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Insurance Fraud Litigation

Insurance fraud, like other forms of fraud, is as variable in kind as human cunning. The Insurance Bureau of Canada estimates that approximately 5% to 10% of claims are outright frauds, or at least have a fraudulent component. Some frauds take the form of exaggerated claims for damages motivated by an opportunity created by a legitimate loss, and others are schemes designed to be fraudulent from the outset.

We are frequently retained to combat insurance fraud on behalf of insurers in three separate contexts. First, on behalf of insurers, we conduct the examination under oath of their own insureds, shortly after a claim is made.  Second, we defend insurers in cases where an insurer or third party has instigated civil proceedings, and where the insurer alleges that the claim is either wholly or partly fraudulent.  Third, we subrogate against service providers on behalf of insureds and insurers, where an insurer has paid out on a loss based on a fraud.

Examinations Under Oath

Examinations under oath are sought by insurers most often in personal injury and property claims. In personal injury claims, vigilant insurers request examinations under oath of their insureds where the information they receive in the accident benefit process from their insured and from third parties is not independently verifiable, and where an insured fails to provide adequate information to support his or her request for benefits. The authority for examinations under oath in the personal injury context is found in the Insurance Act.

In the property context, vigilant insurers request examinations under oath when the circumstances of a claim appear suspicious and where the insured or third parties fail to provide proper information and documentation to support an insured’s claims. The authority for examinations under oath in the property context is found in the insurance contract itself.

Often, the examination under oath process reveals an innocent insured who simply fails to understand his or her obligation to provide the insurer with sufficient information. In other cases, the examination under oath process uncovers exaggerated or even outright fraudulent claims. Either way, the examination under oath process is often a good investment for insurers.

Defence of Fraudulent Claims

From time to time, insurers refuse to provide coverage for personal injury and property claims based on their own investigations, examinations under oath results, and based on the claims review process. When this happens, an insured may bring an action seeking judgment against their own insurer for their loss.  Often, such claims include an allegation of bad faith against an insurer, and a plea for punitive damages. In response to such claims, an insurer may claim a variety of defences, including alleging fraud by virtue of the insured being responsible for their own loss.

The most notable of cases demonstrating the risk that an insurer takes on when alleging fraud is the case of Whiten ats Pilot Insurance Company (2002).  Whiten reported a fire claim to his insurer, Pilot.  Pilot’s adjusters took the view that the fire was an act of arson, and that Whiten was responsible for it.  At trial a jury found that Whiten was not responsible for the fire, and that the insurer’s investigation was so flawed as to reflect bad faith on behalf of Pilot.  Based on the bad faith finding, the jury imposed a $1M punitive damages award against Pilot, in addition to damages for payment to compensate for the fire loss. Prior to this case, punitive damage awards against insurers were rare, and when they were made, such damages were usually quite nominal.  Based on this history, Pilot appealed, and the punitive damages were reduced to $100,000. On further appeal to the Supreme Court of Canada by Whiten, the $1M punitive damages award was restored. The case sets a standard on insurers as to the strength of the evidence an insurer must prove if they intend to defend a claim by alleging fraud.

Subrogation and Recovery Claims

At Investigation Counsel, we have successfully alleged fraud against third parties and have obtained recovery for insurers.  For example, an auto body company issued a claim against an insurer and their insured for failing to pay its invoices relating to the repairs of an insured’s vehicle. The insurer paid its insured for the loss, but then sued the auto body company alleging fraud, including particulars that the auto body company had caused additional damage to the insured’s vehicle while it was in their possession.  On the eve of trial, the auto body company paid the claim, including punitive damages. The costs for litigating the matter were ordered to be assessed against the auto body company.

At Investigation Counsel, we are familiar with investigating and litigating many forms of insurance fraud, and we welcome you to contact us to discuss an investigation, litigation and recovery plan.