COURT OF APPEAL FOR ONTARIO

CITATION: Pinder Estate v. Farmers Mutual
    Insurance Company (Lindsay), 2020 ONCA 413

DATE: 20200625

DOCKET: C64857

van Rensburg, Benotto and
    Harvison Young JJ.A.

BETWEEN

Clarkson Murray Pinder, Douglas Michael Pinder,

Cindy
    Pinder, Estate Trustees of the estate of

Joyce Pinder, deceased, and Cindy Pinder

Plaintiffs (Appellants)

and

Farmers Mutual Insurance Company
    (Lindsay)

Defendant (Respondent)

Earl A. Cherniak, Q.C. and Alfred M.
    Kwinter, for the appellants

Martin P. Forget, for the respondent

Heard: December 10, 2019

On appeal from the judgment of Justice Mary
    E. Vallee of the Superior Court of Justice, sitting with a jury, dated May 9,
    2018, with reasons for decision on post-trial motions reported at 2018 ONSC
    2910, and the costs judgment, dated January 25, 2019, with reasons reported at
    2019 ONSC 610.

van Rensburg J.A.:

I.

OVERVIEW

[1]

This is an appeal of a judgment after trial by judge and jury dismissing
    the claims of the appellants, Joyce Pinder and Cindy Pinder and of the award of
    costs against them.
[1]
The appellants, who were mother and daughter, made a claim under their home
    insurance policy after a fire destroyed the house owned by Joyce and occupied
    by Cindy, along with most of its contents. The respondent, Farmers Mutual
    Insurance Company (Lindsay) (Farmers Mutual or the insurer), denied
    coverage, and litigation resulted. The appellants sued for a declaration of
    coverage under their insurance policy and for damages, alleging that the
    insurer had acted in bad faith in handling and denying their claim. The insurer
    also brought a claim seeking to recover from the appellants the amount it had
    paid out to Joyces mortgagee.

[2]

The jury answered all applicable questions against the appellants. Based
    on the jurys answers to these questions, the trial judge concluded that the
    appellants had violated statutory condition 4 of their fire insurance (by
    failing to notify the insurer of a material change in risk), with the effect
    that their policy was voided, and that they had made wilfully false statements
    in their Proof of Loss, vitiating their claim pursuant to statutory condition 7.
    The trial judge dismissed the appellants claim under the policy, as well as
    their claim for damages based on breach of the insurers duty to act in good
    faith, and their claim for punitive and aggravated damages. She refused to
    grant the appellants relief from forfeiture. She awarded damages of $97,143.97
    against Cindy and Joyce (the insurers pay-out of the outstanding mortgage on
    the house) and awarded the insurer costs of both proceedings in the total
    amount of $616,843.27. A significant portion of the costs were awarded on a
    substantial indemnity basis.

[3]

There are several grounds of appeal that principally relate to the trial
    judges instructions to the jury on the factual issues they had to determine in
    respect of statutory conditions 4 and 7. The appellants also take issue with
    the trial judges decision to refuse them relief from forfeiture and assert
    that the trial judge erred in her costs award.

[4]

For the reasons that follow, although there are certain issues in
    respect of which I would find for the appellants, I am satisfied that their
    claim was properly dismissed on the basis of the wilful misstatements in the Proof
    of Loss, and that there was no error in the trial judges dismissal of the
    motion for relief from forfeiture. I would therefore dismiss the appeal of the
    judgment dismissing the appellants action.

[5]

With respect to the costs judgment, in my view, the trial judge erred in
    awarding costs on a substantial indemnity basis from the date of the insurers
    offer to settle. I would allow the costs appeal and substitute an order for
    partial indemnity costs in favour of the insurer in the all-inclusive amount of
    $430,000.

II.

FACTS

(1)

The loss

[6]

The appellants brought an action against the insurer, seeking coverage
    for their losses under their home insurance policy following a fire, and
    asserting that the insurer had acted in bad faith in its handling of their
    claim.

[7]

The fire took place in the early morning hours of February 2, 2004 at a
    house in Lindsay, Ontario that was purchased by Joyce in 1999, and occupied by
    her daughter Cindy and Cindys son. Joyce paid the mortgage and property taxes
    and Cindy was responsible for paying utilities. Cindy owned the contents of the
    house.

[8]

On the night of the fire, Cindys son was staying overnight with his grandmother
    and Cindy was at her boyfriends home, where they were busy sanding floors.
    Cindy and her boyfriend returned to her home at approximately 3:30 a.m. to find
    the house on fire. The fire destroyed the house and its contents, and claimed
    the lives of Cindys two dogs.

[9]

The house had been heated by a gas furnace. In July 2003, the gas supply
    to the house had been cut off. Cindys evidence was that she was using a wood stove
    as her primary source of heat, supplemented by space heaters when it was very cold.
    She testified that when she left the house the evening before the fire, she had
    left a log in the wood stove and the space heaters in three rooms turned half
    on.

[10]

Cindy
    and Joyce retained Tom Yates, an independent insurance adjuster, to assist with
    their insurance claim. They filled out and signed a Proof of Loss, dated March
    29, 2004. The Proof of Loss claimed $172,412 for the house, $104,000 for the
    contents, and $26,000 for Cindys additional living expenses. Cindy prepared a Schedule
    of Loss that listed the contents that she claimed were lost in the fire. The Schedule
    of Loss was attached to the Proof of Loss. As stated in the Proof of Loss, the
    Schedule of Loss forms part of [the] proof. The Proof of Loss and Schedule of
    Loss were prepared with the assistance of Mr. Yates.

[11]

The
    insurer requested additional information about the items listed in the Schedule
    of Loss that were valued at over $500. There was a great deal of evidence at
    the trial about the steps taken to ascertain the existence and value of the
    various items that Cindy claimed to have lost in the fire.

[12]

Cindys
    evidence was that she indicated, to the extent she was able, where and when she
    had purchased or acquired each item, where each item was located in the house,
    and her belief as to its replacement cost. She did not provide proof of
    purchase for a number of items, claiming that she had paid for a significant
    number of items in cash and had inherited other items from family members. The
    insurers evidence was that Cindy had failed to attend at the house to review
    the items on her list and that she had not provided evidence of the existence
    or value of certain items that they had expected her to be able to provide.

[13]

The
    insurer paid an advance to Cindy for the contents and the cost of certain
    alternate living expenses. The insurer also paid the sum of $97,143.97 to
    Joyces mortgagee.

[14]

Farmers
    Mutual formally denied coverage by letter dated May 27, 2004, addressed to Mr.
    Yates. The reasons were that (1) the appellants failed to notify the insurer of
    the change in the heating system of the premises, which constitutes a material
    change in the risk contrary to statutory condition 4, voiding the policy; and (2)
    the appellants made wilfully false statements with respect to the contents
    claim, and the claim for alternate living expenses, contrary to statutory
    condition 7, vitiating their right to recover.
[2]

[15]

The
    appellants invoked the appraisal provisions of the policy under s. 128 of the
Insurance
    Act
,
R.S.O. 1990, c. I.8.
    The insurer resisted and, following an order of this court, the appraisal
    proceeded. An appraisal award was made, dated March 30, 2007. The appellants
    loss was fixed at $182,382.50 on a replacement cost basis and $104,375 on an
    actual cash basis for the building claim. With regard to the contents claim,
    the loss was adjusted at $88,808.81 and the additional living expenses claim
    was fixed at $10,725.60. The parties agree that the appraisal award was
    provisional. Because they were involved in litigation, the appraisal did not
    consider whether or not the specific items listed in the Schedule of Loss
    existed or had been damaged or destroyed by the fire, but only established
    their value.

