As noted in the article "Personal Property Appraisals" in this edition, fraud in connection with insurance claims is causing increased concern. This paper will deal with recent developments concerning the substantive and procedural legal elements of fraud in both the criminal and civil contexts. The issue of criminal fraud is addressed because of recent and significant developments in that area at the Supreme Court of Canada level.

If the approach to criminal fraud by our highest Court is adopted in the civil context of insurance fraud, it is submitted that greater success in combating insurance fraud will result and thereby benefit the insurance-buying public as well as the insurance industry.

Criminal Fraud

Two recent cases decided by the Supreme Court of Canada (R. v. Zlatic¹ and R. v. Theroux²) delineate the requisite elements of criminal fraud, and formulate the tests for establishing those elements. These two cases are educational with respect to obtaining an understanding of fraud in the civil context. Not only is it very possible the Supreme Court of Canada's rulings will come to be adopted in the civil context of insurance fraud,³ but these cases jointly provide a sophisticated model on which to organize one's thoughts with respect to the presence or absence of fraud in the variety of situations in which it can arise. These cases deal primarily with Section 380 of the Criminal Code, which reads as follows:

"Fraud/Affecting public market.
380. (1) Everyone who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretense within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security,
(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding 10 years, where the subject-matter of the offence is a testamentary instrument or where the value of the subject-matter of the offence exceeds $1,000; or
(b) is guilty

(i) of an indictable offence and liable to imprisonment for a term not 
exceeding two years, or
(ii) of an offence punishable on summary conviction, where the value of the
subject-matter of the offence does not exceed $1,000.⁴  
 

In R. v. Zlatic ⁵, Madam Justice McLachlin, speaking for the majority of the Court, stated that the actus reus of fraud is established by proof of:

"1. the prohibited act, be it an act of deceit, a falsehood or some other fraudulent means; and

2. deprivation caused by the prohibited act, which may consist in actual loss or the placing of the victim's pecuniary interests at risk." ⁶

She further stated that the mens rea of fraud is established by proof of:

"1. subjective knowledge of the prohibited act; and

2. subjective knowledge that the prohibited act could have as a consequence the deprivation of another (which deprivation may consist in the knowledge that the victim's pecuniary interests are put at risk)."⁷

Madam Justice McLachlin further added:

"Where the conduct and knowledge required by these definitions are established, the accused is guilty where he actually intended the prohibited consequence or was reckless as to whether it would occur."⁸

It is criminal to defraud "by deceit, falsehood or other fraudulent means." ⁹ Therefore, proof of deceit or falsehood is sufficient to establish the actus reus of fraud and no further proof of dishonest action is needed. In determining the actus reus of fraud under the third head of the offence, "by other fraudulent means," Madam Justice McLachlin stated that one should apply the standard of the reasonable person in connection with the conduct which a reasonable person would stigmatize as dishonest.

"Dishonesty is, of course, difficult to define with precision. It does, however, connote an underhanded design which has the effect, or which engenders the risk, of depriving others of what is theirs. J.D. Ewart, in his Criminal Fraud (1986), defines dishonest conduct as that `which ordinary, decent people would feel was discreditable as being clearly at variance with straightforward or honourable dealings' (p. 99) ... A use is `wrongful' in this context if it constitutes conduct which reasonable decent persons would consider dishonest and unscrupulous." ¹⁰

It was therefore decided that just as with a falsehood or other deceitful act, the actus reus of "other fraudulent means" is to be judged objectively by determining what a reasonable person would consider to be a dishonest act. As well, it is clear that at the very least, the economic interests of the victim must have been imperilled, for the actus reus of criminal fraud to be established.

The mens rea of criminal fraud is then determined by establishing whether the accused intentionally committed the prohibited act knowing, or desiring, or having absolutely no care whatsoever, that the fraud he perpetrated, led to either deprivation, or the risk of deprivation, of the victim. If the above is established, then the mens rea of fraud is established.

Most important to understand in this context is that the accused need not subjectively appreciate, or even subjectively be aware of the dishonesty of the fraudulent means he employed." Just as the pathological killer would not be acquitted on the mere ground that he failed to see his act as morally reprehensible, so the defrauder will not be acquitted because he believed that what he was doing was honest." ¹¹ Thus where it is established that the accused voluntarily undertook actions which a reasonable person would consider dishonest, it need only be proven, in addition, that the accused knowingly undertook the actions in question, and was subjectively aware that in so doing, the deprivation of another, or the risk of depriving another, could follow as a likely consequence. Therefore, the requirement to prove a "heinous state of mind" or "wicked mind" as put forward in the case of Chenier v. Madill¹² no longer exists.

