Law Times

Law Times • may 2, 2016 Page 3 www.lawtimesnews.com Ruling against insurance company for punitive damages BY PETER SMALL For Law Times A n Ontario jury has taken the unusual step of imposing $175,000 in punitive damages on insurance companies that denied compensation to a man who lost his home in a fire. Before the jurors came back with their award on April 19, a judge told jurors that punitive damages should only be im- posed in exceptional instances of marked misconduct. Abdul Hamid Haji-Fazul, 44, lost his house and all its contents on his then-40-hectare rural property in Stevensville, south of Niagara Falls, Ont., in a fire in April 2011. Haji-Fazul was insured by Lloyd's Underwriters under Contract PM900 and Sovereign General Insurance Co. During a seven-day trial in Ontario Superior Court in St. Catharine's before Justice Rob- ert Reid, lawyers Jason D. Singer and Ari J. Singer (no relation) argued successfully that the in- surance companies would, as per their written policies, have insured Haji-Fazul even if they were aware of information that he'd lost a prior property to fire in 2008. "The jury came back and found that none of the misrepre- sentations, if there were mis- representations, were material," says Jason Singer, of the Toronto law firm Singer Kwinter. "So, the insurer was not en- titled to void the policy." It's very difficult to win puni- tive damages against an insur- ance company on these types of claims, says Singer. "You have to show that their conduct was highly reprehensible or egre- gious, essentially. "It's just a reminder for insur- ance companies of their obliga- tion to act in good faith to their clients and their insureds and to ensure that when they deny a claim that they do it fairly and that they do it for good reason," he adds. After receiving his claim for the 2011 fire, the insurers learn- ed that Haji-Fazul had a prior house fire loss on his property in 2008, which was on the same piece of land. They also learned he had demolished an old shed on the land by burning it down and had a farmer leasing out about 28 hectares. They denied the claim based on alleged material misrepre- sentations made in the applica- tion for insurance. Haji-Fazul denied making any misrepresentations, claim- ing he honestly told the insur- ance broker involved all the rel- evant facts and paid a high-risk premium of $4,500 as a result, on an annual basis. The insur- ers' lawyer, Pete Volaric, did not return a call for comment on the case, and the spokesperson for Sovereign General Insurance Co. declined to comment. In his lawsuit, Haji-Fazul claimed $1.19 million for the house, contents, and for extra living expenses incurred after the fire. He will now be compen- sated for his losses, which will be determined by an appraisal. Haji-Fajul sued the brokers, Thompson Insurance Brokers, claiming $1.5 million for negli- gence or breach of contract. But the jury did not have to consider their role. In their pleadings, Lloyd's Underwriters and Sovereign General Insurance said they al- ways acted in good faith. They claimed Haji-Fazul made a misrepresentation when he sub- mitted his application by falsely stating he didn't have any prior claims or any more than one fire loss in the previous five years. Haji-Fazul alleged the insur- ers delayed responding to his claim and refused to provide valid reasons for non-payment. He claimed they treated him as an adversary and exercised an economic advantage over him, refusing to provide partial or advance payment although they knew he was desperate for funds. Alf Kwinter, founding part- ner of Singer Kwinter, says the punitive damage award sends a message to the insurance in- dustry, but he wishes it had been higher. The Supreme Court of Canada has said punitive dam- ages should be a deterrent not just to the insurance company involved but to all insurers, Kwinter says. "It can't be a licence fee," he says. David Contant, a lawyer with Nelligan O'Brien Payne LLP in Ottawa, says in Whiten v. Pilot the Supreme Court con- firmed the upper end for puni- tive awards to be $1 million. Al- though the St. Catharines award falls short of this ceiling, he says, "It certainly represents a signifi- cant award for punitive damages in comparison to other recent awards against insurers. "The findings of the jury are instructive in that they remind insurers that insureds rely upon their insurance company to pro- vide 'appropriate coverage' and 'peace of mind,'" Contant adds. Alan D'Silva, a senior partner with Stikeman Elliott LLP and an expert in insurance litiga- tion, while not commenting on this case, says, "Courts are being clear and need to be clear that it is not every breach of an in- surance policy that gives rise to punitive damages. There has to be an actual finding of bad faith by the insurer." D'Silva represented Amer- ican Home Assurance Com- pany at the Saskatchewan Court of Appeal in the Luciano Branco case, which, in 2015, reduced $4.5 million in punitive dam- ages against AIG and Zurich Life Insurance Company Ltd. to a total of $675,000. The landmark 2002 Supreme Court Whiten v. Pilot deci- sion affirmed punitive damages should be handed out only in ex- ceptional cases where there has been "high-handed, malicious, arbitrary or highly reprehen- sible misconduct that departs to a marked degree from ordinary standards of decent behaviour." Haji-Fazul, who now lives in St. Catharines, told Law Times he had to sell his property after the fire because he could not afford to keep it when no funds were forthcoming from the in- surers. He said he had to pay for the cleanup of his property and put himself and his daughter, then 16, and son, then 14, in a hotel without any financial help from the insurers. Haji-Fazul added that he was despondent and gained 27 kilo- grams worrying about the case. He said he was troubled about having to pay not only for his legal expenses but $100,000 for the de- fendants' court costs if he lost. "I'm so happy," says Haji- Fazul. "I've been suffering for five years." LT NEWS FULLY ACCREDITED IN-CLASS PROGRAM & LIVE WEBINAR Course Leaders Bruce Reynolds, Partner, Borden Ladner Gervais LLP Sharon Vogel, Partner, Borden Ladner Gervais LLP 4th Annual Canadian Construction Insurance Law: Minimizing Liability at the Crossroads KEEPING PACE IN THE EVOLVING WORLD OF CONSTRUCTION BUILDER'S RISK POLICIES | PROFESSIONAL LIABILITY POLICIES | CLASS ACTION INSURANCE Toronto, June 2 • Webinar, June 2 REGISTER BEFORE MAY 6 AND SAVE OVER $300 To register and learn more visit www.lexpert.ca/cpdcentre Untitled-2 1 2016-04-26 3:12 PM Courts are being clear and need to be clear that it is not every breach of an insurance policy that gives rise to punitive damages. Alan D'Silva Jason Singer says a recent ruling is a reminder for insurance companies of their obligation to act in good faith. encourages readers to send us letters, but will edit them for space, taste, and libel consideration. Please provide your name, address and contact number and send all letters to: Law Times, 2075 Kennedy Rd., Toronto, Ont. M1T 3V4 E-mail: gabrielle.giroday@tr.com

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