(2)

The terms of the appellants insurance policy

[16]

The
    appellants home insurance policy was in force for the term February 26, 2003
    to February 26, 2004. The policy provided for limits of $130,000 for the house
    and $104,000 for the contents, on a replacement cost basis. Both Cindy and
    Joyce were listed as insureds.

[17]

The
    declaration page indicated that the primary heat was Central Furnace. It also
    stated: No Wood Heating Unit in use other than an Unaltered Masonry Fireplace,
    Wood Pellet, Wood or Combination Furnace.

[18]

Pursuant
    to s. 148 of the
Insurance Act
, the policy contained statutory
    conditions applicable to fire insurance contracts, including the following:

Material Change

4. Any change material to the risk and within the control and
    knowledge of the insured avoids the contract as to the part affected thereby,
    unless the change is promptly notified in writing to the Insurer or its local
    agent, and the insurer when so notified may return the unearned portion, if
    any, of the premium paid and cancel the contract, or may notify the insured in
    writing that, if the insured desires the contract to continue in force, the
    insured must, within fifteen days of the receipt of the notice, pay to the
    insurer an additional premium, and in default of such payment the contract is
    no longer in force and the insurer shall return the unearned portion, if any,
    of the premium paid.

Requirements After Loss

6. (1) Upon the occurrence of any loss of or damage to the
    insured property, the insured shall, if the loss or damage is covered by the
    contract

(a) forthwith give notice thereof
    in writing to the insurer;

(b) deliver as soon as practicable
    to the insurer a proof of loss verified by a statutory declaration,

(i) giving a complete inventory of
    the destroyed and damaged property and showing in detail quantities, costs,
    actual cash value and particulars of amount of loss claimed,

(ii) stating when and how the loss
    occurred, and if caused by fire or explosion due to ignition, how the fire or
    explosion originated, so far as the insured knows or believes,

(iii) stating that the loss did not
    occur through any wilful act or neglect or the procurement, means or connivance
    of the insured,

(iv) showing the amount of other
    insurances and the names of other insurers,

(v) showing the interest of the
    insured and of all others in the property with particulars of all liens,
    encumbrances and other charges upon the property,

(vi) showing any changes in title,
    use, occupation, location, possession or exposures of the property     since
    the issue of the contract,

(vii) showing the place where the
    property insured was at the time of loss.

(c) if required, give a complete
    inventory of undamaged property and showing in detail quantities, cost, actual
    cash value;

(d) if required and if
    practicable, produce books of account, warehouse receipts and stock lists, and
    furnish invoices and other vouchers verified by statutory declaration and furnish
    a copy of the written portion of any other contract.

(2) The evidence furnished under clauses (1) (c) and (d) of
    this condition shall not be considered proofs of loss within the meaning of
    conditions 12 and 13.

Fraud

7.
Any fraud or wilfully false statement
    in a statutory declaration in relation to any of the above particulars,
    vitiates the claim of the person making the declaration.

(3)

The trial

[19]

The
    trial took place over 15 days in December 2017. Cindy testified. Other
    witnesses for the appellants were Mr. Yates, Cindys son, Cindys friend and
    former house cleaner, as well as the police officer who investigated the fire
    for arson. Joyce, who was 91 years old at the time, did not testify, but some
    of her discovery evidence was read in as part of the insurers case.

[20]

The
    insurers witnesses were Luc Coutu, the claims representative for Farmers
    Mutual, Shawn Barrett, a co-owner of the restoration company Chem-Dry of the
    Kawarthas, Durham and York (Chem-Dry), a real estate agent who listed the house
    for sale before the fire, and a home inspector who attended the house the day
    before the fire.

[21]

The
    following are the relevant jury questions and answers:

Question 1: Did the plaintiffs use
    portable electric heaters as their primary source of heat after July 2003 when
    the gas supply to the property, 49 Rideout Street Lindsay, was cut off?

Answer: Yes.

Question 2: If your answer to the above question is yes, was
    the change of the heat source within the knowledge and control of either
    plaintiff?

Answer: Yes.

Question 3: If your answer to the above question is yes, did
    the change in heat source constitute a material change in risk that the
    plaintiffs were required to report to the defendant?

Answer: Yes.

Question 4: If your answer to question one is yes, did the
    plaintiffs report the change in heat source to the defendant promptly and in
    writing?

Answer: No.

Question 5: Did the plaintiffs make a wilfully false statement
    in the Proof of Loss form and the schedules?

Answer: Yes.

Question 6: If your answer to the above is yes, having regard
    to Exhibit 1 [the insurers list of items it questioned], please indicate, on
    the attached sheets, the items about which the plaintiffs made wilfully false
    statements.

Answer: [The jury checked off 39 of the 68 items listed in
    Exhibit 1.]

Question 11: Was the conduct of the defendant insulting,
    high-handed, spiteful, malicious, or oppressive with respect to the manner in
    which it handled the plaintiffs claim such that it warrants an award of
    aggravated damages?

Answer: No.

[22]

The
    jury did not provide answers to the remaining questions, which dealt with
    whether the insurer had breached its duty to act in good faith and punitive
    damages, in the event that the jury answered no to Questions 1 and 5.

[23]

After
    the jury gave its verdict, the insurer moved for judgment dismissing the
    appellants claims and an order requiring repayment of the funds it had paid to
    Joyces mortgagee. The appellants brought a cross-motion requesting the
    following: (1) that judgment not be entered in accordance with the jurys
    verdict, on the basis that there was no evidence at trial to support the jurys
    answer to Question 1, and that its verdict was therefore perverse; (2) relief
    from forfeiture; (3) judgment in accordance with the property appraisal and Proof
    of Loss; and (4) the dismissal of the insurers motion.

[24]

The
    insurers motion was granted, the cross-motion was dismissed, and judgment was
    entered for the insurer. In dismissing the cross-motion, the trial judge found
    that there was sufficient circumstantial evidence before the jury to support
    its answer to Question 1, that the appellants were using portable electric
    heaters as their primary heat source at the time of the fire. She also refused
    to grant relief from forfeiture on the basis that this was not a case of
    imperfect compliance.

[25]

The
    parties made written submissions on costs and attended to provide oral
    submissions to the trial judge. The trial judge awarded costs of $616,843.27
    against the appellants. Substantial indemnity costs were awarded after the date
    of the insurers offer to settle, dated November 19, 2010.

III.

ISSUES

[26]

The
    appellants raise a number of issues on appeal. Although the issues were stated
    somewhat differently by the appellants in their factum and in oral argument, I
    have organized the issues, and will address them in my reasons, as follows:

1.

Was there a reversible error with respect to
    statutory condition 4? In particular:

a.

Was there evidence to support the jurys finding
    (in response to Question 1) that electric heaters were the primary heat source
    in the house?

b.

Did the trial judge err in her instructions in
    response to a question from the jury about the meaning of primary heat source?

c.

Was there evidence to support the jurys finding
    (in response to Question 3) that the change in heat source constituted a
    material change in risk?

