Assaad v. The Economical Mutual Insurance Group et al.*
[Indexed as: Assaad v. Economical Mutual Insurance Group]
59 O.R. (3d) 641
 O.J. No. 2356
Docket No. C35985
Court of Appeal for Ontario,
Carthy, Cronk and Gillese JJ.A.
June 19, 2002
* Vous trouverez traduction française de la décision ci-dessous à 59 O.R. (3d) 648.
Insurance — Insurable interest — Insured purchasing stolen vehicle — Insured wilfully blind as to whether vehicle stolen — Insured subsequently making claim on insurance policy after vehicle stolen from him — Insurer properly denied coverage — Insured having no insurable interest in vehicle — Factual expectation test not applicable to cases involving stolen property — Thief or person who knowingly purchases from thief having no insurable interest in stolen property.
A client of the plaintiff owed him money and told him that he could not repay the loan but that he could get him a new car worth $30,000 for $16,000 plus forgiveness of the loan. The plaintiff agreed. The client produced a vehicle which, according to the ownership document, had about 33,000 kilometres on it. There was no bill of sale or any other documentation. The plaintiff and his client did not discuss the history of the vehicle. The plaintiff insured the vehicle with the defendant. Two months later, it was stolen. The police investigation revealed that the vehicle had previously been stolen in Quebec. The plaintiff claimed recovery from the defendant on the insurance policy. The defendant denied coverage on the basis that the plaintiff had no insurable interest in the property because it was a stolen vehicle at the time of his purchase. The trial judge applied the factual expectancy test, which requires an inquiry into whether the insured can demonstrate some relation to, or concern on the subject of th e 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. If so, then the insured should be held to have a sufficient interest. To have a moral certainty of advantage or benefit, but for those risks or dangers, or to be so circumstanced with respect to the subject-matter of the insurance as to have benefit from its existence and prejudice from its destruction, is to have an insurable interest in it. The trial judge found that the plaintiff had dominion and control over the vehicle and an expectation of continued benefit from its use at the time it was stolen from him, even if for only a limited time until his lack of any property interest was exposed. On appeal by the defendant, the Divisional Court also applied the factual expectancy test and reached the same conclusions as the trial judge. The defendant appealed.
Held, the appeal should be allowed.
The factual expectation test is not applicable to cases involving stolen goods. A thief, or one who knowingly purchases from a thief, does not have an insurable interest in the stolen property. In this case, the evidence was overwhelming that the plaintiff was wilfully blind to the origins of the vehicle. Suspicions combined with blindness add up to an absence of good faith. Policy concerns dictated that the plaintiff had no higher insurable interest than the thief and could not rely upon factual expectation as a basis for recovery.
Nelson v. New Hampshire Fire Insurance Co., 263 F.2d 586 (9th Cir., 1959), apld
Constitution Insurance Co. of Canada v. Kosmopoulos,  1 S.C.R. 2, 21 O.A.C. 4, 34 D.L.R. (4th) 208, 74 N.R. 360, 36 B.L.R. 233,  I.L.R. 1-2147, consd [page642]
Other cases referred to
Bank Leu Ag v. Gaming Lottery Corp.,  O.J. No. 4715 (S.C.J.); Macaura v. Northern Assce Co.,  A.C. 619,  All E.R. Rep. 51, 94 L.J.P.C. 154, 133 L.T. 152, 41 T.L.R. 447, 69 Sol. Jo. 777, 31 Com. Cas. 10 (H.L.)
APPEAL from a judgment of the Divisional Court (Then, Lang and Cumming JJ.) (2000), 194
D.L.R. (4th) 751,  I.L.R. 1-3911 dismissing an appeal from a judgment of Campbell J.,  I.L.R. 1-3708 for a plaintiff in an action for recovery on an insurance policy.
David A. Zuber, for appellant The Economical Mutual Insurance Group. Elliot S. Birnboim and Judy Piafsky, for respondent.
The judgment of the court was delivered by
 CARTHY J.A.: — The plaintiff’s vehicle was stolen from him and he claimed recovery from the defendant on his insurance policy. The defendant denied coverage on the basis that the plaintiff had no insurable interest in the property because it was a stolen vehicle at the time of his purchase. At trial, Campbell J. applied what has become known as the factual expectancy test from the judgment of Wilson J. in Constitution Insurance Co. of Canada v. Kosmopoulos,  1 S.C.R. 2, 34 D.L.R. (4th) 208 and granted judgment to the plaintiff. The defendant appealed to the Divisional Court against the finding on liability and the plaintiff cross-appealed seeking an increase in the assessment of damages. The Divisional Court dismissed the liability appeal and allowed the damages appeal. By leave granted by this court, the appellant, The Economical Mutual Insurance Group, appeals both findings.
