Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388

CITATION: Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388

DATE: 20090508

DOCKET: C47778

COURT OF APPEAL FOR ONTARIO

Lang, Juriansz and Epstein JJ.A.

BETWEEN

Bridgette Sagl

Plaintiff (Respondent)

and

Cosburn, Griffiths & Brandham Insurance Brokers Limited, Chubb Insurance Company of Canada, Eamonn Kinsella and G.C. Carley & Co. Limited

Defendants (Appellant)

Peter H. Griffin and Jamie J.W. Spotswood, for the appellant

Barry A. Percival, Q.C., for the respondent

Heard: November 24, 2008

On appeal from the judgment of Justice Blenus Wright of the Superior Court of Justice dated September 4, 2007, with reasons reported at (2007), 2007 36644 (ON SC), 54 C.C.L.I. (4th) 236.

Epstein J.A.:

I. OVERVIEW

[1] On December 16, 1997, the home of the respondent, Bridgette Sagl, was destroyed by fire. In this action she claimed against her insurer, the appellant, Chubb Insurance Company of Canada, among others, for the losses she sustained in the conflagration. Chubb defended the claim by denying coverage on the basis that the fire was the result of arson in which Sagl participated and that she had intentionally made material misrepresentations to Chubb, both in her initial application for coverage and in presenting her claim under the policy.

[2] After a twenty-two day trial, the trial judge gave lengthy reasons in which he rejected all three defences. The trial judge was not satisfied that Chubb had demonstrated that the fire was incendiary in origin or, if so, that Sagl had any involvement in it. He further held that Chubb failed to prove that Sagl made any intentional material misrepresentations in her dealings with Chubb. The trial judge therefore awarded Sagl damages in the amount of $4,534,354.47 plus $500,000 in punitive damages, as well as substantial indemnity costs. Chubb was also ordered to pay the costs of the defendant, Cosburn, Griffiths & Brandham Insurance Brokers Limited (Cosburn) on a partial indemnity basis.

[3] In this appeal Chubb challenges the trial judge’s failure to find that it had established intentional material misrepresentation in the application for coverage and in the proof of loss, his application of s. 124 of the Insurance Act, R.S.O. 1990, c. I.8, to the binder of insurance in place at the time of the fire, the award of punitive damages, and the costs awards.

[4] I would allow the appeal and order a new trial by reason of errors made in the trial judge’s analysis of Sagl’s proof of loss. I would limit the new trial to the issue of Sagl’s loss, specifically whether she is able to prove her loss in relation to her fine arts collection, and whether the policy is void due to intentional misrepresentation in the proof of loss. The new trial would include, if appropriate, a consideration of the application of s. 129 of the Insurance Act.

II. FACTS

[5] In 1979, Sagl began living with Rudy Sagl. They married in 1984. Rudy Sagl was a successful businessman and the Sagls enjoyed a lavish lifestyle. Sagl collected art, furniture, jewelry, and glassware throughout her lifetime. Every inch of wall space in her home was adorned with art, and many more pieces were stored throughout the house.

(1) Sagl’s financial circumstances in the fall of 1997

[6] In the early 1990s, the marriage ended and lengthy acrimonious litigation ensued. By judgment dated July 11, 1997, E. Macdonald J. ordered Rudy Sagl to pay his wife a lump sum of $4 million, payable on a quarterly basis, plus significant on-going support.

[7] At the time when Sagl applied for insurance coverage with Chubb, she owned two adjoining homes on Doulton Drive in Mississauga, Ontario. She and her teenage son lived in 2415 Doulton Drive and her daughter lived next door at 2399 Doulton Drive. Following the release of E. Macdonald J.’s judgment in July 1997, Sagl engaged an insurance sub-broker, Eamonn Kinsella of G.C. Carley & Co. Limited, to obtain insurance for the two houses and contents, including her artwork and jewelry.

[8] Kinsella presented Sagl to Chubb as a wealthy individual. He told Chubb’s agent that Sagl would soon be receiving a substantial divorce settlement. Furthermore, Kinsella testified that he had visited Sagl on a number of occasions and knew that her home contained lavish and over-powering furnishings as well as an extraordinary number of pieces of art.

[9] However, the evidence relevant to Sagl’s financial situation disclosed that when Sagl applied for insurance with Chubb, she was experiencing certain financial difficulties.

[10] She was in default on three mortgages with respect to the two Doulton Drive properties. Although a prospective purchaser had submitted conditional offers for the purchase of both properties, the conditions subsequently expired on November 20, 1997.

[11] In addition, Sagl owed substantial amounts to the Canada Revenue Agency, law firms and friends. In the fall of 1997, when she applied to Chubb for insurance coverage, Sagl’s debts, excluding the mortgages, totalled over $1 million.

[12] Further, at the time Sagl applied for insurance from Chubb, there was some ambiguity as to whether Rudy Sagl remained registered on title as a joint owner of 2415 Doulton Drive. In addition, due to Rudy Sagl’s tax arrears of over $1 million, the Canada Revenue Agency had filed an execution against 2415, which precluded Sagl from dealing with the property. Sagl knew of this additional problem as evidenced by her letter dated August 6, 1997, in which she asked the Canada Revenue Agency to lift the execution stating that she “must secure refinancing very quickly to avoid being evicted and facing legal proceedings against the house”.

[13] Kinsella was not aware of this information, did not ask Sagl questions relating to these issues, and hence did not provide any of this information to Chubb’s agent.

(2) The parties’ interaction between the time when Chubb provided coverage and the fire

[14] On September 30, 1997, by the execution of a binder of insurance, Chubb, through Cosburn, placed homeowner’s insurance on both properties and their contents through what Chubb referred to as its VIP program. The binder provided coverage on 2415 Doulton Drive for the dwelling ($630,000), contents ($600,000), fine arts ($2,000,000) and scheduled jewelry items ($1,000,000). The estimated annual premium was initially over $20,000. The binder indicated that it was prepared for convenience only and was subject to the terms and conditions of Chubb’s then standard policy.

[15] Chubb pursued neither the completion of a detailed application for insurance nor an inspection of the properties, the contents, the jewelry or the fine art collections during the eleven weeks between the date the binder was issued and the fire. Nonetheless, there was extensive communication between the parties. Kinsella, who was the only person who had direct contact with Sagl, communicated with John Fountain and Bob Connell of Cosburn. This contact primarily centred on Sagl’s efforts to reduce her premiums and Kinsella’s suggestion that she store some items of jewelry in a bank vault. Kinsella testified that he and Sagl reached an agreement on which items of jewelry would be kept at the bank, but Sagl gave evidence that she never agreed to any such allocation. The contact also included Connell’s requesting that Sagl sign an application form, and Kinsella’s informing Sagl that Chubb intended to impose a $2,500 sublimit on each piece of art unless Chubb received an appraisal.

(3) The fire

[16] On Tuesday, December 16, 1997, Sagl’s home at 2415 Doulton Drive was destroyed by fire. Her other home at 2399 Doulton Drive was untouched by the conflagration.

[17] On the night of the fire, no one was home. Sagl was out for dinner with a friend. Her son was staying overnight with a schoolmate. The live-in maid had spent the night away. The dog had been left outside.

[18] An investigator from the Office of the Fire Marshall conducted an investigation of the scene and concluded that the fire was incendiary in origin. His conclusion was supported by his supervisor. Constable Andrew Pennington of the Peel Regional Police notified the Criminal Investigation Bureau of the possibility of arson, given his “suspicions due to the nature of the information” he received. An investigation concerning the circumstances surrounding the fire ensued.

