Insured Lies, And Then Recants, But Coverage Still Forfeited

When should a statement be considered fraudulent, thereby forfeiting a claim under an insurance policy? Specifically, should an insured be permitted to retract an initial false statement, and the insurer required to cover the claim. This was the question posed to and - partially - answered by the Court of Appeal in the recent decision of Brown v. ICBC 2004 BCCA 254.

A copy of this case is available on the BC Courts website.

The case not only presented a legal dilemma for the Court of Appeal, but also raised a moral issue.

On July 3, 1996, the Respondent, Mr. Brown overturned his Toyota 4-Runner in a gravel parking lot. He and his four passengers left the scene. The next morning he reported to ICBC and the police that the vehicle was stolen. Over the weekend, Mr. Brown decided to admit that he lied. He went to ICBC the following Monday and revealed that the vehicle had actually overturned.

Mr. Brown subsequently brought an action claiming the cost of repairs to his vehicle or its "write off" value. The Appellant, ICBC, counterclaimed for $23,665.67, which was the amount paid to an injured passenger in Mr. Brown’s vehicle.

The trial judge dismissed Mr. Brown’s claim for repairs on the ground that the wilfully false statement made to ICBC (that the vehicle was stolen as opposed to having overturned) was material to his claim for vehicle repairs. His claim was therefore forfeited pursuant to s. 19(1)(e) of the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231.

The trial judge also dismissed ICBC’s counterclaim for indemnity in respect of the injury to the passenger on the ground that Mr. Brown’s false statement was not material to the claim for indemnity.

ICBC appealed the dismissal of its counterclaim only, on the following basis:

1) The trial judge erred by interpreting s. 19(1)(e) of the Insurance (Motor Vehicle) Act as requiring that an insured’s wilfully false statement be material to each claim at risk of forfeiture.

2) Alternatively, the trial judge erred in finding that the Plaintiff’s wilfully false statement was not material to the claim for insurance coverage regarding damages paid to the injured passenger.

In relation to the first issue, the question was one of statutory interpretation. Subsection 19(1)(e) of the Act states:

ICBC’s position was that once it was established that Mr. Brown’s false statement that his vehicle had been stolen was material to his claim for vehicle repairs, the court ought to have found that he had also forfeited his right to indemnity as a result of his passenger’s injury claim.

The five member panel of the Court, with reasons by Madam Justice Rowles, dismissed this argument, instead ruling that in many cases, a wilfully false statement which is material to one claim will also be material to another claim, but this will not always be the case. Each false statement has to be referenced back to the specific claim to determine if the misstatement is specifically material to that claim. The Court relied on the decision in Petersen v. Bannon (1993), 84 B.C.L.R. (2d) 350 (C.A.) which held:

This then lead the Court to consider ICBC’s alternative ground of appeal that the trial judge erred in finding that the Respondent’s wilfully false statement was not material to his claim for insurance coverage for damages paid to his injured passenger.

In deciding this issue, the three judges in the majority held that the trial judge fell into error in the approach he took when determining whether the Respondent’s false statement was material to the passenger’s claim. The majority reasoned that the trial judge ought to have considered whether the false statement was capable of affecting the mind of the insurer rather than considering what the insurer actually did or did not do in the management and payment of the claim.

The facts of the case indicated that the wilfully false statement was capable of affecting the mind of ICBC, as ICBC provided evidence that if the initial statement as to the theft had been the truth, it would not have been responsible to pay any injured passenger. In terms of management of the claim, ICBC advised that there would have been different internal procedures that would have been followed when faced with an injury as opposed to a theft claim.

The two dissenting judges, Mr. Justice Low along with Mr. Justice Donald, disagreed with the majority in interpreting the facts on this second issue. Mr. Justice Low held:

ICBC therefore succeeded on its second ground of appeal, on a three to two split. However, it appeared that the majority took into account the moral underpinning of the case when it pointed out that it may be that the cross appeal was only pursued by ICBC because of concern that the error on the second ground of appeal might be perpetuated in the future. Accordingly, it left it to ICBC to determine whether it simply wanted the rectifying order or whether it actually wanted to pursue judgment and monetary recovery against the Respondent.

In the event that ICBC wanted judgment, the Court left it to the trial judge to determine whether there ought to be relief from forfeiture pursuant to ss. 4 and 24 of the Law and Equity Act, R.S.B.C. 1996, c. 253 or s. 19(2) of the Insurance (Motor Vehicle) Act. The Court therefore raised, but left unanswered the following questions: 1) whether the court can grant equitable relief when the statute gives ICBC itself the discretion to do so, and 2) whether the court can grant equitable relief from a statutory penalty or forfeiture.

If ICBC decides to pursue judgment, we will report on the answers to those questions in a further bulletin.

Readers with questions are invited to contact Neo Tuytel (at 604- 643-3180; or njt@cwilson.com) or Gurminder Sandhu (at 604-643- 3173; or gss@cwilson.com) of Clark Wilson LLP's Insurance Group.