It is only in establishing the mens rea of the offence that it must at times be proven the accused actually intended to deprive his victim, or at the very least, to put his victim's pecuniary interests at risk. Such need not always be proven, however. As Madam Justice McLachlin states:

"There appears to be no reason, however, why recklessness as to consequences might not also attract criminal responsibility. Recklessness presupposes knowledge of the prohibited consequences. It is established when it is shown that the accused, with such knowledge, commits acts which may bring about these prohibited consequences, while being reckless as to whether or not they ensue."¹³

Moreover, the Crown need not, in every case, show precisely what the accused was thinking at the time of the criminal act in order to prove the subjective elements of the mens rea of the offence.

The accused's subjective awareness of the consequences of his own fraudulent act can sometimes be inferred from the nature of the act itself, where other evidence does not cast doubt on the inference. As Madam Justice McLachlin states: "The fact that such an inference is made does not detract from the subjectivity of the test."¹⁴

While this formulation of the requisite elements of fraud, and the tests for establishing same, may at first blush appear rather harsh, it must be appreciated that pragmatic considerations support the Supreme Court of Canada's views on this matter. As Madam Justice McLachlin states:

"Many frauds are perpetrated by people who think there is nothing wrong in what they are doing or who sincerely believe that their act of placing other people's property at risk will not ultimately result in actual loss to those persons. If the offence of fraud is to catch those who actually practice fraud, its mens rea cannot be cast so narrowly as this. As stated in R. v. Allsop, supra, approved by this court in 0lan, at p. 1182:

`Generally the primary objective of fraudsmen is to advantage themselves. The detriment that results to their victims is secondary to that purpose and incidental. It is `intended' only in the sense that it is a contemplated outcome of the fraud that is perpetrated.'

The law of fraud must be sufficiently broad to catch this secondary incident of the defrauder's purpose or it will be of little avail." ¹⁵

It has been a long-standing principle of tort law at least, that conduct may be treated as intentional, even though its results are not actually desired, if the consequences are known to be substantially certain to follow.¹⁶ In such cases the intent ascribed to the wrongdoer is called "constructive intent."

Mr. Justice Laidlaw in Graham v. Saville,^l7 stated that fraud "consisted in recklessly or wilfully causing another person to believe and act on a falsehood." Mr. Justice Ferguson in Parna v. G. & S. Properties Ltd.,^l8 stated that fraud consisted "inter alia in the act of making, by words or by conduct, a wilfully false statement."

In the context of tort law, G.H.L. Fridman states:

"... there can be no action for deceit [tortious fraud or fraudulent misrepresentation] unless there is actual moral fraud. It will not suffice to prove that the defendant misrepresented some fact and thereby misled the plaintiff unless there is actual fraud, i.e. some moral wrongdoing [although the torts of negligent or innocent misrepresentation may still have been committed.] ... Actual fraud and not just misrepresentation must be proved."¹⁹

Moreover, one who makes an inaccurate statement cannot be guilty of fraud unless he was conscious of the inaccuracy of the statement, or unless he was so reckless that he simply did not care whether or not he was speaking the truth.²⁰

As well, fraud involves "a positive assertion that is or becomes dishonest, made with the intent to deceive." ²¹ Therefore, a statement that is true when it is made, if later discovered to have become false, becomes in law, a falsehood, if the maker of the statement does not reveal the change in facts to the person to whom the original statement was made.

Mr. Justice Esson in Rainbow Industrial Caterers Limited v. C.NR. Co.,²² stated that positive misrepresentation of fact and non-disclosure are different categories of fraud rather than different factual bases for a finding of fraud. Of course there must be an intention to deceive and defraud by non-disclosure for same to be considered an instance of fraud.²³

Tort law and the law of contract similarly define the requisite elements of fraudulent misrepresentation. In tort law, it is most commonly referred to as "deceit." In both tort and contract, to prove fraud one must establish that false statements of fact were made by a party, with that party knowing that said statements were untrue, had become untrue, or were made with reckless disregard for their truth.