(4) The proof of loss

[19] Sagl prepared and delivered a one-page interim proof of loss dated January 5, 1998. In it she claimed the $600,000 limit of the contents coverage under the binder and a total loss valued at $1,255,000 plus jewelry and fine arts losses to be ascertained.

[20] The policy of insurance was issued on January 13, 1998.

[21] Chubb wrote a letter to Sagl dated June 8, 1998, in which it expressed its concern that Sagl had failed to disclose “important facts” to Chubb including that Rudy Sagl was registered as a joint owner of 2415, that there was a first mortgage registered on the property which was in default, that the mortgagee was pursuing an action against Sagl for judgment on the mortgage debt and for possession of 2415, that there was a mortgage on 2399 which was also in default, and that the mortgagee had obtained a judgment for possession, subject to a temporary stay. In the letter, Chubb stated that it was “not in a position at this time to make a responsible determination as to whether the policy is void for misrepresentation and/or non-disclosure”, but proposed to review the matters with Sagl in the course of her on-going examination under oath. Chubb also gave notice in the letter that it was cancelling the policy.

[22] Sagl commenced this action by statement of claim issued on December 8, 1998. She then submitted a proof of loss dated June 3, 1999, in which she claimed losses totalling $13,828,777.62. Her total coverage was $4,230,000.

[23] In its amended statement of defence dated July 31, 2001, Chubb defended primarily on the basis of arson and fraud.

III. REASONS OF THE TRIAL JUDGE

[24] The trial judge started his analysis with a brief review of the family history, noting the lavish lifestyle and Sagl’s passion for collecting, particularly paintings.

(1) The arson defence

[25] He then proceeded to deal with Chubb’s arson defence, a defence he rejected on the basis that he did not accept Chubb’s submissions that Sagl had opportunity and motive to have someone set fire to her home. He also preferred Sagl’s expert evidence as to the cause of the fire to that upon which Chubb relied. Further, after reviewing Sagl’s explanation for Chubb’s various concerns, he found nothing sinister in the circumstances surrounding the fire.

[26] Chubb retained Robert De Berardis of De Berardis Associates Incorporated to conduct a forensic investigation into the cause of the fire. In his report, he concluded that the fire was incendiary in nature; his investigation showed multiple areas of fire origin, distinct and separate from each other.

[27] Sagl’s expert, Dennis Merkley, did not share this view. He expressed concern about the lack of scientific evidence of any use of an accelerant. On the basis of the available evidence, Merkley concluded that the fire had a single source that started in the basement and spread to the rest of the house.

[28] As between the expert opinions of Merkley and De Berardis, the trial judge preferred Merkley’s conclusions based on his more extensive experience and the fact that, according to the trial judge at para. 78, his evidence was “logical and [made] common sense.” The trial judge ultimately, at para. 94, accepted Merkley’s opinion that the cause of the fire was “undetermined”. At para. 107, he went further and found that even if the fire was deliberately set, the “weight of the evidence” did not point to Sagl’s being involved.

(2) The coverage

[29] The trial judge next dealt with the nature of the insurance coverage at the time of the fire. After identifying the specific coverage provided in the binder, he turned to the discussions between Kinsella and Sagl after the binder had been issued. He held that to the extent anything was agreed upon, nothing was reduced to writing and signed by Sagl. Accordingly, the trial judge, relying on s. 124 of the Insurance Act, concluded that none of the discussions subsequent to the execution of the binder affected the extent of the coverage Chubb was obligated to provide under the terms of the binder.

(3) Intentional misrepresentation prior to the fire

[30] The trial judge began this part of his analysis by noting, at para. 136, that the binder was subject to the following provision contained in the policy of insurance:

Concealment or fraud

This policy is void if you or any covered person has intentionally concealed or misrepresented any material fact relating to this policy before or after a loss.

[31] He then turned to the issue, at paras. 137-141, of whether Sagl intentionally concealed or misrepresented any material fact prior to the loss, beginning with an expression of concern regarding Chubb’s business practices:

137. Since the insurance policy was not issued prior to the fire, the plaintiff had no knowledge of the above express condition. Prior to the issuance of the Binder of Insurance, the plaintiff was not advised of this express condition. How could the plaintiff intentionally conceal or misrepresent something of which she had no knowledge?

138. Only an insurer knows what it considers a "material fact" in relation to a risk it is assuming. How does an insured know what a "material fact" is unless so advised by the insurer? I am incensed that an insurer can hide behind this express condition without advising an insured of what the insurer considers to be a "material fact".

139. In Chenier et al. v. Madill (1974), 1973 478 (ON SC), 2 O.R. (2d) 361 (Ont. H.C.), Galligan J. held, "... in the absence of knowledge of the materiality to the insurer of the circumstances, there can be no fraud in the omission to communicate them."

140. At the time the plaintiff sought this insurance coverage from Chubb, Chubb did not require an insured to complete an application form. However, Cosburn sent the plaintiff an application form which was not a Chubb form. The plaintiff signed the incomplete form and returned it to Cosburn. I note that neither Chubb nor Cosburn ever followed up with the plaintiff to have her fully complete the application that she signed.

141. I cannot believe that the business of insurance was conducted in such a nonchalant fashion. Presumably, Chubb has improved its underwriting practices over the past ten years.

[32] The trial judge, at para. 142, proceeded to examine the three main material fact allegations upon which Chubb relied in support of its material misrepresentation defence and which, Chubb alleged, “if known by Chubb, would have caused such concern to Chubb that it would have declined coverages.”

[33] The first was that Rudy Sagl was a joint owner of the property. In this respect, the trial judge noted the direction Rudy Sagl had signed in which he purported to release his interest in the property.

[34] The trial judge next addressed the proceedings commenced by MRS Trust in relation to its mortgage on the property. He observed that Sagl had consented to judgment on the basis that the property was for sale and further that she was expecting to receive money from Rudy Sagl pursuant to the judgment of E. Macdonald J.

[35] Finally, the trial judge dealt with Chubb’s claim that Sagl misrepresented herself as a wealthy individual when, in fact, she was in dire financial straights. He commented on the fact that the Chubb VIP program was available to anyone who owned real estate valued at more than $400,000 even if there were a $200,000 mortgage on the property.

[36] The trial judge’s problem with Chubb’s position with respect to this aspect of its defence rested on Chubb’s inability to demonstrate that these issues were material to its consideration and ultimate assumption of the risk. In concluding that prior to the fire Sagl did not intentionally conceal or misrepresent any facts material to the risk, he set out his view of Chubb’s obligation to communicate issues of materiality with an insured or potential insured at paras. 147-152:

147. If, as in this case, it was a material fact as to the names of the titled owners of the property, that information could have been elicited on a proper application form.

148. If, as in this case, it was a material fact as to whether the property was mortgaged and the status of any mortgages, that information could have been gained from a proper application form.

149. Similarly, if it is a material fact to an insurer to know the financial viability of a potential insured, that information could be obtained easily by the appropriate questions on an application form.

150. A proper application form should contain a warning with reference to the above express condition. The application should be signed by a potential insured in the presence of a broker witness who has reviewed the application form information with the applicant who has been advised of the material facts of the insurer and told about the consequences of concealing or misrepresenting any material fact.

151. I agree that an insurer expects an applicant for insurance to act in the utmost good faith in seeking insurance coverage. But, fairness requires that an insurer also act in the utmost good faith. It is my view that an insurer cannot rely on the above express condition unless the applicant for insurance is advised of what the insurer considers to be material facts, and the consequences of concealment and misrepresentation. Chubb failed to act in the utmost good faith toward the plaintiff at the time she requested insurance coverage.

