J. 1993 S.H. No. 93-1299 IN THE SUPREME COURT OF NOVA SCOTIA BETWEEN: CANADA TRUSTCO MORTGAGE COMPANY, body corporate and THE CO-OPERATORS GENERAL INSURANCE COMPANY, body corporate DEFENDANT HEARD: At Halifax, Nova Scotia, on February 12th 13th, A.D. 1996 BEFORE: The Honourable Justice Charles E. Haliburton SUBJECT: Fire Insurance, Householder, Overlapping Coverage, Standard Mortgage Endorsement, Fraud or Misrepresentation by Mortgagee DECISION: The 12th day of September, A.D. 1996 COUNSEL: W. Dale Dunlop, Esq., for the Plaintiff Clarence A. Beckett, Q.C., Esq., for the Defendant DECISION HALIBURTON, J. This action involves contest between two insurance companies. It results from the loss by fire of residence owned by Michael and Diane Brown which was subject to mortgage in favour of Canada Trustco Mortgage Company. At the time of the fire loss, there were in place two policies of insurance for the purpose of indemnifying Canada Trustco. In advancing their claim against one insured, Canada Trustco failed to disclose the existence of the second policy. One policy had been placed by the Owners/Mortgagors, Mr. and Mrs. Brown, and protected both their interests and the interests of the Mortgagee. This policy was placed with The Co‑operators General Insurance Company. The second policy was placed by Canada Trustco to protect its own interests as Mortgagee and was put in place as result of notice that the Co-op policy was being cancelled by Co‑op. This latter policy was placed with Marsh McLennan and is subscription policy. Under the terms of the arrangement between Canada Trustco and Marsh McLennan, coverage was put in place on the basis of notice from the mortgage company. Perhaps the best overview of the facts was produced by Dave Fiander, Mortgage Officer in Dartmouth for Canada Trustco, in his memo of November 10th, 1992, which was directed to his immediate superior in Dartmouth and the Regional Manager. It read: We have commenced foreclosure proceedings against the above noted mtg. It's very unusual situation, would appreciate your input in regards to whether we should obtain solicitor to handle. Here's the story. The property had been vacant since June of 92, as it was listed for sale. Mr. and Mrs. Brown are separated he has been charged for attempted murder. discussed with Mrs. Brown Sept. 17th regarding the possibility of foreclosure. She advised she did not have the resources to pay. Arrangements were made to inspect the property Sept. 18th. viewed on Sept. 18th, and contacted Mrs. Brown that day and advised foreclosure proceedings would be started immediately. She was very upset. Mrs. Brown advised her homeowners insurance would be expiring on Sept. 20th, and she did not have cash to renew. made arrangements with RMAO to place insurance on the property effective immediately Sept. 18th. received call that Saturday Sept. 19th advising the property had been destroyed in fire. The Cooperators, who carry the insurance on our property are in the process of investigating the fire. They suspect arson. spoke with gentleman from the Insurance Crime Bureau last week and he advised we probably will be paid, however it could be long process. That's where we stand as of today.. questions/concerns Do we retain solicitor to act on our behalf? Does our insurance company have any responsibility if the Cooperators do not pay? feel we should retain lawyer to act on our behalf. What are your feelings? The Document Brochure, Volume 2, TAB 22, discloses that Marsh McLennan were advised of the loss on November 9th just before the above memo was written. No claim, however, was made against their policy until much later. By an internal memo, Jim Freeman, Regional Mortgage Manager, gave instructions that foreclosure action should be commenced. His message is dated 11th of February, 1993. The position/understanding of the staff of Canada Trustco as of that time is reflected in another internal memo initiated by Nancy During, Collections Officer, which contains the following comments (TAB 40): We placed ins. thru Marsh and McLennan. The next day the house burnt down and the next day Mr. Browns ins. expired. We should be paid out by Mr. Brown's ins. co. as policy was in force, however, they are now saying the policy will not be honoured as Mr. Brown had not paid previous premium with another insurance company and Canada Trust was aware of this. Even though Mr. Brown had paid their premium, they are still not going to cover the claim. We have referred the file to our solicitor Kevin Quigley who will initiate foreclosure action to sell the land. We will then apply proceeds of sale to mortgage and sue the insurance company for the balance... AGREED FACTS The parties have submitted Statement of Agreed Facts to the Court which may be summarized as follows: The insured property was private family dwelling located at Lake Echo. It was relatively isolated on dirt road, one kilometre from any other dwellings. It was destroyed by fire at 2:30 a.m., September 19th, 1992. Fire Marshal's investigation determined that it was "incendiary" in nature. (A popular phrase in many cases would term it "fire of suspicious origin".) The property had been mortgaged to Canada Trustco Mortgage Company, the Plaintiff, by Diane and Michael Anthony Brown. At some earlier time, the Browns had apparently separated and Mrs. Brown, (alternatively referred to as Diane Jamieson), assumed ownership and responsibility for the mortgage. Diane Jamieson obviously had some financial difficulties. Mortgage payments were overdue and as of September 19th, she was at least two months in arrears. As of November 30th, it is agreed that the total amount owing on the mortgage, including arrears, was $101,895.76. On January 7th, 1992, Notice of Cancellation was given to Ms. Jamieson by Royal Insurance, her then insurers, for non-payment of the insurance premium. Effective March 9th, she obtained Co-operators Home-Guard insurance policy, policy no. 4125986, insuring the premises in the total amount of $200,000. It contained standard mortgage clause as approved by the Insurance Bureau of Canada for the protection of the Mortgagee, Canada Trustco. As result of two claims filed with the insurers claiming vandalism damage, the property was visited by both an adjuster and sales representative of Co-op. They found the property to be vacant, isolated, that the power had been shut off for non-payment of the electricity bill, and decision was taken to cancel the policy. On the afternoon of September 15th/16th, Notice of Cancellation was delivered to Ms. Jamieson and to Canada Trustco. It is agreed that the termination of coverage would have been effective at 12:01 a.m. September 20th, 1992. The insured property was totally destroyed by fire some 22 hours before that deadline. On September 17th, David Fiander, Mortgage Officer for the Plaintiff, also visited the premises. He spoke with Diane Jamieson, noted that the premises were vacant, learned that Notice of Cancellation had been delivered with respect to the insurance coverage, and made decision to foreclose. On September 18th, he requested Angela Paddock, clerk in the Canada Trustco Collections Department, to obtain alternate insurance coverage which she did. Under subscription policy administered by Marsh McLennan (M M), the insurers were notified to place coverage on house appraised at $150,000 effective September 18th. The "value" of the property was factor in fixing the premium charged. This subscription policy no. MMF/1023 contains standard mortgage endorsement clause as approved by the Insurance Bureau of Canada and is identical to the standard mortgage clause contained in the Co-operators Home-Guard policy. Subject, then, to the terms of the insurance policies themselves, there were two