 For the reasons that follow, I would allow the appeal. It will be unnecessary for me to deal with damages because, in my view, the respondent did not have an insurable interest in the vehicle.
 The respondent, Rafik Assaad is a financial consultant and is certified as an insurance agent and a securities broker. At the time of trial he was 49 years old. One of Assaad’s clients, Mohammed Malik, was heavily in debt and had decided to leave the country. The respondent’s evidence was that Malik owed him $10,000 on an undocumented loan and told him he could not repay him but could get him a new car worth $30,000 for $16,000 cash plus forgiveness of the loan.
 In August 1996, Malik showed the respondent a 1996 Chrysler minivan. The respondent liked it and agreed to buy it. [page643] Malik took the respondent’s driver’s licence and returned with the vehicle and a new registration. The respondent and Malik did not discuss the history of the vehicle which, according to the Ministry of Transportation ownership document, had about 33,000 kilometres on it. There is no bill of sale or any other documentation. No search was conducted, no vehicle information package was obtained, no inquiries whatsoever were made. According to the respondent: “This time I was so excited about the look of the car I did not ask for a bill of sale for two reasons. Number one, I did not think that anything would go wrong with it. Second, just out of excitement, I didn’t ask him.” The respondent took the keys and ownership from Malik and gave him $16,200 in cash. Soon thereafter, Malik left Canada and his whereabouts are unknown to the respondent.
 The respondent insured the vehicle with the appellant and two months later it was stolen. The police investigation revealed that the vehicle had previously been stolen in Quebec and the vehicle identification number had been changed. Before the respondent registered the vehicle it was registered in the name of Bloor Street Auto Sales Ltd.
 The trial judge’s essential findings [at paras. 14-15] were:
Cross-examination established that Mr. Assaad not only did not know, but did not care about the origin of the vehicle he purchased from Malik nor about the mileage on the vehicle or its registration. As he stated, he entered the transaction simply in order tobe able to be repaid the debt that was owed to him. Cross-examination also revealed some inconsistencies in statements made by Mr. Assaad in the proof of loss sent to the insurer and in an affidavit on this action on a motion for Summary Judgment. One must view with suspicion the evidence of a seemingly intelligent person such as Mr. Assaad who from his position as a financial consultant, tax preparer and life insurance salesman surely knows the importance of documentation of transactions. Nevertheless I am for the purposes of the relief sought in this action, prepared to accept his evidence. In doing so I recognize that the major elements of the Claim are entirely based on his testimony with no corroborating evidence.
I do find however that he must have at least suspected if not been blind to the background of the vehicle that he purchased and the identity of the vendor, but I am not prepared to conclude that he wilfully participated in a knowingly fraudulent transaction. Mr. Assaad’s conduct may be important in considering what damages he may be entitled to, but it does not in and of itself, preclude his ability to pursue a claim against the insurer.
 These findings are problematic and bear further analysis. For the moment I note only that there is no specific finding that the respondent was a purchaser for value without notice. The reference to suspicion and blindness suggests the contrary.
 Both the trial judge and the Divisional Court based their conclusions on an application of the factual expectancy test [page644] established by the Supreme Court of Canada in Kosmopoulos. They found that the respondent had dominion and control over the vehicle and an expectation of continued benefit from its use at the time it was stolen, even if for only a limited time until his lack of any property interest was exposed.
 Kosmopoulos was the case of a sole shareholder and creditor of a company claiming for a fire loss of company property on a policy in the shareholder’s name. In those circumstances, it had been held by the House of Lords in Macaura v. Northern Assce Co.,  A.C. 619,  All E.R. Rep. 51 (H.L.) that the proprietor had no insurable interest in the corporate assets and could not recover on the personal policy.