152. I find that the plaintiff did not intentionally conceal or misrepresent any material facts in relation to the insurance coverage requested prior to the fire.

(4) Intentional misrepresentation in the proof of loss

[37] The trial judge next dealt with Chubb’s defence that after the fire Sagl intentionally concealed or misrepresented material facts in her proof of loss. Chubb took the position that Sagl’s proof of loss for contents and fine art was replete with fraudulent claims and false statements. The trial judge analyzed this issue by asking himself whether the proof of loss was fraudulent or whether the evidence disclosed merely a difference of opinion as to value, particularly in relation to the contents and fine art claim.

[38] The first contentious issue the trial judge analyzed was the claim for loss or damage to the contents of Sagl’s home. He accepted the evidence upon which Sagl relied, largely an inventory prepared by Kevin Watson of National Fire Adjusters that was based on Sagl’s recollection of 563 items in her home. From this inventory, Watson valued the contents at over $2,000,000. The trial judge accepted this valuation, concluding that the value of the contents of 2415 exceeded the binder coverage of $600,000.

[39] Turning to the claim for loss of jewelry, the trial judge noted that Sagl’s claim was for $923,450 plus PST and GST, an amount that exceeded the binder coverage of $1,000,000. The trial judge expressed reservations about the amount of the jewelry claim but in the absence of an adequate response from Chubb to Sagl’s jewelry claim, he found that Sagl had established a loss of $1,000,000.

[40] The trial judge examined Sagl’s fine art claim in considerable detail, acknowledging the evidence of the large extent of Sagl’s collection. He noted Sagl had made earlier attempts to value the fine art collection. In 1995, Sagl had wanted to borrow money against her large collection of framed and unframed pieces of art and an art expert, Stephen Sweeting, whom Chubb later retained as its expert in this action, had viewed some of the collection for valuation purposes, but not the art work on the second floor. The trial judge observed that Sweeting had arrived at a value of $750,000 to $1,000,000, although the extent to which Sweeting inspected the fine art collection was unclear, as was the question whether Sweeting’s estimate applied only to the sixty items selected by Sagl for appraisal at that time.

[41] He also noted, at para. 189, that in the matrimonial trial, E. Macdonald J. “wrestled with the value of the Sagls’ artwork”, and set out a number of paragraphs from her July 1997 judgment, concluding with the following:

30. I have no reliable information on this issue. The wife’s net family property statement suggests a valuation date value of $5,000,000. The husband suggests $750,000. I have decided to place a value for purposes of calculating the net family property at $1,000,000 and to attribute $500,000 to each of them. This may appear to be ‘rough justice’ but I have no reliable information on this issue. The documents provided to me are unreliable and contrived. [Emphasis in original.]

[42] The trial judge next reviewed the evidence of Sagl’s expert, Darragh Elliott, who prepared an extensive report on Sagl’s behalf in which he assessed the total value of Sagl’s fine art destroyed in the fire. Sagl, with the benefit of Sweeting’s appraisal and an incomplete set of photographs, identified to Elliott each of the 2,580 items in her collection. From this inventory, Elliott valued the loss of Sagl’s fine art collection at $9,720,980.

[43] The trial judge then considered and rejected Chubb’s submissions in support of its allegations that the Elliott report overstated Sagl’s loss in relation to the fine art collection. As the “clearest” example, Chubb argued that both the existence and the US$600,000 value attached to a Rodin bronze figure, L’Eternel Printemps, were particularly implausible. Chubb noted that, according to Sagl, the sculpture was kept in the back of the basement storage room, and there was no photograph of it. Chubb argued there was no evidence Sagl had ever mentioned it or showed it to anyone, including Sweeting when he did his appraisal in 1995, and that it was not disclosed in the matrimonial law suit. The only evidence of its existence was in the World of Antiques list of items Sagl allegedly purchased from that store. On the list it is described as a “limited edition (36) bronze casting” for which Sagl had paid $6,500.[^1]

[44] At para. 204, the trial judge stated: “I am not sure what a ‘material fact’ would be in relation to the fine art claim.” He went on to characterize Chubb’s main argument as being one of inflated values. He expressed scepticism of Elliott’s evaluation, but said that his “problem” was that Chubb did not have its expert, Sweeting, review and rebut Elliott’s report and held, at para. 206, that he therefore had “no basis upon which to find that Elliott’s methodology is either flawed or fraudulent. In the same paragraph, he went on to say, “Elliott’s report may be flawed but that does not make his estimate of the value of the fine art fraudulent.” After faulting Chubb for poor business practices in not insisting on appraisals, particularly in view of the extent of the coverage, the trial judge found that Chubb had failed to prove that Sagl intentionally concealed or misrepresented a material fact in relation to the art collection and again, made note of the fact that Sagl was underinsured: this aspect of her loss exceeded the insurance coverage of $2 million.

(5) Punitive damages

[45] The trial judge then turned to Sagl’s claim for punitive damages. He observed that while the jewelry coverage and fine art coverage provided for in the binder were “exceptional”, Chubb had failed to inspect the residence to determine whether the amount of coverage was appropriate. Furthermore, Chubb had failed to prove that Sagl was implicated in the alleged arson or that she had misrepresented or concealed any material facts relevant to the risk it was assuming. He explained his conclusion that Sagl was entitled to punitive damages in the amount of $500,000 at paras. 231-237:

231. In my view, Chubb had tunnel vision and failed to consider the evidence in an impartial and common sense way. There was no direct evidence implicating the plaintiff in any way with the fire. Chubb knew the high standard of proof required to support its allegations of criminal activity by the plaintiff, and without any proof Chubb persisted in persecuting the plaintiff with false allegations.

232. It is a serious matter to allege that a plaintiff has committed a criminal offence without putting forth any direct evidence to prove the allegation. That is a breach of the duty [of] good faith and is reprehensible conduct.

233. Chubb continued its reprehensible conduct when it alleged that the plaintiff "misrepresented and/or concealed" material facts relevant to the risk that Chubb was assuming. I have already found that because of Chubb's poor underwriting procedures it breached its duty of good faith to the plaintiff. Chubb failed to have the plaintiff complete a proper application form which should have set out in question form the information which Chubb considered to be "material facts" upon which it would determine whether to grant coverage.

234. It is a breach of the duty of good faith by an insurer to allege misrepresentation and concealment against an insured, when an insured has no opportunity to know or provide the facts which an insurer considers "material" to the risk it is assuming.

235. Chubb even went further in its breach of duty of good faith in alleging that the plaintiff has committed fraud in her proof of loss for contents and fine art. I have already found that the plaintiff was likely underinsured for contents.

236. With respect to the fine art, Chubb has failed to provide proof that the plaintiff's fine art claim is fraudulent. In fact, Chubb failed to provide an expert opinion challenging the methodology used by Elliott to come to his estimate of the value of fine art items.

237. Almost ten years have passed since the fire. I find that Chubb's conduct has been malicious, oppressive and high-handed and merits the condemnation of the Court.

(6) Relief from Forfeiture and Costs

[46] The trial judge next dealt with the issue of relief from forfeiture. He found at para. 245 that Sagl was a “relative neophyte in matters of insurance”. Given that Chubb did not inspect the property or question the amount of coverage requested, the trial judge found if there had been imperfect compliance as to the proof of loss or any other matter with respect to the loss, he would order relief from forfeiture.