policies in effect at the time of the fire, the first being the Cooperators Home-Guard policy with the standard mortgage endorsement clause in favour of the Plaintiff; the second being the subscription policy covering the interests of the Plaintiff/Mortgagee, subject only to $5,000 deductible. THE WITNESSES THEIR TESTIMONY Angela Paddock is clerk in the Credit Service Office of Canada Trustco at Halifax. It is her office which monitors payments, arrears, institutes foreclosure proceedings, and sees the company has insurance protection. Nancy During is her supervisor and Mr. Turner was her manager. She identified the computer message by which she requested insurance coverage under the subscription policy. She did so at the request of Fiander. The $150,000 figure was based on value or last appraisal. She understood the coverage would take effect immediately. It was placed on Friday and she knew the Mortgagors' coverage was to expire "on the weekend". Among her comments was that "We always put insurance" on the property if we are going to foreclose. The following week and after the fire, she discussed the insurance coverage and possible claim with co-workers. Tab 16 in the Exhibit Book is computer message to Dave Fiander: Spoke with Nancy about. She agrees with me do not tell insurance company that we requested insurance elsewhere. So please make sure thatwe are registered as lien holders. Please keep us updated. She explained this message as her opinion that they should not tell Co-op. She understood that Co-op was the first or primary insurer and that the two policies "will not pay". Since the Co-op policy was still in place, understood her belief to be that they should pay out the loss. She testified that her intention in placing the subscription coverage was simply "to make sure that Canada Trust was covered". She reviewed statement of the account, Tab 11, in the agreed Exhibits, dated 17th of September, 1992, which bore the handwriting of Fiander, which indicated Ms. Jamieson was two months in arrears at that time. Notations made by Fiander suggest various factors which gave rise to the decision to foreclose. This document likely relates to her testimony in cross-examination that she asked Fiander to go to the house on the 15th of 16th of September "because they were past due and could not find them". In her evidence, she appeared to take the position that Dave Fiander was responsible for managing Canada Trustco's interests. With respect to not advising Co-op of the subscription insurance, the decision was "left up to Fiander", but not doing so would, in her opinion, "make the claim simple, fast and uncomplicated". This proposal was common knowledge to her, Nancy During and Dave Fiander. The office manager, Alan Turner, who ultimately signed the Proof of Loss form, was not party to these discussions and was not told that Canada Trustco's interests had been protected by placing the subscription insurance, but she said: "He should have known our standard procedure". Ultimately, when no money came through from Co-op, Angela Paddock wrote Marsh McLennan (April 16th, 1993, Tab 42): Canada Trust did not contact you immediately about the fire as we assumed we were to be paid out by original insurance company. They are now are refusing to pay and we are continuing with our foreclosure action and will take an action against Co-operators Insurance for the deficiency. We will keep you advised as to our progress in this action. She acknowledged that FAX message sent the 9th of November, 1992, advised Marsh McLennan of the fire loss and that other insurance was in place. Co-op was not advised of the subscription policy to her knowledge. Nancy During was Angela Paddock's Supervisor. In her testimony, she recalled some discussion of placing insurance on the Brown/Jamieson residence and noted that there was corporate policy that if legal action was being commenced, insurance would be placed. She learned of the fire the following week. It was unusual. "We had never had fire before". She was able only to speculate about any "agreement" not to tell Co-op of the subscription policy. She said: She must have asked me the question. We were thinking that we had the blanket insurance, but it was not needed because of Co-op coverage. do remember some conversation about two coverages. She did not discuss the alternative insurance coverage with Alan Turner, her manager, who ultimately filed the Proof of Loss. She testified that there was no intent to withhold the information from Co-op and that she knew that there was the Co-op policy in force as well as the subscription policy. She "did not know we were under any obligation to tell (Co-op)" of the other existing policy. Alan E. H. Turner retired in 1992. He was the manager of the administration unit in which Nancy During and Angela Paddock worked. He was responsible for the administration of 9,000 or 10,000 mortgages at any given time, and he had no recollection of this particular mortgage or problems relating to it. He would have been advised when it went to foreclosure and he was advised in this case of the fire some time the week after it had occurred. He knew that Dave Fiander had sent out locksmith to change the locks only to find there was no house. It was the first fire loss that he had experienced. Mr. Turner really had little recollection of how the infonnation was generated or where the information came from which was included on the Proof of Loss form which he ultimately swore. He completed that document which appears at Tab 36 on the basis of draft form which had been presented to him. This included statement in space intended to disclose "other insurance" in which he entered the word "None". He testified: "I didn't think that there was other insurance". In his cross-examination, he said that he relied on information from others and that he would be surprised if those others knew that there was other insurance coverage at the time. Kevin Quigley is solicitor with Burchell MacAdam. He was involved in the preparation of the Proof of Loss form on which he swore the jurat on the 25th of January, 1993. He had been contacted in late November, 1992, by David Fiander whose title on this letter is Manager, Customer Service and Sales, asking him to "get it settled". He testified that Co-op had resisted paying the claim on the basis of certain misrepresentations: first, that Mrs. Brown had represented on her application that she had "never been rejected" for insurance; and secondly, that Canada Trustco had failed to advise the insurers that the Mortgagors had gone into arrears on their mortgage. The loss was filed; it was rejected by Co-op four days later which Mr. Quigley said was not surprise. He testified that the deficiency after the foreclosure sale and which is as of June 20th, 1993 was $89,307.58. No proceeds have ever been received from Co-op to his knowledge. Robert L. Barnes is barrister primarily engaged in tort litigation and he is an associate of Mr. Quigley. When the Canada Trustco claim took on the character of litigation, he took on the file. His understanding was that Co-op had originally rejected the claim on the basis of misrepresentations made by Mrs. Brown when applying for the coverage. Later, the reasons for rejecting the claim "evolved" to include the failure of Canada Trustco to advise the insurer of all the risks which came to their knowledge, specifically, the fact that the mortgage payments were in arrears and the "financial and other difficulties" of the Browns, that she was desperately attempting to sell this property, and that she "had been threatened with foreclosure" (Beckett letter, Feb. 24, 1993, TAB 49). On April 19th, 1993, shortly after his involvement began, he attended at the Canada Trustco office to