The Supreme Court of Canada recently declined to hear the appeal of an insured who was denied an insurance indemnity because of his refusal to be examined by his insurer on the circumstances surrounding the loss. This case is a victory for insurers as it provides them with a strong argument that they can use to encourage their insureds to cooperate with the post-loss investigation.

The facts of this case are as follows. A business that operated a garage and its sole shareholder claimed an insurance indemnity from Intact following the theft of their vehicle. The insurer denied coverage because the shareholder did not establish his insurable interest in the vehicle and refused to provide the insurer with a statement regarding the circumstances of the theft.

It should be noted that approximately one year after the insured acquired the vehicle from an individual, it was seized by the police while he was driving, as it had been declared stolen. A few months later, the insured recovered the vehicle after seeking assistance from the Court, but it was then stolen while parked outside the garage. Intact retained an adjuster to examine the insured on the circumstances surrounding the theft. On several occasions, the insured failed to attend interviews and refused to answer the questions of the insurer’s representatives, including its attorneys. Consequently, Intact denied coverage.

Considering that the mere refusal to participate in an examination was not sufficient to justify denying coverage in the absence of [TRANSLATION] “other factors that are unfavourable to the insured’s position” and that there were other methods of obtaining the information sought, such as obtaining the insured’s permission to access information in the hands of third parties, the Court of Quebec1 ordered Intact to pay the indemnity.

Intact successfully appealed this judgment. In its judgment, the Court of Appeal 2 clearly established that the choice of investigation methods belongs to the insurer, as is evident from the following passage:  


 [17]        It is not up to the insured to decide whether his or her statement is necessary, nor to decide the manner in which the insurer should conduct its investigation.

Moreover, the Court stated that the insured has the obligation to cooperate closely with the insurer in adjusting the loss pursuant to article 2471 C.C.Q. This means that it is not sufficient to consent to the gathering of necessary information from third parties; the insured must also personally answer the insurer’s questions on all the circumstances surrounding the loss, including those surrounding the acquisition of the insured property. The Court of Appeal indicated that an insured who fails in this obligation will be denied coverage if:

  1. he or she was in bad faith; and
  2. the insurer suffered prejudice as a result.

In this case, the insured’s systematic refusal to participate in a statutory examination constituted bad faith, and the insurer suffered prejudice in that it was unable to determine whether the insured had an actual insurable interest in the vehicle. The insured’s statement on the circumstances surrounding the purchase of the vehicle was essential to determining whether such interest was present. In dismissing this motion for leave to appeal, the Supreme Court has put an end to this debate

In our view, it is in the insured’s best interest to answer the insurer’s questions at the earliest opportunity to avoid being denied coverage. Failure to cooperate in a diligent manner may lead a court to confirm such a drastic penalty as in the case discussed above.