[47] The trial judge then dismissed Sagl’s claims against Kinsella, G.C. Carley & Co. Limited and Cosburn as well as the cross-claim against Cosburn. He also dismissed the portion of Sagl’s claim for living expenses, but ordered Chubb to pay Sagl’s unpaid storage invoice.

[48] In a subsequent endorsement as to costs, the trial judge ordered Chubb to pay Sagl’s costs on a substantial indemnity basis due to the fact that Chubb failed to prove the allegations of arson and fraud. He ordered Chubb to pay Cosburn’s costs, reasoning that Chubb, at the outset, ought to have assumed Cosburn’s defence, but relieved Chubb of having to pay interest on Sagl’s storage invoice.

IV. ISSUES

[49] Chubb raises the following issues:

1. Did the trial judge err in concluding that the coverage was not void due to material misrepresentations Sagl made in her application for binder coverage?

2. Did the trial judge err in his conclusion that s. 124 of the Insurance Act applied to the binder?

3. Did the trial judge err in his analysis of Chubb’s defence that coverage should be denied based on intentional misrepresentation in the proof of loss claim?

4. Did the trial judge err in awarding punitive damages?

5. Did the trial judge err in his costs awards with respect to ordering Chubb to pay Sagl’s costs on a substantial indemnity basis or in ordering Chubb to pay Cosburn’s costs?

V. STATUTORY PROVISIONS

[50] The relevant legislation is as follows:

s. 1 of the Insurance Act, R.S.O. 1990, c. I.8

1. In this Act, except where inconsistent with the definition sections of any Part,

“contract” means a contract of insurance, and includes a policy, certificate, interim receipt, renewal receipt, or writing evidencing the contract, whether sealed or not, and a binding oral agreement;

s. 124 of the Insurance Act, R.S.O. 1990, c. I.8

124. (1) All the terms and conditions of the contract of insurance shall be set out in full in the policy or by writing securely attached to it when issued, and, unless so set out, no term of the contract or condition, stipulation, warranty or proviso modifying or impairing its effect is valid or admissible in evidence to the prejudice of the insured or beneficiary.

(2) Subsection (1) does not apply to an alteration or modification of the contract agreed upon in writing by the insurer and the insured after the issue of the policy.

(4) The proposal or application of the insured shall not as against the insured be deemed a part of or be considered with the contract of insurance except in so far as the court determines that it contains a material misrepresentation by which the insurer was induced to enter into the contract.

(5) No contract of insurance shall contain or have endorsed upon it, or be made subject to, any term, condition, stipulation, warranty or proviso providing that such contract shall be avoided by reason of any statement in the application therefor, or inducing the entering into of the contract by the insurer, unless such term, condition, stipulation, warranty or proviso is and is expressed to be limited to cases in which such statement is material to the contract, and no contract shall be avoided by reason of the inaccuracy of any such statement unless it is material to the contract.

(6) The question of materiality in a contract of insurance is a question of fact for the jury, or for the court if there is no jury, and no admission, term, condition, stipulation, warranty or proviso to the contrary contained in the application or proposal for insurance, or in the instrument of contract, or in any agreement or document relating thereto, has any force or validity.

s. 129 of the Insurance Act, R.S.O. 1990, c. I.8

129. Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss and a consequent forfeiture or avoidance of the insurance in whole or in part and the court considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it considers just.

VI. ANALYSIS

(1) Intentional material misrepresentations in the application

[51] The starting point in the analysis of this ground of appeal attracts no debate. The relationship between an insurer and an insured is contractual in nature. But contracts of insurance are no ordinary contracts; special rules apply. Chief among these is the doctrine of uberrima fides that holds the parties to a standard of utmost good faith in their dealings with each other. It places a heavy burden on applicants for insurance coverage to provide full disclosure to the insurance company of all information relevant to the nature and extent of the risk that the insurer is being asked to assume: Coronation Insurance Co. v. Taku Air Transport Ltd., 1991 16 (SCC), [1991] 3 S.C.R. 622, at p. 636. A fact is relevant or material if it would influence a prudent insurer in deciding whether to issue the policy or in determining the amount of the premium: Mutual Life Insurance Co. v. Ontario Metal Products Co. Ltd., 1924 336 (UK JCPC), [1925] 1 D.L.R. 583 (P.C.), at p. 588; Gauvremont v. Prudential Insurance Co. of America, 1940 65 (SCC), [1941] S.C.R. 139, at p. 160; Fidelity & Casualty Co. of New York v. General Structures Inc., 1976 213 (SCC), [1977] 2 S.C.R. 1098, at p. 1110. Whether a misrepresentation or non-disclosure is material is a matter of fact to be determined by the trier of fact: see s. 124(6) of the Insurance Act, and Mutual Life at p. 588. However, there is a subjective element to the test as well. The non-disclosure or misrepresentation must have induced the insurer to enter into the contract: see s. 124(4) of the Insurance Act; see also Taylor v. London Assurance Corp., 1935 2 (SCC), [1935] S.C.R. 422, at p. 429.

[52] The duty to disclose all material facts applies even in the absence of questions from the insurer, although the absence of questions may be evidence that the insurer does not consider a fact to be material: Gregory v. Jolley (2001), 2001 4324 (ON CA), 54 O.R. (3d) 481 (C.A.), at paras. 31-32 and 37, and W.H. Stuart Mutuals Ltd. v. London Guarantee Insurance Co. (2004), 2004 48650 (ON CA), 16 C.C.L.I. (4th) 192 (Ont. C.A.), at para. 11, leave to appeal refused, [2005] 1 S.C.R. xvii. The consequence of non-disclosure or misrepresentation of a material fact by the insured is that the insurer is entitled to void the insurance contract ab initio: see Lloyd’s London, Non-Marine Underwriters v. National Armoured Ltd., (1996) 1996 8104 (ON SC), 142 D.L.R. (4th) 506 (Ont. Gen. Div.), affirmed by [2000] I.L.R. I-3751 (Ont. C.A.).

[53] The key issue in this case is materiality. While Chubb argues that the trial judge effectively relieved Sagl of her utmost good faith obligation to disclose facts within her knowledge material to the risk being assumed and reversed the onus of proving material fact disclosure, in actuality Chubb is challenging the trial judge’s finding of fact that the information at issue was not material to Chubb. The real inquiry is therefore the legitimacy of that finding.

[54] I would not give effect to this ground of appeal. The trial judge’s finding that the facts upon which Chubb relied were not material to its decision to provide insurance coverage to Sagl was supported by the evidence and should not be interfered with by this court.

[55] Chubb argues that the record contains evidence supporting the conclusion that Sagl, during her dealings with Kinsella in applying for insurance, failed to disclose that (i) she was not the sole owner of 2415 Doulton Drive; (ii) there were several mortgages on the property that were in default; and (iii) rather than being wealthy, she was in financial distress. Chubb goes on to say that the evidence of Chubb’s witnesses demonstrated that this undisclosed information would have been relevant to its decision whether to insure Sagl’s home, contents, jewelry, and artwork, largely because of the concern that the insurance policy could be used as a way for Sagl to escape from her precarious financial position; that is, the undisclosed information was relevant to whether Sagl was a moral hazard.

[56] Sagl denies that she was in serious financial distress at that time, and points out that Chubb assumed the risk without asking for information about the issues upon which it now relies to void the policy. Regarding Sagl’s financial status, Hannah Springer of Chubb testified that she was informed by John Fountain of Cosburn that Sagl was independently wealthy, and would be receiving a substantial matrimonial settlement. After Chubb issued the binder, Kinsella filled in an application form on Sagl’s behalf. Sagl signed it. Kinsella provided it to Connell of Cosburn.

