ICBC Insurance Claims and the Duty to Disclose the Principal Operator
When you purchase a contract of insurance with ICBC one of the things that must be disclosed is who the principal operator of the vehicle will be. Depending on the answer the rate of insurance may vary.
If a consumer misrepresents who the principal operator is this can result in a breach of insurance and if this occurs ICBC will not be responsible to honour the policy of insurance if a claim is made.
Reasons for judgement were released today by the BC Supreme Court (Lexis Holdings International Ltd. v. ICBC) demonstrating the potential consequences that can flow from a principal operator misrepresentation.
In today’s case the Plaintiff company leased a BMW. When purchasing insurance from ICBC the company’;s representative declared that ‘there was no principal operator of the BMW’.
The vehicle was subsequently vandalized and under the policy of insurance ICBC would have been expected to pay $33,090.35 for the damages. When the Plaintiff claimed payment from ICBC under the policy of insurance ICBC declined to pay claiming that the Plaintiff ‘knowingly misrepresented a material fact regarding the principal operator’.
Madam Justice Arnold-Bailey of the BC Supreme Court agreed with ICBC and found that the Plaintiff’s representative knowingly misrepresented who the principal operator of the vehicle was at the time the insurance was purchased. As a result of this the Plaintiff’s claim was dismissed and ICBC were awarded their costs for trial.
In reaching this conclusion Madam Justice Arnold-Bailey summarized the law as follows:
[16] The general rule in insurance claims, stated at ¶24 of Bevacqua v. I.C.B.C., 1999 BCCA 553, is that once an insured has shown that the loss alleged falls within the perils insured against under the terms of the policy coverage, the onus falls on the insurer to prove any affirmative defences, including fraud. In Kruska v. Manufacturers Life Insurance Co., [1984] B.C.J. No. 2812 (S.C.), Finch J., as he then was, stated the test for fraud in civil cases at ¶41:
41 The accepted test of actual fraud in a civil case derives from Derry v. Peek (1889), 14 A.C. 337. There must be a false representation, made knowingly, without belief in its truth, or recklessly, without care whether it is true or false. Nothing less than this will suffice for the defendant to succeed in this case.
[Emphasis added]
It is clear from this test for fraud that knowingly making a misrepresentation (per s. 19(1)(b) of the Act) is a form of fraud. It is therefore ICBC that bears the burden of proving that Mr. Teap knowingly made a false representation in the matter of the principal operator of the vehicle without belief in its truth, or reckless as to its truth, as all parties have agreed that Lexis Holdings has shown that its loss falls within the policy coverage.
[17] The standard of proof in this case, as with all civil cases, is on a balance of probabilities (F.H. v. McDougall, 2008 SCC 53 at ¶49). However, because an allegation of fraud, or a misrepresentation amounting to a form of fraud, against an insured is quasi-criminal in nature, and, if proven, could “affect the insured’s life well beyond the outcome” of his claim, the court must be mindful that a careful scrutiny of the evidence is necessary before finding that such an allegation has been proven (Bevacqua at ¶44; Leon v. ICBC, 2002 BCSC 794 at ¶29). As always, clear and cogent evidence is required (Bevacqua at ¶48).
[18] The usual first step in such cases, as set out in Rai v. Insurance Corp. of British Columbia, 2005 BCSC 92, and followed by Madam Justice Smith in Deol v. Insurance Corporation of British Columbia, 2007 BCSC 1307 at ¶28, is to determine who the principal operator of the vehicle was at the time of the incident giving rise to the claim, based on who drove the vehicle most during the term of the owner’s certificate. To “operate” and what constitutes a “principal operator” are defined in Part 1 of the Revised Regulation (1984) Under the Insurance (Motor Vehicle) Act, B.C. Reg. 447/83, as follows:
“operate”, in the case of a vehicle, includes to have care, custody or control of the vehicle;
“principal operator” means the person who will operate the vehicle described in an application for a certificate for the majority of the time the vehicle is operated during the term of the certificate;
[19] Plaintiff’s counsel submits in the present case it is not necessary for the Court to determine who the principal operator of the BMW was during most of the term of the owner’s certificate of insurance because there is no issue as to other possible principal operators.
[20] Counsel for ICBC disagrees and submits that the first step of the analysis as to whether there has been a breach of the policy based on a misrepresentation as to the insured’s declaration of principal operator is as articulated in Rai: the Court must determine who drove the vehicle most during the term of the owner’s certificate in order to determine who was the principal operator of the vehicle at the time of the accident (or loss). That being the case, counsel for the defendant submits that evidence as to Mr. Teap’s regular use of the BMW and his accessorizing and customizing it to his own taste is relevant to who was, in fact, the principal operator at the time of loss.
