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Ex Turpi Causa and Insurance Fraud: The Ontario Court of Appeal’s Decision in Aviva Canada Inc. v. 1843538 Ontario Inc.

5 minute read

In its recent decision, Aviva Canada Inc. v. 1843538 Ontario Inc., 2020 ONCA 581, the Ontario Court of Appeal confirmed that Aviva’s claim against an auto body shop for allegedly completing repairs which were not necessary and deliberately damaging vehicles in order to require further repairs could proceed. This case raises interesting issues regarding the ex turpi causa doctrine in the context of insurance law and investigations to detect fraud.

Background

In 2017, the insurance company Aviva undertook an investigation into the auto collision industry based on its suspicion of fraudulent activity. Aviva incorporated a numbered company, which subsequently purchased two vehicles. These vehicles were insured by Aviva.

The numbered company intentionally damaged the two vehicles. Aviva’s own independent appraiser conducted an appraisal of the damages. These vehicles were then taken to an auto body shop, which had previously repaired vehicles insured by Aviva. Unbeknownst to the body shop, the two vehicles were equipped with hidden, video recording devices.

Aviva claimed that the body shop undertook and completed repairs which were not necessary and that the body shop deliberately damaged the vehicles in order to require further repairs. Following its investigation, Aviva commenced a civil action against the body shop, its appraiser, and the owners. Aviva sought damages, including punitive damages and its investigation costs.

Superior Court Decision

Justice Sossin of the Superior Court was asked to rule on several motions brought by the parties to the action, including a Rule 25 motion brought by Aviva to strike a portion of the defendants’ pleadings and a Rule 21 motion brought by the defendants to strike Aviva’s Statement of Claim.

Justice Sossin found that paragraphs 7 and 14 of the defendants’ statement of defence and counterclaim should be struck under Rule 25 because a civil defence of entrapment has not been recognized and, even if it were recognized, it is plain and obvious that Aviva’s conduct did not meet the standard for entrapment.

With respect to the defendants’ motion to strike Aviva’s Statement of Claim under Rule 21, the defendants invoked the doctrine of ex turpi causa, which means that a party cannot rely on its own wrongdoing to ground a claim.

Justice Sossin allowed Aviva’s claim to go ahead. He held it was not plain and obvious that Aviva’s actions constituted an illegal or immoral act capable of giving rise to the operation of ex turpi causa.

Justice Sossin added that the ex turpi causa doctrine does not operate to prevent compensation where there is a specific and quantifiable loss. In other words, it would not preclude Aviva’s claim for its actual losses in relation to the repairs. Further, Aviva’s claim raised potentially novel issues and these should not be resolved on a Rule 21 motion.

Ontario Court of Appeal Decision

The defendants appealed Justice Sossin’s order dismissing their Rule 21 motion and striking paragraphs of their statement of defence and counterclaim under Rule 25 to the Ontario Court of Appeal. The Court of Appeal allowed the appeal in part, granting the appellants leave to amend their pleadings, but confirming Justice Sossin’s decision with respect to the ex turpi causa doctrine.

The Court of Appeal found that Justice Sossin did not err in concluding that it was not plain and obvious that Aviva had either committed criminal mischief or an act of fraud and misrepresentation warranting the application of the ex turpi causa doctrine. It also agreed with Justice Sossin that the claims for punitive damages and investigation costs should not be struck, because these were novel claims that should not be determined on a Rule 21 motion. Thus, Aviva’s claim was properly allowed to proceed.

Implications

The Supreme Court of Canada’s leading decision regarding the doctrine of ex turpi causa is a 1993 decision called Hall v. Hebert. In that decision, the Supreme Court held that as a defence to a tort claim, ex turpi causa operates to prevent a party from profiting on the basis of illegal or immoral conduct. It is used to bar recovery in tort in very limited circumstances and would not prevent a party from being compensated for loss in circumstances where the party would otherwise be entitled to compensation.

At this stage, the Court of Appeal has simply allowed Aviva’s claim to proceed. It remains to be determined whether Aviva is entitled to damages and if so, what measure of damages.

One particularly interesting issue is whether Aviva will be entitled to punitive damages. In Hall v. Hebert, Justice McLachlin (as she then was) noted that punitive damages are, by definition, not compensatory, and therefore could arguably allow a wrongdoer to profit from crime. Justice McLachlin referred to academic writing suggesting that it would be appropriate to reduce exemplary or punitive damages due to wrongful conduct, but not compensatory damages.

We wait with anticipation to see how a future court considers the issue of punitive damages and the doctrine of ex turpi causa. Similarly, for other insurers who seek to detect fraud, the success of Aviva’s investigation and its ability to recover damages will be illuminating.

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