Out of Bounds: When an Insurer’s Investigation of a First Party Claim Goes Too Far

Out of Bounds When an Insurers Investigation of a First Party Claim Goes Too Far

By Denny Chung

Aviva Insurance Company of Canada v. Ebhodaghe, 2021 ONSC 7343 provides a reminder to insurers: tread carefully when accusing your insureds of fraud. An insurer’s right to investigate a first party claim does not give them free reign to dig through their insured’s life. An insurer must exercise their rights in a manner that is consistent with the claim and related issues based on evidence. Justice Di Luca in Ebhodaghe refused an insurer’s motion for document production and to compel an examination under oath—concluding that the insurer was abusive and heavy-handed in its investigation of its insured’s claim.

The insured held an auto insurance policy which listed her residence in Ottawa, Ontario. The insured notified her insurer that her vehicle was stolen—but noted the theft occurred in Toronto. After the insured filed a proof of loss, the insurer’s investigator interviewed the insured to review the claim.

Based on the extensive questioning during the interview, it was clear the investigator believed that the insured lied about her residence in her policy documents. The insured explained that she visited her boyfriend in Toronto and eventually moved there around the time of the theft. The investigator requested various records from the insured, including her cell phone records and bank statements from all bank accounts to retrace her physical location. The insured objected, citing an intrusion of privacy.

The insurer requested the insured attend an examination under oath. Eventually the insurer brought a motion to compel the examination and for document production. Leading up to the motion, the insured agreed to participate in the examination under oath. As such, the Court refused the order to compel her attendance. The Court went on to refuse the order for document production. In doing so, in specific reference to the insurer’s prior interview of the insured, the Court clarified the scope of an insurer’s right to examination under oath and document production.

The Court noted the scope of questioning on an examination under oath must be restricted to questions that are material to the insurer’s liability regarding a claim. It is not open-ended. The Court pointedly noted that the insurer provided no evidence to ground an objective and reasonable basis to suspect the insured committed fraud in her insurance application regarding her residence. Or, that such fraud was relevant to her claim and Aviva’s coverage position in any event.

In respect to document production, the Court was not “remotely” satisfied that the scope of examination could extend to cell tower data or banking data to permit the insurer to retrace the insured’s physical locations. These requests were “abusive and unnecessarily invasive” of the insured’s privacy rights.

Having refused the insurer’s motion in its entirety with costs to the insured, the Court concluded that the insurer’s “disproportionate” and “invasive” conduct caused the insured to disengage with the process—the insured could not be faulted for refusing the insurer’s requests. In a clear rebuke of the insurer’s conduct, Justice Di Luca ordered the insurer to pay the insured’s costs of the motion within 30 days.

Take Away

Ebhodaghe is a reminder to insurance professionals that they do not have unfettered rights in investigating an insured’s claim. The insured’s privacy interests and what is relevant to the issues being investigated should stay top of mind. In particular, the Court makes clear in Ebhodaghe that fraud is a heavy accusation. It must be grounded in evidence that shows a reasonable basis for the accusation and its relevance to the claim.

It is notable that the insured in Ebhodaghe was not represented by counsel due to a lack of resources. While not an explicit issue at play in the case, insurers should generally be mindful of their good faith relationship with their insureds. They should be careful to avoid treating their insureds as the “enemy”. As with many things, you can catch more flies with honey than with vinegar.