[57] The questions on the minimal form elicited information about Sagl’s name and address; the dates during which the policy would be effective; the date on which Kinsella had seen the property; the length of time for which Kinsella had known Sagl; the fact that he had done business with her before; the fact that the residence was a detached, primary occupancy, brick veneer dwelling; and the fact that there had been no losses or claims within the past five years. The “loss payee” section was left blank. In addition, the form did not contain any questions regarding ownership of the property, or ask specific questions about mortgages, or mortgage default, or whether the applicant had any other debts.

[58] Sagl’s point is that from the time Chubb issued the binder until the date of the fire, some eleven weeks, Chubb agreed to provide Sagl with extensive coverage without having any information other than the limited amount contained in the application form and that communicated to Springer by Fountain.

[59] As previously mentioned in para. 52, while the applicant has a duty to disclose all material facts, an insurer’s conduct may be relevant to the analysis of whether a particular fact is material. An insurer’s failure to ask a question may be evidence that the particular insurer does not consider the issue to be material, even if, objectively, the information would have been regarded as relevant by a prudent insurer: see Great Northern Insurance Co. v. Whitney (1918), 1918 42 (SCC), 57 S.C.R. 543; see also Fordorchuk v. Car & General Ins. Corp. Ltd., 1931 313 (AB SCTD), [1931] 3 D.L.R. 387 (Alta. S.C.), at p. 390, citing Newsholme Bros. v. Road Transport and General Insurance Co., [1929] 2 K.B. 356, where, at p. 363, the court stated that insurance companies “run the risk of the contention that matters they do not ask questions about are not material, for, if they were, they would ask questions about them.” An insurer who accepts the risk without requiring an answer to a question asked, for example by not pursuing an unanswered question in an application form, has been found to have waived the question: see Hamzeh v. Safeco Insurance Company of America (1988), 1988 3466 (AB QB), 32 C.C.L.I. 83 (Alta. Q.B.).

[60] A recent decision by this court has confirmed the principles expressed in those cases. In Gregory v. Jolley,[^2] at para. 37, this court cited Craig Brown and Julio Menezes, Insurance Law in Canada, looseleaf (Toronto: Thomson Carswell, 2002) with approval:

The significance of the insurer not insisting upon a written application, in my view, is similar to the failure of an insurer to ask a question on the application. As Brown points out, at p. 5-4, the insurer’s failure to inquire may provide evidence that the insurer does not consider the information relevant.

[61] Here, Chubb insured Sagl’s home and property for a considerable amount and for a considerable period of time without making any inquiries about ownership of the property, the status of mortgages, or the existence of other debts, and in the face of an incomplete application form obtained only after the binder was issued. Chubb now purports to rely on its lack of knowledge of these matters in support of its position that the binder is void due to non-disclosure.

[62] I agree with the trial judge that it runs contrary to the good faith obligation that the insurer owes to the insured for the insurer to agree to insure a risk, whether at the binder stage or at the time the policy is issued, when it knows or should know that there is information relevant to the risk that it does not have and that it did not even inquire into or that is incomplete, and then to raise the lack of information as a defence to a claim under the policy.

[63] Through his reasons, the trial judge implicitly put the following question to Chubb: if it regarded these facts as material, why did it not ask about them? Given that that question was left unanswered by the evidence, it was open to the trial judge to draw the inference that the undisclosed matters upon which Chubb now relies to void the coverage provided by the binder were not material to its decision to issue the binder and assume a sizable risk.

[64] I note that the trial judge, at paras. 150-151, goes further and states that the insurer must advise the applicant not only of what it considers to be material to the risk, but also of the consequences of concealment or misrepresentation. I am not to be taken as agreeing with that statement of the law. However, it is unnecessary to consider it given my conclusion on the issue of materiality.

[65] Chubb had to satisfy the trial judge, on the evidence, that the information Sagl allegedly intentionally misrepresented or withheld was material to its assumption of the risk. This, it did not do. I would therefore not give effect to this ground of appeal.

(2) Does s. 124 of the Insurance Act apply to the binder?

[66] Before examining Sagl’s proof of loss, it is necessary to consider whether s. 124 of the Insurance Act applies to the binder, since the answer to this question will determine the extent of Sagl’s coverage.

[67] Chubb contends that the extent of coverage initially provided by the binder was subsequently reduced as a result of certain agreements reached in discussions between Kinsella and Sagl with the objective of reducing Sagl’s premiums. Sagl’s response to this position focuses on s. 124 of the Insurance Act. She points out that none of these discussions, even those that may have resulted in some form of agreement between her and Kinsella that would have reduced Chubb’s exposure to this claim, were reduced to writing and signed by her. Sagl argues that Chubb is precluded from relying on any orally agreed-upon modifications by reason of the application of s. 124 of the Act.

[68] It is common ground that the purpose of this section is to protect an insured from unilateral changes to an insurance policy.

[69] Chubb argues that the trial judge erred in applying s. 124 of the Act to a binder of insurance, as opposed to an issued policy. Essentially, Chubb argues that although changes to formal polices of insurance must be agreed upon in writing, it is entitled to rely on oral changes made to a binder prior to the issuance of the formal policy, as binders are often created instantaneously in circumstances where only the outline of a contract is discussed and the contract is therefore subject to change.

[70] I cannot accept this position. In my view, it is clear from the language and the definitions in the Insurance Act that s. 124 applies to binders. Thus, changes to the binder of insurance must be agreed upon in writing in order to be enforceable and Chubb should not be entitled to rely on any oral changes made to the binder prior to the issuance of the formal policy.

[71] Chubb’s position is in conflict with the clear language of the Insurance Act. It is apparent that s. 124 applies to binders of insurance, commonly referred to as “interim receipts”. Section 1 of the Act defines a “contract” as a contract of insurance, including “a policy, certificate, interim receipt, renewal receipt, or writing evidencing the contract, whether sealed or not, and a binding oral agreement” (emphasis added). Since a “contract of insurance” is explicitly defined as including binders, it is clear that the writing requirement applies to binders.

[72] This view is supported by a review of other provisions in the Act. Had it been intended that the writing requirement would apply only after the issuance of a formal policy of insurance, the drafters of the legislation would have made that intention plain, as they did in other parts of the Act. For example, in Part IV – Fire Insurance, s. 148 requires that certain statutory conditions be printed in every policy of fire insurance. Subsection (2) explicitly provides that the term “policy” “does not include interim receipts or binders.” A similar obligation to include statutory conditions in every policy of automobile insurance is imposed by s. 234 under Part VI – Automobile Insurance. Again, subsection (4) of s. 234 explicitly states that, under this section, “policy” “does not include an interim receipt or binder.” Chubb’s argument that binders are excluded from the writing requirements under s. 124 would require this court to read similar language into the statute.

[73] For these reasons, I would reject this ground of appeal.

(3) The insured’s proof of loss

[74] In regard to this ground of appeal, the inquiry focuses on the trial judge’s analysis of Chubb’s position that Sagl should be denied recovery because she either did not prove her claim, or she overstated it.

[75] In order to recover for a loss, the onus is on the insured to establish, on a balance of probabilities, that the loss occurred and the amount of the loss. The onus does not shift to the insurer merely because the insurer raises the defence of fraud: Shakur v. Pilot Insurance Co. (1990), 1990 6671 (ON CA), 74 O.R. (2d) 673 (Ont. C.A.), at p. 681.

