any reliance on fraud or deliberate acts”. The judge also refused to allow AIG to amend the statement of defence at the motion and specifically noted that the case to date had been conducted on the basis that no fraud was being alleged and it was “simply too late to reverse course now”.
Punitive damages were awarded against AIG in the amount of $50,000.00. AIG was criticized on the basis that it had no intention of paying the claim from an early stage but still required Mr. Demetriou and members of his family to submit to EUOs and provide numerous documents. The judge was also unimpressed that AIG had refused to admit that it intended to allege fraud, despite being ordered to do so by the court. These actions offended the court’s sense of decency and warranted punitive damages.
Notably, the case was silent on whether or not, on a balance of probabilities, the plaintiff had proven that the theft occurred. While such a conclusion is arguably implied, it is not specifically stated. This raises some concern that the judge may have conflated the distinct issues of the insurer’s allegations with respect to fraud and the plaintiff’s burden to prove that the loss actually occurred. It will be interesting to see whether any appeal is forthcoming.
This case truly highlights the importance of always dealing with an insured in good faith and also pleading fraud in the right circumstances. Notably, Rule 25.06(8) of the Rules of Civil Procedure specifically requires a party alleging fraud to provide sufficient particulars, in other words, the material facts upon which the party alleging fraud relies. Had AIG provided particulars of the alleged fraudulent circumstances in its statement of defence or when ordered to do so by the court, the outcome of this summary judgment motion may have been different. Ultimately, insurers need to be careful when navigating suspicious claims. Proper investigations need to be undertaken as soon as possible, and, insurers should not prejudge a claim prior to the completion of these investigations. If an insurer is in a position to deny a claim based on fraud, the pleadings must be clear. The insurer should set out the material facts and advise of policy exclusions that it intends to rely on in order to position itself properly when proceeding in litigation. An insurer who attempts to allege fraud covertly does so at its own peril.