review the contents of their file and for the first time, discovered that his client had placed insurance for their own protection under the subscription policy. As result, on April 19th, Mr. Barnes wrote Mr. Beckett, then acting for Co-operators, advising him that he had discovered the existence of the second fire insurance policy. .. It appears that Canada Trust had intended to obtain replacement policy to take effect on the expiry of the Co-operators policy, but there appears to have been an overlap to the extent of one day of coverage that being the date of loss. This would seem to be fortuitous from your client's point of view and could very well reduce its exposure to the extent that contribution from General Accident may now be warranted. This lawyerly language expressed the same opinion which he gave in testimony that "I thought this was windfall for Co-op" and "that they would be able to split the coverage". Shelley Giffin was clerk in collections at Canada Trustco and co­-worker of Angela Paddock. The Brown/Jamieson mortgage was, in fact, her file, however, she was away from the office from mid February 1992 until the Monday after the fire, and thus had little to add to the evidence of the others. She "imagined that she learned of the fire right away" and commented that they "had an obligation to keep updated on the properties they covered". Her recollection was that their office had endeavoured to have Dave Fiander complete the Proof of Loss statement since he was the person on the ground with greatest familiarity with the circumstances. Eventually, she said, Alan Turner did it because he was "fed up" with trying to get Dave to do it. In cross-examination, she agreed that the Browns had poor payment history; she had no knowledge of the cancellation of the Royal insurance nor of the proposed cancellation by Co‑op. She did acknowledge that Mr. Quigley had been requested to commence foreclosure against the property in March of 1992 and that after the event, she knew that there were two policies of insurance in existence. She was aware that Angela Paddock had placed the subscription insurance in accord with the company's practice. She had advised of the fire, but not Co-op. Her explanation was that she had never dealt with anyone at Co-op. DEFENCE EVIDENCE Defence evidence was given by James W. Higgins, staff insurance adjuster with the Defendant corporation. Because the house had been vandalized in early September, he went out to view it on the 14th of that month. He observed the house that had been damaged, which was in good condition, located on narrow dirt road. There were no near neighbours. The house was vacant and the electricity had been disconnected. As result, he expressed concern to his underwriting department. He became aware of the fire loss on Monday, September 21st, 1992, when the claim appeared on his desk that morning. His dealings with Canada Trustco were with Dave Fiander alone. He retained legal counsel on September 22nd. On December 9th, he received request from David Fiander for blank Proof of Loss form which could be completed by the Plaintiff. When it was returned, he "rejected" the claim because, in his opinion, the policy had been "voided for non disclosure" by Ms. Jamieson. He had, in the meantime, made inquiries of the previous insurer and detennined that they had cancelled their coverage because of "non payment" and the Crime Prevention Bureau had advised him of "previous losses". In February of 1993, notice was given to the insured that the policy was being voided. In cross-examination, he testified that as result of his initial visit to the property, he learned that it was for sale because there was listing cut on the counter and, in his opinion, it represented "higher risk". He was not, however, aware that vacancy permit had been issued by his corporation. He knew that his advice to cancel had been followed with Notice of Cancellation and he insisted that the real reason for cancellation was not the previous vandalism loss, but rather because of "exposure". After the fire loss, he reviewed the file "to see if there had been misrepresentations", something which he said he would "not do on small losses". The vandalism claim was never paid. Mr. Higgins said that he rejected the claim on advice of counsel and in the context of his "wondering whether this was all provable" and that "it was not going to be paid until it was all checked out". Co-op has paid nothing, he said, because "the policy was void". Sean Bedell was the second and final witness called on behalf of the defence. He now specializes in commercial insurance with another firm but at the relevant time, was sales agent for the Co-operators. It was Bedell who sold the insurance policy to Ms. Jamieson in March of 1992 at which time he visited the premises for an inspection, and he met Ms. Jamieson there. The premises were rented at that time and some repairs were to be done by the Tenant. He observed that the house was new, well built, and had wood furnace properly installed. He completed the application while taking infonnation from Ms. Jamieson, including the fact that claim on her car had been declined in 1991 for arson. He testified that vacancy permit was granted with respect to the property on the 7th of August and that he reviewed coverage few days later and was "slightly concerned". On August 11th, he inquired of Canada Trustco whether their payment history was O.K. and he was advised that there were "no problems". In early September, Ms. Jamieson called him to report theft and vandalism. As result of this claim, he had discussions with Mr. Higgins. "He had concerns; had concerns" and they agreed that it was "in our best interests to cancel". They obtained authority from supervisors to cancel on five days' notice, which he did. After the fire, he learned from the listing agent that the property had been vacant since June 19th and on speaking to Andrea Wadden at Canada Trust, he learned they had been advised of the vacancy on September 16th or 17th and that the Mortgagor was "behind two months in payments". It was Bedell who actually delivered the Notice of Cancellation to Ms. Jamieson by leaving it in her mailbox. He spoke to her the following day when she confirmed she had received the notice. Significantly, she asked him the "exact time" that coverage would cease and, "I told her, 12:01 on the 20th". Under cross-examination, Mr. Bedell confirmed it was beautiful house with replacement value of $200,000 and he confirmed that when the vacancy permit was obtained on August 7th, their office had been advised that the property had been vacant for some three weeks prior and will be "for three months". He confirmed that as result of his inquiry of August 11th, as he reviewed the file subsequent to the vacancy permit, he learned from Canada Trust that Ms. Jamieson was actually Mrs. Brown and that the mortgage was in both names. This fact did not concern him, he said, but he was concerned about the status of mortgage payments. He agreed that the information obtained from Ms. Wadden of Canada Trustco after the fire made it "clear she was talking of developments in the previous five days" and that this conversation made it clear that Canada Trustco was making efforts to preserve the property and their interest in it. He was asked if he took any action to preserve the property and he responded: "I asked my supervisor to hire security". "Adding up the facts, it was more likely than not" that loss might occur and when she had asked the exact time of cancellation, "that made the hair stand on the back of my neck". THE ONUS OF PROOF The Defence raises issues of fraud and/or false statements in the Proof of Loss which was filed by Canada Trustco with respect to their loss as