[76] It is common ground that in the preparation of the proof of loss, an insured owes a duty to the insurer of honesty and accuracy. Indeed, the policy in this case, reproduced above at para. 30, expressly states that the policy is void if the insured “intentionally concealed or misrepresented any material fact relating to this policy before or after a loss.” Once fraud is established, no matter the amount, the entire claim under the proof of loss is forfeited: Britton v. Royal Insurance (1866), 4 F&F 905 at p. 909; Alavie v. Chubb Insurance Co. of Canada (2005), 2005 5331 (ON CA), 195 O.A.C. 7 (C.A.), at para. 5; Dimario v. Royal Insurance Canada, (1987) 26 O.A.C. 370 (Ont. Div. Ct.), at para. 7. This rule follows from the general principle that a contract of insurance is one of utmost good faith: see Insurance Law in Canada at p. 9-16.

[77] Chubb submits that the trial judge erred in two respects in his analysis of its proof of loss defence. First, the trial judge mistakenly relied on the fact that Sagl was underinsured. Second, Sagl’s credibility was the foundation of her proof of loss and the reasons are deficient in that they do not indicate how the trial judge resolved the serious challenges to her credibility. This issue was pivotal to the assessment of both whether Sagl fulfilled her obligation to establish the amount of her loss and Chubb’s defence of intentional overstatement of the amount.

[78] I will first deal with Chubb’s argument that the trial judge erred by taking into consideration that Sagl was underinsured in concluding that she established her loss, and did not overstate its value. The trial judge observes that Sagl’s claim exceeds the amount of coverage in the following passages:

176. I have no hesitation in finding that the plaintiff’s submission is correct; at the time of the fire, the value of the contents of 2415 exceeded the binder coverage of $600,000. Chubb’s position that the plaintiff’s contents claim is fraudulent is just plain wrong.

177. The plaintiff’s claim for lost jewellery is $923,450 plus PST and GST, which exceeds the binder coverage of $1,000,000.

178. I previously referred to the average price of $2,070 for the 22 paintings purchased by the plaintiff from the World of Antiques. Even using that average price, the value of the plaintiff’s fine art would exceed $4 million.

179. I find that the plaintiff's fine art loss as a result of the fire exceeded the insurance coverage of $2 million. That amount will be part of the judgment.

180. Chubb even went further in its breach of duty of good faith in alleging that the plaintiff has committed fraud in her proof of loss for contents and fine art. I have already found that the plaintiff was likely underinsured for contents.

[79] Counsel for Chubb argues that these references should be interpreted as reflecting the trial judge’s view that some degree of overstatement, even if fraudulent, would not serve to vitiate the policy, as long as the actual loss exceeded the coverage. In other words, only if the trial judge were to find that Sagl intentionally overstated her claim and that Chubb’s actual exposure fell below the policy limits, would such overstatement be of concern.

[80] Assuming Chubb’s interpretation of the trial judge’s reasoning is correct, it is clear that fraud in connection with any part of the claim will void the entire policy, and the fact that the insured may be underinsured has no relevance: Swan Hills Emporium & Lumber Co. Ltd. v. Royal General Insurance Co. of Canada (1977), 1977 ALTASCAD 13, 2 Alta. L.R. (2d) 1 (Alta. C.A.), at pp. 12-13; Maple Leaf Milling Co. v. Colonial Assurance Co. (1917), 1917 468 (MB CA), 36 D.L.R. 202 (Man. C.A.), at p. 203.

[81] However, even if the trial judge’s reasoning in this respect was flawed, he separately considered whether Chubb had established that Sagl intentionally overvalued the amount of her loss. The trial judge rejected Chubb’s position on this issue at paras. 212-213:

212. There is no evidence in the Sagl case that the plaintiff has intentionally put forward false evidence.

213. The plaintiff, to the best of her knowledge and memory, prepared a list of her fine art lost or damaged in the fire. The plaintiff retained Elliott to prepare a replacement cost estimate for the lost items. Elliott utilized a certain methodology to come to his values which he does not warrant as being true or accurate. Chubb presented no expert report to refute Elliott's methodology or conclusions.

[82] These two paragraphs form the basis of the second part of Chubb’s argument that the trial judge erred in his analysis of Sagl’s proof of loss, as implicit in them is the trial judge’s conclusion that Sagl’s evidence in support of her proof of loss was both credible and reliable.

[83] Chubb submits that the trial judge erred by not dealing with the challenges to Sagl’s credibility. An understanding of the significance of this issue depends on the answers to three questions. Was Sagl’s credibility relevant to the trial judge’s consideration of her proof of loss? If this question is answered in the affirmative, did the trial judge explicitly or implicitly adequately address the challenges to her credibility? If this second question is answered in the negative, what are the consequences for the purposes of this appeal?

[84] As to the first point, there can be no doubt that Sagl’s credibility was intertwined with every major aspect of the decision; the proof of loss was no exception. It follows that in order to consider Sagl’s obligation to prove her loss and Chubb’s argument that she intentionally misrepresented the amount of the loss in relation to the value of the contents of the home and her fine art collection, the trial judge had to address the challenges to her credibility. And those challenges were significant. For example:

i. Sagl admitted under oath to the trial judge that she had lied under oath in an earlier proceeding when she had a motive to do so. She admitted to having given false testimony in her matrimonial trial concerning the value of her property. That is, it was in her interest to devalue her property in order to obtain a larger equalization payment from Rudy Sagl, and she perjured herself in pursuit of that goal.

ii. Although Sagl maintained that she owned highly valuable pieces and that collecting art had been a passionate interest of hers for many years, she was only able to testify in generalities about her art collection. In her testimony at trial, she failed to demonstrate knowledge of the components of her collection, their provenance or their worth. She claimed she had received several “Old Masters” from her grandfather, but could not identify a single one of them in Elliott’s report. [^3]

iii. Sagl put forward Darragh Elliott, her expert on the value of her fine art claim, not only to Chubb, but also to the court. In both his report and his testimony, Elliott emphasized that he merely appraised, but did not authenticate, Sagl’s artwork. He conducted all of his appraisals on the assumption that each piece of art was authentic, or in other words, on the assumption that it was precisely what Sagl claimed it was. At trial, there were serious issues regarding Elliott’s credentials, expertise, methodology and objectivity.[^4]

iv. Some of the art work destroyed in the fire included hundreds of paintings by Ruth von Bismark, which were the subject of a previous lawsuit between von Bismark and Sagl.[^5] At the trial in that proceeding, the plaintiff, von Bismark, filed Elliott’s appraisal report from this action, and sought to rely on it as evidence of the value of her paintings. In that trial, it was in Sagl’s interests to devalue the von Bismark paintings as she was being sued for their value. Accordingly, Elliott and Sagl resiled from the values Elliott had assigned to the von Bismark paintings in Sagl’s proof of loss. They then, of course, supported them again in the trial of this action. This discrepancy gave rise to further concerns about the credibility of both Elliott and Sagl.

