The denial of an insurance claim following a fire at the home of Shelly Legault gave rise to a decade-long legal dispute, which was recently addressed by the Ontario Court of Appeal in Legault v. TD General Insurance Company.
In March of 2014, a fire rendered Legault's home uninhabitable. Her homeowner's insurance policy with TD covered dwelling replacement costs, personal property, and additional living expenses, which included temporary accommodation costs. Her coverage totalled $642,000.
After initially staying in a hotel, Legault arranged to live in a house purportedly owned by an acquaintance, Wendy Ogden. However, it turned out that Ogden was merely renting the house. Legault claimed additional living expenses under the policy to cover her rent and, based on a signed four-month tenancy agreement, TD paid $20,000 to Ogden.
TD subsequently investigated the legitimacy of the payment after Ogden, for reasons unknown, reported that Legault did not actually reside at the house, and that Legault had access to the $20,000 in Ogden's TD account. TD eventually concluded that Legault had made false statements regarding her living expenses claim. Her policy incorporated the standard statutory conditions, including the following:
Fraud
7. A fraudulent or willful false statement in a statutory declaration in relation to any of the above particulars shall vitiate the claim of the person making the declaration.
TD denied her claim. Legault then sued TD, seeking $1 million in damages. In addition to the replacement value of her house and personal property destroyed in fire, she sought compensation for additional damage that occurred to the house while TD was performing its investigation. The property was eventually sold under power of sale proceedings. The trial court dismissed her action, finding that her fraudulent statements warranted the forfeiture of her coverage. TD successfully counter-sued Legault, with the court ordering her to pay damages as well as legal costs.
Appeal
Legault appealed the trial court's decision and the cost award, raising three main issues:
1. TD's Alleged Breach of Contract:
Legault argued that TD breached the insurance contract by failing to provide a proof of loss form within 60 days, failing to maintain her standard of living, not explaining the significance of an interim proof of loss, and conducting an inadequate investigation.
The Court of Appeal dismissed these arguments, noting that Legault's fraud nullified any obligation TD had under the policy and made the breach of contract allegations irrelevant. The court found no error in the trial judge's decision.
2. Admission of Professional Witness Testimony:
Legault contended that the trial judge erred by allowing testimony from two professional witnesses paid by TD – an investigator and an independent insurance adjuster. She argued that these payments created a bias and that "the promise of money is a direct invitation to fabrication" (para 29). However, the Court of Appeal upheld the trial judge's decision, noting that the judge carefully considered the circumstances and found no issue with the witnesses being compensated for their time: "in non-criminal cases specifically, it is acceptable to receive testimony from such witnesses where it is reasonable in the circumstances" (para 31).
3. Cost Award:
Legault challenged the trial judge's cost award, arguing that the costs were excessively high due to the "novelty" of the case. In fact, the trial judge had referred to the case as "novel" as "the question of whether a willfully false statement in respect of [additional living expenses], if proven, will vitiate an insured's right to recover all benefits claimed under a homeowner's insurance policy" had not been considered in any reported case.
The Court of Appeal found no error in the trial judge's discretion regarding costs and concluded that the threshold for appealing the cost award was not met.
Conclusion
The Court of Appeal dismissed Legault's appeal and upheld the trial judge's decisions on all of the issues. TD was also awarded $15,000 in appeal costs.
The key takeaway from the case is that fraudulent actions by an insured can lead to the forfeiture of coverage. While the burden of proof to establish fraud rests with insurer, courts will generally uphold such findings if well supported by evidence. Despite being the underdog in this case, Legault found no sympathy in the Court of Appeal.
Clients should be advised never to mislead their insurer, even with respect to facts or funds that they may view as inconsequential. Though $20,000 was a modest amount relative to the scope of Ms. Legault's coverage, fraud nullified her policy, repealed any sympathy from the court and ultimately ended up costing her far more than she gained through her deceit.
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