Mortgagee. adopt the comments of Grant, J. as expressed in Reid v. Halifax Insurance Company (1984), 66 N.S.R. (2d) 181, (T.D.). Justice Grant reviewed the authorities and concluded as follows: "As interpret these cases, the standard of proof is on the balance of probabilities. However, there are degrees of probabilities within the range of balance of probabilities. The standard of proof in civil case does not reach that of criminal case where proof must be beyond reasonable doubt. The degree of proof required in civil case where the allegation is of conduct that is morally blameworthy or that could have criminal or penal aspect to it is higher degree of probability than when there is not morally blameworthy, criminal or penal aspect to it. However, in each instance it is still on balance of probabilities but in the former, of higher degree. balance of probabilities is where it is more probable that an event happened than that it did not happen. The scale of probabilities must be weighed in favour of the event having happened. Where the scales are evenly weighed, then the person who has the burden of proof has not tipped the scales on the balance of probabilities and fails. In civil action where criminal act such as fraud or arson is alleged, the standard of proof is still on balance of probabilities but on higher degree of probability, commensurate with the conduct alleged." accept also the law as advanced by Defence Counsel that: "...Derry v. Peek (1899), 14 App. Cas. 337, is authority for the proposition that false representation is fraudulent if made: (1) knowingly; or (2) without belief in its truth; or (3) recklessly without caring whether it be true or false. If an insured in advancing claim takes it upon himself to swear as to statement of fact as to the accuracy of which he knows that he is entirely ignorant, and if such fact be not true, it is fraud..." Issue No. will express this way: What contracts of insurance were in place for the protection of Canada Trustco at the time of the fire? Notwithstanding the numerous references in the evidence to the misrepresentations of Ms. Jamieson in applying for her insurance policy with the Co-operators, both parties are in agreement that such alleged misrepresentations would not affect the enforceability of the contract of insurance between the Co-operators and the Plaintiff, Canada Trustco, as Mortgagee. It is abundantly clear as result of the decision of the Supreme Court of Canada in Panzera et al v. Simcoe and Erie Insurance Co. et al (1990), 1990 CanLII 92 (SCC), 74 D.L.R. (4th) 197 that misrepresentation by Mortgagor in obtaining insurance coverage will not affect the rights of the Mortgagee to collect on the policy of insurance thereby created where the insuring company has issued the standard form of mortgage endorsement. The head­note indicates: The plain words of the clause signified that the mortgagee was not affected by any misrepresentation on the part of the mortgagor, whether made before or after the contract. The reasonable expectation of the mortgagee was that the clause would have the same effect as separate policy insuring the mortgagee's interest. Both the propositions enunciated in the above quotation have application to this case. It may be useful to quote fairly extensively from some of the relevant comments of La Forest, J., who delivered the majority decision, (page 199/200): .. review of the American authorities reveals an all but universal consensus to the effect that this clause evidences an independent contract between the insurer and the mortgagee. My colleague has also noted that the "two contract" theory is now well anchored in Canadian jurisprudence. Notably, in London Midland General Insurance Co. v. Bonser (1972), 1972 CanLII 18 (SCC), 29 D.L.R. (3d) 468... ...by virtue of the two-contract theory, the insurance of the mortgagee cannot be invalidated by any act or neglect of the mortgagor, be it at the inception of the policy, or subsequent to its formation ... ...the contrary interpretation...distorts the plain and ordinary language used in the standard clause. .. find myself in full agreement with the analysis in Sanborn Cir. J. who concluded, at pp. 176-7 (Syndicate Ins. Co. v. Bohn, 65 F. 165 (1894), Eighth Circuit, U.S. Court of Appeal): Was it that contract that the indemnity of the mortgagee should not be protected against any prior act or negligence of the mortgagors? There is no such restriction in the contract. It provides that the mortgagee's interest shall not be invalidated by any act or neglect of the mortgagors, by any occupancy or vacancy, or by any change of title or possession of the premises, provided that the mortgagee shall notify the insurance company of any change of ownership or increase of hazard that may come to its knowledge, shall have permission therefor indorsed on the policy, and shall pay for it ....What apter terms could be chosen to effect separate insurance on the interest of the mortgagee, to free that insurance from any possible influence of any act or neglect of the mortgagors, and to make it dependent solely on the course of action of the mortgagee and the insurance company? None occur to us. (Page 206) It is clear that the substance of the difference between the Canadian mid American versions of the clause lies in the fact that the text used in Canada incorporates distinct and pointed reference to "omission" and "misrepresentation" of the mortgagor, over and above the mention of "act" and "neglect". (Page 207) In summary, when the standard mortgage clause is interpreted in the light of the settled principles that govern the construction of insurance contracts, there can be no doubt that the insurer, by virtue of this clause, is representing to the mortgagee that separate and distinct contract exists between them, and that the validity of this independent contract depends solely on the course of action between the mortgagee and the insurer. In reviewing the history of the standard mortgage clause, La Forest, J. makes it clear that such clause is not to be equated with what might be called loss payee provision and, thus, it creates "a direct contract" between the Mortgagees and the insurance company as would enable the former to sue in their own name alone and irrespective of the mortgagor. My comment, then, is it is clear that the issuing of standard mortgage endorsement clause creates an independent right of action in the mortgagee, and as La Forest, J. goes on to say (page 214): ...it was precisely because the standard mortgage clause held out the promise of making the mortgagee's insurance dependent solely on the course of action between the mortgagee and the insurance company that it supplanted the use of the "open mortgage" clause in the insurance industry. (Page 216) ...clearly, if mortgagees elect to insure through the medium of the standard mortgage clause, they can only be doing so on the reasonable expectation that their interests will be protected in the same way as if they had entered into an independent contract evidenced by separate piece of paper. And this further quote: conclude that by the terms of the standard mortgage clause the insurer has represented to the mortgagee that it will decline to set up as against the mortgagee any omissions and misrepresentations made by the mortgagor in effecting coverage for the mortgagee and which, by the ordinary application of the law of mandate, might otherwise be imputable to the mortgagee. Any other interpretation would, in my view, fail to concord with the reasonable expectations of the parties as to the coverage offered by the standard mortgage clause, and, indeed, by making the insurance of the mortgagee derivative to certain degree on the course of dealings between the mortgagor and the