Law Times

www.lawtimesnews.com Law Times / January 14, 2008 Page 13 P enalizing insurers by way of punitive damages for bad- faith handling of claims is now de rigueur in Canada. Thus, one would think the courts would bend over backwards to ensure that insurers got an early crack at deter- mining the facts. But one couldn't be sure. At least not until the December ruling of the Ontario Court of Appeal in Baig v. The Guarantee Company of North America (GCNA) Justice Russell Juriansz, writing for a unanimous bench composed also of justices Marc Rosenberg and Robert Armstrong, concluded that statutory condition 6(4) of the au- tomobile insurance regulations un- der the Insurance Act didn't cease to operate after litigation began. He also ruled the scope of the examination extended to all mat- ters material to liability and dam- ages. "It's really astonishingly simple," says Ian Newcombe of Hamilton's Agro Zaffiro LLP, who with Peter Volaric represented GCNA. "If the courts are going to hit insurers with punitive damages for failing to pay meritorious claims, then you have to give the insurer a fair opportuni- ty to determine whether the claim has merit or not." This opportunity, Newcombe argued, comes in the form of statutory condition 6(4). The provision requires an insured party who has made a policy claim to submit to examina- tion under oath. The plaintiffs' bar claimed that the condition lapsed when litigation com- menced. Baig arose after GCNA insured Rehman Baig's BMW for a specified value of $71,300. GCNA agreed to the coverage after Baig submit- ted an appraisal report signed by Leanne Giilck, an appraiser with Discount Auto Appraisals. The BMW was damaged in an accident. Baig submitted a claim for the full amount of coverage. The proof of loss indicated that Baig had purchased the vehicle for $12,500. At the same time, GCNA learned that Giilck was Baig's com- mon-law spouse and that the two were Discount's principals. GCNA required Baig to attend an examination under statutory condition 6(4). Baig's lawyer re- fused to allow any questions about how Discount had determined the amount in the appraisal. The exam- ination, he argued, was restricted to the particulars of the claim and not to prior underwriting events like the appraisal report. Baig then sued GCNA, claiming damages for loss of the automobile, as well as punitive, exemplary, and aggravated damages of $100,000 each. GCNA moved for an order requiring Baig to answer questions regarding the vehicle's valuation. Superior Court Justice Donald Gordon ruled that the statutory ex- amination was redundant because GCNA had a right of discovery. He concluded that once a lawsuit was commenced the statutory ex- amination was no longer available. "To allow otherwise would be an abuse of the insured's duty to co- operate," Gordon wrote. "It would compel him to assist the insurer in mounting a defence to his claim." Gordon also concluded the questions regarding the valuation were beyond the scope of the statu- tory examination. But Juriansz saw it otherwise. "There are no words in the provision that indicate an insurer's right to examine an insured is lim- ited to the situation in which their relationship is not adversarial." Even if mere redundancy al- lowed a court to find the plain language of legislation inoperative, redundancy did not occur here. "The fact that an insurer has the right to a statutory examination and an examination for discovery does not mean the insured must answer the same questions twice," Juriansz wrote. By exercising its power to con- trol its own procedure, the court could prevent the insurer from ask- ing questions on discovery that had already been answered during the statutory examination. Juriansz also upheld the insur- er's right to inquire about the ap- praisal. He noted, as Gordon had, that statutory condition 6(4) con- fined the scope of the examination to "the matters in question." But he disagreed with Gordon's conclusion that underwriting matters were no such matters. "The purpose of the statutory examination is to provide insurers with the opportunity to obtain the knowledge of facts necessary to en- able them to decide upon their obli- gations and to protect them against false claims," he wrote. "In my view, questions that are material to the insurer's liability and the extent thereof are within the scope of the statutory examina- tion." There was no dispute that the authenticity of the initial appraisal was relevant to the court's determi- nation of whether GCNA wrong- fully refused to pay insurance ben- efits. "If the question is relevant to the determination of GCNA's liability at trial, I fail to understand how it would not be relevant to GCNA's decision whether or not to pay the claim," Juriansz wrote. "The purpose of the statutory examination is to provide GCNA with the opportunity to examine the insured in regard to the mat- ters that might properly affect its decision whether or not to pay the claim." This did not mean that insurers were entitled to embark on "fishing expeditions" or to "take blind shots in the dark." What it did mean here was that the insurer could in- quire into the appraisal, because it had "an objective and reasonable basis" for suspecting fraud. Newcombe maintains that Baig will prevent abuses by plaintiffs. "Plaintiff insureds have been trying to create punitive damage entitlements by commencing an action, in an attempt to avoid the examination under oath," he told Law Times. "It was a tactic to force the insurer to hold off on deciding whether the claim had merit until after discoveries—at which point the insured would insist that it had been a bad-faith denial that mer- ited punitive damages." According to Newcombe, Baig eliminates such maneuvering. Baig will prevent abuses by plaintiffs: lawyer FOCUS BY JuLiuS meLnitzeR For Law Times GILBERTSON DAVIS EMERSON LLP BARRISTERS AND SOLICITORS practice restricted to CIVIL LITIGATION, INSURANCE LAW Counsel: James E. Adamson 20 Queen Street West, Suite 2020 Toronto, Ontario M5H 3R3 Tel: (416) 979-2020 Fax: (416) 979-1285 email: office@gilbertsondavis.com Angela Emerson John L. Davis John L. Davis Professional Corporation Richard Hayles R. Lee Akazaki James W. Wilson Nazanin Aleyaseen Jody W. Iczkovitz Searching for a cheaper, easier way to attract candidates? LT LT-Jan 14 08.indd 13 1/10/08 8:07:15 PM

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