Ignorance is not Bliss - Wilfully False Statement Vitiates Claim

On October 24, 2005, the B.C. Court of Appeal released its reasons for judgment in Skuratow v. Commonwealth Insurance Co. - an action wherein Mr. Skuratow sought to enforce coverage for the theft of his logging truck after Commonwealth denied the claim based on false statements made by Mr. Skuratow. In a unanimous decision, the Court made two important rulings for insurers:

1. an insured must make reasonable efforts to inform himself or herself of the facts, before making statements to an insurer when making a claim; and
    

2. false statements will invalidate a claim where they are capable of affecting the mind of an insurer, either in the management of a claim or in deciding to pay it, regardless of whether the false statements actually do so affect the mind of the insurer.

These rulings do not break any new legal ground, but they do reinforce earlier decisions of the Court in Inland Kenworth Ltd. v. Commonwealth Insurance Co. (1990) and Brown v. I.C.B.C. (2004). This decision is a positive one for insurers, which applies to more than just auto claims.

Mr. Skuratow was an independent tractor-trailer operator. His wife had complete control of all of the bookkeeping for the business. The tractor and trailer were financed and Mr. Skuratow was in significant arrears in his payments to the finance company. A fact, of which he later claimed to be unaware. Ms. Skuratow was informed that the tractor and trailer had been stolen from their compound. That same day, she was told by the financing company that it intended to seize the equipment. It was not until two days later, that Ms. Skuratow informed the financing company that the equipment was missing.

Mr. Skuratow gave a statement to his insurer, Commonwealth, wherein he said that the payments on the truck and trailer were up to date. He would later make other false statements to the insurer and the police. On the basis of these false statements, the insurer denied Mr. Skuratow’s claim under s. 137(1)(c) of the Insurance Act.

The trial judge held that Mr. Skuratow did not know that his statements were false (because he took no part in the bookkeeping for his business) and, therefore, were not wilfully false statements sufficient to allow the insurer protection under s. 137 of the Act. The trial judge also held that, in any event, the false statements did not affect the way Commonwealth handled the claim.

In allowing the insurer’s appeal, the Court of Appeal said that the court will not find against an insured under s. 137(1)(c), if the insured made the false statements, honestly believing them to be true. Madam Justice Prowse made the following comment: "The difficulty lies in determining whether the belief is honestly held. The reasonableness of the belief is a relevant factor in making that determination". In her view, the trial judge erred in determining that Mr. Skuratow held an honest belief in the truth of his statements, because he was wilfully blind to the facts. On this point, Madam Justice Prowse concluded by saying: "I find it difficult to comprehend how Mr. Skuratow’s statements could be viewed as having been made ‘honestly’ when they were made in total and intentional ignorance of the true state of affairs and without any effort on his part to make inquiry".

The Court then considered whether the false statements were material enough to invalidate Mr. Skuratow’s claim. The Court ruled that the trial judge misapplied the legal test to the facts when she held that the false statements did not affect the way Commonwealth handled the claim. The test, said the Court of Appeal, is not whether the false statements did affect the management of the claim, but whether they had the capacity to do so. Madam Justice Prowse made the following comment on the reasoning of the trial judge: "An obvious difficulty with this line of reasoning (in addition to the fact that it adopts an approach contrary to that advocated in Inland and Brown), is that it would permit a person making a claim for insurance to make wilfully false statements with impunity in any case in which the insurer had already decided to investigate the claim".

The section of the Act examined in this case, s. 137(1)(c), is under the part on automobile insurance. However, similar language is found in the part of the Act on fire insurance, which can have application to commercial and residential real property claims. The relevant language of the respective parts is set out below.

Section 137(1)(c)

The Skuratow decision can be found at:
http://www.courts.gov.bc.ca/Jdb-txt/CA/05/
05/2005BCCA0515.htm

Readers with questions about the Skuratow decision are invited to contact Neo Tuytel (telephone: 604-643-3180 or e-mail: njt@cwilson.com) or Jeremy Lovell (telephone: 604-891-7725 or e-mail: jtl@cwilson.com).