Overzealous denial of claim results in large punitive damage award

The recent BC Supreme Court decision Arsenovski v. Bodin, 2016 BCSC 359, illustrates, by way of an extreme example, the risk insurers run by overzealous denial of an insured’s claim.

The case arose from the insurer’s decision to deny the Plaintiff’s benefits claim after a motor vehicle accident on the basis of an alleged fraud.  The insurer went so far as to recommend the Crown pursue criminal charges against the Plaintiff.

In response, the Plaintiff brought an action against the insurer and its agents for malicious prosecution and negligent investigation. The Honourable Madam Justice Griffin found the insurer and its agents jointly and severally liable to the Plaintiff for the tort of malicious prosecution and awarded $30,000 for emotional suffering and made the extraordinary award of $350,000 in punitive damages.

The claim arose when the Arsenovskis, recent immigrants to Canada, were walking home from an English class on a rainy evening and a left-turning vehicle struck Mr. Arsenovski. It was unclear whether Ms. Arsenovski was struck by the vehicle, but she also fell to the ground sustaining bruises. Both were taken to the hospital.

A week later, the Arsenovskis reported the accident to their insurer. Ms. Arsenovski did not advance a claim for bodily injury, as her injuries were mild. She sought only benefits to pay for her medical treatment. The insurer’s representatives keyed in on a “false statement” Ms. Arsenovski made that appeared in the hospital records from the night of the accident.  The hospital records suggested Ms. Arsenovski was unable to recall, or adequately explain, how she ended up on the ground after her husband was struck.

The insurer refused to pay for Ms. Arsenovski’s treatment, taking the position that she had made a “willfully false statement”. It maintained this position despite the fact that the ambulance record, the hospital records, the records kept by Ms. Arsenovski’s physician, and eyewitness accounts each provided at least some support for her version of events. Justice Griffin concluded that the only alternatives to Ms. Arsenovski’s account of the accident were “rather absurd”, stating:

“It is extremely unlikely that after only a few months in Canada, Mrs. Arsenovski was so quick-thinking and devious and knowledgeable about ICBC claims, that after her husband was hit by the car she threw herself to the ground in order to create injuries, all with the intention of advancing a fraudulent claim against ICBC.”

A more plausible explanation for the unsatisfactory hospital record was simple miscommunication. Ms. Arsenovski had limited English skills and had also just been through a traumatic experience.

Six months later, the insurer’s investigator submitted a Report to Crown Counsel, recommending Ms. Arsenovski be charged with fraud over $5,000 and making a false statement. The Crown proceeded only with the fraud charge. That charge, untenable as supported only by the questionable statement made at the hospital, was stayed by the Crown on the day the criminal trial was set to begin.

In seeking to prove malicious prosecution, Ms. Arsenovski had to prove four elements, as set out by the Supreme Court of Canada in Nelles v. Ontario, [1989] 2 S.C.R. 170:

a)  the proceedings were initiated by the defendant;

b)   the proceedings were terminated in favour of the plaintiff;

c)   there was an absence of reasonable and probable cause for the defendant’s conduct; and

d)  the defendant was actuated by malice or a primary purpose other than carrying the law into effect.

The Defendants admitted the first two elements, but denied the last two elements.

Justice Griffin found the investigator had neither objectively reasonable grounds for suspicion nor a subjective belief in Ms. Arsenovski’s guilt. The investigator’s primary purpose was the deterrence of a civil claim for damages.  As such, the court made the extremely high punitive damages award against the Defendants.

This case is a good reminder that insurers must be willing to reassess their position as evidence develops to ensure at all times that they are acting reasonably and in good faith to their insureds.