2.

Was there a reversible error with respect to
    statutory condition 7? In particular:

a.

Did the trial judge err in her instructions to
    the jury about the evidence of certain witnesses?

b.

Did the trial judge err in her instructions
    about the intention required for a wilfully false statement?

c.

Did the trial judge err in failing to instruct the
    jury to consider separately whether each of Joyce and Cindy made wilfully false
    statements?

3.

Did the trial judge err in refusing relief from
    forfeiture?

4.

Did the trial judge err in her award of costs?

[27]

If
    they are successful on appeal, the appellants ask that this court set aside the
    dismissal of their action and grant judgment in their favour, in the amounts set
    out in the appraisal award. If necessary, they ask that a new trial be ordered
    to resolve Cindys claim. The appellants also ask that the costs award be set
    aside or reduced.

IV.

ANALYSIS

(1)

Was there a reversible error with respect to statutory condition 4?

[28]

Statutory
    condition 4 required [a]ny change material to the risk and within the control
    and knowledge of the insured to be promptly notified in writing to the
    insurer, failing which the insurance contract would be avoided as to the part
    affected thereby.

[29]

The
    insurers position, as it went to the jury
[3]
,
    was that the electric heaters, which were turned half on when the fire
    occurred, were used as the primary heat source, and that this was a material
    change in risk that was not disclosed to the insurer. Cindy testified that she
    was using a wood stove as her primary heat source, which she supplemented with
    electric heaters when it got very cold.

[30]

The
    appellants make three arguments with respect to statutory condition 4. First,
    they submit that there was no evidence to support a positive answer to Question
    1. Second, they argue that the trial judge misdirected the jury in her response
    to their question on the definition of primary heat source. Third, they
    contend that there was no evidence on what constitutes a material change in
    risk. I would not give effect to the first argument, but I would give effect to
    the second and third arguments, with the result that the conclusion that the
    appellants were in breach of statutory condition 4 cannot stand.

(a)

There was evidence to support the jurys answer to Question 1

[31]

The
    appellants first argument is that there was no evidence to support the jurys
    affirmative answer to Question 1: Did the plaintiffs use portable electric
    heaters as their primary source of heat after July 2003 when the gas supply to
    the property, 49 Rideout Street Lindsay, was cut off?.

[32]

The
    appellants submit that the only witnesses to testify on this issue were
    unanimous that the primary heat source was the wood stove, and that the
    portable electric heaters were used as a supplemental heat source on very cold
    days. They explain that, because Cindy was not cross-examined on this point,
    there was no contradictory evidence. They point to the evidence of Mr. Coutu,
    the insurers claims representative, who admitted that he had heard no one
    testify at trial that the appellants were using electric heaters as their
    primary heat source.

[33]

This
    argument can be addressed briefly. The same argument was made to and rejected
    by the trial judge in the appellants motion asking that she refuse to enter a
    verdict reflecting the jurys answer to Question 1.

[34]

In
    her written reasons, the trial judge stated the following, at paras. 13 to 15:

Cindy Pinders evidence was that she left home at approximately
    5:30 p.m. on Sunday, February 1, 2004 and returned at approximately 3:30 a.m.
    on Monday February 2, 2004 to find the house on fire. According to a statement
    that she gave to the insurer on Monday February 2, 2004 at 3:30 p.m. right
    after the fire, Cindy Pinder said that on the night of the fire, there was one
    stick of wood in the wood stove. It was one of the bought wood. She agreed
    that it was a fire log. Three space heaters were turned half on. Her trial
    testimony was consistent with this.

The fact that a witness, Mr. Coutu, testified that he had not
    heard any evidence at trial that the plaintiffs were using ceramic or electric
    heaters as their primary source of heat does not determine this matter. The
    question was for the jury to decide.

There is no dispute that the defendant did not challenge Cindy
    Pinder on this evidence. Nevertheless, it was open to the jury to believe some,
    none or all of her evidence. In his closing submissions, defence counsel
    reminded the jury of the rooms in the house where the portable electric heaters
    were located (kitchen, bathroom and bedroom) and the fact that there was only
    one log in the wood stove at 5:30 p.m. when Ms. Pinder left. He suggested that
    the three portable electric heaters were used to heat approximately half of the
    space in the residence. He asked the jury to draw an inference that Cindy
    Pinder was using the portable heaters as her primary source of heat. It was
    open to the jury to draw that inference. Plaintiffs counsel did not object to
    the defendants closing address.

[35]

I
    agree with the trial judge that whether the appellants were using electric
    heaters as their primary heat source was a question for the jury to decide,
    based on the evidence, and not on Mr. Coutus recollection of the evidence. Although
    no witness contradicted Cindy, and she was not challenged on this point in
    cross-examination, it was open to the jury to conclude, based on the
    circumstantial evidence before them, that the space heaters were being used as
    the primary source of heat in the home. This circumstantial evidence included
    the fact that the gas had been turned off, the number of space heaters in use,
    and their location in various rooms of the house.

[36]

Accordingly,
    I would not give effect to the appellants argument that there was no evidence
    to support the jurys answer to Question 1.

[37]

There
    were, however, two other problems in relation to the insurers defence based on
    breach of statutory condition 4 in this case. I turn to these now.

(b)

The trial judges answer to a jury question about the primary heat
    source resulted in misdirection on a material issue

[38]

In
    the course of their deliberations, the jury asked the following question:

We would like to know the correct meaning of
    primary heat source, what is the definition? Is the only source of heat the
    same as primary source of heat? That is, if the wood stove is out and the
    electric heaters are on, they are the only source of heat, but are they now the
    primary source of heat?

[39]

After
    discussing the question with counsel, the trial judge recalled the jury and
    provided the following response:

There is no definition of the meaning of primary heat source.
    And Im going to read to you from Exhibit 2, Page 10, which is the statement
    that Ms. Pinder gave to Mr. Coutu on February 2, 2004, and Im reading from
    about half the way down the page.

Luke: Now, you mentioned there was a wood stove. So there
    was a wood fire on at that time?

Cindy: There was one stick of wood in it and it was one of
    the bought wood.

Luke: Fire logs?

Cindy: Yes.

[Luke:] And what other source of heat did you have in the
    house?

Cindy: Had heaters on.

Luke: What kind of heaters?

Cindy: Space heaters. One in the kitchen. One in the
    bathroom. One in the bedroom. And they were turned half on.

So that is the answer to your question.

[40]

The
    appellants submit that the trial judge did not respond in any meaningful way to
    the jurys question, with the effect that the jury was misdirected with respect
    to Question 1.

[41]

The
    insurer asserts that the jury received a proper and complete answer to their
    question: it was correct for the trial judge to respond that there was no
    definition of primary heat source because this was not a term that was
    defined anywhere in the insurance policy. Moreover, according to the insurer, it
    would have been inappropriate for the trial judge to provide an answer to what,
    in the end, was a hypothetical question.

