Ontario automobile insurers have a right to ask a wide range of questions from an insured pursuant to their contract of insurance. These rights continue even when litigation has been commenced against them by their insured.

Mr. Baig insured his car.  It was damaged and he made a claim of insurance.  The insurer refused to pay the claim so Mr. Baig commenced an action against his insurer to compel payment.  The insurer attempted to examine Mr. Baig pursuant to Statutory Condition 6(4) of the policy of insurance.  Mr. Baig refused to answer any questions about liability of the extent of damages.  The insurer brought a motion to compel Mr. Baig to answer these questions pursuant to Statutory Condition 6(4).  A motion’s judge determined that the right to question Mr. Baig pursuant to the contract of insurance was restricted once an action was commenced by the insured.  The Ontario Court of Appeal disagreed and ordered Mr. Baig to attend and answer questions pertaining to issues of liability [how the accident occurred] and damages.

Russel Baig v. Guarnatee Co. of North America, [2007] O.J. No. 4727, Ontario Court of Appeal, Rosenberg, Armstrong Juriansz JJA., December 5, 2007

The Insurer appealed a decision dismissing its counter-claim against the Respondents, Leanne Giilck and Discount Auto Appraisals, in which it was found that it had no right to compel the Respondent, Rehman Baig (the “Insured”), to attend for an examination under oath pursuant to Statutory Condition 6(4) of the Insurance Act.

The Ontario Court of Appeal allowed the appeal based on the finding that the Statutory Condition does not cease to operate once litigation is commenced and that the scope of examination extends to all matters material to the Insurer’s liability, and extent thereof, which the Insurer has an objective and reasonable basis to explore.

The Insurer insured the Insured’s 1999 BMW M3 convertible beginning in 2002. The insurance included an endorsement that insured the vehicle for a specified value. To obtain that coverage, the Insured submitted an appraisal report signed by Giilck of Discount Auto Appraisals. Upon receiving the appraisal, the Insurer provided the Insured with an endorsement on the vehicle in the amount of $71,300.

The vehicle was damaged in a collision on December 10, 2004 and the Insured submitted a Proof of Loss to the Insurer claiming the full amount specified in the endorsement. The Proof of Loss indicated that the vehicle had been purchased on February 23, 2002 for $12,500 U.S. “as per salvage price”. The Insurer had also learned that Giilck was the common law partner of the Insured and that together they operated Discount Auto Appraisals.

The Insurer required the Insured to attend an examination under oath pursuant to Statutory Condition 6(4). The Insured attended with counsel who refused to allow the Insurer to ask any questions about how the amount of the appraisal had been determined. He took the position that the examination was restricted to the particulars of the claim and did not extend to the appraisal report, which he regarded as a prior underwriting event.

The Insured later commenced an action against the Insurer claiming damages for loss of the automobile, together with punitive, exemplary and aggravated damages of $100,000 each. The Insurer then filed a Statement of Defence alleging that the appraisal prepared by Discount Auto Appraisals had been greatly overstated due to the poor condition of the BMW at the time and that the Insured, Giilck and Discount Auto Appraisals had misrepresented the value of the BMW. The Insurer counter-claimed against the Insured, Giilck and Discount Auto Appraisals for misrepresentation and detrimental reliance.

The Insurer brought a motion for an order compelling the Insured to attend to be examined under oath pursuant to Statutory Condition 6(4) and to answer questions relating to the initial valuation of his vehicle. In response, the Insured, Giilck, and Discount Auto Appraisals sought summary judgment dismissing the counter-claim.

The Motions Judge found that the statutory examination under oath was redundant because the Insurer had a right to examine the Insured for discovery in the lawsuit. The Motions Judge took the view that once the relationship between an insurer and insured becomes adversarial, or at least once a lawsuit is commenced, the examination under Statutory Condition 6(4) is no longer available to the insurer.

The Court of Appeal disagreed finding that there are no words in the provision to indicate that an insurer’s right to examine an insured is limited to the situation in which the relationship is not adversarial. The Court of Appeal held that the statutory condition must be applied according to its plain terms. An insured cannot evade the plain requirement to submit to an examination by simply commencing an action. The Court of Appeal found that the potential for redundancy can be eliminated because the Court, in controlling its own procedures, is able to consider questions that have already been asked and answered on a statutory examination improper on a subsequent examination for discovery.

The parties agreed that the scope of the examination is defined by the term “the matters in question”, though those words are used in Statutory Condition 6(4) to refer to the Insured’s obligation to produce relevant documents in the examination. The Motions Judge took the view that the scope of the statutory examination was limited to the Insured’s claim for insurance benefits. In the Motions Judge’s view, the Insurer had agreed to the value of the vehicle when the policy was issued; accordingly, its value was not a “matter in question” in respect of the Insured’s claim for benefits when the vehicle was damaged two years later.

The Court of Appeal found that the purpose of the statutory examination is to provide insurers with the opportunity to obtain the knowledge of facts necessary to enable them to determine their obligations and to protect them against false claims. Questions that are material to the Insurer’s liability and the extent thereof are within the scope of the statutory examination. Whether the initial appraisal of the vehicle was fraudulent is a matter that is relevant to the Insurer’s defence to the Insured’s action. Therefore, as the Insurer had an objective and reasonable basis for suspecting that the initial appraisal was fraudulent, the Insured was obligated to submit to examination about it.

This case was originally summarized by Cameron B. Elder and edited by David W. Pilley.

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