2005 BCCA 515 Skuratow v. Commonwealth Insurance Co.

Docket: CA032308

Between:

Jason Skuratow

Respondent

(Plaintiff)

And

Commonwealth Insurance Company

Appellant

(Defendant)

Before:	The Honourable Madam Justice Prowse
	The Honourable Mr. Justice Smith
	The Honourable Mr. Justice Lowry

E.E. Bowes	Counsel for the Appellant
G.G. Plottel	Counsel for the Respondent
Place and Date of Hearing:	Vancouver, British Columbia
September 16, 2005
Place and Date of Judgment:	Vancouver, British Columbia
October 24, 2005

Written Reasons by:

The Honourable Madam Justice Prowse

Concurred in by:

The Honourable Mr. Justice Smith

The Honourable Mr. Justice Lowry

Reasons for Judgment of the Honourable Madam Justice Prowse:

NATURE OF APPEAL

[1] Commonwealth Insurance Company ("Commonwealth") is appealing from the decision of a trial judge, made September 2, 2004, granting Jason Skuratow judgment for the replacement value of his missing truck and trailer which were insured under a policy of insurance with Commonwealth. The order provided that the judgment was payable when Mr. Skuratow actually replaced the truck and trailer, which had not occurred prior to trial. Commonwealth had denied coverage on the basis of s. 137(1)(c) of the Insurance Act, R.S.B.C. 1996, c. 226 (the "Act"), alleging that Mr. Skuratow and his wife, as his agent, had made wilfully false statements in respect of his claim under the insurance policy.

GROUNDS OF APPEAL

[2] Commonwealth has raised numerous grounds of appeal. Since I have concluded that the appeal must be allowed, I find it necessary to deal with only two of those grounds; namely, that the trial judge erred in:

(1) failing to find that Mr. Skuratow made wilfully false statements in pursuing his claim under the policy; and

(2) failing to find that the wilfully false statements made by Mr. Skuratow were material to the claim being advanced under the policy.

BACKGROUND

[3] Mr. Skuratow was the owner of a logging truck and trailer which were financed by CIT Financial Ltd. ("CIT") and insured by Commonwealth, and which he contracted out to various logging companies through his sole proprietorship (the "business"). The truck and trailer were in his name, but the business was run in all significant respects by his wife, Ms. Skuratow, who maintained the books, paid the bills, and dealt with the insurance.

[4] The business experienced ongoing difficulties in making its monthly payments to CIT. Partial payments were made regularly, but often not in full. As a consequence, CIT sent three demand letters to the business which were dealt with in each instance by Ms. Skuratow. In response to the final demand letter received on April 3, 2002, Ms. Skuratow negotiated a partial payment on April 12, 2002.

[5] On April 15, 2002, Ms. Skuratow was advised that the lock on the compound where the truck and trailer were kept had been cut and that the truck and trailer were missing. On the same date, knowing that the truck and trailer were missing, Ms. Skuratow called CIT to discuss further payments. She was advised that CIT planned to seize the truck and she invited them to do so. She did not advise CIT that the truck and trailer were missing until April 17, 2002.

[6] On April 18, 2002, Mr. Skuratow gave a statement to the adjuster who was representing Commonwealth. Amongst other things, he told the adjuster that the payments with CIT were up to date. This statement, which was false (approximately $30,000 was owing to CIT), was made in the presence of Ms. Skuratow who did nothing to correct Mr. Skuratow, although she knew that the payments were in arrears.

[7] On July 27, 2002, Mr. Skuratow made a statement to a member of the R.C.M.P. in which he appeared to qualify his April 18, 2002 statement by indicating that, while payments had always been made to CIT, those payments were not always in full. But in the same statement, he again stated that he was never behind in payments.

[8] On July 29, 2002, Mr. Skuratow made a further statement to an investigator for Commonwealth which again qualified his original statement that payments to CIT were up to date, but which contained several other misstatements, including a statement that his fuel payments and repair bills were up to date.

