Introduction:
In Truong v Jeweler’s Mutual Insurance Company[1], the Court of Appeal for Ontario (ONCA) upheld a trial judge’s decision, finding no reversible error in the judge’s decision that the insurer’s conduct amounted to bad faith and warranted an award of punitive damages.
Background:
Dang Truong and Than Nguyen (the “Insureds”) owned six pieces of jewellery, with an appraised value of $502,100. Prior to travelling to Vietnam and anticipating increased risk of theft while travelling, the Insureds submitted an online application to Jeweler’s Mutual Insurance Company (“Jeweler’s Mutual”) to purchase insurance. Jeweler’s Mutual issued an insurance policy (the “Policy”) which provided coverage for the appraised value of the jewellery, for various risks, including theft.
In March 2015, while travelling in Vietnam, the Insureds were robbed of their jewellery. After returning to Canada, they submitted a proof of loss describing the theft and claiming the amount of $502,100. Jeweler’s Mutual investigated the claim and ultimately denied coverage, on the basis that the Insureds had not proven that they owned the jewellery at the time they purchased the Policy. The Insureds commenced an action seeking coverage.
Lower Court Decision:
In defending the action, Jeweler’s Mutual did not allege that the Insureds made any misrepresentations when they obtained the Policy.[2] Instead, Jeweler’s Mutual argued that the evidence did not prove that the Insureds owned the jewellery prior to obtaining the Policy, and that this was sufficient grounds to deny coverage.[3] The trial judge rejected this argument, finding that the only basis for Jeweler’s Mutual to issue the Policy was because at that time, it accepted that the Insureds owned the jewellery. The judge found that when submitting their claim, the Insureds did not have to again prove that they owned the jewellery at the time they obtained the Policy.[4] Moreover, the judge held that although proof of pre-Policy ownership was unnecessary, the Insureds had proved such ownership, through photographic and testimonial evidence.[5]
The trial judge found in favour of the Insureds, awaiting $502,100 as compensatory damages and $45,000 in punitive damages. He found that by issuing the Policy on the basis that the Insureds owned the jewellery, but then again requiring the Insureds to prove ownership at the time a claim was made, Jeweler’s Mutual imposed requirements on an insured that would not have been reasonably expected. The judge characterized this conduct as “nefarious”, “deceptive”, and “entirely misleading”, amounting to bad faith and therefore, warranted an award of punitive damages.[6]
Appeal Decision:
Jeweler’s Mutual appealed the punitive damages award, arguing that its conduct was justified, since insureds must always establish that they have an insurable interest in the insured property (e.g., ownership) at the time of the claim, in order to make a claim. On appeal, Jeweler’s Mutual pointed out that insurable interests can change after a policy is issued, arguing that this entitled it to investigate the issue of ownership when the Insureds made their claim.
The ONCA found that although an insured must have an insurable interest at the time of loss, Jeweler’s Mutual’s investigation had only focused on ownership of the jewellery at the time the Insureds obtained the Policy. Jeweler’s Mutual’s actual investigation did not inquire into whether the Insureds’ insurable interest in the jewellery had changed between the time the Policy was issued and the time of the theft.[7] The ONCA held that the trial judge did not err in finding that Jeweler’s Mutual conduct was premised on an unjustifiable interpretation of the Policy. The ONCA further stated that:
“I agree with the [Insureds] that Jeweler’s Mutual, while not directly alleging misrepresentation, implicitly suggested that the [Insureds] had sought to insure and claim for jewellery they never owned, an assertion which is suggestive of fraud.”[8]
In these circumstances, the ONCA held that the trial judge’s finding of bad faith was entitled to deference.[9]
Finally, Jeweler’s Mutual also appealed the amount of compensatory damages awarded to the Insureds. However, the ONCA was not satisfied that any errors by the trial judge in calculating such damages affected the outcome. It thus rejected this ground of appeal.[10]
Conclusion:
This decision provides a good example of a case where an insurer breached the duty of good faith owed to every insured. As the court observed, an insured does not prove bad faith simply by succeeding on a claim that the insurer denied. However, as this case emphasizes, an insurer’s coverage investigation must be reasonable, grounded in what the policy actually requires, and any lines of inquiry should have an air of reality to them.[11] Overall, an award of punitive damages is context-specific and thus generally attracts appellate deference. Where policyholders are uncertain about these issues, experienced coverage counsel can provide insight and clarity.
Footnotes
[1] 2024 ONCA 734
[2] Ibid at para 22.
[3] Ibid.
[4] Ibid at para 26.
[5] Ibid at para 28.
[6] Ibid at para 31.
[7] Ibid at para 38.
[8] Ibid at para 43.
[9] Ibid at para 44.
[10] Ibid at para 56.
[11] Ibid at para 39.
David Yun is an associate at Theall Group LLP and is developing a broad commercial litigation and insurance coverage practice. Prior to joining Theall Group LLP, David completed a summer term at a national Canadian charity in addition to completing a summer and articling term at a mid-sized full-service firm in downtown Toronto.
For more information, visit https://theallgroup.com/
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