The issue of repayment of monies paid to insured persons, either through error, fraud or material misrepresentation, has been difficult for insurers.
An insurer was not able to file an application for arbitration at FSCO. Thus, prior to April 1, 2016, if an insurer was asserting an issue of overpayment, recovery was limited pursuant to section 52 of the Schedule. With the introduction of the changes that came into effect on April 1, 2016 however, the right of an insurer to bring an Application with respect to this issue was created. Pursuant to amended section 280(2) of the Insurance Act, insurers can now file an Application at the Licence Appeal Tribunal to try to recover benefits that have been paid through error, by fraud or material misrepresentation, and which the insured person has refused to repay.
The issue of what constitutes material misrepresentation has been the subject of much case law over the years at the Financial Services Commission of Ontario. A new decision by the LAT relies on some of this previous case law.
In Aviva Canada and S.A., 2016 CanLii 96164 (ON LAT), the issue was whether the insured had wilfully misrepresented facts with respect to his claim for income replacement benefits. S.A. provided information on his benefit Application, and through subsequent documentation, establishing that he would qualify for an IRB on the basis that he worked 26 of the last 52 weeks prior to the motor vehicle accident, and that he had also received Employment Insurance benefits.
Adjudicator Bass followed the decision of then Arbitrator Blackman in Michalowski and St. Paul Fire and Marine Insurance Company (FSCO A98-0011492, Blackman July 9, 1999) that set out the following:
… the onus is on St. Paul to prove that this provision applies to Mr. Michalowski in the factual situation herein, and if so, that he has indeed made a misrepresentation, that the misrepresentation was wilful, and that what was misrepresented were material facts respecting his application for income replacement benefits. I also find that the onus is also on the Insurer to establish that it has complied with the requirements of subsection 48(2) of the Schedule.
The word “wilful”, as defined in Adu-Poku and Kingsway General Insurance Company, (FSCO OIC A96-000433), was adopted by Arbitrator Blackman: “a deliberate or intentional action”. It has thus been adopted by other arbitrators. Arbitrator Blackman (as he then was) set out the meaning of “material” in Michalowski as being “sufficiently basic or fundamental”. He found that “material” must be of a level to justify the relief as set out in (then) section 48, which includes the denial of all future benefits if there has been a misrepresentation.
The issue of whether a misrepresentation is “material” will involve a consideration of the following factors:
1. What is being misrepresented
2. What is obtained as a result of the misrepresentation
3. The relationship in monetary and other terms between the misrepresentation and the potential benefit available
4. The availability to the insurer of other provisions (see section 47, now section 52)
After Michalowski set the standard for determining what was material, wilful and misrepresentation, a number of cases took on the issue of determining which party held the burden of proving the misrepresentation. In TTC and Wootton, (FSCO, P04-00004, November 2, 2004), Director’s Delegate Draper stated:
The law in Ontario is as such: on a claim for payment under an insurance policy, the claimant has the burden of proving that he or she fits within the scope of coverage. The situation does not change simply because the insurer challenges the facts upon which the claim is based.
An insured person must prove his or her case by introducing evidence that meets the civil burden of proof. In Dwumaah and RBC General Insurance Company¸ (FSCO A03-000956, May 3, 2005), Arbitrator Kominar held that the insured’s version of events was so absurd, and inconsistent, that while an “incident” did occur between the two vehicles, it could not have occurred in the manner in which Mr. Dwumaah described such that , he had wilfully misrepresented facts in an effort to claim accident benefits.
Some cases have followed the proposition that once an allegation of misrepresentation is made, the insurer has the onus of proving same (see Szabo and CAA Insurance Company, Fisk and ING Insurance Company of Canada). It appears that at the LAT, the party alleging the misrepresentation bears the onus of proof if the decision in Aviva Canada and S.A., 2016 CanLii 96164 (ON LAT) is any guide.
In Aviva and S.A., the assessment turned to the evidence presented by the parties. Adjudicator Bass confirmed that the Respondent (insured) lacked credibility, and that the evidence supported not only that he did he not qualify for income replacement benefits, but also that he had provided false information to the insurer in an effort to obtain those benefits. He had not, in fact, received Employment Insurance Benefits. Repayment was ordered.
It remains to be seen whether future LAT adjudicators will place the legal onus on an insured to prove “that he or she fits within the scope of coverage” , as in TTC and Wootton, or to only require insured persons to lead evidence to demonstrate that there was no misrepresentation, or that the misrepresentation was not material or wilful, where those allegations are supported in the evidence led by the insurer on an application for repayment.