Mr. Demetriou had a family heirloom ring appraised. It was worth $550,000. He insured the ring against theft with AIG Insurance Company of Canada (“AIG”) in July 2015, and was to pay an annual premium of over $10,000. A few weeks later, Mr. Demetriou says the ring was stolen while in the Dominican Republic, after an assailant pulled out a knife and demanded his valuables.
A claim was made to AIG. AIG said there was insufficient evidence to establish that the loss had occurred, and refused to pay the claim. Litigation ensued, and Mr. Demetriou was successful in obtaining summary judgment, with reasons reported at Demetriou v. AIG Insurance Co. of Canada, 2019 ONSC 627 (“Demetriou”). In addition to obtaining judgment for the value of the ring (and other jewellery), Mr. Demetriou was awarded $50,000 in punitive damages. (The availability of punitive damages on a summary judgment motion is itself a topic for discussion.)
This case is of interest because of Justice Gray’s finding on whether AIG was required to plead fraud to advance its defence that Mr. Demetriou had not met his burden of proving that the loss had occurred.
In the insurance context, the burden of proof of establishing that a covered loss occurred falls on the insured. However, if the insurer is relying on an exclusion, or alleging fraud, the burden then shifts to the insurer to prove the exclusion applies (but only after the insured has established a covered loss.)
In the within case, Mr. Demetriou says the ring was stolen from a knife wielding assailant. AIG did not pay the claim. Ostensibly, AIG was alleging that Mr. Demetriou was lying about the theft.
So, who has the burden of proof? Is the burden of proof on Mr. Demetriou to prove that the theft occurred (i.e., that a covered loss occurred)? Or is AIG’s apparent allegation that Mr. Demetriou was lying tantamount to an allegation of fraud, putting the burden of proof on AIG? Furthermore, is AIG required to plead fraud, or is it enough that they simply defend the claim on the basis that Mr. Demetriou has not proven the loss occurred?
It is apparent that throughout the litigation (and during oral argument itself), AIG repeatedly changed its position as to whether it was formally alleging fraud against Mr. Demetriou. Ultimately, Justice Gray would not allow AIG to take the position that it was pleading fraud based on prior representations made to Mr. Demetriou and his counsel.
In its argument, AIG relied on the Ontario Court of Appeal decision in Shakur v. Pilot Insurance Co. 1990 CanLII 6671 (“Shakur”), that in this type of situation, the burden of proof still falls on the insured to prove that the theft occurred on a balance of probabilities, and that based on the suspicious circumstances, the plaintiff had not met his burden:
It is fundamental insurance law that the burden of proof rests on the insured to establish a right to recover under the terms of the policy. In this case, the burden rested on the respondent and remained on the respondent to prove on the balance of probabilities that a theft of her jewellery had occurred. That the appellant, in denying the allegation of theft, impliedly alleged that the respondent was fraudulent in putting forward the claim in no way shifted the basic burden of proof resting on the respondent.
Justice Gray rejected AIG’s position (at para 67), and concluded that reliance on fraud was required to advance that argument.
In my view, these cases are clearly distinguishable from the one before me. In the case before me, the insurer has expressly disclaimed any reliance on fraud or deliberate acts.
In granting summary judgment for the plaintiff, Justice Gray stated (at para 73):
While there are some discrepancies and inconsistencies in the different versions of events related by different witnesses, this is to be expected, and indeed it would be unusual if any version of events as related was perfect. While there are clearly some suspicious circumstances, they have been adequately explained by Mr. Demetriou and his family members. In any event, they would only be relevant if fraud were being relied upon, but it is not. (emphasis added)
The underlined finding is based on Justice Gray’s conclusion that Shakur could be distinguished on the basis that fraud had been relied on in Shakur. However, in reading Shakur, it’s not clear that this is correct. The court in Shakur explicitly states with respect to the insurer’s position:
The defence at trial was, first, that the respondent had not proved that the robbery or theft occurred and that, second, in any event recovery of the loss was precluded because (a) the loss was excluded under the policy; (b) the appellant was relieved from indemnifying the respondent on the ground of public policy; or (c) the respondent had no insurable interest in the jewellery.
All we are told in Shakur with respect to fraud is that the insurer “impliedly alleged that the respondent was fraudulent in putting forward the claim.” In other words, it does not appear the insurer was explicitly alleging fraud in Shakur, and rather was doing exactly what AIG was doing in the within case.
Ultimately, the law is now confused on the issue of whether fraud must be pleaded in these circumstances. Clarification from the appellate courts is needed to resolve this matter.