Chapter 1 - What is Insurance Fraud? Flashcards
How much does insurance fraud cost Canadians annually?
Approximately $3 billion
What percentage of premium is to cover insurance fraud?
Approximately 9-18%
What three areas does insurance fraud impact?
Financial impact
Public safety impact
Health status impact
Define insurance fraud
Ant act or omission with a view to illegally obtaining an insurance benefit
Define mens rea
Latin for the guilty mind
What are the three basic elements to qualify an event as insurance fraud?
1) Act or omissions
2) The illegal benefit
3) “With a view to” (intent)
What are the two key elements of fraud determined in R v. Olan, Hudson & Harnett (1978)?
Dishonesty and deprivation
What are some examples of fraudulent activities in the Criminal Code?
- Arson
- Bribery
- Criminal breach of trust
- Fabricating evidence
- Forgery, or making a false document
- Fraudulent concealment
- Fraudulently destroying or falsifying documents of title
- Impersonation
- Making false statement by affidavit
- Misappropriating money
What are the two categories of policy conditions?
- Developed by insurers as an integral part of policy wordings
- Legislated conditions (stat conditions)
-(expressly designed for certain types of policies)
-(generally applicable to policies other than those
dealt with specifically)
Define fire insurance
Coverage for losses from fire and lightning and also the resultant damage caused by smoke and water
Which property statutory conditions are significant for protecting against fraud?
- Misrepresentation
- Material change
- Termination
- Requirements after loss
- Fraud
- Entry, control, abandonment/salvage
- Notice to police
Define misrepresentation
Incorrect or missing information about a material fact that is offered, or not, by an applicant or insured with or without the intent to mislead
Define material change
Changes that would influence a reasonable and prudent insurer to decide whether to stay on risk
What happened in Morton v. Canadian Northern Shield Insurance Co. (1997)?
- Fire destroyed unoccupied house
- Insured to demolish rental property and build rental triplex in its place
- Tenants vacated and insured turned off utilities
- Did not notify the insurer house was unoccupied
- Insurance argued it was not a rental home
- As unoccupied less than 30 days, not a material change as ruled by the courts
- Insurer needed to settle claim
What is required of the insured under “Requirements after Loss”?
- Inventory of destroyed and damaged property showing quantities, costs, acv and particulars
- How the loss occurred
- Loss did not occur through willfull act
- Details of other insurance on property
- Names of all who have insurable interest
- Details of any change in title, use, occupation, location, possession or exposure
- Location of property at time of loss
- Detailed inventory of undamaged goods
- Documentation to show inventory or value of goods
What happened in Royal Insurance Co. of Canada v. Dimario?
Insured claimed they bought several items from a store which they did not
What do general conditions impose when a claim is a result of a criminal act?
Notice must promptly be given to police
Define waiver
The intentional and voluntary relinquishment of a known right. A waiver under a policy is required to be clearly expressed and in writing
What four principles apply to all insurance transactions?
Waiver, estoppel, non-waiver agreement and reservation of rights letter
Define estoppel
A bar created when someone by his action indicates he will not exercise a right he has
Define non-waiver agreement
An agreement signed by the policyholder after a loss agreeing that the investigation and determination of the amount of damage by the insurance company shall not be construed as admission of liability
What does a typical non-waiver agreement state?
The insurer may:
- Investigate the circumstances surrounding the claim
- Carry on negotiations
- Make a settlement or settlements
- Defend any action or actions which might be brought against either or both parties of the agreement
- Without prejudice to the rights of any of the parties under a policy of.. insurance issued by.. and the parties agree for themselves, their heirs, executors, admins, successors and assigns that they or each of them will not plead or contend that..
- by conducting said investigation or defence
- by making the said settlement or settlements
- by payment of said judgment or judgments
create any estoppel o waive any of its legal rights to refuse payment or indemnity
Define reservation of rights letter
An insurer’s notification to an insured that coverage for a claim may not apply
Define fiduciary duty
Being responsible for providing the principal with all the information that materially affects the principal’s interests; all information that is relevant to the affairs entrusted to the agent
Define bad faith
- Design to deceive or mislead another
- Conscious wrongdoing
- Constructive fraud
Define good faith
Most ordinary contracts are good faith contracts. Insurance contracts made in utmost good faith. This implies a standard of honesty greater than that usually required in most ordinary commercial contracts
Define utmost good faith
A phrase in a legal document calling for the highest standards of integrity on the part of the insured and the insurer
What did Carter v. Boehm (1766) outline?
The duty of an insured to disclose information
What happened in CE Heath v. Grey (1993) (Australia)?