[42]

In
R. v. Grandine
, 2017 ONCA 718, 355 C.C.C. (3d) 120, this court
    confirmed the importance of a trial judges full and proper answer to any question
    asked by the jury. Brown J.A. explained, at para. 62:

Jury questions indicate some jurors need help. They are having
    a problem with an issue in the case. A question usually concerns an important
    point in the jurys reasoning, identifying an issue on which the jury requires
    direction:
R. v. W.D.S.
, [1994] 3 S.C.R. 521,
    at paras. 14-18;
R. v. M.T.
, 2012 ONCA 511,
    289 C.C.C. (3d) 115, at para. 114. Answers to jury questions are extremely
    important, carrying an influence far exceeding instructions given in the main
    charge. The practical reality is that such answers will be given special
    emphasis by jurors:
R. v. Naqlik
, [1993] 3 S.C.R. 122, at p. 139;
W.D.S.
, at para. 16. Consequently, a trial judge must
    fully and properly answer a question asked by the jury:
R. v. Stubbs
,
    2013 ONCA 514, 300 C.C.C. (3d) 181, at para. 95.

See also
R. v. Goudreau
, 2019 ONCA 964, at
    paras. 36-37.

[43]

The
    jurys question in this case indicated that they needed help with the meaning
    of primary heat source. Specifically, they requested guidance on whether a
    heat source that was being used at the time another heat source failed would become
    a primary heat source. It was the gist of Cindys evidence that she was using
    the wood stove as her primary heat source, and that the electric heaters were only
    used as back-up. There was also evidence that, on the night of the fire, three
    electric heaters were turned on halfway and that there was only one log in the
    wood stove from 5:30 p.m. until the time of the fire.

[44]

In
    his submissions on the jury question, the appellants trial counsel proposed,
    at one point, that the jury be told that the primary source of heat would be
    the main source of heat that was used to heat the home on a day-to-day basis.
    The insurers counsel argued that, because primary heat source was not
    defined in the insurance policy, the jury should be informed that there was no
    definition, and that to go any further other than to summarize some of the
    evidence that was heard would be to answer a hypothetical question. The trial
    judge appears to have accepted the argument of the insurers counsel.

[45]

Not
    all errors in a jury charge will amount to misdirection. The question on
    appellate review is whether the charge provided the jury with adequate
    assistance to determine the questions it had to decide:
Samms v. Moolla
,
    2019 ONCA 220, at para. 48;
Little v. Floyd Sinton Limited
, 2019 ONCA
    865, 149 O.R. (3d) 38, at para. 18. The adequacy of the trial judges response
    to the jurys question must be assessed in light of the fact that the jury is
    seeking clarification on an issue that is assumed to have taken on some
    prominence, at least in the mind of one juror. The trial judges response must,
    however, like the rest of the charge, be considered as a whole:
R. v.
    Graham
, 2019 ONCA 347, 377 C.C.C. (3d) 205, at para. 35.

[46]

In
    my view, the trial judges response to the jurys question was inadequate to
    the extent that it constituted a misdirection on an important issue at trial.
    When the jury asked for a definition of primary heat source, their question
    continued: Is the only source of heat the same as primary source of heat? That
    is, if the wood stove is out and the electric heaters are on, they are the only
    source of heat, but are they now the primary source of heat? It is apparent
    that the jury was concerned about how they should assess the evidence that,
    when Cindy left the home, there was only one log in the wood stove. The jury ought
    to have been told that the primary heat source was the source of heat that was
    relied on to heat the home on a daily basis, which appears to have been the
    common understanding of counsel.

[47]

The
    insurers position was that the space heaters were being used regularly as the
    primary heat source. No one at trial had suggested that the space heaters, which
    were set at 50 percent power at the time, would automatically become the
    primary heat source if the fire in the wood stove had gone out. Yet, this was
    the focus of the jurys question. The trial judges answer was not responsive
    to the jurys concern. As a result, the jury may well have reasoned,
    incorrectly, that, because there was only one log on the fire at 5:30 p.m. the
    night before, the fire in the wood stove would have gone out at some point, so
    that, at the time of the fire the space heaters had automatically become the
    primary heat source.

(c)

There was no evidence to support the conclusion that the change in heat
    source constituted a material change in risk

[48]

Although
    it is unnecessary for the disposition of this part of the appeal, I will
    comment briefly on Question 3: Did the change in heat source constitute a
    material change in risk that the plaintiffs were required to report to the
    defendant?

[49]

The
    breach of statutory condition 4 was not in the appellants failure to report a
    change in heat source. Rather, it was in their failure to report something that
    would be a material change in risk. After concluding, in response to Questions
    1 and 2, that there was a change in the primary heat source that was within the
    knowledge and control of either appellant, the jury had to determine whether
    the change in heat source constituted a material change in risk. Indeed, the
    first four jury questions had to be answered in the insurers favour for the
    policy to be voided for breach of statutory condition 4. While a change in heat
    source could be a material change in risk, this was not conceded in the trial,
    and it was a separate question for the jury to determine.

[50]

In
    her charge to the jury, the trial judge provided the following instructions on
    statutory condition 4 and the insurers obligation to prove a material change
    in risk:

Regarding what is material, every fact is
    material which would, if known, reasonably affect the minds of prudent and
    experienced insurers in deciding whether they will accept the contract or in
    fixing the amount of the premium to be charged if they accepted the contract.
    The insured is not required to believe that the change is material to her
    policy. A change in primary heat source may be a material change in risk. The
    critical point is the knowledge of the insured. Regarding it, the change is
    decisive.

[51]

Counsel
    had agreed that this was the appropriate formulation of the test to establish
    what constitutes a material change in risk. This test was stated in
Johnson
    v. British Canadian Insurance Co.
, [1932] S.C.R. 680, at p. 686. See also
Pereira

v. Hamilton Township Farmers Mutual Fire Insurance Co.
(2006), 267
    D.L.R. (4th) 690 (Ont. C.A.), at para. 65.

[52]

When
    summarizing the evidence relating to material change in risk, the trial judge gave
    the following instructions to the jury regarding the lack of evidence on the
    issue of materiality:

[T]here was no evidence in this trial
    regarding what could reasonably affect the minds of prudent and experienced
    insurers in deciding whether they will accept the contract or in fixing the
    amount of the premium to be charged. You must keep this in mind when you are
    answering question three.

[53]

This
    instruction was a response to the concern raised by the appellants trial counsel
    during pre-charge discussions regarding the lack of evidence at trial on what
    constitutes a material change in risk.

[54]

There
    was no evidence at trial by an underwriter, or any other qualified witness, as
    to what would constitute a material change in risk for an insurer in accepting
    the contract or fixing the amount of the premium. Indeed, counsel for both
    parties objected when the other side invited their respective witnesses (Mr. Yates,
    in the case of the appellants and Mr. Coutu in the case of the insurer) to
    provide an opinion on this point. Counsels objections were grounded in the
    fact that the witnesses were not qualified to provide evidence on whether the
    alleged change in the primary heat source would have affected the insurers
    decision to provide coverage or the amount of the premium. The trial judge agreed
    and upheld the objections. After the trial judge ruled that Mr. Coutu could
    only testify that there was a change in the heating system, the insurers
    counsel remarked that he may have to call an underwriter, but no underwriter
    was called to testify.

[55]

In
    his closing address, when discussing whether the alleged change in heat source
    constitutes a material change in risk, the insurers counsel argued that,
    because the homeowners questionnaire requested particulars of the type of
    heating, and the primary heat source was indicated on the declaration page of
    the policy, heating was an important issue for the insurer and was thus
    material. However, this is not evidence that the change in heat source would
    have affected the insurers decision to accept the contract or to charge a
    certain premium.

