Material Misrepresentation in Insurance

car in parking lot

Has your insurance company denied your claim because of a material misrepresentation? Today, civil litigator Dana G. Quantz is reviewing a recent case addressing these issues and explain how you can address issues with insurers denying claims for alleged misrepresentations.

The case today is called Media West Zny Inc v Insurance Corporation of British Columbia, 2024 BCSC 625. In this case the court was being asked to assess a denial of insurance coverage for stolen vehicles. The insurer was convinced that the insured was part of a scam on the insurance and participated in the theft of the vehicles. The court agreed that the insured was not a savoury person but was not convinced it participated in the theft. So, the court looked at one of the common defences used by insurers to refuse to pay out a claim, material misrepresentation.

In effect, a material misrepresentation is an insured making a false statement about some fact or facts that is important to the insurer in their investigation of the claim. If the insurer finds out about that false statement, then they can deny the claim. However, there are strict requirements for proof.

As Justice Branch explained in our decision:

[57] Given that the Court has concluded that the plaintiff has satisfied its initial burden on coverage, we must go on to consider whether ICBC has met its burden to show that there were misrepresentations that should nonetheless invalidate the claim. I conclude that ICBC has done so.

[58] ICBC relies on s. 75 (a)(ii) and (c) of the Act which provide as follows:
All claims by or in respect of the applicant or insured are invalid and the right of an applicant, an insured, or a person claiming through or on behalf of an applicant or insured or of a person claiming as a dependant of the applicant or the insured, to insurance money under the plan or an optional insurance contract, is forfeited if

(a) the applicant for coverage under the plan or the optional insurance contract

(ii) knowingly misrepresents or fails to disclose in the application a fact required to be stated in it,
(b) … or
(c) the insured makes a willfully false statement with respect to the claim.

[59] In Petersen v. Bannon (1993), 84 B.C.L.R. (2d) 350, 1993 CanLII 4719 (C.A.), the Court of Appeal discussed the meaning of a willfully false statement. Justice Finch, as he then was, stated:

[46] A willful act is one done intentionally, knowingly and purposely, without justifiable excuse. A willful act is to be distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently. A willful act differs essentially from one done negligently: see Gill v. Insurance Corp. of British Columbia, [1989] I.L.R. 1-2529 (B.C.S.C.).

[47] The onus is on the insurer to prove on a balance of probabilities that the statements in question were willfully false. Because the allegations are serious, the judge is justified in scrutinizing the evidence carefully, and cogent evidence will be required to support an allegation of dishonesty.

[60] In Petersen, Finch J.A. (as he then was) also held that “a willfully false statement will invalidate an insured’s claim only if the statement is material to the claim at risk of forfeiture”: para. 59. In Inland Kenworth Ltd. v. Commonwealth Insurance Co. (1990), 48 B.C.L.R. (2d) 305, 1990 CanLII 548 (C.A.) [Inland]. Chief Justice McEachern stated at p. 8: “the classic test of materiality in insurance law is whether a statement is capable of affecting the mind of the insurer.” He continued:

A contract of insurance is one of utmost good faith and one cannot commit frauds or make willfully false statements about the subject matter of the claim for any purpose without risking the loss of the right to indemnity if it turns out to be material on any issue.

[61] In Boyle, the Court summarized the general principles on misrepresentation as follows:

[73] An allegation that an insured has made a willfully false statement is founded in fraud, and the court will not find fraud where the person making the false statement has an honest belief in its truth: Skuratow v. Commonwealth Insurance Co., 2005 BCCA 515, at para. 16.
[75] Mere speculation of fraud will not suffice, and there are cases where even very strong speculation and circumstantial evidence have not been sufficient to establish fraud: Lexis Holdings Int’l Ltd. v. I.C.B.C., 2009 BCSC 344, at paras. 27 and 28.

[62] In Boyle, the plaintiff conceded that several statements about her keys were factually incorrect, but argued that these statements were not willfully false or were immaterial. The Court concluded in Ms. Boyle’s favour:

[80] I am not persuaded that Ms. Boyle’s incorrect statements about her car keys were made willfully, that is intentionally, knowingly and purposely. I accept her evidence that her errors and were the result of confusion or mere imprecision on her part. Her errors were therefore inadvertent and not deliberate. On this point I rely on the evidence generally as well as on my earlier comments concerning Ms. Boyle’s credibility. As to the defence comments about lack of care or diligence, Ms. Boyle’s errors were the result of negligence at most, which does not suffice as proof of willfulness, as Peterson confirms (“a willful act differs essentially from one done negligently”, at para. 46).

[63] The question of whether there has been a knowing misrepresentation is to be determined based on the circumstances that existed at the time the policy of insurance was issued: Booth v. I.C.B.C., 2009 BCSC 1346 at para. 9.

[64] ICBC does not have to prove that the plaintiff was aware of the consequences of a misrepresentation concerning the insurance. As noted, a contract of insurance is one of utmost good faith. One cannot commit fraud or make willfully false statements about the subject matter of the claim without risking the loss of the right to indemnity: Lau v. Insurance Corporation of British Columbia, 2012 BCSC 1226 at para. 7; Inland at p. 9.

In essence, there are a number of items that an insurer needs to prove to succeed in this defense. First, an insurer needs to prove that the statements were in fact false. This requires proving that the alleged circumstances were not the case. Second, an insurer needs to prove that statements were willfully false. This means that a person cannot have their insurance denied if they were merely negligent or careless about whether the statement was true. Lastly, the insurer needs to prove that these statements were important for the investigation. The insurer should not be denying insurance coverage for statements that are not material (i.e., very relevant) to the claim.

These types of denials can happen in property insurance, travel insurance, life insurance, and disability or sickness insurance and often the reasons are less than what is legally required. Insurance companies will often look for reasons to deny the claim and they can often act without enough basis to deny. This means that insurance denials can often be successfully challenged.

The lawyers at Hutchison Oss-Cech Marlatt have over 50 years combined experience challenging flawed decisions of insurance companies on behalf of people needing benefits. We can help you find a way to get coverage. Contact us is a free consultation.