As well, the false statements must be "material", or "go to the root of the contract." A fraudulent statement is material, depending upon the circumstances, if:

1.  It leads the victim of fraud to hold false yet reasonable economic expectations, and to act on said expectations;

2.  It enriches the defrauder at the expense of his/her victim, with no juridical reason for allowing the status quo to remain undisturbed; or

3.  It constitutes the conduct underlying an intentional breach of a contractual term, or a common law duty, which if not caught by the intended victim, would have led said victim to hold and act on false yet reasonable economic expectations, or to be unjustly deprived of a pecuniary interest.

In tort law however, a defendant may be liable for damages despite the fact his false statement did not induce the plaintiff to negotiate a contract with him or anybody else.

While a party can always claim both damages and recision of contract, there may nevertheless be liability in tort for having fraudulently misrepresented facts even where a contract between the plaintiff and defendant cannot for some reason be rescinded.²⁴

As G.H.L. Fridman explains:

"Liability for deceit in tort gives rise to common law liability to pay damages, which does not depend upon the exercise of any judicial discretion, only upon proof of the necessary ingredients of the tort.

Recision of a contract for fraudulent misrepresentation is an equitable remedy, which can be precluded by various factors, such as affirmation of the contract by conduct, delay in seeking relief, or misconduct by the plaintiff leading to the denial of recision on equitable grounds. Thus, while there is some overlap between tort and contract in respect of fraudulent misstatements, or conduct, a clear distinction must be maintained between the effect of falsehood in the law of tort and its effect in the law of contract."²⁵

According to the law of contract as well, a plaintiff can both rescind a contract, and claim for damages on the grounds of deceit.²⁶ If however, the plaintiff chooses not to rescind the contract on the basis of a fraudulent misrepresentation by the defendant, he can still claim for damages resulting from the fraud.²⁷

It is interesting to note however, it was not until recently the Supreme Court of Canada decided a plaintiff always has the right to sue either in contract or in tort, unless a term of the contract excludes the right to sue in tort. Previously, it was generally accepted that if a matter was specifically addressed in a contract, and that matter came to be the subject of litigation, contractual liability alone would have to form the basis of the claim.²⁸ In BG Checo International Ltd. v. British Columbia (Hydro & Power Authority)²⁹ however, the Supreme Court of Canada ruled:

"[the] mere fact that the parties have dealt with a matter expressly in their contract does not mean that they intended to exclude the right to sue in tort ... [i]n so far as the tort duty is not contradicted by the contract, it remains intact and may be sued upon."³⁰

Insurance Fraud and the Proof of Loss

In fire insurance policies Statutory Condition 7, prescribed by Section 148 of the Insurance Act³¹ as part of every contract of fire insurance in force in Ontario, constitutes what may be termed a statutory fraud provision, for the purposes of fire insurance law. The content of this Condition differs in some respects from Common Law Doctrines of Fraud, and while it does not oust the application of these Common Law Doctrines in every circumstance, it nonetheless does limit their application in certain respects. Section 148 of the Insurance Act makes clear that "no variation or omission of or addition to any Statutory Condition is binding on the insured."³²

Statutory conditions 6 and 7 must be read together:

"6. (1) Upon the occurrence of any loss of or damage to the insured property, the insured shall, if the loss or damage is covered by the contract, in addition to observing the requirements of conditions 9, 10 and 11,

(a) forthwith give notice thereof in writing to the insurer;

(b) deliver as soon as practicable to the insurer a proof of loss verified by statutory declaration,

     (i) giving a complete inventory of the destroyed and damaged property and.   showing in detail quantities, costs, actual cash value and particulars of amount of loss claimed, 
     (ii) stating when and how the loss occurred and if caused by fire or explosion due to ignition, how the fire or explosion originated, so far as the insured knows or believes,
     (iii) stating that the loss did not occur through any wilful act or neglect or the procurement, means or connivance of the insured,
     (iv) showing the amount of other insurances and the names of other insurers,
     (v) showing the interest of the insured and of all others in the property with particulars of all liens, encumbrances and other charges upon the property,
     (vi) showing any changes in title, use, occupation, location, possession or exposures of the property since the issue of the contract,
     (vii) showing the place where the property insured was at the time of loss;

( c) if required, give a complete inventory of undamaged property and showing in detail quantities, costs, actual cash values;

(d) if required and if practicable, produce books of account, warehouse receipts and stock lists, and furnish invoices and other vouchers verified by statutory declaration, and furnish a copy of the written portion of any other contract.