insurer, would strike at the very raison d'etre of the standard mortgage clause. To similar effect is the later case of the Royal Bank of Canada v. North Waterloo Farmers Mutual Insurance Co. (1992), 1992 CanLII 7545 (ON SC), O.R. (3d) 723 and the much earlier case of the Ontario Court of Appeal, London L. S. Co. of Canada v. Union Ins. Co. of Canton Ltd., 1925 CanLII 446 (ON CA), [1925] D.L.R. 676, this latter case, having been cited with approval by La Forest, J. in his decision in Panzera (supra). In this latter case, the mortgage endorsement clause included paragraph as did the clause presently before the Court in these terms: It is further provided and agreed that the mortgagees shall at once notify the said company if non-occupation or vacancy for over 30 days or of any change of ownership or increased hazard that shall come to their knowledge; and that every increase of hazard, not permitted by the policy to the mortgagor or owner, shall be paid for by the mortgagees, on reasonable demand, from the date such hazard existed, according to the established scale of rates, for the use of such increased hazard during the continuance of this insurance. With respect to that clause, Logie, J. had this to say: am of opinion that in this case the insurance company have in their own language set forth the only penalty which the mortgagees must suffer for failure to notify the insurers of transfer or change of ownership which comes to their knowledge, namely, that the mortgagees must, if there is an increase of hazard by reason thereof, pay an increased rate. This philosophy was expressed by our own Appeal Division in Royal Insurance Co. of Canada v. Gordon (1981), 1981 CanLII 2757 (NS CA), 125 D.L.R. (3d) 372, where the head-note reads: mortgage clause in an insurance policy provided that the mortgagee should notify the insurer of any vacancy beyond 30 days or increased hazard known to the mortgagee, and that the mortgagee should pay an increased premium for any such increased hazard ....the only penalty for failure to notify was liability for the increased premium. Clearer language would be required to effect forfeiture. (My emphasis) This decision quotes extensively from London L. S. Co. of Canada v. Union Ins. Co. of Canton Ltd. above, including the comments of Logic, J. It is, therefore, clear from the cases that there was valid contract of insurance in place between the Defendants, the Co-operators Insurance, and the Plaintiff, Canada Trustco, at the time of the loss. This contract of insurance was separate from and independent of any contract or any liability which the insurers may have to the owners, Brown/Jamieson. The limits of coverage under this separate contract would obviously be the loss which might be suffered by Canada Trustco in the event of an occurrence covered by the policy. In spite of the nominal insured value of the property of $200,000, that amount was not the coverage extended to the mortgage company. In the result, the risk covered for the benefit of Canada Trustco was the balance of their mortgage, less any recovery on foreclosure. That amount was determined after foreclosure to be $89,307.58 as of June 20th, 1993. This policy included the Standard Mortgage Clause: Standard Mortgage Clause (approved by the Insurance Bureau of Canada) BREACH OF CONDITIONS BY MORTGAGOR, OWNER OR OCCUPANT 1. This insurance and every documented renewal thereof AS TO THE INTEREST OF THE MORTGAGEE ONLY THEREIN is and shall be in force notwithstanding any act, neglect, omission or misrepresentation attributable to the mortgagor, owner or occupant of the property insured, including transfer of interest, any vacancy or non-occupancy, or the occupation of the property for the purposes more hazardous than specified in the description of the risk. PROVIDED ALWAYS that the Mortgagee shall notify forthwith the insurer (if known) of any vacancy or non-occupancy extending beyond thirty (30) consecutive days, or of any transfer of interest or increased hazard THAT SHALL COME TO HIS KNOWLEDGE; and that every increase of hazard (not permitted by the policy) shall be paid for by the Mortgagee on reasonable demand from the date such hazard existed, according to the established scale of rates for the acceptance of such increased hazard, during the continuance of this insurance. OTHER INSURANCE 3. If there be other valid and collectible insurance upon the property with loss payable to the Mortgagee as law or in equity then any amount payable thereunder shall be taken into account in determining the amount payable to the Mortgagee. There was also in existence the policy of insurance between C.T. Financial Services Inc. and General Accident Assurance Company and others, which has been referred to in these proceedings as the "subscription policy". It was subscription policy no. MMF/1023 Pre-Reasol, whereby number of insurance companies undertook to indemnify C.T. Financial Services Inc. and its subsidiaries for the period April 30th, 1990 to April 30th, 1991, which, as the result of subsequent endorsements, continued in effect at the material time. The coverage afforded by this policy pennitted the Mortgagee from time to time to simply notify the insurer of their requirement for coverage of property on which they held mortgage. The triggering event appears to be described in paragraph of Section A: Within the Policy Period, coverage shall attach effective the date requested by the Named Insured, which date will be either the date of possession of the security by the Insured or the date the Insured becomes aware that the property is inadequately insured or uninsured and legal action to obtain the security has been initiated. (My emphasis) On Friday, September 18th, as result of the Notice given or the request made by Angela Paddock, this contract was put in force with respect to the Brown/Jamieson property to the extent of the Mortgagee's interest. Other relevant clauses in this policy include Section B: PROPERTY DAMAGE 1. PROPERTY INSURED: (a) The Interest of the Insured only in Property of Every Description as reported by the Insured, except as excluded specifically elsewhere in this Policy, on which the Insured holds mortgage or Foreclosed Properties prior to title being obtained by the Insured and where there is no other insurance or inadequate insurance on the property or evidence of insurance has not been provided. (My emphasis) 3. THIS POLICY DOES NOT COVER THE FOLLOWING PROPERTY: (e) Property for which there is other valid and collectible insurance. (My emphasis) And Section D: GENERAL CONDITIONS 8. OVERLAPPING COVERAGES CLAUSE: In the event of dispute arising between Insurers because of overlapping coverages, it is understood and agreed that the rules set forth in the "Agreement of Guiding Principles With Respect to Overlapping Coverages Relating to Property Insurance", adopted by the All Canada Insurance Federation in 1958 and subsequent amendments, shall prevail. PREMIUM: The premium charged at inception and at subsequent anniversary dates, is provisional only and shall be adjusted on receipt of the statement of values and policy rate. And SECTION E: STATUTORY CONDITIONS 6. REQUIREMENTS AFTER LOSS: (a)(ii) (To) Deliver as soon as practicable to the Insurer proof of loss ...(4) Showing the amount of other insurances and the names of other Insurers, FRAUD: Any fraud or wilfully false statement in statutory declaration in relation to any of the above particulars, vitiates the claim of the person making the declaration. 