[9] Commonwealth's position at trial was that Mr. Skuratow, by his own admission, knew nothing about his business when he made the various statements, particularly those to agents of Commonwealth, and that it was incumbent on him in the circumstances to either advise Commonwealth of that fact, or to make inquiries to ascertain the true state of affairs before making these statements. Commonwealth submitted that Mr. Skuratow was either wilfully blind to the true state of his business affairs when he made those statements without ascertaining the correct information, or, alternatively, that he made the statements recklessly, not caring whether they were correct or not. In either case, Commonwealth submitted that coverage should be denied under s. 137(1)(c) of the Act.

DECISION AT TRIAL

[10] The trial judge dealt with Commonwealth's submission with respect to Mr. Skuratow's misstatements at paras. 29-30 of her reasons as follows ((2004), 16 C.C.L.I. (4th) 231, 2004 BCSC 1162):

Mr. Skuratow did not tell the insurance adjuster the true state of affairs with his business. I accept his evidence that he did not know the true state of the Business' finances. Therefore it cannot be said that he wilfully made false or misleading statements. Much was made of the fact during cross-examination of Mr. Skuratow that he was "blind" to the fact that his business was in financial difficulty. Needless to say, the intention to make false or misleading statements can be proven by proof of wilful blindness or recklessness on the part of the person making the statements. Here, I find that there is insufficient evidence to support either a finding of wilful blindness or recklessness on the part of Mr. Skuratow. He was honestly mistaken regarding whether the payments on his truck were up to date.

The burden is on the defendant to prove fraud on a spectrum that is higher than a simple balance of probabilities, but does not approach the standard of proof beyond a reasonable doubt which is required for a criminal case.

[Emphasis added.]

[11] In discussing the issue of materiality, the trial judge did not accept the evidence of Commonwealth's investigator that the misstatements made by Mr. and Ms. Skuratow had caused him to change the nature of his investigation. She also found that "before the claim was fully assessed, Commonwealth had the correct information with which it could properly manage the claim." (Para. 52.) Further, although she found that Mr. and Ms. Skuratow's statements that they were not behind in their payments to CIT could be material, she concluded that "misrepresenting the quantum [of payments owing] would probably not change the management of the claim." (Para. 54.) In that regard, although Mr. Skuratow had said that no monies were owing to CIT, Ms. Skuratow had later acknowledged that $19,000 was owing to CIT, and the trial judge was of the view that the difference between $19,000 and $30,000 (the amount actually owing) was not material. The trial judge did not specifically address the other misstatements made by Mr. Skuratow, including his statement that fuel and repair bills were up to date.

DISCUSSION

(1) Wilfully False Statements

[12] Section 137 of the Act provides, in part, as follows:

137 (1) If

. . .

(b) the insured contravenes a term of the contract or commits a fraud, or

a claim by the insured is invalid and the right of the insured to recover indemnity is forfeited.

[Emphasis added.]

[13] Although Commonwealth originally pleaded that coverage under the policy should be denied under both ss. 137(1)(b) and (c) of the Act, it restricted its submissions at trial to s. 137(1)(c). In other words, it did not seek to establish all of the elements of fraud necessary to succeed in a denial of liability under s. 137(1)(b), but only to establish that Mr. Skuratow (or Ms. Skuratow on his behalf) had made one or more wilfully false statements in respect of the claim which were material to the claim.

[14] I agree with the trial judge that a wilfully false statement within the meaning of s. 137(1)(c) includes a statement which is made as a result of wilful blindness as to the truth of the facts alleged, or with reckless disregard of the true facts. This view finds support in the decision of the House of Lords in Derry v. Peek (1889), 14 App. Cas. 337, and, in particular, in the judgment of Lord Herschell. While Lord Herschell's decision is most often cited for its definition of the tort of deceit, it is also useful for its discussion of the nature of the false representations which are an essential element of the tort. In that regard, Lord Herschell stated (at p. 374):

I think the authorities establish the following propositions: First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth.

[Emphasis added.]

[15] In order to prove the tort of deceit, it was also necessary to prove that the party alleging deceit had relied on the false representation and had suffered damage thereby.