(2) The evidence furnished under clauses (1) ( c) and (d) of this condition shall not be considered proofs of loss within the meaning of conditions 12 and 13.

7. Any fraud or wilfully false statement in a statutory declaration in relation to any of the above particulars, vitiates the claim of the person making the declaration.³³

Under Statutory Condition 7, the fraud necessary to defeat the claim may be by way of wilful, but not inadvertent,³⁴ omission or positive assertion.³⁵

Fraudulent misrepresentations or omissions, which invoke Statutory Condition 7, vitiate the entire claim of the person making the fraudulent declaration. This generally occurs only when the misrepresentations or omissions are material to the cause of the loss, or to proof of the extent of the loss.³⁶

A false statement or omission relating to other matters, i.e. matters not in relation to the demand for particulars as set out in Statutory Condition 6, while allowing the insurer, in certain situations, to rescind the contract as of the date the fraudulent misrepresentation or omission was made by the assured, do not otherwise affect claims made by the assured.³⁷

In Gore Mutual Insurance Company v. Bifford,³⁸ the assured submitted an "interim proof of loss" to reflect an agreement that the insurance company would pay $25,000 as an advance on account of a contents loss, the balance to be paid in accordance with receipts presented by the assured. The assured later submitted two fraudulent invoices, and upon discovery the insurance company brought action, seeking a declaration cancelling the policy, and claiming for recovery of the $105,000 already paid with respect to the building and contents claims. The defendant/assured argued that his one isolated fraudulent act should not automatically and retroactively void the entire contract between the parties.

The insurance company put forward two arguments. First, it argued that Statutory Condition 7 ought to be read disjunctively, which would mean that any fraud committed by the assured would vitiate the claim, as would any wilfully false statement in a statutory declaration in relation to any of the particulars referred to in Statutory Condition 6.

Secondly, the insurer argued that by designating one of the proofs of loss with respect to the contents claim as "interim," together with a notation indicating an agreement between the assured and the insurer that the loss in respect of contents would be revised by reference to receipts for purchases of replacement items, that any and all further receipts provided in this context would form part of continuing statutory declaration. As such, the fraudulent invoices submitted would on this reasoning amount to a "fraud or wilfully false statement in the statutory declaration," as contemplated by Statutory Condition 7.

Mr. Justice Wood held that while the assured's fundamental breach of contract through fraud entitled the insurer at common law to treat the contract as void from the time the fraudulent invoices were submitted, Statutory Condition 7 would have to be relied upon in order to vitiate the whole of the assured's claim retroactively.

Mr. Justice Wood rejected the insurer's contention that Statutory Condition 7 should be read disjunctively, holding that fraud, as well as any wilfully false statements, must be made or perpetrated in relation to the requirements of Statutory Condition 6. Moreover, Mr. Justice Wood held that it was unnecessary to rule on whether a "living, growing, statutory declaration" could be created at all, in that far more explicit contractual or legislative language would be required to warrant such a ruling. Moreover, he held that an agreement between the assured and the insurer for the replacement of items in the future, as was negotiated in the present case, was a type of settlement which fell outside the scope of Statutory Condition 6. He reasoned that the fraudulent invoices submitted could not, therefore, form the basis on which Statutory Condition 7 might be invoked.

Accordingly, Mr. Justice Wood held that the assured could retain the insurance monies already paid but was entitled to no more as the fraudulent invoices allowed the insurer, at common law, to treat the contract as void from the time of their submission, which option the insurer exercised.

At first glance, Gore v. Bifford, supra, might seem an extremely difficult case to reconcile with the long-held proposition that:

"... where the fraud that is proved relates only to part of the claim (and where statutory or policy provisions state that only the claim and not the whole policy is avoided), the entire claim is vitiated. For example where both buildings and contents are covered and separate claims are made for each, one made fraudulently and the other not, both claims are forfeited. This is so even where the actual loss in the category not subject to fraud exceeds the policy limits."³⁹

It is submitted that the actual invoices supplied to an insurer to substantiate the amount of the claim should surely be considered a matter "in relation to" the particulars required under Statutory Condition 6. It is further submitted that this is so regardless of whether an assured elects to claim under replacement cost coverage, rather than accept actual cash value.