[85] The last two items of particular concern in terms of the credibility of Sagl’s evidence upon which she relied to establish her loss pertains to her preparedness to ask Chubb and the court to rely on Elliott’s valuation of her fine art claim. The duties and responsibilities of experts are set out in National Justice Compania Naviera SA v. Prudential Assurance Co Ltd. (The "Ikarian Reefer"), [1993] 2 Lloyd's Rep 68 (Q.B.), at pp. 81-82, and were substantially endorsed by the Court of Appeal at [1995] 1 Lloyd's Rep 455, at p. 496. The first two duties listed, which are the most relevant in this context, are as follows:

1. Expert evidence presented to the court should be, and should be seen to be, the independent product of the expert uninfluenced as to form or content by the exigencies of litigation…; [and,]

2. An expert witness should provide independent assistance to the court by way of objective, unbiased opinion in relation to matters within his expertise…. An expert in the High Court should never assume the role of an advocate.

[86] As previously mentioned, Elliott’s expert report was essential and formed approximately two hundred pages of Sagl’s approximately four hundred page proof of loss. Sagl solemnly declared under oath that the proof of loss was true and presented it to Chubb in support of her position that her total loss for the artwork was in excess of $9,000,000. However, the trial judge failed to explain why he accepted the values Sagl, through Elliott, attributed to the art work, despite the problems with their evidence.

[87] It cannot be said that these challenges to the evidence relied upon by Sagl related only to trivial details. First, Sagl’s proof of loss depended on the overall credibility and reliability of the list of items she provided to Elliott. Second, there were legitimate concerns about Sagl’s willingness to put forward Elliott as a credible, reliable and objective expert to support the values she submitted to Chubb and then to assist the court in its difficult task of assessing whether she had proved the amount of her loss and, separately, whether Chubb had made out a case of intentional overstatement.

[88] Against this background, it was incumbent upon the trial judge to explain, even in succinct terms, how he resolved the challenges to the credibility and reliability of the evidence upon which Sagl relied in support of the amount of her loss, particularly in the light of his own concern expressed at para. 195, where he states: “I have some difficulty comprehending how the plaintiff could remember 2,580 items, especially those that were not on display at 2415 but were in storage areas.”

[89] I now turn to the next question, namely, whether the trial judge in fact considered these challenges.

[90] I start with the observation that the trial judge did not explicitly analyze Sagl’s credibility, or the reliability of her evidence. In fact, the word “credibility” cannot be found anywhere in the 261 paragraphs of the reasons for judgment.

[91] But that is not the end of the inquiry. Case law makes it clear that a trial judge’s reasons should not be viewed on a stand-alone basis. What is necessary is an examination as to whether the reasons, considered in the context of the entire record, show that the trial judge has “seized the substance of the matter”: R. v. R.E.M. (2008), 2008 SCC 51, 235 C.C.C. (3d) 290 (S.C.C.), at para. 43. In my view, the analysis must continue, therefore, into whether the record demonstrates that the trial judge implicitly and adequately dealt with the challenges to Sagl’s evidence.

[92] Considering Sagl’s evidence alone, I have been unable to find anything in the record that indicates that the trial judge explicitly or implicitly considered the challenges to Sagl’s credibility and found her to have been credible in setting out her claim for losses associated with the contents of the property and with her jewelry. There are, however, two sentences in the portion of the reasons dealing with her claim for loss to her fine art collections that may suggest that the trial judge accepted Sagl as a credible witness. I refer to para. 212, where the trial judge states: “There is no evidence in the Sagl case that the plaintiff has intentionally put forward false evidence.” Similarly, at para. 213 he states: “The plaintiff, to the best of her knowledge and memory, prepared a list of her fine art lost or damaged in the fire.”

[93] These sentences may go no further than saying that Sagl acted in good faith in putting together the inventory of fine art. However, they may go further and indicate that the trial judge believed the accuracy and reliability of the list. Either way, there is a problem.

[94] It is not apparent why the trial judge considered Sagl’s evidence, including her reliance on Elliott, worthy of belief. Whether the trial judge was obliged to explain this depends upon whether, without addressing this issue, his reasons were adequate.

[95] The Supreme Court of Canada explained the meaning of adequacy of reasons in the criminal context in R. v. Sheppard, 2002 SCC 26, [2002] 1 S.C.R. 869. Recently, that court affirmed the framework for assessing whether the trial judge’s reasons are so inadequate that they warrant appellate intervention in R.E.M. and in R. v. H.S.B (2008), 2008 SCC 52, 235 C.C.C. (3d) 312 (S.C.C.), and in the civil context, in F.H. v. McDougall (2008), 2008 SCC 53, 297 D.L.R (4th) 193 (S.C.C.).[^6] The adequacy of a trial judge’s reasons must be judged according to whether they achieve their intended purposes. As explained in F.H. v. McDougall, at para. 98, a trial judge’s reasons serve the following main functions:

(i) to justify and explain the result;

(ii) to tell the losing party why he or she lost;

(iii) to provide for informed consideration of the grounds of appeal; and

(iv) to satisfy the public that justice has been done.

[96] Reasons also help to ensure fair and accurate decision making by focusing the judge’s attention on the key issues and helping to ensure that important points of law or fact are not overlooked: see R.E.M. at para. 12.

[97] As the Supreme Court of Canada stated in H.S.B, at para. 8: “The task for the appellate court is simply to ensure that, read in the context of the entire record, the trial judge’s reasons demonstrate that he or she was alive to and resolved the central issues before the court.” An appellate court “is not given the power to intervene simply because it thinks the trial court did a poor job of expressing itself”: see F.H. v. McDougall at para. 99, quoting Sheppard at para. 26.

[98] As I have said, Sagl’s proof of loss was grounded on the reliability and credibility of her evidence. R. v. Dinardo (2008), 2008 SCC 24, 231 C.C.C. (3d) 177 (S.C.C.), at para. 26, established that,

[w]here a case turns largely on determinations of credibility, the sufficiency of the reasons should be considered in light of the deference afforded to trial judges on credibility findings. Rarely will the deficiencies in the trial judge’s credibility analysis, as expressed in the reasons for judgment, merit intervention on appeal. Nevertheless, a failure to sufficiently articulate how credibility concerns were resolved may constitute reversible error.

See R. v. Braich, 2002 SCC 27, [2002] 1 S.C.R. 903, at para. 23. See also Canadian Broadcasting Corp. Pension Plan (Trustee of) v. BF Realty Holdings Ltd. (2002), 2002 44954 (ON CA), 214 D.L.R. (4th) 121 (Ont. C.A.), at para. 64; Waxman et al. v. Waxman et al. (2004), 2004 39040 (ON CA), 186 O.A.C. 201 (Ont. C.A.), at para. 307.

[99] In my view, the trial judge fell into error by failing to explain how he reconciled the obvious problems associated with Sagl’s credibility and reliability, especially given the challenges to the authenticity, contents and values of the inventory she provided to Elliott and with her willingness to ask the trial judge to accept Elliott and his report as supporting her claim that the value of her art collection lost in the fire was in excess of $9,000,000. As noted in Sheppard, at para. 46, where “the path taken by the trial judge through confused or conflicting evidence is not at all apparent,…the appeal court may in some cases consider itself unable to give effect to the statutory right of appeal”.

[100] This is the situation here; the unarticulated basis of the trial judge’s conclusions, if any, concerning Sagl’s reliability, credibility, and her willingness to put forward a proof of loss that depended on Elliott, is certainly not apparent from the record. Therefore, the basis of the trial judge’s acceptance of her evidence supporting the amount of her loss cannot be ascertained. In short, the trial judge’s reasons fail to satisfy the second purpose articulated in F.H. v. McDougall; that is, they fail to explain why the trial judge accepted Sagl’s evidence as to her loss in the light of the myriad problems with her credibility and reliability. This amounts to reversible error, and in my view, taken alone is a sufficient reason to order a new trial.