[56]

Again,
    there was no evidence in this trial, as the trial judge observed in her
    instructions to the jury, to establish what reasonably affects the minds of
    prudent and experienced insurers in deciding whether they will accept the
    contract or in fixing the amount of the premium to be charged. By contrast, in
Wolfe v. Western General Mutual Insurance
(2000), 21 C.C.L.I. (3d) 210
    (Ont. S.C.), a case referred to by counsel, where a change in heat source was
    found to have been a material change in risk, the insurer tendered evidence
    from a retired underwriting manager who testified about industry practices in
    affording coverage and setting premiums: see

para. 14.

[57]

Without
    evidence to support the jurys affirmative answer to Question 3, there could be
    no finding that the appellants had failed to notify the insurer of a material
    change in risk, and that they therefore were in breach of statutory condition
    4.

(d)

Conclusion on
statutory
condition 4

[58]

Accordingly,
    both the trial judges failure to provide an adequate response to a question by
    the jury with respect to the definition of primary heat source, and the
    absence of evidence to support the jurys answer to Question 3, call into
    question the conclusion that the appellants were in breach of statutory
    condition 4. If that were the only reason for denial of their claim, I would
    have been inclined to allow the appeal, on the basis that these errors produced
    a substantial wrong or miscarriage of justice:
Courts of Justice Act
,
    R.S.O. 1990, c. C.43, s. 134(6). However, as I will explain, with respect to
    statutory condition 7, there was no error in the trial judges directions
    respecting certain evidence, her instructions on the law, or her conclusion
    that the appellants wilful misstatements vitiated their claim. I turn to those
    issues now.

(2)

Was there a reversible error with respect to statutory condition 7?

[59]

The
    appellants argue a number of points with respect to statutory condition 7,
    which I have grouped as follows:

1.

Did the trial
    judge err in her instructions about the evidence of certain witnesses?

2.

Did the trial
    judge err in her instructions respecting the intention required for a wilful
    misstatement?

3.

Did the trial
    judge err in her formulation of Question 5, by not requiring the jury to
    consider separately whether Cindy or Joyce made wilful misstatements?

[60]

I
    will address each question in turn.

(a)

The trial judge did not err in her instructions to
    the jury about the evidence of certain witnesses

[61]

The
    appellants assert that the trial judge erred in: (1) instructing the jury not
    to consider whether the appellants were honest people; (2) failing to instruct
    the jury to disregard the opinion evidence of Mr. Barrett, who was not a
    qualified expert witness; and (3) failing to caution the jury about Mr. Coutus
    credibility after he was improperly allowed to remain in the courtroom while
    other witnesses testified. The appellants contend that these errors compromised
    the fairness of the trial.

[62]

For
    the following reasons, I would not give effect to these arguments.

(i)

The trial judge properly instructed the jury not
    to consider whether the appellants were honest people

[63]

In
    his closing address, the appellants trial counsel repeatedly framed the issue
    between the parties as whether Cindy and Joyce were honest people. He stated:

This case comes down to whether Cindy Pinder and Joyce Pinder
    are honest people. Either theyre honest people or theyre not, and if theyre
    not honest people then you will answer certain questions in a certain way, and
    that will be the end basically[.]

[I]f we dont get past the first part of this case, the policy
    part, you wont have to consider the second part, because youll have decided
    that these are honest people, if thats the case, and thatll be the end of it[.]

On one side, you have an insurance company that is acting in a
    certain way, and on the other hand, you have two people, because theyre both
    being denied the claim because of wilfully false statements, both of them, what
    theyre doing, and decide who is being dishonest. Who is being honest  Is
    anyone being dishonest?

They decided to call Cindy and Joyce liars, youre liars,
    because that gets them off the hook on the entire claim[.]

[64]

The
    insurers counsel objected on the basis that it was wrong to characterize the
    case as whether or not Cindy and Joyce were honest people. The trial judge
    agreed. At the outset of her charge, she instructed the jury that, in relation
    to whether a wilfully false statement was made, they were not to consider the
    broad question of whether the plaintiffs [were] honest people or whether the
    plaintiffs [were] the sort of people who would scam an insurance company. She reviewed
    the elements required for a wilful misstatement, which she addressed in greater
    detail later in the charge.

[65]

The
    appellants submit that this instruction was wrong. They assert that the trial
    judge ought not to have instructed the jury to disregard the submission about
    whether they were honest people because they could have been honestly mistaken in
    making various statements in the Proof of Loss.

[66]

I
    disagree. The trial judge recognized the difference between the honest people
    submission the appellants trial counsel was putting to the jury and the point
    of law their appellate counsel makes on appeal  that the appellants could have
    made an honest mistake in completing the Proof of Loss. In the course of her
    charge, the trial judge properly instructed the jury that honest mistakes do
    not amount to a wilfully false statement when she stated:

A statement will not be a wilfully false statement if the
    person who made the statement had an honest belief in its truth. The honest
    belief in the truth must be grounded in a reasonable foundation. A person
    making a statement cannot shut his or her eyes to the facts or purposefully
    refrain from inquiring into them.

[67]

While
    it was relevant for the jury to consider whether Cindy had an honest belief in
    the truth of the statements she made about the existence and value of items listed
    in the Schedule of Loss, it was not appropriate for the appellants trial
    counsel to simply frame the issue as whether she and her mother were honest
    people. As the trial judge pointed out, the jury was not called upon to answer
    the broad question of whether Cindy and Joyce were honest people. The issue
    was whether they had made wilfully false statements in the Proof of Loss. There
    was no error in the trial judges direction on this point.

(ii)

No trial unfairness resulted from the inclusion of Mr. Barretts opinion
    evidence

[68]

As
    noted above, Mr. Barrett was a co-owner of Chem-Dry, an insurance restoration
    company. He had been at the house after the fire on February 3, 2004, but had
    no recollection of inspecting its contents at that time. Nevertheless, he
    testified about what was listed in a general inventory that was prepared by
    three of his employees during their site visit on February 16, 2004. The
    employees were not called as witnesses.

[69]

In
    his direct examination, Mr. Barrett testified that the employees were
    instructed to prepare a list of items they could visibly see. Many of the
    items on the appellants Schedule of Loss were not on the Chem-Dry inventory
    list. Mr. Barrett was asked whether if certain items, such as televisions,
    a laptop, a printer and a scanner, had been present at the house, remnants
    would have been identifiable.

[70]

The
    appellants trial counsel objected to Mr. Barrett providing what he characterized
    as almost [bordering] on expert evidence, and he made essentially the same argument
    that is made on appeal: Mr. Barrett, who was not present when the inventory
    list was prepared, ought not to have been permitted to provide evidence about
    whether specific items would have been identifiable in the home after the fire.
    This would amount to opinion evidence, without Mr. Barrett having been
    qualified as an expert. The trial judge acknowledged that Mr. Barrett was not
    an expert, but nevertheless permitted him to provide such evidence based on his
    experience working in the restoration industry. Mr. Barrett was then asked
    whether specific items such as televisions, laptops and ghetto blasters would
    be recognizable after a fire. He essentially testified that it would be very
    variable, but that you would typically have some remnant that would be
    recognizable.

[71]

The
    appellants argue that the trial judge should not have included this portion of
    Mr. Barretts evidence in her charge to the jury and ought to have instructed
    the jury to disregard it.