12. WHEN LOSS PAYABLE The loss is payable within sixty days after completion of the proof of loss, unless the Contract provides for shorter period. The subscription policy also carried the standard mortgage endorsement clause, including provision for increased rates in the event that the property is vacant or other risks constituting an increased hazard and the following standard provision with respect to other insurance If there be other valid collectible insurance upon the property with loss payable to the Mortgagee at law or in equity then any amount payable thereunder shall be taken into account in determining the amount payable by the Mortgagee. The testimony of the witnesses and the documents establish without any doubt that there were two policies of insurance effective on this property at the time of the loss. The contracting parties were Canada Trustco as Mortgagee and the two insurance companies respectively as insurers. The terms of the policies were virtually identical. The risks insured against were the same and the interest insured was that of the Mortgagee which was ultimately determined to be $89,307.58. Each of the policies carried its own provision with respect to "other insurance" and the requirement that the mortgage company file proof of loss indicating all the insurance coverage outstanding and further providing that the obligation of the insurer would be limited by the extent to which the insured was entitled to contribution from another insurer. have not compared the clauses in their particularities with each other or with the Insurance Act because consider that Section 169 of the Insurance Act, R.S. c.231 would override any deviation in such clause. Section 169 provides: Contribution among insurers 169 (1) Where, on the happening of any loss or damage to property insured, there is in force more than one contract covering the same interest, the insurers under the respective contracts shall each be liable to the insured for its rateable proportion of the loss unless it is otherwise expressly agreed in writing between the insurers. FRAUD ITS EFFECT The remaining issue and the principal subject of dispute between the parties is whether the conduct of Canada Trustco through its employees was fraudulent or their statements or representations to the Defendant false in such manner as to constitute breach of statutory condition 7, thereby vitiating the claim. Statutory condition as contained in the Co-op policy reads: Any fraud or willfully false statement in statutory declaration in relation to any of the above particulars vitiates the claim of the person making the declaration. In the case before me, both parties have emphasized that an insurance contract is one which depends upon the utmost good faith of both the insured and the insurer. The nature and value of the property insured must be frankly disclosed on the one hand and the obligation to indemnify must not be avoided on the other. The insurer is entitled to know the extent of the risks for which they offer indemnification but the insured is entitled to have expeditious settlement of genuine claim without prevarication. claim such as this would be fraudulent only if the party making the claim consciously and knowingly misrepresents the facts so as to gain an advantage; in this case, indemnification to which they are not entitled. It is an action which, when discovered, would result in the Claimant being penalized by losing not only that which they have claimed, but also that to which they were entitled, assuming they were entitled to some lesser indemnification. Motive and intention in this context are essential factors to be established. As the scholars as well as the cases establish, it is the duty of an insurance company to insist "on full and searching examination" of claims in order to discharge "their duty to their shareholders and the public" so that they will avoid the payment of "false" claims, meaning as understand it, claims which are deliberately invented. The law contemplates that those who invent false claims or intentionally exaggerate their claims for the purpose of gaining profit from an occurrence should be punished by having their claim disallowed. The onus of proof on the insurer refusing to pay on the basis of fraud or misrepresentation must be commensurate, then, with that concept of punishment. The Defendant here has taken the position that the formal Proof of Loss filed by Canada Trustco was fraudulent in that it failed to disclose the existence of "other insurance". In addition, it is argued that Canada Trustco, through its employees, withheld or misrepresented facts relevant to the extent of the risk which the Co-operators covered. have referred earlier to the onus of proof which applies in these matters when such issues are raised. I am not satisfied that the Defendant has established on a balance of probability that there was any material misrepresentation with respect to the extent of the risk, nor any fraudulent behaviour with respect to the completion of the Proof of Loss. With respect to the latter, there is a heavy onus on the party making the allegation. find the relevant facts to be as follows: BEFORE THE LOSS: 1. While the Mortgagor was two months in arrears as of September 22nd when Mr. Bedell spoke to Ms. Wadden, there is no evidence that there were any arrears as of August 11th when the initial inquiries were made in the context of the granting of vacancy permit. 2. As of September 15th and 16th, the evidence persuades me that Mr. Higgins and Mr. Bedell, both representatives of the Co-operators, had greater understanding and awareness of the circumstances of Ms. Jamieson, the property and the risks faced by the underwriters than did anyone at Canada Trustco, including Dave Fiander, the manager of this file. 3. There is high probability that if Mr. Bedell's advice to his superiors had been followed, and if security person had been retained to ensure the safety of the property on the 18th of September and until the Co-operators' policy expired, their risk could have been substantially diminished or more likely completely avoided. 4. Dave Fiander was served with Notice of Cancellation of the fire insurance coverage of Co-operators on or about September 15th. As result, he visited the premises, spoke to Ms. Jamieson, spoke to Mr. Bedell, and gave instructions that foreclosure proceedings should be commenced and insurance should be placed on the property under the subscription policy for the purpose of protecting Canada Trustco. In accordance with that request and company policy, Angela Paddock requested coverage under the subscription policy on Friday, September 18th. accept on her evidence that placing such insurance is automatic when foreclosure is instituted; that the coverage was to take effect immediately and that her intention was "to make sure Canada Trust was covered". accept the evidence of Nancy During that corporate policy required that when decision was taken to commence legal action, insurance would be placed on mortgaged premises to protect the interests of Canada Trustco. accept that she understood from Angela Paddock that the Mortgagor's policy was "expiring" on the weekend. AFTER THE LOSS: 1. The evidence of Mr. Higgins makes it clear that as early as the 22nd of September, and in the context of his knowledge of the prior vandalism and general circumstances of Ms. Jamieson and the property, that any claim would be rejected. It was on that day he consulted counsel. infer from his testimony that the subsequent filing of the Proof of Loss by Ms. Jamieson and later by Canada Trustco was simply matter of form and the rejections subsequently issued by his company flowed from that initial rejection of the claim. Indeed, it may be inferred that that intention to deny any claim was being furthered with the instruction to Mr. Bedell that he gather information about the circumstances of Ms. Jamieson and the status of the mortgage payments, which he did on or about September 22nd. 2. After the fire, there were