This was exactly the position taken in the recent case of Dorosh v. Co-operators General Insurance Company.⁴⁰ In this case, the assured claimed under an insurance policy for loss by theft of a number of items, including a CD player. Co-operators supplied the assured with a proof of loss form which contained a column in which to indicate "where and when" each stolen item had been purchased.

The assured falsely listed when and where he had purchased the CD player. Co-operators denied the entire claim based on fraud, or alternatively, the wilfully false statement, pursuant to Statutory Condition 7.

The assured argued that Statutory Condition 7 was not triggered as the place and date of purchase were not particulars required by Statutory Condition 6. He further argued that a false statement as to such matters should not vitiate even the claim for the CD player, on the grounds that Co-operators was statutorily restricted from relying on Common Law Doctrines of Fraud.

In the alterative, the assured argued that a wilfully false statement with respect to the CD player should not vitiate the claim for the other items. He maintained that if Co-operators was allowed to rely on the Common Law Doctrine of Fraud with respect to the claim for the CD player, it should nevertheless be restricted from vitiating the entire claim, because Statutory Condition 7 was not triggered. He argued that to allow the Co-operators to vitiate the entire claim would permit a variation or addition to Statutory Condition 7 which is precluded by the Saskatchewan Insurance Act.⁴¹

Mr. Justice Armstrong held that questions as to where and when the CD player was purchased, although not constitutive of particulars actually specified in Statutory Condition 6, were nevertheless, to use the words of Statutory Condition 7, "in relation to" the matters. required by Statutory Condition 6 to be reported. He stated:

"Statutory Condition 7, it will be noted, refers to `false statement in a statutory declaration in relation to any of the above particulars'. Are `Where and When Purchased' something `in relation to any of the above particulars'? The questions of `Where and When Purchased' are, in my view, both very relevant, material and reasonable to be asked by an insurer required to satisfy itself that there has indeed been the loss for which payment is claimed. They are, in my view, `in relation to' the items specifically referred to in Statutory Condition 6(1) (b) (i) and (d). Suppose, for example, an insured seeks cash rather than replacement for an article lost and is unable to produce a receipt showing the purchase of it. Surely relevant and material is the question of when it was bought in order to have some reference for determining depreciation. Where it is bought may likewise be relevant to determining when. Both are relevant to `whether' and are accordingly `in relation to' costs ... I find that by the operation of number 7 of the Statutory Conditions the whole of the claim by Dorosh is vitiated."⁴²

Mr. Justice Armstrong thereby held that fraud with respect to any matter related to the particulars requested of assureds under Statutory Condition 6 is sufficient to invoke the operation of Statutory Condition 7.

A case of concern recently decided by the British Columbia Supreme Court is Charterhouse Properties Ltd. v. Laurentian Pacific Insurance Co.⁴³ In this case the assured knew of three concurrent proximate causes of the loss in question. However, in the proof of loss he disclosed only the concurrent proximate cause that was covered under the policy. He did not disclose the two other concurrent proximate causes that were specifically excluded. The Doctrine of Concurrent Proximate Cause as applied in Canada dictates that if a concurrent proximate cause of the loss is excluded, the policy will not respond even if there are other concurrent proximate causes which are covered under the policy.⁴⁴

In strained fashion, Mr. Justice McKenzie reasoned that a correct and proper interpretation of an endorsement to the policy operated such that the Doctrine of Concurrent Proximate Cause was of no effect. He therefore held that since there would have been coverage even if the assured had complied with Statutory Condition 6 (1) (b) (ii), in effect, "stating when and how the loss occurred" in full, the assured had perpetrated no fraud, and had made no wilfully false statement, as contemplated by Statutory Condition 7.

The problem with this reasoning is that it allows the assured to interpret the disclosure requirements under Statutory Condition 6 in accordance with his/her own personal interpretation of the insurance contract. This is at the expense of the insurer's right to be provided with all particulars contemplated under Statutory Condition 6, so it is fully informed and can thereby make its own determination as to coverage under the policy. The fact of the matter is that the assured was under an obligation to disclose to the insurer how the loss occurred in full, and wilfully did not do so.

