When an insured experiences a loss, Statutory Conditions 6 and 7 of section 148 of the Insurance Act, R.S.O. 1990, c.1.8, as amended, applicable to all fire insurance policies and incorporated into most others, come into play and set out the requirements and procedure that must be followed by the insured when submitting a claim to his or her insurer. The common law duty of uberrima fides, a doctrine that requires both the insured and insurer to act with the utmost good faith in negotiating and performing under the contract of insurance, has effectively been extended by Statutory Conditions 6 and 7 to also apply to the dealings between insured and insurer after a loss. They read as follows:

6. (1) Requirements After Loss. - 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 a 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 though 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, cost, actual cash value;

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

Statutory Condition 7 imposes an exacting consequence, justly so, for fraud on the part of the insured, on his or her proof of loss. It represents the paramount importance of honesty, diligence and care in the preparation of the proof of loss and the documentation submitted in support of a claim. The role of the adjuster is to make sure that the insured knows what he or she is required to present, without doing the insured's work for him or her.

Material, fraudulent misrepresentations or omissions vitiate an insured's entire claim and not just the item or items that have been misrepresented or omitted. By making false statements on the proof of loss or omitting material information, the insured deprives the insurer of necessary information needed to properly assess the claim being made, and therefore is not acting with the utmost good faith and will be, in turn, deprived of the benefit of the policy of insurance.

Two recent Ontario decisions have dealt with the application of Statutory Condition 7 and have held that the false or fraudulent statements made by each insured on his proof of loss vitiated his entire claim.

The 1994 decision of Mr. Justice McCombs, of the Ontario Court (General Division), in Daver v. Chubb Insurance Company of Canada involved an action by an insured for the recovery of the value of allegedly stolen goods as a result of a break, enter and theft at his residence. The insured submitted a proof of loss claiming a total of $77,226.00, for every item listed and covered by the policy under its Valuable Articles coverage; and $62,584.11 under the general contents coverage, which had a limit of $60,000.00. Under the general contents coverage, $23,270.00 was claimed for sound equipment and a television. It is these items that were the linchpins of the insurer's case on fraud by the insured.

Before reviewing the evidence tendered by each party, His Honour outlined the requisite standard and burden of proof in a civil fraud case, and had this to say at page 2 of the decision:

I am satisfied that the burden of proof resting on the insurer to establish fraud by the plaintiff, is heavier than the standard balance of probabilities test. For the defence to succeed, the evidence of fraud must have a higher degree of cogency or probability than is normally required to meet the onus of proof in a civil case. Put another way, although the proof required is less than the standard of proof beyond a reasonable doubt which is required in a criminal case, it is greater than the normal civil standard in which the scales need only be slightly tipped in one direction or another.

His Honour then reviewed the consequence of a finding of fraud and the degree of falsehood required to be established and held at page 3:

It is a well-established principle of law that wilfully false statements on material matters in a proof of loss will vitiate the right to any recovery under the policy.

Even if fraud is established to the high degree of proof required, it is not every false statement that will vitiate a claim. The statement found to be false must be with respect to a significant material aspect of the claim, and must not be due to mere carelessness or puffery ....

After reviewing all the evidence and making findings of credibility and fact, His Honour concluded that the insurer had satisfied the heavy burden of proof and that the insured had made fraudulent misrepresentations on his proof of loss, specifically with regard to the stereo equipment and television. At pages 14-15:

The evidence which I have heard, taken together, leaves me with a strong conviction that the transaction involving the stereo and the television either did not happen at all, or involved the transfer of stolen property at a price substantially lower than that claimed by the plaintiff. Mr. Daver, an intelligent and sophisticated businessman, could not have conducted business in this manner. He would have known that no GST or PST was to be paid. As an affluent person, he would not have placed himself in jeopardy to this extent to save one or two thousand dollars.

The defendant has discharged the heavy onus upon it to establish with clear and cogent evidence, that the plaintiff's claim concerning the stereo and the television was fraudulent to a significant degree, although it is impossible to determine the exact extent of the misrepresentation.