[21] In the present case I find in relation to the first principle drawn by D. Smith J. in Deol from the judgment of Preston J. in Rai that there is no meaningful distinction to be drawn between a party allegedly misrepresenting that there was no principal operator for a vehicle and misrepresenting the principal operator to be a person other than himself. I find evidence as to who was, in fact, the principal operator of the BMW between March 2, 2005, when it was insured, to the date of loss on November 10, 2005, to be relevant to alleged misrepresentation by Mr. Teap on March 2, 2005 that there was no principal operator.
[22] Therefore, in terms of the first step in the analysis as set out in Rai, the evidence (including Mr. Teap’s November 15, 2005, statement to the adjuster and the bills for various modifications to the BMW) clearly shows, and Mr. Teap eventually admitted in his testimony, that he was the person who regularly operated the BMW and had the care, custody, or control of it for the majority of the term of the insured period.
[23] The next step is to note that the appropriate time period the Court must consider in determining whether a misrepresentation was made is “the date the claimant applied for the insurance” (Deol at ¶28; Rai at ¶14). There is no obligation for the insured to go back to an insurance broker to have this aspect of the contract changed at some later date should the principal operator of the vehicle change (Bolen v. ICBC, 2006 BCSC 1749 at ¶44-45). That it is clear in hindsight that Mr. Teap was the principal operator of the BMW is hence not determinative of the issue. Rather, the defendant must show on a balance of probabilities that Mr. Teap knew on March 2, 2005, at the time he entered into the contract of insurance with ICBC, that he was in fact going to be the principal operator of the vehicle (Deol at ¶28; Rai at ¶14). This is the point where the parties disagree.
[24] If this Court finds that Mr. Teap knew that he was to be the principal operator of the BMW on March 2, 2005, then the final and related step will be to determine whether Mr. Teap made the misrepresentation knowingly, pursuant to s. 19(1)(b) of the Act, which at the relevant time stated:
Forfeiture of claims
19(1) If
b) an applicant for an owner’s certificate knowingly misrepresents or fails to disclose in the application a fact required to be stated in it,
all claims by or in respect of the applicant or the insured are rendered invalid, and his or her right and the right of a person claiming through or on behalf of or as a dependent of the applicant or the insured to benefits and insurance money is forfeited.
[Emphasis added]
[25] In Whitelaw v. Ransom and Wellington Fire Insurance Co., [1958] B.C.J. No. 135, 15 D.L.R. (2d) 504, the Court of Appeal dealt with s. 169 of the Insurance Act, R.S.B.C. 1948, c. 164, which used the similar wording: “Where an applicant for a contract … knowingly misrepresents or fails to disclose in the application any fact required to be stated therein … a claim by the Insured shall be invalid and the right of the Insured to recover indemnity shall be forfeited” (¶25). In separate majority reasons, Davey J.A. noted that both Sleigh v. Stevenson, [1943] 4 D.L.R. 433, O.W.N. 465, and General Accident Ass’ce Co. v. Button, [1954] 3 D.L.R. 352, 34 M.P.R. 25, articulated that “knowingly” is used in that section in the sense that the applicant is in “possession of information that what is in fact stated in the application is untrue or does not disclose the truth” (¶30-31). This definition was also relied on by the majority of the Supreme Court of Canada in Turgeon v. Atlas Assurance Co. (1968), 13 D.L.R. (3d) 308 at 314.
[26] To find that the plaintiff knowingly misrepresented the material fact in question, I must therefore be satisfied on a balance of probabilities, after careful scrutiny of the evidence, that on March 2, 2005, Mr. Teap was in possession of information such that what was stated in the insurance contract was untrue or did not disclose the truth: namely that he knew he was to be the principal operator of the BMW, contrary to the statement in the contract that there was no principal operator of the vehicle.
[27] In assessing whether this test has been met, the Court will be mindful that mere speculation of fraud will not be sufficient: Swales v. I.C.B.C., 1999 BCCA 767.
[28] A number of cases were provided by counsel to illustrate instances where even very strong speculation and circumstantial evidence were not sufficient to establish fraud.
