Insurance law - Homeowner's insurance - Policies and insurance contracts - Interpretation of policy - Exclusions - Fraud - Good faith

Edmison v. Wawanesa Mutual Insurance Co.

The insured sought coverage under a homeowner policy after suffering a financial loss as a result of her voluntary participation in what turned out to be a fraudulent scheme. The denial was upheld at trial on the basis of the trickery and fraud exclusion.

[2016] S.J. No. 527

2016 SKPC 120

Saskatchewan Provincial Court (Civil Division)

September 20, 2016

S.L. Metivier Prov. Ct. J.

The insured was the victim of a fraudulent scheme resulting in a monetary loss. After signing up to participate as a mystery shopper for a market research company (the “Fraudster”), the insured was sent several cheques. After depositing the cheques, the insured was instructed to use the money to purchase gift cards and then transfer the funds back to the Fraudster. She discovered the scam after the cheques were returned to her as counterfeit. Coverage was denied under the insured’s homeowner policy and the matter proceeded to trial.

The relevant portions of the policy provided as follows:

SECTION I – PROPERTY COVERAGE

6. CREDIT OR DEBIT CARDS, FORGERY AND COUNTERFET CURRENCY

“We” will pay up to $5,000.00 for:

c. loss caused by forgery or alteration of any cheque or negotiable instrument;

SECTION I – LOSS OR DAMAGE NOT INSURED

“We” do not insure

(15) loss or damage resulting from a change in ownership of property that is agreed to, even if that change was brought about by trickery or fraud;

The court rejected the insurer’s argument that the loss was not caused by forgery, but instead by the insured’s voluntary actions. The plain and ordinary definition of “forgery” included a counterfeit cheque, which was the instrument by which the Fraudster induced the insured into the scheme and caused the loss. Therefore, the claim fell within the coverage grant of the policy.

However, the court held that the loss was excluded under paragraph 15. Reading the policy as a whole, “property” included money. The insured voluntarily transferred ownership of the money to the fraudster, even though her agreement was induced by fraud.

Finally, the court rejected the insured’s bad faith argument as the facts established that the insurer had handled the claim in a professional manner in accordance with their established claims handling procedures.