discussions among Dave Fiander, Angela Paddock, and her supervisor, Nancy During, about the need to tell the Defendant insurers of the second insurance coverage. Angela Paddock's evidence was, "I understood Co-op was first and that two insurance companies will not pay". "Co-op was still in place." accept her evidence that she believed processing the claim would be simpler, faster and less complicated if the subscription policy was not mentioned, but that she and Nancy During left it in Dave Fiander's discretion to discuss that coverage or not with the Co-operators people with whom he was in contact. accept the evidence of Nancy During that she "thought" the "blanket insurance" was not needed because the Co-op coverage was still in place in spite of the fact that she knew of the overlapping coverage. accept the evidence of both these witnesses, Ms. Paddock and Ms. During, that they did not discuss the second policy with Mr. Turner who ultimately completed the Proof of Loss. find that these three, During, Paddock and Fiander, knew that there were two policies of insurance in force on the property, but it has not been established that they knew or understood that the existence of two policies diminished the obligation of Co-operators or resulted in any obligation by the subscription insurers to pay, except or unless for some reason, the Co-operators' policy was avoided. It is not established that Alan Turner, who completed the Proof of Loss, knew of the second policy, however, it is established that it was company policy that the subscription policy would be put in place once the decision had been made to initiate legal action. Turner knew or should have known by his own testimony that decision to foreclose had been made on this property and, presumably, would have known of the corporate policy to require coverage of the subscription insurers. 3. It has not been established that Alan Turner knowingly misrepresented the fact of "other insurance". accept the evidence of all the employees of Canada Trustco that this was the first instance in which they had been required to deal with fire insurance claim. INCREASED RISK The Defence has raised the issue of whether the failure of Canada Trustco to advise them of circumstances relating to increased risk or misrepresentations with respect to that issue constitute cause to void the contract of insurance. am satisfied on the basis of Royal Insurance Co. of Canada v. Gordon, cited above, that the only penalty for failure to notify the insurer of increased risk would be liability for an increased premium. Furthermore, as outlined in the review of the circumstances applicable here, Co-operators was in possession of more information relating to any increased risk than was Canada Trustco. The failure of the mortgage company's employees to communicate anything which they knew could not have affected the position of Co-op in any material way. This argument is, accordingly, without merit. FRAUD OR MISREPRESENTATION ON THE FILING OF THE PROOF OF LOSS Short v. Guardian Insurance Company of Canada (1984), 62 N.S.R. (2d) 1, decision of the Nova Scotia Supreme Court, Appeal Division, is authority for the proposition that in order to avoid coverage in such circumstances, it is necessary for the insurer to meet the heavy burden of producing evidence that is clear and satisfactory and leaves no room for any reasonable inference, but that the insured has made "wilfully false statements". In his decision, MacKeigan, C.J.N.S., referred to the comments of the Trial Judge who had said: It is necessary that, when statutory declaration is filed and sworn to, it be done in good faith. find that there have been wilful, false statements which vitiate the entire claim... find that the intention was there to defraud, based upon the overestimation of the value of the items... (My emphasis) The Chief Justice commented Mrs. Short was thus held guilty of fraud and "wilfully false statements" in the sworn proof of loss by knowingly overvaluing numerous items with intention to defraud. Such acts, when so found, vitiated the plaintiff’s entire claim under Statutory Condition and, of course, exposed her to possible prosecution for false pretences, fraud or forgery under the Criminal Code.. To establish such defence...the insurer has heavy burden to produce evidence that is "clear and satisfactory and leaves no room for any reasonable inference but that of guilt". (My emphasis) While it is clear that proof beyond reasonable doubt is not die standard to be applied in civil matter, it is not inconsequential, in my view, that the comments of Chief Justice MacKeigan import the language of the Criminal Code into the discussion. Subsequently, in allowing the appeal of Mrs. Short, the Chief Justice discussed and analyzed the context of the claim and the motives of Mrs. Short in completing the Proof of Loss as she had done. consider it necessary to review the motivations and the context which acted upon the employees of Canada Trustco in connection with placing the subscription policy and in filing Proof of Loss with the Defendant which clearly included the impugned misrepresentation of fact of other insurance. First of all, there is no suggestion of any personal motive of any of the employees in either placing the subscription policy or attempting to recover payout from Co-op. There is no suggestion of any possibility of personal gain or loss as result of the manner in which they handled the claim. Furthermore, the entitlement of Canada Trustco itself is precisely the same, whether coverage is provided by either or both policies. The limit of their coverage is their exposure on the mortgage. There is no suggestion that the employees of Canada Trustco had any thought of collecting double the insurance or of giving preference to either of the insurers. The reasonable inference is simply that they followed corporate policy to obtain coverage under the subscription policy as "backstop" insurance only. There is some suggestion that they may have believed that the subscription insurers were liable only at 12:01 a.m. on September 20th, although careful reading of the policy makes it clear that the coverage went into effect "immediately". There is no evidence that any of the persons involved had any actual knowledge of or access to the specific terms of either policy. While Mr. Turner, in filing the Proof of Loss, must have known of the corporate policy to place insurance immediately with the subscription insurers, there is no evidence to suggest that he ever turned his mind to that fact, nor that he would have had different opinion about the primary liability of Co-operators if he had done so. Like his fellow workers, he had never been involved in fire claim previously. Indeed, even if Mr. Turner or the others had read paragraph of Section of that policy, they might have found some support for their opinion that the policy was effective only after the effective cancellation of the Co-op policy, in view of the words ...coverage shall attach...or the date the Insured becomes aware that the property is inadequately insured or uninsured and legal action to obtain the security has been initiated. (My emphasis) Section B, paragraph 1(a) includes these words: PROPERTY INSURED The Interest of the Insured only in Property ...where there is no other insurance or inadequate insurance on the property... And similarly, paragraph 3(e): THIS POLICY DOES NOT COVER THE FOLLOWING PROPERTY: Property for which there is other valid and collectible insurance. In view of those words appearing in the subscription policy and in view of the context in which the claim was put forward, the Defendant has not satisfied that heavy burden of producing clear and satisfactory evidence that Canada Trustco, through