[72]

I
    agree that Mr. Barrett ought not to have been permitted to offer an opinion
    about whether the remnants of certain specific objects would be identifiable on
    a site after a fire, without ensuring that he was qualified to provide such an
    opinion. The fact that Mr. Barrett had relevant experience might well have
    permitted him to be qualified. However, the trial judge would have had to
    consider whether it would be appropriate for him to provide such opinion
    evidence in a case where he was called as a fact witness, and where he had no
    personal recollection of the contents of the house.

[73]

That
    said, whether or not Mr. Barrett should have been prevented from testifying
    about whether, in his experience, the remnants of certain objects might be recognizable
    after a fire, his evidence on this issue could not have greatly assisted the insurer.
    Mr. Barrett admitted that he personally had not been involved in preparing the
    inventory list, that he had no personal recollection of any of the contents
    from his one visit to the site, that the direction to his employees was to list
    items they could visibly see, that the extent to which any remnants would be visible
    would depend on variables, including where the fire started and the extent of the
    damage, and that, in this case, the house was damaged by smoke and water, and
    some parts were difficult to access. Under cross-examination Mr. Barrett
    admitted that his employees prepared a quick list, and that they were not
    asked to look for the remnants of anything or to check for items such as fur
    coats, remnants of a laptop computer or walkie talkies.

[74]

Although
    better direction could have been given about the proper limits and scope of Mr.
    Barretts evidence, in my view, the jury was equipped to understand the limits to
    his evidence with respect to what items were identified in the general
    inventory list prepared by his employees at the time.

[75]

Moreover,
    the jury was also provided with the evidence of Mr. Coutu, which was much more
    significant. Mr. Coutu was at the house on a number of occasions after the
    fire, and testified about the process for confirming the contents that were
    claimed. He was vigorously cross-examined on what he observed and did not
    observe at the house, including the remnants of various objects.

[76]

In
    light of the above, I am not convinced that the inclusion of Mr. Barretts opinion
    evidence or the trial judges failure to provide the jury with instructions on
    this point resulted in trial unfairness or a miscarriage of justice. These
    errors would not have made a difference to the outcome of the trial: see
Little
,
    at para. 41.

(iii)

The trial judge did not err in failing to caution the jury about Mr. Coutus
    credibility

[77]

The
    appellants contend that the trial judge ought to have cautioned the jury about
    Mr. Coutus credibility because he had improperly remained in the courtroom,
    contrary to the trial judges order excluding witnesses (under r. 52.06 of the
Rules
    of Civil Procedure
, R.R.O. 1990, Reg. 194). The appellants argue that Mr.
    Coutu had the opportunity to tailor his evidence, in particular after having
    heard the evidence of Mr. Barrett, who testified before him.

[78]

Mr.
    Coutu was the claims representative responsible for the appellants file at
    Farmers Mutual from the time of the fire until 2008 or 2009. He was present
    throughout the trial as the insurers representative. When the trial judge made
    an order excluding witnesses, Mr. Coutu was permitted to remain in the
    courtroom after the insurers counsel confirmed that Mr. Coutu was his
    instructing client.

[79]

Mr.
    Coutus role became an issue when, in the course of his cross-examination, he
    was questioned about the absence of certain documents in the affidavit of
    documents he had sworn five years earlier on behalf of the insurer. After the
    insurers counsel objected, counsel debated, in the absence of the jury,
    whether Mr. Coutu was in fact attending the trial on behalf of the insurer.
    The appellants trial counsel pointed to the fact that Mr. Coutu had remained
    in the courtroom as the insurers representative at the time the order
    excluding witnesses was made. Ultimately, the trial judge instructed the jury
    that Mr. Coutu was at trial as a fact witness called by the insurer. Mr.
    Coutu confirmed that he was not at the trial on behalf of the company but
    that he still worked for the company.

[80]

Nothing
    further was said about Mr. Coutus status as a representative of the insurer,
    and the appellants trial counsel did not seek any direction to the jury with
    respect to their treatment of his evidence.

[81]

I
    would not give effect to the appellants arguments, made for the first time on
    appeal, that Mr. Coutus evidence ought to have been excluded from the trial or
    that the trial judge ought to have instructed the jury that the fact that he
    remained in the courtroom while other witnesses testified should be taken into
    consideration in their assessment of his credibility.

[82]

First,
    Mr. Coutu was the insurers representative at the trial. When the trial judge
    made her order excluding witnesses, she properly permitted Mr. Coutu to remain
    in the courtroom. Mr. Coutu had primary responsibility for the appellants
    claim for several years, although he was not involved after 2008 or 2009. There
    is no requirement that the specific decision maker for a corporate defendant
    attend court as that partys representative (although that may often be the
    case). Whether or not Mr. Coutu was the instructing client, he was entitled
    to remain in the courtroom as the insurers representative.

[83]

Second,
    the appellants trial counsel knew that Mr. Coutu would be testifying on behalf
    of the insurer. He was the claims representative who had investigated the claim.
    He had attended at the house, compiled lists of items he questioned, written
    letters expressing concern about some of the items, and ultimately denied the
    claim. When the order was made excluding witnesses, the appellants trial
    counsel could have asked for a direction from the trial judge, under r. 52.06(2),
    that Mr. Coutu testify first, if there was a concern about his opportunity to
    hear the evidence of other defence witnesses, such as Mr. Barrett. No such
    request was made. Nor was there a request from the appellants trial counsel that
    the trial judge direct the jury to consider, in their assessment of Mr. Coutus
    credibility, the fact that he had been present for the testimony of other
    witnesses.

[84]

Finally,
    the appellants do not point to any specific aspect of Mr. Coutus evidence that
    might have been tailored to respond to evidence of other witnesses.

[85]

Accordingly,
    I would not give effect to this ground of appeal.

(b)

There was no error in the trial judges instructions on the intention
    required for a wilfully false statement

[86]

Although
    not raised in their factum, in oral argument the appellants counsel repeated
    certain arguments that were made to and rejected by the trial judge: (1) that
    the jury should have been instructed that the insurer was not alleging fraud;
    (2) that the trial judge should not have told the jury that the appellants
    intention was not relevant; and (3) in the alternative, that Question 5 should
    not have been left with the jury.

[87]

I
    note that there were extensive arguments before the trial judge about whether
    the mental element of a wilfully false statement was the same as that
    required for fraud. The insurers counsel had taken pains to insist that fraud
    was not being alleged. He pointed to the fact that statutory condition 7 spoke
    of fraud
or
[a] wilfully false statement in a statutory declaration (emphasis
    added) as vitiating a claim. There were many cases put to the trial judge, and
    referred to on appeal, that suggest that the same mental element would be
    relevant whether the misstatements in the Proof of Loss were alleged to have
    been fraudulent or wilfully false. The fact that the insurer was not relying on
    fraud, or avoided using fraud terminology in describing the appellants
    conduct was not in itself a reason to remove Question 5 from consideration by
    the jury.

[88]

The
    real issue here is whether there was any reversible error in the trial judges
    instruction to the jury about what the insurer had to prove in order to make
    out a wilful misstatement.

[89]

At
    the outset of her charge, after directing the jury not to consider whether the appellants
    were honest people, the trial judge stated:

In Mr. Kwinters closing address you heard him make some
    comments to the effect that the Pinders did not intend to deceive or mislead
    the insurer. I am instructing you to disregard all the comments about
    intentions.

