Everyone has an insurance policy. You never turn your attention to it until it’s too late. Then you are told that the thing you thought you were clearly covered for, you were not actually covered for. This situation makes up 90% of insurance litigation.
The latest case on how to interpret an insurance contract (Malcolm Silver & Co. v. State Farm Fire and Casualty Co., [2019] O.J. No. 3964) is a case where an employee (Gwendolyne Matinez) stole over $1M from the employer by using forged cheques and the company’s online banking account to direct the company monies to herself (she says to pay her expenses – really? – $250,000 per year in ‘expenses’).
State Farm initially accepted liability and then decided not to honour the company ‘fraud’ claim. The company had a policy covering ‘forgery or alteration’. Here’s what the words say (so you can compare to your own insurance policy):
[8] We will pay for loss resulting directly from forgery or alteration of any cheque, draft, promissory note, bill of exchange or similar promises payment in ‘money’ that you or your agent has issued, or that was issued by someone who impersonates you or your agent.
Online bank is not mentioned! (para.15) does that mean no coverage?
The issue turns upon whether the company monies e-transferred to the thief’s credit care are ‘money’ under the policy. the policy narrowly defined ‘money’ to include cheques (but was silent on e-transfers). (para 14).
The judge said that e-transfers were not money! (para 20).
This result is counter-intuitive to what you would have expected. The way that insurance cases reason out the result is to say that you and the insurer could have contracted between yourselves to cover more or fewer risks. By saying that ‘money’ was only ‘cash or cheques’, you and the insurer were deemed to have decided to omit e-transfer fraud.
Take-away:
You’re not insured for what you thought you were insured for (fraud generally). The insurer limited its risks to that tiny part of the transaction-economy that no one uses anymore! (cash or cheques).
It’s as though you wanted your ‘vehicle’ insured and the insurer restricted the definition to horse and buggies in the fine print that the insurer wrote and no one reads until it is too late.
Let’s see if the Court of Appeal fixes this.
How economists define money:
Economists define money as any generally accepted means of payment. https://www.investopedia.com/terms/m/money.asp
This would include e-transfers (and soon will exclude cash!). The whole insurer game is to restrict the definition of the coverage so that they have an escape clause.
The Court of Appeal correction:
Is it possible for the Court of Appeal to start with the economist’s definition of money and put the onus upon the insurer to demonstrate how the parties specifically and knowingly decided to restrict the coverage?