The fraudulent claim of the plaintiff does not amount to mere puffery or carelessness. It represents a clear attempt to fraudulently deprive the defendant of money that the plaintiff was not entitled to.

As a result of the significant fraudulent misrepresentation as to the amount of the loss suffered by the plaintiff, my duty is clear. The law requires that I hold that the entire claim is vitiated. Accordingly, the action is dismissed ....

This decision was recently unanimously affirmed by the Ontario Court of Appeal, reported at (1996), 37 C.C.L.I. (2d) 236, and now stands as the highest decision in Ontario on this issue.

In McQueen v. Economical Mutual Insurance Company, [1997]I.L.R.1-4312, Ontario Court (General Division) a decision of Madam Justice Benotto, the issue of the insured's fraud on the proof of loss was considered. The insured initially claimed $25,000.00 for stolen electronic equipment. By the end of the trial, the insured was claiming less than $10,000.00 for these same items. At page 3:

The plaintiff was asked to complete a proof of loss form to make a theft claim. The plaintiff's manner of approaching the proof of this loss was cavalier at best. At worst, it was fraudulent.

He filed a largely blank proof of loss form, unsigned and unsworn. He then filed another form which, although sworn, did not contain much more information. He did however attach the front pages of his owner's manuals. It was replete with false statements: that he owned two CD players when he only owned one; that all the equipment except the phone was bought at a place called "Crazy Something" when some equipment was sold to him by a friend who since became his employee; that it all belonged to him and to no one else when some of the equipment was paid for and clearly belonged to his company of which his brother was also an owner.

His testimony at trial was equally laden with inaccuracies. He claimed to have paid cash for everything when his own productions showed he paid for the phone with a credit card. When faced with contradictions, he became annoyed. His manner was occasionally sarcastic. He did not remember some events because they happened two years ago. He felt that the defendant's requests for a completed proof of loss was unreasonable. He exhibited an arrogance toward procedures, including the defendant's. He did not keep receipts even though he claimed to have paid for everything with cash. (In the case of the TV, this was $4,500.00.) If he needed to return something he would so [sic? do so] without a receipt, making a fuss until he got satisfaction. When the adjuster denied his claim for a new sofa, he took matters to his superiors. I find that he simply did not care whether his proof of loss was true or not.

Her Honour states the standard to be applied in a case of fraud, at pages 4-5, and concludes at page 7:

It is not only fraud which will vitiate an insurance policy. Under statutory condition 7, "fraud" or a "wilfully false statement" in the proof of loss form will prevent recovery of the claim. The cases have held that a false representation is fraudulent if made knowingly, without belief in its truth or recklessly without care whether it is true or false: In my view, the plaintiff was guilty of such false statements that the contract is vitiated. He did not care whether the statements were true or false.

I do not believe him when he says his "mistakes" were innocent:

The plaintiff is not entitled to relief against forfeiture as l have found wilful false statements were made. Even had I not found made [sic?] this finding, I would not have granted this discretionary remedy. It is not inequitable to deny the claim. The plaintiff was the author of his own misfortune. He made little attempt to produce records up to and including trial. While he may not have all his receipts and records, I believe he made little effort to find anything .... the insurance company is prejudiced by such conduct, for it precluded verification of the value of the equipment.

Mr. McQueen's claim was accordingly dismissed.

Statutory Condition 7 provides protection to insurers by signalling to insureds the vital importance of complying with the requirement of Statutory Condition 6, to the best of their abilities, and co-operating with insurers in the assessment and investigation of their claims. The recent decisions in Daver and McQueen, supra, show that courts are willing to enforce these requirements, and thereby support the importance of following Statutory Condition 6.

When dealing with insureds, a polite but firm insistence on meeting the requirements of Statutory Condition 6 in the proof of loss, should be maintained by the adjuster, thereby alerting insureds to what is required and ensuring that any subsequent proof found to be fraudulent was truly fraudulent and not merely a result of the insureds' misunderstanding or mistake.