its employees, acted wilfully and knowingly to claim the benefit of coverage to which the corporation was not entitled. I find the Defendant is obliged to indemnify the Plaintiff as it contracted to do. It was put forward as defence by Co-operators that Canada Trustco has already been fully indemnified by the subscription insurers and as consequence, has sustained no loss and consequently possesses no status to claim against Co-op, except for the $5,000 deductible. It is argued further that the subscription insurers, having chosen to indemnify Canada Trustco, might have made claim against Co-op for contribution, but that by choosing to continue the proceedings which had been commenced by Canada Trustco, and exercising their subrogation rights, they are limited to the same recovery which would have been available to Canada Trustco. find these arguments to be without merit and acceding to them would impose an extremely legalistic conclusion entirely at odds with just resolution. In any event, would have concluded that the rights of the respective parties were frozen in time by the commencement of the action by Canada Trustco. This action was commenced before they had received any indemnification from the subscription insurers. RATEABLE PROPORTION Section 169 of the Insurance Act provides: Where, on the happening of any loss or damage to property insured, there is in force more than one contract covering the same interest, the insurers under the respective contracts shall each be liable to the insured for its rateable proportion of the loss unless it is otherwise expressly agreed in writing between the insurers. The Home-Guard policy issued by the Defendant, Co-operators, provides: INSURANCE UNDER MORE THAN ONE POLICY If you have other insurance which applies to loss or claim or would have applied if this policy did not exist, we will not pay any loss or claim until the amount of such other insurance is used up. In all other cases, our policy will pay its rateable proportion of the loss or claim. The subscription policy incorporates similar provision: 8. OVERLAPPING COVERAGES CLAUSE: In the event of dispute arising between Insurers because of overlapping coverages, it is understood and agreed that the rules set forth in the "Agreement of Guiding Principles With Respect to Overlapping Coverages Relating to Property Insurance", adopted by the All Canada Insurance Federation in 1958 and subsequent amendments, shall prevail. In terms of equity, the Plaintiff and the subscription insurers should be entitled to contribution from the Defendants to the same extent as if the Proof of Loss had been correctly completed. Both policies were in force at the time of the loss. Section 169 of the Insurance Act makes it clear that both insurers must contribute. The face amount or the nominal amount of insurance coverage in each policy is irrelevant. Co-operators had contract with Ms. Jamieson/Brown to provide indemnification up to $200,000 in certain circumstances. Under the standard mortgage insurance clause, however, there existed separate contract with the mortgage company to indemnify them to the extent of their loss. The terms of the subscription coverage are identical to the latter contract excepting only that the subscription insurers have the benefit of $5,000 deductible. Otherwise, the limits of their policy similarly provide indemnification only to the extent of the exposure of the Mortgagee on nonpayment by the Mortgagor. In both cases, the limit of coverage subsequent to foreclosure has been determined to be $89,307.58. On this basis, find that the Defendant, Co-operators, is obliged to pay the Plaintiff $5,000, plus 50% of the residue of the claim of $89,307.58, for total of $47,153.79. find further that the obligation of the subscription insurers under the policy was $42,153.79. To the extent that they have overpaid, then, they are entitled to recover from Canada Trustco or, alternatively from the Co-operators. have considered the question of prejudgment interest in the context of Montreal Trust Co. v. Dominion of Canada General Insurance Co. et al (1987), 1987 CanLII 4155 (ON SC), 60 O.R. (2d) 481, decision of the High Court of Justice of Ontario. In that case, there was failure of the insured mortgagee to disclose to the insurer change of ownership of the property and the Trial Judge refused an allowance for pre-judgment interest. He offers no rationale for having done so. Pre-judgment interest is intended to compensate the Plaintiff for the failure of the Defendant to make prompt settlement of the sum ultimately found to be due and owing. Statutory Condition 12 provides that loss shall be payable "within sixty days after completion of the proof of loss, unless the Contract provides for shorter period". The Claimant has responsibility to protect their own interests under the Act by filing the Proof of Loss promptly. Fortunately or unfortunately, there is no obligation on the insurer to provide form for the Proof of Loss, but the obligation to file rests firmly on the insured. In this case, it is apparent that the Insurer somewhat reluctantly provided form of Proof of Loss which was ultimately completed and filed by the insured. Both parties were responsible for some delay. see no reason why either should be penalized in the circumstances here. Interest on the award will be payable by the insurer to the Plaintiff for the period commencing 60 days after the Proof of Loss was filed. expect the parties will be able to agree on the rate of interest applicable. If not, am prepared to hear representations in that regard. The Plaintiff will have its costs on the amount recovered under Tariff A, on Scale 4. J. Digby, Nova Scotia September 12th, 1996 TO: Ms. Gretchen G. Pohlkamp Prothonotary The Law Courts 1815 Upper Water Street Halifax, Nova Scotia B3J 1S7 Mr. W. Dale Dunlop Walker, Dunlop P.O. Box 3366 Halifax, Nova Scotia B3J 3J1 Solicitor for the Plaintiff Mr. Clarence A. Beckett, Q.C. Patterson Palmer Hunt Murphy P.O. Box 1068 Truro, Nova Scotia B2N 5B9 Solicitor for the Defendant CASES AND STATUTES CITED: Reid v. Halifax Insurance Company (1984), 66 N.S.R. (2d) 181 (T.D.) Derry v. Peck (1899), 14 App. Ca. 337 Panzera et al v. Simcoe and Erie Insurance Co. et al (1990), 1990 CanLII 92 (SCC), 74 D.L.R. (4th) 197 Royal Bank of Canada v. North Waterloo Farmers Mutual Insurance Co. (1992), 1992 CanLII 7545 (ON SC), O.R. (3d) 723 London L. So. Co. of Canada v. Union Ins. Co. of Canton Ltd., 1925 CanLII 446 (ON CA), [1925] D.L.R. 676 Royal Insurance Co. of Canada v. Gordon (1981), 1981 CanLII 2757 (NS CA), 125 D.L.R. (3d) 372 Insurance Act, R. S. c. 231 Short v. Guardian Insurance Company of Canada (1984), 62 N.S.R. (2d) Montreal Trust Co. v. Dominion of Canada General Insurance Co. et al (1987), 1987 CanLII 4155 (ON SC), 60 O.R. (2d) 481
The plaintiff held a mortgage on a house destroyed by a suspicious fire. At the time of the fire there were two insurance policies in place for the purpose of indemnifying the plaintiff. One was placed by the mortgagors with the defendant to protect both their interests and those of the plaintiff. When the defendant notified the plaintiff that it was going to cancel the policy, the plaintiff placed a second policy on the property. The fire occurred less than a day before the first policy was to be cancelled. The defendant refused to honour the policy. It claimed that the formal Proof of Loss filed by the plaintiff was fraudulent, as it failed to disclose the existence of the second policy. Finding for the plaintiff, that the defendant has not satisfied the heavy burden of producing clear and satisfactory evidence that the plaintiff, through its employees, acted wilfully and knowingly to claim the benefit of coverage to which it was not entitled.