[101] Another aspect of the trial judge’s analysis of Chubb’s fraudulent proof of claim defence requires comment. The trial judge appears to have analyzed Chubb’s defence in respect to the proof of loss on the basis that it was required to call expert evidence that Sagl overvalued her loss:

206. My problem is, that Chubb, for whatever reason, chose not to have Sweeting review Elliott’s report and prepare a rebuttal report. I have no basis upon which to find that Elliott’s methodology is either flawed or fraudulent. Elliott’s report may be flawed but that does not make his estimate of the value of the fine art fraudulent. [Emphasis added.]

[102] The trial judge erred in curtailing his analysis of Sagl’s proof of loss for the reason that Chubb did not call expert evidence to refute Elliott’s valuation of Sagl’s fine art collection, and in concluding that therefore he had “no basis” upon which to find that Elliott’s valuation was flawed. I say this for three reasons.

[103] The most significant is that the conclusion demonstrates that the trial judge’s reasoning missed an essential step in the analysis of Sagl’s evidence in relation to her loss. Before turning to whether Chubb had proved that Elliott’s valuation was flawed, the trial judge first had to satisfy himself that Sagl had proved, on balance, that her evidence in support of her loss was credible and reliable. In ignoring this step the trial judge effectively relieved Sagl of her burden to establish the existence and the amount of her loss, as discussed above at para. 75.

[104] Second, there is no legal requirement to call expert evidence. If a trier of fact is able to form a conclusion without help, then an expert opinion is unnecessary: R. v. Mohan, 1994 80 (SCC), [1994] 2 S.C.R. 9, at p. 24; R. v. Parrott, 2001 SCC 3, [2001] 1 S.C.R. 178, at para. 53.

[105] The trial judge was required to critically examine the evidence in support of Sagl’s loss in relation to her art, even without the assistance of an expert. And he had much to examine. There was the improbability of Sagl’s own evidence about her art, aptly illustrated by her claim to have been able to remember 2,580 paintings in her home, most of which were stored away in closets, and by her claim to have had a US$600,000 Rodin sculpture, for which she paid an experienced art dealer $6,500, hidden in her basement, that no one had ever seen and that she had not previously disclosed to anyone. Then there was the fact that Elliott’s independence was plagued by serious and obvious issues, as previously mentioned.

[106] Third, placing this much importance on expert evidence promotes a “contest of experts”, which the Supreme Court of Canada discouraged in R. v. Mohan at p. 24. More recently, the Honourable Coulter A. Osborne expressed similar concerns with the “merry-go-round” created by the “battle of competing experts” at p. 71 of his report, Civil Justice Reform Project: Summary of Findings and Recommendations (November 2007).

[107] I feel obliged to comment on one further aspect of the trial judge’s analysis of this aspect of Chubb’s defence, namely, his treatment of Chubb’s argument that Sagl inflated the value of her art work and contents. In order to vitiate a policy for fraud, the insured must have made a wilfully false statement in relation to something material to the proof of either the existence or extent of the loss, which would include intentionally inflated values.

[108] The trial judge commented as follows, at paras. 204-205, when considering Chubb’s defence that Sagl had overstated the value of her art collection:

204. I am not sure what a “material fact” would be in relation to the fine art claim. I suggest if the plaintiff represented that a particular painting was done by a famous artist but was actually done by an amateur, that would be an intentional misrepresentation.

205. Here, Chubb’s main concern appears to be allegations of inflated values. But, the value given to a particular item of fine art depends on the methodology used and the value determined is a matter of opinion.

[109] Earlier, at para. 192, the trial judge expressed the difficulty he had in determining whether Sagl had inflated the value of her art collection:

192. Even with existing pieces of fine art, who knows their true value? For example, there are individual paintings which have sold for millions of dollars. But, are those paintings worth the price? The price is in the mind and eyes of the beholder!

[110] The trial judge appears to be of the view that the value of art cannot be inflated as it is in the eye of the beholder. This is incorrect. With appropriate evidence, it clearly is possible to assign a fair market value to art. It was incumbent on the trial judge to consider and fairly assess all of the evidence in relation to the valuation of the art collections in order to decide whether Sagl established the amount of her loss.

[111] It follows that, in my view, there were a number of problems associated with the trial judge’s analysis of Sagl’s claim for loss resulting from the fire. However, the fundamental reason why I would allow the appeal and order a new trial on that issue is that the trial judge did not articulate how he resolved credibility concerns, specifically how he found Sagl’s evidence in support of the loss to her fine art collections worthy of belief, in order for him to determine whether Sagl had proved her claim. This constitutes reversible error.

(4) Relief from Forfeiture

[112] At para. 247 of his reasons, the trial judge held that “[i]f there had been ‘…imperfect compliance…as to the proof of loss…given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss…’”, he would order relief against forfeiture pursuant to s. 129 of the Insurance Act.

[113] I have difficulty with the trial judge’s treatment of this issue, for two reasons.

[114] First, the trial judge erred in relying on Chung v. British Columbia Insurance Co. (1996), 1996 372 (BC SC), 36 C.C.L.I. (2d) 158 (B.C. Sup. Ct.), in respect of this issue, as it is not on point. That case dealt with the duties owed by an insured’s agent to the insured. It addressed neither British Columbia’s equivalent of s. 129, nor the factors to be considered when determining whether to grant relief from forfeiture.

[115] Second, based on the evidence adduced at trial, relief from forfeiture was not in issue. The divide between the parties in respect of the proof of loss had nothing to do with whether Sagl’s claim suffered from “imperfect compliance”. Rather it was whether Sagl had proved her loss and whether that loss was intentionally overstated.

(5) Punitive Damages

[116] In view of the fact that I would order a new trial, it is neither necessary nor appropriate to deal with Chubb’s arguments concerning punitive damages. Accordingly, I express no view on this issue.

VII. DISPOSITION

[117] For these reasons, I would allow the appeal, set aside the judgment below and order a new trial restricted solely to the issue of Sagl’s proof of loss, specifically whether she is able to prove her loss in relation to her fine arts collection, and whether the policy is void due to intentional misrepresentation in the proof of loss. If appropriate, the new trial would include a consideration of the application of s. 129 of the Insurance Act.

[118] Chubb shall make written submissions on the costs of the trial and of the appeal within twenty days of the release of these reasons. Sagl shall deliver responding submissions within ten days thereafter.

RELEASED:

“MAY -8 2009” “G.J. Epstein J.A.”

“SEL” “I agree, S.E. Lang J.A.”

“I agree, R. G. Juriansz J.A.”

[^1]: The record does not disclose the date on which Sagl purchased the figure for $6,500. [^2]: Although Gregory v. Jolley concerned disability insurance, I do not think that this court’s comments should be, or were intended to be, restricted to the disability context. [^3]: The trial judge did acknowledge Chubb’s argument in this respect, at para. 201. [^4]: I note that counsel for Chubb argued at trial, after vigorous cross-examination, that Elliott should not be qualified as an expert in the field of art appraisal and valuation. The trial judge, however, allowed Elliott to give opinion evidence. [^5]: von Bismark v. Sagl, [2000] O.J. No. 2757; this decision was substantially upheld by this court at (2002), 2002 41605 (ON CA), 158 O.A.C. 326. [^6]: While this discussion of the adequacy of reasons cites a number of criminal cases, in F.H. v. McDougall, a civil case, the Supreme Court of Canada quotes freely from criminal cases, including Sheppard, Walker, and R.E.M.