Playing with Fire: Insurers Need “clear, convincing and cogent” Evidence to Establish Fraud


In a recent Supreme Court of British Columbia judgment, the Court ruled against an insurer who sought to deny coverage for fire damage to an insured’s Kelowna home on the basis that the fire was intentionally caused or devised by the insured. In Apostolidis v Canadian Northern Shield Insurance Co., 2018 BCSC 481, the insured plaintiff (Mr. Apostolidis) made a claim under his homeowner’s insurance policy for property damage caused by an insured peril – a fire. His insurer (CNS) denied coverage relying on an Intentional Act Exclusion. Mr. Apostolidis proceeded to sue CNS for coverage. The Court ruled in the insured’s favour, granting full coverage and ordering costs against the insurer.

Crucially, the Court found that the evidence proffered by CNS against the insured was only circumstantial in nature, and not convincing enough to justify a denial of insurance monies.

The background facts were as follows: on Sep. 22, 2015, the insured’s home was damaged in a fire; it was determined that the fire was caused by arson through the use of an accelerant; there were no signs of forced entry into the home itself; the insured’s homeowner policy with CNS ran from Oct. 31, 2014 to Oct. 31, 2015 and carried limits totaling $1.5 million on the dwelling building; on Feb. 3, 2016 the insured swore a proof of loss in respect of the damage to the dwelling building only, in the amount of $425,000; on Aug. 3, 2016 CNS denied coverage in writing on the basis that the damage was caused intentionally by the insured or by someone at the insured’s behest; on the day before the fire, the fire alarm system at the insured’s home was deactivated by a technician from Chubb Security.

The insured was on an overnight stay in Penticton at the time of the fire, so it was virtually impossible that he committed the arson himself. However, CNS advanced several theories arguing that the insured had the “exclusive opportunity” to arrange for an accomplice to set the fire.

The insured gave evidence that he had locked all doors prior to leaving for Penticton before the fire, and that he had exclusive possession and control over all keys to the home. CNS argued that, given these facts, only the insured had opportunity to cause the fire, because he alone had access to the keys and there were no signs of forced entry into the home. Mr. Apostolidis countered this by suggesting that he may have forgotten to lock one of the doors to the home (or failed to lockup properly) before leaving for Penticton, which the Court accepted as plausible.

The Court found that it was theoretically possible for a person other than the insured to have accessed the home and orchestrated the fire, and rejected CNS’ argument that the insured had “exclusive opportunity” to cause the fire. However, it is not necessary for an insurer to prove exclusive opportunity in such circumstances, so long as there is “sufficient other inculpatory evidence” showing liability. In other words, an insurer need not establish that the insured was the only person who could have caused the damage. Rather, an insurer seeking to deny coverage on these grounds only needs to show that an insured had opportunity to cause the damage together with additional incriminating evidence establishing that it was most probably the insured that did so.

CNS argued that the insured had intentionally provided a technician from Chubb Security with an incorrect alarm code for deactivating the fire alarm, which left the technician no other choice but to disconnect the fire alarm the day before the fire, due to incessant beeping. When the technician attended at the home to service the alarm, it would not stop beeping, so the tech contacted the insured for assistance in stopping the noise. The insured provided the technician with a code for the alarm, but the provided code would not stop the beeping, so the technician (with the express permission of the insured) deactivated the alarm and contacted the sales department to provide a replacement alarm as soon as possible. CNS argued that Mr. Apostolidis had intentionally provided an inaccurate code so that the technician would be forced to cut-off power to the alarm on the day before the fire. The Court found that evidence to be unconvincing.

CNS also argued that the insured’s prior knowledge of his “mortgage insurance”, which could pay-off his outstanding mortgage on the home in the event that something (like fire damage) happened to the home, was a clear sign that the insured had motivation to cause the fire. The Court determined that this evidence was merely circumstantial and more of a neutral fact which added little if anything to the insurer’s case.

In closing, the Court found that there was too much uncertainty regarding the insured’s motivation and opportunity to cause the fire and ruled that CNS failed to provide “sufficiently clear, convincing and cogent” evidence to establish that the insured had caused the fire on a balance of probability. More than a hunch or suspicion was required to justify a finding against the insured and a denial of coverage.

This decision is a helpful reminder to insurers of the type of evidence required for a denial of coverage on the basis of an Intentional Act Exclusion. In order for such a denial to hold up in court, more than circumstantial evidence or reasonable suspicion is required. There must be strong, convincing evidence showing either that: (1) the insured had the “exclusive opportunity” to cause the damage, or (2) the insured had opportunity to do so, and there is other incriminating evidence showing it is more probable than not that the insured did cause or orchestrate the damage. By denying coverage on these grounds without such evidence, insurers run the risk of having judgment and costs ordered against them and may invite bad faith claims and the further risk of punitive damages.