 In a detailed analysis of the jurisprudential history of the issue of insurable interest, Wilson J. identified three underlying policy concerns: (1) the policy against wagering in the guise of insurance; (2) the policy favouring limitation of indemnity to the loss actually suffered; and (3) the policy of resisting encouragement to the temptation to destroy the insured property. She found that none of these policy concerns was served by the restrictive approach in Macaura. Further, she found that many jurisdictions in the United States have adopted the factual expectancy of loss approach.
 Wilson J. concluded at para. 42 [pp. 29-30 S.C.R.]: In my view, there is little to commend the restrictive definition of insurable interest. As Brett M.R. has noted over a century ago in Stock v. Inglis, supra, it is merely “a technical objection . . . which has no real merit . . . as between the assured and the insurer”. The reasons advanced in its favour are not persuasive and the policies alleged to underlie it do not appear to require it. They would be just as well served by the factual expectancy test. I think Macaura should no longer be followed. Instead, if an insured can demonstrate, in Lawrence J.’s words, “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”, that insured should be held to have a sufficient interest. To “have a moral certainty of advantage or benefit, but for those risks or dangers”, or “to be so circumstanced with respect to [the s ubject-matter of the insurance] as to have benefit from its existence, prejudice from its destruction” is to have an insurable interest in it.
 This then becomes the modern statement of our common law as to the extent of proprietary interest required to establish an insurable interest. It is expressed in extremely broad terms and, although emanating from a case involving the interest of a sole shareholder in the assets of the corporation, could be applied with semantic sense to a case such as this of stolen goods. Yet the context and policy considerations are so different that I cannot take it as the intent of the Supreme Court that its pronouncement be given such universal application. [page645]
 The person who stole this vehicle had for a time a relation to it which would be prejudiced by the happening of events for which insurance might be purchased. He would have had a certainty of benefit from the vehicle’s continued existence and a loss from its destruction; precisely the position of the respondent, if without the same degree of awareness, as a successor to the thief. The common law would certainly deny the thief recovery on the policy ground against benefiting from your own wrongdoing, if for no other reason. Further, the policy issue relating to the temptation to destroy goods and convert them to cash where there is no true ownership, put aside by Wilson J. as of no concern to the issues in Kosmopoulos, comes to the forefront with stolen goods. Who would not prefer insurance proceeds to a vehicle that the police are looking for?
 Wilson J. in Kosmopoulos points out that many American jurisdictions have adopted the factual expectation test, usually by statutory definition. However, she had no reason on the facts before her to note that the test in the United States is not applicable to cases involving stolen goods. An example of a stolen goods case is Nelson v. New Hampshire Fire Insurance Co., 263 F.2d 586 (9th Cir., 1959), a decision of the United States Court of Appeals Ninth Circuit. The insured had purchased a trailer from strangers at considerably less than its value and without documentation. Insurable interest was defined by statute as “every interest . . . of such a nature that a contemplated peril might directly damnify the insured”.
 At paras. 19-20, the court’s opinion reads: Appellant has not pointed out nor have we been able to locate a case wherein a thief, or one who knowingly purchases from a thief, has been held to have an insurable interest. It has been suggested that a thief is denied such an interest solely on the ground of public policy. 32 Yale L.J. 497. If this is the case, those policy reasons would have no validity against one who innocently purchases from the thief, but as against a knowing purchaser, they would be as equally valid as against the thief himself. The trial court found that appellant knew, or with the exercise of reasonable care would have known, of her vendor’s lack of interest in and authority to sell the subject trailer house. We agree with the finding and conclusion of the trial court that appellant had no insurable interest in the said trailer house.
 I endorse that approach to the application of the factual expectation test to stolen property and now turn to analyze the position of the respondent on the findings of the trial judge.
 While full deference must be given to the findings of the trial judge, the facts are not in dispute and I find his reasoning, quoted above, internally contradictory. The trial judge found that [page646] the respondent did not know or did not care about the origins of the vehicle, that his evidence was uncorroborated and should be viewed with suspicion, and that he must have suspected if not been blind to the origins of the vehicle and the identity of the vendor. And then the curious finding, “I am for the purposes of the relief sought in this action, prepared to accept his evidence.” Would the trial judge not have accepted the respondent’s evidence had some other relief been sought? Or, as his subsequent remarks indicate, was a different standard of conduct considered in assessing damages? That would be an unsupportable equivocation. If insured, the respondent was entitled to payment in accordance with the contract.
