Jun 29, 2020

[van Rensburg, Benotto and Harvison Young JJ.A.]


Earl A. Cherniak, Q.C. and Alfred M. Kwinter, for the appellants

Martin P. Forget, for the respondent

Keywords: Contracts, Fire Insurance, Coverage, Rescission, Material Misrepresentations, Material Change in Risk, Statutory Conditions, Duty of Good Faith, Remedies, Relief from Forfeiture, Civil Procedure, Jury Instructions, Costs, Substantial Indemnity, Insurance Act, RSO 1990, c I 8, s. 129, Courts of Justice Act, RSO 1990, c C 43, and s. 98, R. v. Grandine, 2017 ONCA 718, Samms v. Moolla, 2019 ONCA 220, Little v. Floyd Sinton Limited, 2019 ONCA 865, Johnson v. British Canadian Insurance Co., [1932] S.C.R. 680, Wolfe v. Western General Mutual Insurance (2000), 21 C.C.L.I. (3d) 210 (Ont. S.C.), Monk v. Farmers’ Mutual Insurance Company (Lindsay), 2019 ONCA 616, Kozel v. Personal Insurance Co., 2014 ONCA 130, Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.), Hobbs v. Hobbs, 2008 ONCA 598, Risorto v. State Farm Mutual Automobile Insurance Co., 2003 ONSC 43566, Clarington (Municipality) v. Blue Circle Canada Inc., 2009 ONCA 722, Young v. Young, [1993] 4 S.C.R. 3, Net Connect Installation Inc. v. Mobile Zone Inc., 2017 ONCA 766, Sagan v. Dominion of Canada General Insurance Company, 2014 ONSC 2245, DiBattista v. Wawanesa Mutual Insurance Co. (2005), 78 O.R. (3d) 445 (S.C.), aff’d on other grounds 83 O.R. (3d) 302 (C.A.), Bustamante v. Guarantee Co. of North America, 2015 ONSC 94, Alguire v. The Manufacturers Life Insurance Company (Manulife Financial), 2018 ONCA 202, Upchurch v. Oshawa (City), 2014 ONCA 425, Hunt v. T.D. Securities Inc. (2003), 229 D.L.R. (4th) 609 (Ont. C.A.), leave to appeal refused, [2003] S.C.C.A. No. 473


The appellants’ home was destroyed by fire. The respondent insurer denied coverage on the basis of violation of statutory condition 4 for failing to notify the insurer of a material change in risk, and a violation of statutory condition 7 for making wilfully false statements in their proof of loss. The appellants sued for coverage and for damages, including punitive damages for bad faith. The insurer counterclaimed for the amount it had paid out to the appellants’ mortgagee.

The jury dismissed the appellants’ action. The trial judge dismissed the claim to relief from forfeiture and awarded damages to the insurer in the amount of approximately $97,000 for the amount paid to the mortgagee. The trial judge also awarded substantial indemnity costs against the appellants in the amount of almost $617,000, as a result of their unproven allegations regarding the insurer’s conduct in denying the claim. The appellants appealed the dismissal of their action and the costs award.


1. Was there a reversible error with respect to statutory condition 4? In particular:

a. Was there evidence to support the jury’s finding (in response to Question 1) that electric heaters were the primary heat source in the house?
b. Did the trial judge err in her instructions in response to a question from the jury about the meaning of “primary heat source”?
c. Was there evidence to support the jury’s finding (in response to Question 3) that the change in heat source constituted a material change in risk?

2. Was there a reversible error with respect to statutory condition 7? In particular:

a. Did the trial judge err in her instructions to the jury about the evidence of certain witnesses?
b. Did the trial judge err in her instructions about the intention required for a “wilfully false statement”?
c. Did the trial judge err in failing to instruct the jury to consider separately whether each of the appellants made wilfully false statements?

3. Did the trial judge err in refusing relief from forfeiture?

4. Did the trial judge err in her award of costs?


Appeal dismissed. Costs appeal allowed.


1. Yes. If this had been the only basis to deny the appellants’ claim it would have constituted reversible error. However, see 2 below.

a. Yes. The insurer’s position was that the electric heaters, which were turned half on when the fire occurred, were used as the primary heat source, and that this was a material change in risk that was not disclosed to the insurer. The appellant had testified that she was using a wood stove as her primary heat source, which she supplemented with electric heaters when it got very cold. It was for the jury to decide what the primary heat source was, and there was enough circumstantial evidence to support a factual finding by the jury that the primary heat source were the space heaters.

b. Yes. The trial judge erred in the response to the following question from the jury: We would like to know the correct meaning of primary heat source, what is the definition? Is the only source of heat the same as primary source of heat? That is, if the wood stove is out and the electric heaters are on, they are the only source of heat, but are they now the primary source of heat?

The answer the judge gave to this question was that “there is no definition of the meaning of primary heat source”, following by quoting from the evidence as to the two sources of heat in this case (the wood stove and the space heaters).
It is important for judges to provide a full and proper answer to any question asked by a jury. While not all errors in a jury charge will amount to misdirection, the question on appellate review is whether the charge provided the jury with adequate assistance to determine the questions it had to decide. The judge’s answer to the jury’s question in this case was inadequate.

c. No. There was no evidence at trial by an underwriter, or any other qualified witness, as to what would constitute a material change in risk for an insurer in accepting the contract or fixing the amount of the premium. Without evidence to support the jury’s affirmative answer to Question 3, there could be no finding that the appellants had failed to notify the insurer of a material change in risk, and that they therefore were in breach of statutory condition 4.

