On September 20, 2012, Justice Stevenson of the Ontario Superior Court of Justice in the decision of Wen v. Unifund Assurance Company, ordered that the insureds in this case "must take responsibility for their own actions and for their own misrepresentations" thereby denying their right to recover indemnity from Unifund Assurance Company.
On December 6, 2006, Han Wen was operating a 2002 Acura RSX when she collided with a pedestrian, Mr. Yang, who suffered injuries as a result of that accident. Yang, et al. brought an action claiming damages for personal injury arising out of the accident. Wen was the registered owner of the Acura at the time of the accident. She and her common-law spouse, Jie Shen, were the defendants in the action initiated by Yang for personal injury. Unifund was a statutory third-party, having denied coverage to both defendants in that action. State Farm Mutual Automobile Insurance Company provided insurance coverage to Yang, and State Farm was added as a defendant in the action after Unifund denied coverage to Wen and Shen. State Farm was named as a defendant in the companion action for the purpose of claiming, if necessary, uninsured/underinsured coverage in the event that one or both of Wen and Shen are found to be uninsured without a right of indemnity from Unifund.
With respect to this action, the plaintiffs, Wen and Shen, assigned their rights to State Farm pursuant to an Assignment of Rights Agreement. State Farm and Unifund both contended that the other must respond to the claims for personal injury brought by Yang, et al. in the other action. Notably, Justice Stevenson made sure to acknowledge that Yang's tort recovery would be the same regardless of which insurer must respond to the claim.
In 2005, Wen purchased the 2002 Acura. Unifund issued an Owner’s Policy to Shen with respect to a 2000 BMW 540. That policy was in effect for the period December 14, 2005 to January 1, 2007. Shen also had a policy with Unifund insuring his Toyota Previa motor vehicle which had a policy in effect for the period from June 1, 2007 to June 1, 2008. On the date of Wen's accident with Yang on December 6, 2006, Wen did not have any insurance with respect to the Acura and produced a fraudulent pink slip to the police officer attending at the scene of the accident. On December 7, 2006, the day after Wen’s accident, Shen called Johnson (Unifund’s broker) requesting the addition of the Acura to the BMW policy. A Certificate of Automobile Insurance (Ontario) was issued for the period December 1, 2006 to January 1, 2007. Johnson’s employee, Stewdell D'Acres added the Acura to the BMW policy.
Unifund alleges that Shen and Wen contravened a term of the contract and/or a committed fraud due to their failure to disclose Wen's accident of December 6, 2006, and the proper owner of the vehicle to Unifund such that their right to recover against Unifund was forfeited. They also contended that Shen failed to advise of a material change in risk and did not have an insurable interest in the Acura when he added it to his existing policy with Unifund.
Issues at Trial
- Did Shen have an insurable interest in the Acura when he added it to his insurance policy?
- Did Shen and Wen contravene a term of the contract and/or commit fraud or willfully make a false statement in respect of a claim so that their right to recover against Unifund is forfeited?
- Did Shen fail to advise Unifund of a material change in the risk?
For the purpose of this article, Justice Stevenson's reasons under issues (1) and (2) will be highlighted.
With respect to whether or not Shen had an insurable interest in the Acura at the time he added it to his policy, Justice Stevenson applied the law as set out in Kosmopoulos v. Constitution Insurance Co.2. In that case it was found that an insurable interest is "to have a moral certainty of advantage or benefit, but for those risks or dangers”, or “to be so circumstanced with respect to the subject matter of the insurance as to have benefit from its existence, prejudice from its destruction". He found that Shen did not have an insurable interest because it was clear from his testimony that he did not have any monetary interest in the vehicle nor did benefit from the Acura's existence or was prejudiced from its destruction. He noted Shen's specific words at trial: “Because she had an accident she should handle it by herself.” Justice Stevenson felt that there was no demonstration of concern by Shen nor any suggestion that he felt affected or prejudiced by the accident.
Taking into consideration the applicable statutory provisions (sections 233 and 258 of the Insurance Act), Justice Stevenson found that Shen and Wen’s right to recover indemnity from Unifund was forfeited based on their actions. State Farm, not Unifund, must therefore respond to the claims for damages brought by Yang, et al. in the action arising out of the motor vehicle accident.
He noted that there were several instances of intentional misrepresentations made by both Shen and Wen. The consequence being that their right to recover against Unifund was forfeited. In Justice Stevenson’s opinion, Wen and Shen had devised a scheme that was meant to intentionally defraud Unifund as they both knew had the accident been disclosed it would have affected Unifund’s decision to add the Acura to the existing policy.
In discussing the issue of the backdated policy, Justice Stevenson was of the opinion that D’Acres would not have done this unless Shen requested that it be backdated. Therefore, State Farm could not rely upon the argument that an insurer issuing an instrument of insurance that purports to be a motor vehicle liability policy cannot validly defend an action on the basis of any misrepresentation by the named insured or that there is no exemption that allows an insurer to avoid the absolute liability flowing from the issuance of a policy and a pink slip, even when backdated, if the claim arises during the coverage period.
Of note, Unifund had already advanced the minimum limits of $200,000.00 to Yang, acknowledging that the absolute liability provisions in the Insurance Actapplied in this case.
Insurers need to ensure that their brokers/agents are being diligent when dealing with applications for insurance and/or additions to existing policies. While, thanks to Justice Stevenson, insurers can take some comfort in the fact that undeniable misrepresentations made to an insurer when adding an additional vehicle to a policy will invoke the protection of section 233 of the Insurance Act, it is less clear that omissions by an insured would bring about the same result if they were unintentional. Had Justice Stevenson believed Shen's evidence that D'Acres did not ask about the ownership of the vehicle or whether the vehicle had been involved in an accident and he had not requested the policy to be backdated, this case may have had a completely different outcome (of note many insurers/brokers now record telephone requests for policy amendments perhaps for this reason).
For now however, the general duty of an insured to disclose material facts under a contract of insurance has been upheld and insurers can breathe a little bit easier with the knowledge that insureds will be held responsible for their actions if they are found to be intentionally attempting to deceive their insurer.
See Wen v. Unifund Assurance Company, 2012 ONSC 5274 (CanLII).