[co-author: Lana Thorhale - Articling Student]

In Abbas v Esurance Insurance Company of Canada, 2023 ABCA 36 [Abbas], the Alberta Court of Appeal endorsed what it described as draconian consequences for insurance fraud as consistent with the Insurance Act, RSA 2000 c I-3 and necessary to further the underlying purpose of the legislation. Specifically, the Court confirmed the longstanding rule that all claims under a single insurance policy stemming from one incident are void if the insured commits fraud, even if the fraud is material to only a portion of the claim.

Background

The Plaintiff, Mr. Abbas, was injured in a motor vehicle accident with an uninsured driver. He sought coverage under his own policy through his insurer, Esurance Insurance Company of Canada [Esurance]. The policy provided Accident Benefits [Section B] coverage and included an SEF 44 family protection endorsement. Mr. Abbas asked Esurance to provide him with income replacement benefits under Section B and to indemnify him for the amounts he was legally entitled to recover from the uninsured driver who was at fault for the accident under the SEF 44 coverage.

In investigating the claim, Esurance discovered that Mr. Abbas had falsified the employment records he submitted to substantiate his Section B claim. Mr. Abbas had told Esurance that he was employed for a specific period of time when he was not, had lied to the adjuster and had provided a false employer's certificate and hiring letter in support of his Section B claim. Esurance denied both the Section B and SEF 44 claims. Mr. Abbas dropped the Section B claim and admitted his statements in support of that claim were false. However, Mr. Abbas sued Esurance in connection with the SEF 44 claim.

Esurance applied for summary dismissal of the claim. The applications judge held that summary dismissal would be "patently unfair" because it would deprive Mr. Abbas of the SEF 44 benefits, based on a fraud that related only to his eligibility for Section B coverage.

Esurance appealed. The Alberta Court of King's Bench found in favour of Esurance and dismissed Mr. Abbas' claim. In its decision (Abbas v Esurance Co of Canada, 2021 ABQB 303), the Court found that severe sanctions for fraud were warranted, describing Mr. Abbas' conduct as "reprehensible" and noting that "[h]e lied on multiple occasions and falsified multiple documents."

The Court of Appeal Decision

The Court dismissed Mr. Abbas' appeal, upholding the lower court's decision that the Insurance Act invalidates any claim and removes all rights to recover if the insured violates a policy term, commits any fraud or willfully makes false statements about any claim under the policy.

Before Abbas, Alberta courts had not considered section 554 of the Insurance Act, which reads:

554(1) If …

(b) the insured contravenes a term of the contract or commits a fraud, or

(c) the insured willfully makes a false statement in respect of a claim under the contract,

a claim by the insured is invalid and the right of the insured to recover indemnity is forfeited.

Mr. Abbas argued that in the context of this provision, "a claim" refers to a singular claim. Further, the provision is silent on whether a fraud or a false statement must be material to "a claim" to render that claim invalid. Based on the lack of an express materiality requirement, Mr. Abbas argued that his fraudulent conduct was relevant only to his Section B claim and so should not affect his SEF 44 claim. By this logic, Mr. Abbas' fraudulent conduct would invalidate only his Section B claim.

Esurance argued that "a claim" refers to all claims arising under the same insurance policy and stemming from the same event. Esurance also argued that the lack of an express materiality requirement does not undermine the insurer's right to refuse portions of a claim not specifically tainted by fraudulent conduct.

The Court found that the wording of section 554 could plausibly be read as supporting either of these interpretations. In light of this ambiguity, the Court turned to a detailed examination of the history and legislative purpose of the provisions to assist in their interpretation.

Based on this examination, the Court found that the Esurance argument fit "perfectly with the principle that insurance contracts demand utmost good faith from those bound by them and that the legal system must adopt harsh measures to deter fraudsters from exploiting the inherent weaknesses in the insurance contract." As a result, the Court confirmed that through his fraudulent conduct, Mr. Abbas had forfeited not only his Section B benefits but also his right to recover under the SEF 44 endorsement.

In Abbas, the Court concluded that section 554 of the Insurance Act codifies a longstanding common law rule about the severe consequences of claims fraud by an insured, which is consistent with the obligation of utmost good faith imposed on the parties to an insurance contract. The Court also concluded that the provision reflected a legislative intent to deter insurance fraud, a purpose best furthered by interpreting the provision as invalidating all claims arising from the same event by an insured who commits fraud, not just the claim(s) to which the fraud is material.

Takeaways

In Abbas, the Court affirmed the bright-line rule that fraud related to any portion of a claim taints the whole, such that the insurer need not respond to any claims for loss under the same policy arising from the same event.

The implication is that although the rule may be harsh, it should not be considered "patently unfair." The Court found that all parties must come to the table in good faith and the law can afford no opportunity for the "fraudulent insured … to think: if the fraud is successful, then I will gain; if it is unsuccessful, I will lose nothing."

As the Court of Appeal said, "This is a draconian doctrine but it needs to be. Nothing less will have the desired effect." The Abbas decision affirms the ongoing need for this strict rule in the interest of deterring fraud and supporting the overall stability of the insurance industry. While Abbas addresses a provision of the Insurance Act specific to automobile insurance, the Court of Appeal's confirmation that the common law rule remains good law in Alberta suggests that this decision is equally applicable to other types of insurance.