[16] Section 137(1)(c) does not require the insurer to establish reliance or damages, but only that the insured has wilfully made false statements. Like a claim in deceit, however, an allegation that a person has made wilfully false statements under s. 137(1)(c) is founded in fraud, and the court will not find fraud where the person making the false statement has an honest belief in its truth. The difficulty lies in determining whether the belief is honestly held. The reasonableness of the belief is a relevant factor in making that determination. In that regard, I find the following passage from the judgment of Lord Herschell at pp. 375-76 of Derry v. Peek particularly apt in relation to Mr. Skuratow's statements concerning the finances of the business:

. . . when a false statement has been made, the questions whether there were reasonable grounds for believing it, and what were the means of knowledge in the possession of the person making it, are most weighty matters for consideration. The ground upon which an alleged belief was founded is a most important test of its reality. I can conceive many cases where the fact that an alleged belief was destitute of all reasonable foundation would suffice of itself to convince the court that it was not really entertained, and that the representation was a fraudulent one. So, too, although means of knowledge are, as was pointed out by Lord Blackburn in Brownlie v. Campbell, [(1880), 5 App. Cas. 925 at 952 (H.L.)] a very different thing from knowledge, if I thought that a person making a false statement had shut his eyes to the facts, or purposely abstained from inquiring into them, I should hold that honest belief was absent, and that he was just as fraudulent as if he had knowingly stated that which was false.

[Emphasis added.]

(This passage was quoted with approval in circumstances somewhat similar to those here in Sienema v. British Columbia Insurance Co. (2003), 21 B.C.L.R. (4th) 321, 2003 BCCA 669.)

[17] In my view, while the trial judge correctly stated the law with respect to the nature of the false statements which would entitle Commonwealth to deny coverage under s. 137(1)(c), she erred in her application of the law to the facts, thereby reaching a conclusion which was clearly wrong. She found that Mr. Skuratow had an honest belief in the truth of the impugned statements despite his evidence that he knew nothing whatsoever about the state of his business or its accounts and in the face of what is tantamount to an acknowledgment that he had been wilfully blind in that regard. For example, in cross-examination of Mr. Skuratow at trial with respect to his statement on April 18, the following exchange occurred:

Q . . . Cassidy [an adjuster for Commonwealth] asked the question, "were you up to date on your payments on the truck," and your answer was, yes?

A Yes.

Q Now, given the fact that you purposely chose not to have anything to do with the finances of this business, you really had no basis in fact to make that statement to Mr. Cassidy at all, did you?

A I guess I didn't.

[18] Further, with respect to Mr. Skuratow's statement to a police officer on July 27 and to Commonwealth's investigator on July 29, Mr. Skuratow's evidence was as follows:

Q And during this time, from April 18th, all the way to July 27th when you talked to Constable Tepper you never asked [Ms. Skuratow] anything about the finances, are we up to date, dear? Nothing at all? That's your evidence?

A I didn't ask her.

Q You chose to remain blind to the financial condition of your business, correct?

A I suppose I did.

Q And you know today the statement you gave to Constable Tepper was not true?

A I know today.

Q Let's look at the third statement you gave . . . to Daryl Dunn, two days later. Now, after your conversation with Constable Tepper, did you go home and talk to your wife, and say you had this conversation with Constable Tepper, he asked me some more about finances, can you tell me about that, dear?

A No. I didn't ask her.

Q You chose to remain blind to the financial situation for a while longer?

A Yes.

Q You asked nothing before you met with Mr. Dunn two days later?

A I trusted my wife was dealing with it.

Q Now, you know you were going to meet with Mr. Dunn, he gave you some advance warning?

A Yes.

Q He told you who he was and why he was there?

A Yes.

Q But still before you went to meet with him you made no inquiries of your wife regarding finances?

A No.

[19] Mr. Skuratow had no legal obligation to be aware of the day-to-day finances or operations of his business and he was perfectly within his rights in leaving all business matters, including the matter of insurance, to his wife. However, when he took it upon himself to make a claim for the loss he suffered as an insured by reason of the apparent theft of his truck, he was responsible for the contents of the statements he made with respect to that claim.

[20] I find it difficult to comprehend how Mr. Skuratow's statements could be viewed as having been made "honestly" when they were made in total and intentional ignorance of the true state of affairs and without any effort on his part to make inquiry. The honest answer to the question as to whether he owed any money to CIT or others was "I don't know." In these circumstances, and having regard to the passages from Derry v. Peek referred to at paras. 14 and 16 of these reasons, I am satisfied that the only tenable conclusion flowing from the evidence is that Mr. Skuratow's statements that no payments were owing to CIT and that repair and fuel bills were up to date were wilfully false, in the sense of having been made recklessly, without regard to their truth or falsity, or with wilful blindness, in purposely refraining from making inquiry. His statements are distinguishable in that respect from statements made inadvertently, or negligently. (See Petersen v. Bannon (1993), 84 B.C.L.R. (2d) 350 (B.C.C.A.), at para. 46, leave to appeal to S.C.C. refused, [1994] 2 S.C.R. vii.)