Underwriters are also held to utmost good faith
A shipping vessel about to be insured had already arrived safely at port
What did Wigmore v. The Canadian Surety company (1996) cover?
Good faith between an independent adjuster and dual claimants (ie. husband & wife)
Adjusters must act in “perfect good faith”
The husband’s fraud did not negate the wife’s claim
Established three elements of fiduciary duty existing
Not widely accepted premise
What three elements suggests a fiduciary duty exists?
- Fiduciary has discretion and power
- Fiduciary can affect legal & practical interests of the beneficiary
- Beneficiary is particularly vulnerable to fiduciary’s power
Define punitive damages
Damages in excess of those required to compensate the plaintiff for the wrong done, which are imposed in order to punish the defendant because of the particularly want or willful nature of his or her wrongdoing. Also called “exemplary damages”
Define aggravated damages
Damages designed to compensate the plaintiff for suffering intangible damages such as humiliation and distress as a result of the defendant’s action
How may insurers expose themselves to bad faith claims?
- Fail to properly investigate
- Intentionally offer amounts that are substantially and drastically lower than reasonable
- Fail to settle in reasonable time
- Unreasonably deny the claim
- Bring unfounded allegations against an insured in a self-interested and callous manner
- Ignore the plaintiff’s evidence that adequately responds to issues in dispute
What happened in Labelle v. Guardian Insurance Co. of Canada (1989)?
Insured awarded $10,000 in punitive damages
The insurer refused to follow advice of own adjuster in assessing the damage
Insurer also refused to advance anything toward reconstruction and argued insured did not act promptly
What happened in Warrington v. Great-West Life Assurance Co. (1996)?
Court upheld an award of $10,000 in aggravated damages for mental distress
Insurer refused the claim despite overwhelming medical reports
What happened in Bullock v. Trafalger Insurance Co. of Canada (1996)?
Court awarded $25,000 in aggravated damages
Insurer expert suspected arson where insured expert had evidence suggesting it was actually an accident
Court felt that insurer did not act in good faith
What happened in Whiten v. Pilot Insurance Co. (2002)?
Whitens sued for loss under contract and for bad faith
Independent adjuster recommended claim be paid
Insurer denied claim based on a few suspicious circumstances that were later clarified adequately
What happened in Suchy v. Zurich Insurance Co. (1999)?
Insurer refused to pay business interruption loss because claim was inflated
Insurer felt it did not need to pay because of proof of loss form was not submitted
This was not an acceptable defence as business interruption needs prompt attention
What five strategies could be used to prevent bad faith lawsuits?
- Treat insured fairly and with dignity
- Conduct a thorough investigation before taking action
- Consider any alternative measures to handle the claim
- Investigate in a professional manner until the case is closed
- Reassess positions as new evidence becomes available
What types of damages are often awarded for bad faith crimes?
Punitive damages and aggravated damages
Define burden of proof
The standard by which a claim must be proven to prevail. The burden of proof is typically borne by one party or another
Define standard of proof
The test to establish whether a party has succeeded in proving a fact in issue. Standard of proof in civil matters is generally “on balance of probabilities” or a “preponderance of the evidence” meaning that if it is likely that the fact is true, then the standard has been met
In a criminal trial, who does the burden of proof lie with?
The crown
In a civil trial, who does the burden of proof lie with?
The plaintiff
How does the standard or proof differ in civil vs criminal proceedings?
Civil is a balance on probabilities
Criminal is beyond a reasonable doubt
What happened in F.H. v. McDougall (2008)?
Allegations of sexual assault
Demonstrated the balance of probabilities in civil court rulings
Define evidence
Anything presented at trial which attempts to prove the case. Two main categories are direct and circumstantial
Define direct evidence
Evidence that proves a fact without inference or presumption, which is true and establishes the fact, such as eyewitness testimony
Define circumstantial evidence
Evidence based on making inferences from connected facts such as blood samples at a crime scene
What are the six main types of evidence?
Sworn statements Expert evidence Testimony given under oath Documents Experiments Real evidence
Define spoilation
- The destruction of evidence pre trial
- The alteration of a policy by a party other than the insurer or the insured without consent
Sanctions from destroying physical evidence depend on:
- Whether the party who did not have access to the evidence would be prejudiced by its loss
- Whether the evidence is relevant
- Whether it was destroyed intentionally to suppress the truth
Generally, what is privileged?
- Communication between solicitor and client is privileged whether litigation is anticipated or not
- Settlement negotiations are privileged. Often correspondence sent to a claimant will be marked “without prejudice”
- Evidence collected in anticipation of litigation is priveleged
- Reports produced by the investigation services division or insurance crime prevention bureau
