Occasionally, people who sustain insurance covered losses feel compelled to “fudge” the numbers when making an insurance claim, but this recent case illustrates the dangers in falsifying just one thing in an otherwise honest insurance claim.
In this case, there was a fire that damaged a home to the point where it was uninhabitable until repaired. The claim was worth several hundred thousand dollars, and by all accounts it was moving forward until the insurance company got wind that the insured homeowner was submitting a fake claim for additional living expenses (“ALE”). With the help of a friend, the insured homeowner fabricated a lease between her and her friend, listing her friend as the landlord when in fact her friend was just a renter herself. Prior to the fraud being discovered, the insurance company had paid $20,000.00 towards four (4) months of rent under that “lease.”
The friend ultimately ratted on the insured homeowner, and she confided with the insurance company that the insured homeowner:
- was not living at the subject “rented” address;
- had access to the bank account where the ALE “rent” money was being deposited; and
- was withdrawing money from the account for personal use.
The trial judge concluded that the insured homeowner submitted a fraudulent Proof of Loss as a result of the aforementioned conduct, and hence, her entire fire loss claim was unclaimable against the insurance company.
The appellate court was asked to set-aside the trial judgment for, amongst other reasons, that the trial judge erred in failing to offset her fraud by the many breaches of the Policy committed by the insurance company, including 1) failing to provide a proof of loss form within 60 days of the loss; 2) failing to maintain the appellant’s normal standard of living; 3) asking her to execute an interim proof of loss without explaining its significance; and 4) conducting a less than thorough investigation.
The appellate court disagreed. Indeed, the appellate court considered the insurance company’s conduct to be immaterial: the only thing that was important was whether the insured homeowner submitted a fraudulent claim because if so, that fraud resulted in complete forfeiture of the insurance claim. Put another way, the fraud by the insured homeowner completely vitiated the insurance company’s obligations under the insurance policy. Since the insured homeowner conceded that what she did was fraudulent, there was nothing to debate.
The Take-Away
Be absolutely honest when submitting an insurance claim. The courts will, on occasion, close an eye here-or-there if there was an honest mistake, or an errant juxtaposition of some numbers, but as can be seen in cases like this, a fraudulent claim, even if it represents only a small percentage of the overall claim, often results in a complete forfeiture of the entire claim: a high cost to pay for trying to inflate a claim by a little.
Legault v. TD General Insurance Company, 2024 ONCA 439
https://www.canlii.org/en/on/onca/doc/2024/2024onca439/2024onca439.html