If we accept the pronouncement by the Supreme Court of Canada in Theroux and Zlatic should be applied to insurance fraud cases, as it obviously should be, and we also accept the fact the insurer in Charterhouse bore a risk of deprivation by virtue of the fact its right to full and honest particulars pursuant to Statutory Condition 6 was circumvented, then it logically follows the decision in the Charterhouse case does not accord with our highest Court's view of fraud. The common law position would now appear clear that the insurer is not required to prove the assured had a heinous state of mind or a wicked mind. The insurer need only prove the assured did wilfully make a false statement in the statutory declaration and was aware he may have been depriving the insurer of information it needed to properly assess the claim.

Another recent case which causes concern for insurers is Tumbers Video Ltd. v. INA Insurance Co. of Canada.⁴⁵ In this case Mr. Justice Hollinrake of the British Columbia Court of Appeal stated:

"The concept of uberrimae fidei comes into play in an insurance setting at the time of the formation of the contract of insurance. It plays no part when it comes to an allegation of fraud in the proof of loss. In this case the onus is on the insurer to prove fraud and nothing short of that will do."⁴⁶

The Doctrine of Utmost Good Faith, as it applies to the formation of insurance contracts, puts a duty on assureds to provide all information needed, and requested, by insurers to assess the risk and failure to provide same allows insurers, all other things being equal, to void policies ab initio. However, the Doctrine of Utmost Good Faith has traditionally been held to extend far beyond matters tied merely to the formation of policies. Bad faith by insurers, following issuance of the policy, has allowed assureds to collect punitive damages.⁴⁷ Breach of the Doctrine of Utmost Good Faith by assures, as in the Gore v. Bifford case (a case not particularly favourable to insurers, we might add), where the assured submitted fraudulent invoices, allowed the insurer to void the policy as at the time the fraudulent invoices were submitted, thereby barring coverage for that part of the claim not paid prior to the fraudulent submission, this despite the fact that Statutory Condition 7 was held not to have been triggered.

Mr. Justice Hollinrake in the Tumbers Video case no doubt meant the part of the Doctrine of Utmost Good Faith which allows insurers to void policies where, for instance, assureds make innocent mistakes on their applications, is inapplicable to situations in which actual fraud must be proven by the insurer, as when an insurer denies a claim on the basis of arson and/or Statutory Condition 7. Mr. Justice Hollinrake correctly pointed out that evidence of innocent mistakes by assureds in, for instance, filling out proofs of loss, will not suffice as evidence in support of an allegation of fraud.

Presumptions of Fraud

While the onus is usually on the insurer to prove fraud, there do exist situations where this is not necessarily so. For instance, if an assured submits a claim under a policy, but later pleads guilty to criminal charges of fraud relating to the claim, a strong, albeit not irrebuttable, presumption of fraud is raised. The assured must produce strong evidence to rebut this presumption.⁴⁸

The courts have also held that gross exaggeration of the amount of the loss creates a presumption of fraud.⁴⁹

In the civil sphere, plaintiffs usually bear the legal burden or onus of proof simply because it is they who are attempting to change the status quo. The public at large is relatively indifferent as to whether a plaintiff or a defendant wins any particular civil suit, hence a standard of proof higher than a balance of probabilities is simply not needed in order to protect against errors and injustice.⁵⁰

In the recent case of Harland et al. v. Fancsali et al.,⁵¹ Mr. Justice D.S. Ferguson stated, with respect to the concept of `reverse onus' in tort law:

"In any event, the law concerning proof of causation in tort cases is now found in Snell v. Farrell, [1990] 2 S.C.R. 311, 72 D.L.R. (4th) 289. That case was concerned with the tort of medical negligence but I understand it to be applicable to all tort cases. In that case the Supreme Court of Canada rejected the concept of reversing the onus where is difficult for a plaintiff to prove causation. It ruled that where the facts lie particularly within the knowledge of the defendant or where the tort of the defendant has deprived the plaintiff of the opportunity to know what might have happened but for the tort then very little affirmative evidence will justify the drawing of an inference of causation in the absence of evidence to the contrary.⁵²

Mr. Justice Ferguson held that the rejection by the Supreme Court of Canada of the `reverse onus' principle is also applicable to contract cases in which fraud is committed. The same would no doubt hold in instances where a defence of fraud is relied upon by an insurer. Therefore, barring instances where presumptions of fraud are raised, the onus or burden of proving causation as it relates to materiality is always on the insurer.