 The contradiction is between the finding of suspicion and blindness and the evidence of the respondent which the trial judge says that he accepts. The respondent did not testify to being suspicious, quite the contrary. The finding of suspicion and blindness undermines all his evidence. And the evidence was overwhelming that the respondent was wilfully blind. Malik, the vendor, was leaving the country because of significant debts. Yet he had an apparently new vehicle worth $30,000 that he was prepared to sell for $16,000 cash plus an irrecoverable $10,000 debt. A financial adviser, or anyone, might wonder why Malik would not sell this vehicle for value in the marketplace, not to mention be concerned by the lack of documentation and mileage on the vehicle.
 Suspicions combined with blindness adds up to an absence of good faith. In Bank Leu Ag v. Gaming Lottery Corp.,  O.J. No. 4715 (S.C.J.), Lederman J. relied on the House of Lords in arriving at this conclusion. At para. 75 et seq. he states:
The term “good faith purchaser” has been recognized in the common law for centuries. While mere negligence, commercial stupidity or unreasonableness will not be sufficient to negative good faith on the part of a plaintiff, wilful blindness amounting to dishonesty and refusal to ask obvious questions will suffice. In Jones v. Gordon (1877), 2 App. Cas. 616 (H.L.), Lord Blackburn stated at pages 628-9:
But then I think that such evidence of carelessness or blindness as I have referred to may with other evidence be good evidence upon the question which, I take it, is the real one, whether he did know that there was something wrong in it. If he was (if I may use the phrase) honestly blundering and careless, and so took a bill of exchange or a bank-note when he ought not have taken it, still he would be entitled to recover. But if the facts and circumstances are such that the jury, or whoever has to try the question, came to the conclusion that he was not honestly blundering and careless, but that he must have had a suspicion that there was something wrong and that he refrained from asking questions, not because he was an honest blunderer or a stupid man, but because he thought in his own secret mind — I suspect there is something wrong, and if I ask questions and make farther inquiry, it will no longer be my suspecting it, but my knowing it, and then I shall not be [page647] able to recover — I think that is dishonesty. I think, my Lords, that that is established, not only by good sense and reason, but by the authority of the cases themselves. In London Joint Stock Bank v. Simmons,  AC 201 (H.L.) at page 221, Lord Herschell stated:
One word I would say upon the question of notice, and being put upon inquiry. I should be very sorry to see the doctrine of constructive notice introduced into the law of negotiable instruments. But regard to the facts of which the taker of such instruments had notice is most material in considering whether he took in good faith. If there be anything which excites the suspicion that there is something wrong in the transaction, the taker of the instrument is not acting in good faith if he shuts his eyes to the facts presented to him and puts the suspicions aside without further inquiry. [Emphasis added]
GLC acknowledges that mere negligence in the conduct of the transaction concerned on the part of the purchaser of the instrument will not deprive such purchaser of good faith status. But if there is anything which excites the suspicion that there is something wrong (and it is not necessary to have notice of what the particular wrong may be) in the transaction, the taker of the instrument is not acting in good faith if the taker shuts his or her eyes to the facts presented and puts the suspicions aside without further enquiry.
 The evidence in this case fills every crack and cranny of this description of what constitutes wilful blindness and the trial judge should have gone beyond a finding of suspicion and the non-committal “if not blindness” to a specific finding of wilful blindness. I come to that conclusion as the only one available on the evidence and, having done so, further conclude that policy concerns dictate that the respondent had no higher insurable interest than the thief and cannot rely upon factual expectation as a basis for recovery.
 This conclusion, I believe, is consonant with the principles behind Kosmopoulos if not with its literal language. Any other finding would encourage persons such as used car dealers or pawnbrokers to ignore suspicions or to be wilfully blind in anticipation of converting the goods to cash through insurance policies.
 I note in passing that in Kosmopoulos, McIntyre J. concurred in the result but would have limited the exception to sole shareholders with the prescient observation at para. 45 [p. 31 S.C.R.], that this would avoid “opening the concept of insurable interest to indefinable limits”.
 For these reasons, I would allow the appeal, set aside the judgment of the Divisional Court and that of the trial judge, and dismiss the claim with costs throughout. There is no evidence that the insurer ever offered to return the premiums and this is a novel point of insurance law. In light of those two factors, I would [page648] limit the appellant’s costs to $7,500 for the entire proceedings, including disbursements and G.S.T. The insurer may retain the premiums.
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