[29] In Swales, for example, the Court of Appeal allowed an appeal and entered judgment in favour of a plaintiff whose insurance claim had been dismissed at trial. The plaintiff claimed that his vehicle was stolen from a public parking lot while he was in a movie theatre. The defendant ICBC became suspicious after engaging in an investigation of the claim and declined to pay the plaintiff, alleging that he was involved in the theft of his own vehicle. At trial, the judge instructed the jury that the plaintiff had the burden of proving that the vehicle was taken without his knowledge, consent, or approval. This was an error in law since it effectively reversed the onus of proof.
[30] Furthermore, the defence counsel in Swales conceded at trial that there was no direct evidence of the plaintiff’s involvement in the theft, and so ultimately, “[t]he case was left to the jury solely on the basis of the plaintiff’s credibility and the suspicious circumstances on which I.C.B.C. chose to deny the claim” (¶6). The Court of Appeal stated that the jury’s finding of fraud amounted to “nothing more than speculation” and that overall, the case “came down to showing that the plaintiff may have had a motive for wanting to have his vehicle stolen” (¶7). Therefore, Finch J.A., as he then was, for the Court, concluded that there was no foundation from which a properly instructed jury could have reasonably inferred fraud on the plaintiff’s part.
[31] In Yeterian v. I.C.B.C., 2004 BCSC 404, the defendant ICBC resisted the plaintiff’s insurance claim for the theft of his motorcycle. ICBC alleged that the plaintiff himself was involved in staging the theft and relied primarily on the fact that when the police found the motorcycle abandoned and damaged some distance from where the plaintiff had parked it, the ignition and locking mechanisms were not damaged. ICBC was also suspicious because the plaintiff swore that he was “almost certain” that he had locked the steering lock, in which case the motorcycle would only have been able to move in a circle. Despite these points, the court was not convinced that ICBC had proven fraud on a balance of probabilities: “The evidence discloses little but speculation to support I.C.B.C.’s position that he falsely reported a theft” (¶27).
[32] In Johl v. ICBC, 2005 BCPC 0121, the claimant’s vehicle was involved in a hit and run accident. The claimant claimed that his vehicle was stolen and that he was not the driver involved in the incident. The defendant ICBC investigated the claim and, suspecting fraud, refused to pay his claim. At ¶56, V. Romilly P.C.J. set out the circumstances that ICBC viewed as suspicious:
Viewing the evidence, it seems that the defence views the following circumstances as casting suspicions on the Claimant:
1. The vehicle was involved in a hit and run some distance away from where the Claimant said he parked his vehicle and according to Constable Reimer individuals have been known to report their vehicle as stolen when they are involved in a hit and run, and that that immediately arouses his suspicion.
2. The Locksmith’s report.
3. The Security Alarm Expert report.
4. The supposed lack of cooperation by the Claimant in dealing with Constable Reimer.
5. The Claimant’s alleged deceit in passing off his cousin, (who I found looks very much like him) as himself in dealing with Constable Reimer, which indicates deceit on his part, which was continued in his evidence at trial.
6. The fact that his car was parked some thirty feet away from where he slept and no one was awakened by an alarm going off.
The claimant argued that these points amounted to “mere speculation” and did not constitute clear and cogent evidence. The Provincial Court Judge agreed: “The above in my opinion without any direct evidence of the Claimant’s involvement in the theft, amounts to mere speculation on the defence’s part” (¶60).
[33] In Bolen, finally, the plaintiffs’ truck was stolen and, as in the previous examples, ICBC refused to pay for the claim due to a suspicion of fraud. Unlike the previous examples, ICBC did not suspect that Mr. and Mrs. Bolen had actually participated in the theft. Rather, ICBC alleged that they made misrepresentations in relation to a number of matters, including the principal operator of the truck, their use of the truck, and its value. Fisher J. found at ¶42 that ICBC had not met its burden of proof in establishing that Mr. Bolen had misrepresented the principal operator aspect of the insurance contract:
[…] Despite my concerns about the reliability of the plaintiffs’ evidence on this issue, there is no evidence that contradicts Mr. Bolen’s testimony that he was working for his union in 2000, and did not need the truck for shift work until October 2002. Considering this, along with the rest of the circumstantial evidence about Mr. Bolen’s connection with the truck, I am not satisfied that ICBC has proved to the requisite standard that the plaintiffs misrepresented the principal operator designation in any application for an owner’s certificate before November 2002.
[34] It is clear from the foregoing cases that speculation, suspicion or potentially unreliable evidence from a plaintiff who sustains a loss, constitute an insufficient basis upon which an insurer may deny a claim based on fraud or a type of fraudulent misrepresentation.