Insurance litigation can result from a range of circumstances. For example, an insurance company may claim that it is not required to pay for a particular loss under an insurance policy or that the policyholder has engaged in misrepresentation or missed the applicable limitation period for making a claim.

A more extreme, although not uncommon, situation can occur when an insurance company alleges that it paid money to a policyholder after the latter knowingly made a false representation. This is colloquially referred to as insurance fraud.

This article provides an overview for the legal test to establish insurance fraud and reviews a recent decision of the Court of Appeal for British Columbia, in which the Insurance Corporation of British Columbia (referred to as “ICBC”) commenced a claim to recover the money it paid out concerning three car collisions which it later alleged had been staged.

What is the legal test for civil fraud?

The Supreme Court of Canada, in the case of Bruno Appliance and Furniture, Inc. v. Hryniak (Bruno Appliance) summarized the elements for a plaintiff to establish civil fraud, also known as the tort of deceit.

The Court set out the following requirements:

• the defendant made a false representation;
• the defendant either knew that the representation was false, or was recklessly careless as to whether it was true or false;
• the false representation caused the plaintiff to act; and
• the plaintiff suffered a loss as a result.

How does the test for civil fraud apply in the auto insurance context?

The Supreme Court of British Columbia, in the case of Insurance Corporation of British Columbia v. Husseinian (Husseinian), applied the civil fraud principles to the auto insurance (staged collision) context.

The Court explained that, in order for ICBC to establish that a defendant had engaged in civil fraud, it had to prove:

• the collision had been staged;
• the defendant either knew or was “wilfully blind” to the fact that they were going to be involved in a staged collision;
• the defendant made a representation to ICBC that they were involved in an accident; and
• as a result, ICBC made a payout to the defendant.

An unfortunate series of accidents or a sinister plot to defraud ICBC?

Turning to the recent decision of Singh v Insurance Corporation of British Columbia, the defendants, in various combinations, were involved in three motor vehicle collisions over three months. They made vehicle damage claims which the ICBC paid out. Some of the defendants also lodged personal injury claims and various related court actions were pending.

An ICBC investigator discovered that the claims had links to an auto body repair business in Surrey. Some of the defendants were associated with the business and the business had purchased all but one of the vehicles involved. Further, two collisions occurred in about the same location, close to the business. All three were rear-end collisions without any independent witnesses. The defendants had various connections and communications before and after the collisions.

The ICBC commenced proceedings, arguing that the defendants staged the accidents and made fraudulent insurance claims.

Court decides that the collisions were staged

Justice Duncan of the Supreme Court of British Columbia explained the issue in the following terms:

“An accident is an unexpected or unforeseen event, usually an unfortunate one. This case centres on whether three motor vehicle collisions … were accidents, and thereby a series of unfortunate events, or whether the defendants staged them in order to make fraudulent vehicle damage and personal injury claims.”

After reviewing the evidence, her Honour rejected the defendant’s explanations as inconsistent, and agreed with ICBC that the collisions were staged. Her Honour awarded ICBC damages in the amount it paid out in vehicle damage claims.

Some of the defendants appealed.

Court of Appeal decided that the trial judge applied the correct fraud test

The defendants argued before the Court of Appeal for British Columbia that the trial judge reached the wrong conclusion by applying the test set out in Husseinian. They claimed that this auto insurance test fails to capture the need to prove that the defendants knew that they made a false representation, either because they knew it was false or were reckless about its truthfulness.

Justice of Appeal Griffin held that the Husseinian test was consistent with the test for civil fraud set out by the Supreme Court of Canada in Bruno Appliance. The former was simply a summary of the civil fraud principles in the context of a staged accident.

Trial judge did not reverse the burden of proof

The defendants also argued that the trial judge reversed the burden of proof. They claimed that the trial judge rejected their explanations for the collisions, but did not find that ICBC actually proved that the defendants staged the collisions.

Justice of Appeal Griffin rejected this ground of appeal as well. The trial judge explained that ICBC had the onus of proving civil fraud. The judge rejected the defendants’ explanations, which were part of the totality of the evidence considered in finding that ICBC met its burden of proof:

“The plaintiff’s case relies on the inherent improbability of things occurring as the defendants claimed to the plaintiff immediately after the accident, when the details of those claims are examined in a broader evidentiary context.”

The Court of Appeal dismissed the appeal.

Contact Meridian Law Group in Vancouver for Skilled Advice on Insurance Litigation

The insurance litigators at Meridian Law Group represent some of the largest insurance companies in Canada. We also help policyholders to pursue their rights in insurance litigation. The firm has earned the reputation of being one of the premier insurance litigation firms in British Columbia. While we aim to obtain early resolution through skilled negotiation, we are also prepared to assertively advocate for our clients in court where required.

Located adjacent to the courts in downtown Vancouver, Meridian Law Group represents clients in Vancouver and throughout British Columbia. Please call (604) 687-2277 or fill out the online form to arrange a confidential consultation to discuss your insurance dispute.