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Insurer forced to pay out claim after failing to prove arson

An insurer needs more than suspicion to deny homeowners coverage in cases of suspected arson, Vancouver personal injury lawyer Sean Lerner tells AdvocateDaily.com.

In a recent case, British Columbia Supreme Court Justice Ian Meiklem ruled in favour of the plaintiff, a 76-year-old man whose insurer suspected he was responsible for the fire that destroyed his own house.   

Lerner, principal of Lerner Law Corporation, says the case clearly laid out the task for any insurer intending to defend a claim on the basis of arson. To do so, they must prove three things:

  • The fire was set deliberately by someone,
  • The policyholder had the motive to have the fire set, and
  • The policyholder had the opportunity to do it or to have someone do it. 

In addition, Lerner says the whole body of evidence must be consistent with the conclusion that the policyholder caused the fire and inconsistent with any other reasonable explanation.

“In this case, the insurer could not prove that the homeowner had exclusive opportunity,” he says. “In the end, this was a case where the insurer obviously had its suspicions but was not able to prove them on a balance of probabilities.”

According to the judgment, the man and his wife were out of town when their home caught fire in September 2015 after being daubed with offensive messages.

The man made a claim for $425,000 but was denied by his insurer after suspicions were raised by the circumstances of the fire. For example, a cut-price sale of the property had fallen through just months before the incident, and a security technician switched off the property’s malfunctioning alarm system the day before the fire.      

The insurer attempted to frame the alarm incident as evidence of an arson plot, claiming the homeowner deliberately provided the worker with the wrong code while it was blaring, in order to leave him with the impression that the only option was to disable the system. But the judge was unconvinced.

“On that evidence, it is certainly one of the possibilities that the plaintiff deliberately provided the wrong code, but there is no sound reason to prefer that inference over the inference of malfunction,” Meiklem wrote.

“Considering the technician’s recommendation, the history of difficulties in the preceding days, and the inherent improbability of the plaintiff, an illiterate 76-year-old who is not technically savvy, believing that he could mislead a trained technician into recommending disabling the system by providing a fake code, I would not find the inference of deliberate manipulation to be the most reasonable one.”

Without any sign of forced entry, the insurer argued the homeowner’s claim to have locked all doors to the house before departing meant only he had the opportunity to cause the fire, but the plaintiff countered by claiming it was possible he had forgotten or failed to properly close one of the doors.

A neighbour originally told police he had heard the overhead door of the plaintiff’s RV garage closing as the suspect’s vehicle departed, an account the judge said understandably bolstered the insurer’s suspicion of arson.

But he recanted the evidence at trial, telling the court he had embellished his account in an effort to be helpful to the investigators.

“[The neighbour’s] recantation was accompanied by a degree of sheepishness, and it took a good deal of courage to make the admissions that he made. I think that he was motivated by a need to set the record straight. I do not find his original statement to be reliable at all to support a finding that the RV garage overhead door was used, which might lead to the further inference sought by the defendant as to the plaintiff’s exclusive control of a second remote opening device,” Meiklem wrote, before going on to conclude that the insurer had failed to meet its evidentiary burden. 

“In this case, there was no evidence connecting the plaintiff to anyone who might be the arsonist, despite investigations having been conducted by both the RCMP and the defendant. In my opinion, there is a dearth of ‘other inculpatory evidence,’ and I find that the defendant has not established opportunity,” he added.

Lerner says the recanted evidence blew a hole in the insurer’s theory of arson.

“If the neighbour’s original story was accepted, the result may have been different,” he says.

“But the evidence on motive was also shaky,” Lerner adds, noting that while the plaintiff did have a large mortgage on the property he still would have realized a significant equity with a successful sale. The court found it would have been more advantageous to sell the property than to burnt it for an insurance settlement.

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