In Mr. Kwinters closing address, he asked you to consider
    whether the plaintiffs were honest people. That statement is too broad in
    relationship to what you must consider when reaching your verdict. After the
    break, Mr. Kwinter said words to the effect that
a wilfully false statement
    is one that a person makes knowing it to be false, without belief in its truth,
    or recklessly without caring whether it is true or not. That is a correct
    statement regarding part of the law that applies to wilfully false statements.
    In applying this part of the test, you will have to consider these three
    factors and determine, in part, whether Cindy Pinder made a statement on
    Exhibit 1, whether she made it knowing it to be false, whether she made it
    without believing that it was true or whether she made it recklessly without
    caring whether it was true or not.
You will have to consider each statement
    separately. You are not to consider the broad question of whether the
    plaintiffs are honest people. You must not consider whether the plaintiffs are
    the sort of people who would scam an insurance company. I will have more to say
    about the law that applies to wilfully false statements later on in my charge.
    [Emphasis added.]

[90]

Later
    in her charge, the trial judge stated:

A wilfully false statement is one that a person makes:

1.knowing it to be false;

2.without belief in its truth, or;

3.recklessly without caring whether it
    is true or not.

The intention of the insured with respect to the statement is
    not something that you should take into account. An insured owes a duty to her
    insurer of honesty and accuracy.

A statement will not be a wilfully false statement if the
    person who made the statement had an honest belief in its truth. The honest
    belief in the truth must be grounded in a reasonable foundation. A person
    making a statement cannot shut his or her eyes to the facts or purposefully
    refrain from inquiring into them.

[91]

The trial judges instruction about what was required to
    establish a wilfully false statement addressed the necessary mental element:
    that the appellants must have known that the statements in the Proof of Loss
    were false, or alternatively that they made the statements without belief in
    their truth or recklessly without caring whether they were true or not. She
    also explained how a statement would not be wilfully false if the person making
    it held an honest belief in its truth. The statement, as part of these
    instructions, that intention was not something to take into account, must be
    understood in context: to respond to the honest people submission and
    suggestion by the appellants trial counsel that the insurer was accusing the
    appellants of being the type of people who would perpetrate an insurance scam. The
    jury was not required to find that, in making the statements in the Proof of
    Loss, the appellants were setting out to commit insurance fraud or had some
    other motive. As this court stated in
Gregory v. Jolley
(2001), 201
    D.L.R. (4th) 729 (Ont. C.A.), at paras. 15, 20, leave to appeal refused, [2001]
    S.C.C.A. No. 460, citing
Derry v. Peek
(1889), 14 App. Cas. 337
    (H.L.), at p. 374, the motive or purpose of the insured in making the false
    statement is not the issue.

(c)

There was no error in the
formulation
of
    Question 5

[92]

The
    appellants argue that Question 5 was phrased incorrectly to refer to wilfully
    false statements made by both Joyce and Cindy. They submit that the trial judge
    ought to have instructed the jury to consider whether Cindy
or
Joyce
    made wilfully false statements. They argue that this was necessary so that it
    could be determined whether, as a legal matter, Joyces claim for the house
    would be affected by any wilfully false statements that were made by Cindy with
    respect to the contents.

[93]

Statutory
    condition 7 provides that [a]ny fraud or wilfully false statement in a
    statutory declaration in relation to any of the above particulars, vitiates the
    claim of the person making the declaration. The above particulars referenced
    in statutory condition 7 includes the obligation in statutory condition 6 to
    deliver a Proof of Loss verified by a statutory declaration, giving a complete
    inventory of the destroyed and damaged property and showing in detail
    quantities, costs, actual cash value and particulars of amount of loss claimed.

[94]

Jury
    Question 5 stated: Did
the plaintiffs
make a wilfully false statement
    in the Proof of Loss form and the schedules? (emphasis added). Similarly, in
    Question 6, the jury was required to indicate on the attached sheets the items
    about which the plaintiffs made wilfully false statements. However, on the attached
    sheets, the question was phrased as [h]ave
either of the plaintiffs
made a wilfully false statement to the defendant in relation to their claim for
    any of the following items? (emphasis added).

[95]

Joyce
    and Cindy both signed a single Proof of Loss that asserted a claim for the building,
    the contents and the additional living expenses, and indicated that the
    payments for their claim (except for the claim for living expenses which was to
    be paid only to Cindy) would be made to them jointly. The Proof of Loss stated:
    We Cindy Pinder and Joyce Pinder do solemnly declare that the foregoing claim
    and statements are to the best of [our] knowledge and belief true in every
    particular, and [we] make this solemn declaration conscientiously believing it
    to be true and knowing that it is of the same force and effect as if made under
    oath.

[96]

It
    was Cindy who had filled out the Schedule of Loss, which details the contents
    that she claimed were lost or damaged in the fire and provides the original and
    replacement cost for each item. The Schedule of Loss was attached to the Proof
    of Loss. The Proof of Loss specifies that [a] particular account of the loss
    is attached hereto and forms part of this proof.

[97]

Because
    Joyce did not testify at trial, there was no evidence from Joyce to explain
    what she knew and her state of mind when she signed the Proof of Loss. The
    evidence of Mr. Yates, the appellants independent adjuster, was that Joyce was
    not involved in the preparation of the Proof of Loss.

[98]

The
    appellants submit that Question 5 should have asked whether Joyce
or
Cindy made wilfully false statements because they had separate insurable
    interests: Joyce owned the house and Cindy owned the contents. Notwithstanding
    that they both signed the Proof of Loss, they did not, and could not have,
    asserted a claim for property in which they had no insurable interest. The
    appellants contend that the only wilfully false statements that were alleged to
    have been made were in relation to the claim for the contents of the house,
    which were owned by Cindy, and no one suggested that Joyce owned or was making
    any claim in respect of the contents.

[99]

The
    appellants refer to case law for authority that, in accordance with the modern approach
    to statutory interpretation, Joyce and Cindy had distinct and severable claims
    under the insurance contract: see
Scott v. Wawanesa Mutual Insurance Co.
,
    [1989] 1 S.C.R. 1445, at p. 1455,
per
La Forest J. (dissenting);
National
    Bank of Greece (Canada) v. Katsikonouris
, [1990] 2 S.C.R. 1029. The
    appellants note that in
Wigmore v. Canadian Surety Co.
(1996), 139
    D.L.R. (4th) 164 (Sask. C.A.), the Saskatchewan Court of Appeal held that, if
    the insurance contract can be said to be several, the claim of an innocent
    co-insured is not vitiated by the wilfully false statements of a co-insured.

[100]

The insurer urges the
    court not to give effect to this argument, made for the first time on appeal. It
    points out that it was the appellants trial counsel who insisted that Question
    5 be formulated to refer to both Cindy and Joyce. Moreover, the insurer asserts
    that the claims of Joyce and Cindy were always treated together, as they ought
    to have been, since, as a matter of law, when she signed and swore the Proof of
    Loss, Joyce was bound by any wilful misstatement made by Cindy. The insurer
    relies on the British Columbia Court of Appeal decision
Sienema v. British
    Columbia Insurance Co.
, 2003 BCCA 669, 21 B.C.L.R. (4th) 321, which upheld
    a decision vitiating the claim of an innocent co-insured who signed and swore,
    without reading it, a Proof of Loss containing wilfully false statements made
    by a co-insured. The insurer notes that the Proof of Loss in this case combined
    the claims for the building loss, the contents loss, and the additional living
    expenses.