[21] In summary on this point, I conclude that the trial judge's finding that the statements made by Mr. Skuratow to which I have referred were not false statements that were wilfully made within the meaning of s. 137(1)(c) does not find support in the evidence and was clearly wrong.

(2) Were the Statements Material?

[22] The next issue which arises is whether the statements made by Mr. Skuratow were material, in the sense of having the capacity to affect the mind of the insurer either in the management of the claim or in deciding to pay it. (See Inland Kenworth Ltd. v. Commonwealth Insurance Co. (1990), 48 B.C.L.R. (2d) 305 (B.C.C.A.), followed in Brown v. Insurance Corporation of British Columbia (2004), 28 B.C.L.R. (4th) 93, 2004 BCCA 254, at paras. 20 and 21.) In analyzing this question, I shall have regard primarily to the statement made by Mr. Skuratow on April 18, 2002 and, to a lesser extent, his statement on July 29, 2002 that fuel and repair charges on the truck were up to date.

[23] In analyzing this issue, the trial judge did not refer to all of the misstatements made by Mr. Skuratow which Commonwealth alleged were material, and, in some instances, the trial judge combined the misstatements made by Mr. and Ms. Skuratow in discussing the issue of materiality. In the result, however, the trial judge found that none of the misstatements was material. In her view, the misstatements could not possibly have affected Commonwealth's management of the claim since the misstatements concerning the debt to CIT were substantially corrected at a later date and because Commonwealth had proceeded as if the claim might be fraudulent in any event. Her finding that the adjuster for Commonwealth was not credible to the extent he stated that he relied on the misstatements in his investigation was also a significant factor in her determination that the statements were not material.

[24] In my view, although the trial judge correctly stated the test for materiality found in Inland and Brown, she erred in the manner in which she applied that test to the facts before her. Instead of determining whether the false statements made by Mr. Skuratow had the capacity to affect the mind of the insurer, either in the management of the claim or in deciding to pay it, she looked at whether Commonwealth had actually been misled by the false statements. She found that Commonwealth had not been misled and concluded, therefore, that the statements were not material.

[25] An obvious difficulty with this line of reasoning (in addition to the fact that it adopts an approach contrary to that advocated in Inland and Brown), is that it would permit a person making a claim for insurance to make wilfully false statements with impunity in any case in which the insurer had already decided to investigate the claim. Further, the Brown decision makes it clear that it is not sufficient for an insured to correct his false statements at a later date and then seek to rely on the corrected statements to obtain coverage. Finally, even though an investigator had been retained by Commonwealth at a relatively early stage of the investigation, the false statements made by Mr. Skuratow relating to the absence of debts owing by the business had the capacity to affect the nature and extent of that investigation.

[26] Mr. Skuratow's first statement made on April 18, 2002 that there was no money owing to CIT was clearly material in that it had the capacity to alleviate any concerns of the insurer that the owners may have been driven to desperate measures (such as arranging for the disappearance of their truck and trailer) by failing financial circumstances. Nor does it matter that Mr. Skuratow qualified this statement to some extent in later statements in which he stated that the payments may not always have been up to date. This is particularly so since he went on to falsely state that other creditors had been paid when they had not.

CONCLUSION

[27] For these reasons, I conclude that the trial judge was clearly wrong both in finding that Mr. Skuratow was not in breach of s. 137(1)(c) of the Act and in finding, in the alternative, that his wilfully false statements were not material to the claim within the meaning of the Inland and Brown decisions. I would, therefore, allow the appeal, set aside the order at trial, and dismiss the action.

“The Honourable Madam Justice Prowse"

I Agree:

“The Honourable Mr. Justice Smith”

I Agree:

“The Honourable Mr. Justice Lowry”

Citation:	*Skuratow v. Commonwealth Insurance Co.,*
	2005 BCCA 515