Published in Without Prejudice
(Official Journal of the Ontario Insurance Adjusters Association),
Rafik Assaad, the reluctant and unwitting purchaser of a stolen 1996 Chrysler, might have thought twice before buying it. The van, worth $30,000, was offered to him for $16,000 in cash and the discharge of a dodgy personal loan. If that were not enough to raise his suspicions, the used car dealer was "leaving the country." A few months later, the car was stolen from Mr. Assaad. When he made a claim to his insurance company, the ensuing investigation revealed that the car was likely stolen in Québec, fitted with a false Vehicle Identification Number (a practice known as "re-vinning"), and shipped to the dealer for sale to Mr. Assaad.
In the ensuing litigation, Assaad v. Economical Insurance Group, the smart money would have backed the defendant insurer, who denied the claim on the basis of traditional insurance law. The absence of legal title in stolen goods has long been fatal to any claim to insurable interest. Without an insurable interest, there can be no recovery for loss on a policy of insurance.
In a judgment released May 10, 1999, unreported, Court File No. 97-CU-120206, Mr. Justice Colin Campbell of the Ontario Superior Court of Justice held that Mr. Assaad that his "dominion and control over the vehicle at the time it was stolen from him" and "expectation of a benefit in purchasing insurance on it that was accepted by the defendant" were sufficient to establish an insurable interest. In valuing the loss, the judge found that "It might well have turned out that he could have kept the vehicle for a number of years without there being any claim on behalf of a rightful owner." The decision is under appeal.
The judgment is not without precedent in other jurisdictions. In 1992, the Quebec Court of Appeal came to a similar decision, and referred to a body of emerging case law in the United States. In order to justify the departure from the prior Ontario precedents, however, Mr. Justice Campbell relied on a 1987 Supreme Court of Canada decision in Constitution Insurance Co. of Canada v. Kosmopoulos (1987), 34 D.L.R. (4th) 208. There, it was held that a sole shareholder could have an insurable interest in the assets of a corporation, even though traditional companies law dictated that ownership of shares does not confer ownership of the company's assets. The "factual expectancy" that the shareholder was protecting an interest in the company's assets was found to be sufficient basis for an insurable interest. It remains hard to see how the principle could be extended to stolen goods, however.
The legal principle on which Mr. Justice Campbell and the courts in other jurisdictions rely comes from an arcane corner of the law of property, which vests the possessor of stolen goods with a right to enjoy the property as against all others except the rightful owner. The problem is that the innocence of the purchaser evaporates, in practical terms, simultaneously with the discovery during the investigation of the insurance claim that the property was stolen when it was purchased by the insured. According to subsection 354 (1)of the Criminal Code, it is an offence to possess stolen property knowing that it is stolen, or the proceeds of stolen property. There need not be a claim by the rightful owner for the right of possession to be extinguished. The point was well illustrated in the case of Chadwick v. Gilbraltar General Insurance Co. (1981), 34 O.R.(2d) 488. There, the plaintiff made an insurance claim when her Toyota was confiscated by the Metro Toronto Police as stolen goods. The Court held that, whatever insurable interest she may have had in the car, it ceased to exist when its true ownership was discovered. If she did not surrender it to the police she would be committing an offence. Seizure by the police, it was also held, did not come within the "all perils" provision of the auto policy.
There is no rational difference between Mr. Assaad's case and Ms. Chadwick's. Mr. Assaad lived in ignorance of the truth until briefly after the insurance claim. The truth was brought to Ms. Chadwick's attention with the car still in her driveway. What if Mr. Assaad's claim were for property damage as opposed to theft, and the truth discovered then? (Although in practice it would be unusual for an insurer's special investigations unit to get involved in such a case.) Would he be entitled to recover the cost of repairing a vehicle he would have been called upon to surrender to the police?
In the modern law of insurance, one can see the valid insurable interest of a shareholder in the assets if a company, even though the relationship with the assets is not one of conventional ownership. The legitimacy of the interest in stolen property is another story. If we extend the logic to its natural conclusion, would the rightful owner of the car, unable to locate the Chrysler but finding out about Mr. Assaad's successful judgment, be entitled to call upon Mr. Assaad to disgorge the insurance proceeds? There is indeed a blurry line between such insurance proceeds and the proceeds of stolen property. Further, the law now seems to remove the deterrence against negligent participation in the traffic of stolen goods. Because Mr. Assaad's possession of car is on such a perilous basis and because the rightful owner is not an insured under the policy, logic takes us to the natural conclusion that there can be no insurable interest.
The decision in Assaad has already been followed in another trial judgment. Until such time as the Court of Appeal overturns the decision, it is the law of Ontario. The case will affect the practice of any adjusters, examiners and special investigators facing suspicious auto theft claims. One can no longer rest solely on the absence of legal title to deny the claim. While each case must be assessed on its own merits, one should consider extending the inquiry as follows:
- Purchasers of stolen goods—cars being no exception—are frequently quick to accept a price which the reasonably skeptical consumer should question as being "too good to be true." Sometimes, the lack of observance of the maxim caveat emptor beggars belief. It can also conceal a willingness to take the minor risk of a stolen car being found by the authorities in exchange for an unusual reduction in price. This is a good starting point in assembling the evidence required to consider the insured's claim.
- Investigation of the claim should not stop at taking statements from the insured. Continuing the inquiry to the dealer may lead to evidence that the purchaser knew what he or she was getting. Consider the possibility, down the road, of the dealer being subpoenaed as a defence witness at trial, and thus the need to track the dealer down. It is a much easier task at the time of the original investigation than during the trial preparations after the case is taken to litigation.
- Under statutory condition 6(4) of the standard auto policy, O. Reg. 777/93, the claimant can be subject to an examination under oath as well as a summary form of documentary discovery. One might even consider seconding counsel trained and experienced in the cross-examination of witnesses for this limited purpose.
The message to insurers and their representatives is that before denying these claims, there must be a thorough assessment of the bona fides of the insured when the stolen car was purchased. Evidence is also more readily available closer to the time of the loss. Defence counsel, for their part, are now called upon to broaden the focus of the defence to include, where called upon, aggressive impeachment of the insured's good faith or innocence as purchasers of stolen vehicles.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.