Not only is an insurer, relying on a fraud defence, quite literally "stuck" with proving every element of that allegation, without the benefits of the onus of proof shifting once it establishes the existence of a fraudulent act, but it also has to satisfy a much more stringent standard of proof than is normally required in civil cases.

It has long been held that while the standard of proof in civil actions is always a balance of probabilities, meaning that the elements of any cause of action, or defence, must be proven to the reasonable satisfaction of the tribunal:

"... reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal."⁵³

This proposition of law was quoted with approval by Mr. Justice Cartwright in the Supreme Court of Canada decision of Smith v. Smith.⁵⁴

More recently, Chief Justice Laskin stated in Continental Insurance Company v. Dalton Cartage Co:⁵⁵

"There is necessarily a matter of judgment involved in weighing evidence that goes to the burden of proof, and a trial judge is justified in scrutinizing evidence with greater care if there are serious allegations to be established by the proof that is offered."⁵⁶

Subsequently, Chief Justice Dickson in the Supreme Court of Canada case of R. v. Oakes,⁵⁷ stated that it is not simply a question of scrutinizing the evidence with greater care where there are serious allegations in a civil case, but rather there exist different degrees of probability which need to be satisfied depending upon the seriousness of the allegations.

The different approaches taken by Chief Justice Laskin and Chief Justice Dickson may be theoretical only. Practically speaking, "the trier of fact will consider the nature of a fact in issue, that is, its physical, religious, moral, ethical, social or legal character and the consequences of its decision when determining if it is satisfied on a balance of probabilities."⁵⁸

It was long held that in order to establish a successful defence of arson fraud, the insurer had to prove the following elements:

1. The fire was of incendiary origin;
2. The assured had sufficient motive to benefit from a fire;
3. The assured had exclusive opportunity to set or arrange the fire.⁵⁹

The case of Rizzo v. Hanover Insurance Company ⁶⁰ changed the law in Ontario with respect to the element of opportunity. The facts of the case were generally as follows. The insured restaurant was damaged by two fires occurring nine days apart. The assured's claim for compensation under his insurance policy was met with the defence of arson. There was never any doubt that the fire was incendiary in origin. As well, the assured had instructed two employees at the time of the first fire to inflate the loss of stock and the number of hours involved in the clean-up.

With respect to the issue of opportunity, Mr. Justice Farley at trial stated:

"As to the question of opportunity, it was agreed the premises were locked up and secured. There was no way to enter the locked-up premises except through the front door with the use of a key. It was agreed that the Plaintiff was not on the premises at the time of the lockup. However, there was no evidence that there was anyone else on the premises at the time of the lockup. It seems to me to be inappropriate speculation that someone had hidden on the premises in order to remain after lockup. The employees on duty that night did not see anything suspicious in this regard and they were downstairs from time to time."⁶¹

Mr. Justice Farley ruled that no one but the assured would have had a motive to burn the insured property, even if certain others might have had opportunity to do so. He also found that the assured had "appropriate" opportunity to set the fire, and that he, or someone at his behest, did in fact do so.

Mr. Justice Farley made a distinction between "exclusive opportunity," and "appropriate opportunity," concluding that the latter was all that was required rather than the more stringent former standard.

Mr. Justice Catzman, speaking for the Court of Appeal, stated that `exclusive opportunity' is not an indispensable requirement of proof of arson in cases (like the present case) where evidence of opportunity is accompanied by other inculpatory evidence."⁶² He further held that if exclusive opportunity need not be proven to establish criminal fraud, it certainly need not be proven to establish civil fraud.

On that basis, Mr. Justice Catzman held that even the phrase "appropriate opportunity" is not helpful, that all a judge need do is assess:

"... whether, on all of the evidence inculpatory of the insured, including motive and opportunity, the insurer has proven the defence of arson according to the standard of proof appropriate to the establishment of that defence in a civil case."⁶³

Mr. Justice Catzman then proceeded to review all the evidence inculpatory of the assured, including motive and opportunity, and concluded that the trial Judge had not erred in concluding that the insurance company had satisfied the appropriate standard of proof with respect to establishing the defence of arson.

Hopefully, greater awareness of the fraud problem generally and insurance fraud particularly by the public, the insurance industry and our courts will result in an increasingly harder line being taken against fraudulent claims. If the foregoing review and analysis of the law in this area provides some feeling of optimism in that regard, it will have served a useful purpose.