2. No.

a. No. The Court reviewed fact-specific issues relating to the evidence of the witnesses in detailed and concluded that there was no error in the jury instructions regarding those witnesses.

b. No. The trial judge’s instruction about what was required to establish a wilfully false statement addressed the necessary mental element: that the appellants must have known that the statements in the Proof of Loss were false, or alternatively that they made the statements without belief in their truth or recklessly without caring whether they were true or not. She also explained how a statement would not be wilfully false if the person making it held an honest belief in its truth.

c. No. The appellants’ trial counsel explicitly took the position as part of deliberate trial strategy that the two appellants should be grouped together in the questions to the jury as to whether they had made false statements in their proof of loss. It was therefore not open to them to take the contrary position on appeal on the basis that they had separate insurable interests, and that therefore a misrepresentation by one did not necessarily bind the other.

3. No. The judge did not err in decline to grant relief from forfeiture in this case. She concluded that relief from forfeiture was available in the case of imperfect compliance with a requirement. She rejected the appellants’ submission that “in the absence of fraud, errors on the proof of loss were made only inadvertently or carelessly, that they constitute only imperfect compliance and, therefore, the court can grant relief from forfeiture”. She concluded that this was not a case of imperfect compliance and that relief from forfeiture was thus not available.

Relief from forfeiture requires the consideration of three factors: 1) the reasonableness of the insured’s conduct; 2) the gravity of the breach; and 3) the disparity, if any, between the value of the property forfeited and the damages caused by the breach: Monk v. Farmers’ Mutual Insurance Company (Lindsay), 2019 ONCA 616. While these three elements must be considered and balanced by the court in determining whether the insured is entitled to relief from forfeiture in the circumstances of each case, the reasonableness of the insured’s conduct “lies at the heart of the relief from forfeiture analysis.” Accordingly, a “party whose conduct is not seen as reasonable will face great difficulty in obtaining relief from forfeiture”.

A decision to grant or refuse relief from forfeiture is highly discretionary. Appellate intervention is warranted only where the judge below erred in principle, failed to take into consideration a major element of the case, misapprehended, disregarded or failed to appreciate relevant evidence, or made a finding or drew an inference not reasonably supported by the evidence.

The Court left open the question of whether s. 98 of the Courts of Justice Act can apply to a “post-loss” breach of a statutory condition, or whether only s. 129 of the Insurance Act applied. In this case, the appellants were not entitled relief from forfeiture in any event.

4. Yes. The trial judge erred in awarding substantial indemnity costs.

The appellants’ conduct did not reach the level of conduct that is deserving of sanction. The conduct that the trial judge viewed as reprehensible did not extend beyond vigorously challenging the insurer’s conduct in the context of their punitive damages and bad faith claims.

The trial judge cited the following examples in support of the award of substantial indemnity costs: that the insurer’s investigation was a sham; that the insurer had called the appellants fraudsters; that they had to bring the insurer to court kicking and screaming regarding the appraisal issue; and that the insurer had dragged out the litigation in the hope that they would give up and that the appellants would not last until the trial.

In making these claims, the appellants necessarily challenged the insurer’s handling of their claim and relied on the alleged misconduct of the insurer. Some of the allegations were made in the opening address of the appellants’ trial counsel, prompting an unsuccessful motion for a mistrial. There was nothing improper per se in the fact that the allegations were made or in the way they were stated by counsel; indeed, there is no indication that the trial judge issued any form of corrective instruction to the jury following the opening addresses. The fact that the appellants persisted with these allegations, despite certain weaknesses in their case, and were ultimately unsuccessful, is not egregious or reprehensible conduct warranting an award of substantial indemnity costs.

The vigorous pursuit of an unsuccessful claim does not by itself justify an award of costs on an elevated scale. Moreover, adverse findings of credibility do not justify an award of substantial indemnity costs. The appellants’ bad faith and punitive damages claims, which were asserted in the context of seeking coverage under their insurance policy, were not empty, baseless or entirely without foundation. This case is distinguishable from those where plaintiffs made gratuitous claims of bad faith against their insurer for ulterior purposes or without any foundation or evidence to substantiate their allegations.

Although the trial judge characterized the allegation that the appellants might “give up or die” because of delay as “particularly reprehensible” when the appellants were responsible for a good part of the delay in the action, this submission of counsel was not the kind of reprehensible conduct that would justify an award of substantial indemnity costs against the appellants. The insurer was responsible for some delay in the proceedings and the trial judge did not instruct the jury to disregard this submission. A distinction must be made between hard-fought litigation that turns out to have been misguided, on the one hand, and malicious counterproductive conduct, on the other.

Regarding the amount of costs, the appellants essentially only argued entitlement in their costs submissions to the trial judge. They did not question the time spent or amount claimed, and did not provide information about their own costs. They could not now be permitted to argue that the amount awarded was excessive. A claim that the opposing party’s costs are excessive without providing evidence of one’s own costs in the litigation is “no more than an attack in the air”.

Since the appellants did not provide their own bill of costs to assist the Court in assessing the appropriate amount of the respondent’s costs, the Court simply applied a discount to the substantial indemnity costs that were awarded in order to get to a partial indemnity amount. The costs were therefore reduced from almost $647,000 to $430,000.