October 2002

INSURABLE INTEREST

In Assaad v. The Economical Mutual Group, the Ontario Court of Appeal set aside a judgment and dismissed a claim finding that the plaintiff did not have sufficient insurable interest in property for which the plaintiff claimed recovery from the defendant insurer.

The plaintiff was a financial consultant. One of his clients owed him $10,000.00 for services rendered and agreed to sell him a new car worth $30,000.00 for $16,000.00 and forgiveness of the loan. The client was heavily in debt and had decided to leave the country.

The plaintiff agreed and purchased the new car for $16,000.00. He did not conduct any lien searches nor did he have a bill of sale. He then insured the vehicle with the defendant insurer.

The vehicle was stolen. The plaintiff claimed recovery from the defendant for the loss. The insurer conducted an investigation and determined that the car had been previously stolen. As a result, the insurer denied the claim on the basis that the plaintiff did not have an insurable interest in the vehicle.

The plaintiff commenced the action and at trial obtained judgment. The trial judge ruled that the plaintiff met the "factual expectancy test" set out by the Supreme Court of Canada in Kosmopoulos.

In Kosmopoulos, the plaintiff was a sole shareholder in the assets of a corporation. The plaintiff was the named insured under the insurance policy but the corporation was, in fact, the owner of the assets that were insured. When a loss occurred, the insured denied coverage on the basis that the named insured had no insurable interest. The Supreme Court held, however, that the plaintiff had an insurable interest on the basis that he could demonstrate, through the corporation, "some relation to or concern in the subject of the insurance, which relation or concern by the happening of the perils insured against may be so affected as to produce a damage, detriment or prejudice to the person insuring". This has been labelled the "factual expectancy test".

In the subject case, the insurer appealed against the trial judge's findings arguing that the Kosmopoulos' decision should not be given universal application, at least without context and policy considerations. The Appellant Court allowed the appeal and set outside the judgment. The trial judge had found that the plaintiff's evidence should be viewed with suspicion and that the plaintiff must have suspected, if not being blind to, the origins of the vehicle. The evidence clearly showed willful blindness. These policy concerns led the appellate court to find the plaintiff had no higher insurable interest then the thief and could not rely on the factual expectation test as a basis for recovery.

JGN