[101]

In
Bruff-Murphy v.
    Gunawardena
, 2017 ONCA 502, 414 D.L.R. (4th) 65, at para. 69, leave to
    appeal refused, [2017] S.C.C.A. No. 343, the court described the failure to
    object to a civil jury charge as fatal to a request for a retrial on appeal
    based on misdirection or non-direction, except where the error has resulted in
    a substantial wrong or a miscarriage of justice. In
Montepeque v. State
    Farm Mutual Automobile Insurance Company
, 2017 ONCA 959, 75 C.C.L.I. (5th)
    1, Laskin J.A. explained that [i]n a civil case, the failure to object at
    trial is usually fatal on appeal because it is an indication that trial
    counsel did not regard as important or necessary the additional direction now
    asserted: at para. 34, citing
Marshall v. Watson Wyatt & Co.
(2002),
    209 D.L.R. (4th) 411 (Ont. C.A.), at para. 15. This is especially the case
    where trial counsel not only neglected to object to what is criticized on
    appeal, but specifically endorsed the approach taken at trial
:
Goodwin (Litigation
    guardian of) v. Olupona
, 2013 ONCA 259, 205
    O.A.C. 245, at para. 95.

[102]

The appellants ask the
    court to determine that Joyce had a separate insurable interest and to
    intervene on the basis that to do otherwise would result in a grave injustice
    to Joyce: she was the owner of the house, with a separate insurable interest,
    and her claim in respect of the house ought not to be vitiated by reason of
    Cindys wilful misstatements about the contents. The appellants seek the
    courts intervention notwithstanding the position of their trial counsel, including
    his insistence on the formulation of Question 5, which they say was in error.

[103]

I am not prepared to
    intervene in this case. The appellants trial counsels insistence that
    Question 5 refer to both Joyce and Cindy, along with his failure to request that
    statutory condition 7 be addressed separately for Cindy and Joyce to reflect
    their separate insurable interests in the contents and the house, did not
    result from oversight. It was part of a deliberate trial strategy. The
    appellants should not be entitled to resile from a position that their counsel
    actively advanced at trial: see
Goodwin
, at para. 95.

[104]

Moreover, as I will
    explain, when the opportunity arose to address the very issue the appellants
    seek to raise here, the appellants trial counsel indicated that this was not
    necessary, with the result that the issue was removed from consideration by the
    trial judge. The question of separate insurable interests was not overlooked.
    It was, in effect, conceded. In these circumstances, even if it is open to this
    court to intervene in certain cases notwithstanding the failure of trial
    counsel to object, I would not do so.

[105]

As noted above, it was
    the appellants trial counsel who asked that Question 5 be phrased to refer to
    the plaintiffs. When discussing the language of Question 5, the appellants trial
    counsel stated: Well, would be Plaintiff
s
 because they both signed
    they both claimed to have signed the declaration, so
it should be plural

    (emphasis added).

[106]

The appellants trial counsels
    insistence that Question 5 refer to both Cindy and Joyce is consistent with the
    way that he presented the case at trial. He dealt with Cindy and Joyce throughout
    the trial as though their interests were the same.

[107]

The appellants trial counsel
    repeatedly referred to the alleged wilfully false statements as relating to both
    Joyce and Cindy. Indeed, at various points throughout the trial, he stressed
    that both Cindy and Joyce had signed the Proof of Loss, attesting to the truth
    of what was stated. For example, when the insurers counsel questioned Mr.
    Yates regarding the fact that there was no discussion or information from Joyce
    as to the existence of the ring that Cindy claimed to have owned, the appellants
    trial counsel intervened and made the following statement: Joyce did swear the
    proof of loss along with Cindy. I think that should be very clear to the jury.
    Both of them swore to the truth of the proof of loss. Moreover, in his closing
    address, the appellants trial counsel stated the following in an effort to
    enhance Cindys credibility as to the truth of the statements made in the Schedule
    of Loss: Cindy Pinder swears, as her mother swears, I own these items, this is
    what they cost or this is what itll cost to replace [them]. While only Cindy was
    responsible for preparing the Proof of Loss, the appellants trial counsel
    inferred that Joyces credibility was also at issue. This was emphasized during
    the trial by repeated references to whether Cindy and Joyce were honest
    people.

[108]

At no time did the
    appellants trial counsel insist upon the separate treatment of the claims of
    Joyce and Cindy. As the insurers counsel pointed out on appeal, the major
    thrust of the appellants case at trial was that the insurer had acted in bad
    faith, and although Cindys credibility had obvious weaknesses, Joyces
    credibility did not. By the time of the trial, Joyce was 91 years old and was hard
    of hearing. She did not testify at trial. This may help to explain why the
    appellants trial counsel chose to deal with Cindy and Joyces claims together,
    and not to emphasize that only Cindy was making the alleged wilful
    misstatements.

[109]

In his closing address,
    the appellants trial counsel repeatedly referred to Joyce and Cindy together,
    and he noted that the insurer was alleging that
they
had made wilfully
    false statements. This prompted an objection by the insurers counsel, who
    requested a corrective instruction. In the course of his submissions, the
    insurers counsel argued that, while only Cindy was alleged to have made the
    misstatements, he was relying on Joyces execution of the Proof of Loss as
    binding her to the wilful misstatements made by her daughter. I set out the
    entire discussion because it was at this point that the very issue the appellants
    raise on appeal was before the court and that any issue about Joyce and Cindys
    interests being considered separately ought to have been addressed by the
    appellants trial counsel:

Mr. Forget: [T]heres been no suggestion that
    Joyce has made, participated in the contents claim or Joyce has made a false, a
    wilfully false statement. By a matter of law because she executed the proof of
    loss, she basically owns the proof of loss and owns the false statements
    contained there.

The Court: So you said on the one hand theres
    been no suggestion that Joyce did certain things  because she signed it, she
    owns it. So then are you saying that Joyce made wilfully false statements?

Mr. Forget: Yes. She made, she

The Court: Because she signed it?

Mr. Forget: This is how she made the wilfully,
    she executed the proof of loss without having a genuine belief in the truth of
    the contents  this elderly lady, she executed the proof of loss that was prepared
    by an adjuster and she didnt read it. The court said you own the statement
    that is contained, and the reason why I didnt expect that were going to get
    into that, and thats why I didnt say it in my closing submissions is, get
    into that issue, is because, as a matter of law, she executed, she owns it, but
    Mr. Kwinters now saying that theres an allegation that she made wilfully
    false statements suggesting to this jury that she was part of this, and she was
    reckless, and she was, you know, made knowingly, thats not accurate.

The Court: So youre not saying that she made
    statements that were wilfully false?... Seems like youre going in, well I
    wont say in circles, but contrary to yourself.

Mr. Forget: Okay. The law is, you execute a
    proof of loss, you have to have a genuine belief in the truth of the statements
    contained period. She signed the proof of loss. She owns the statements. To the
    extent that the contents of the proof of loss, including the schedule is false,
    she owns that false.

Mr. Kwinter: That doesnt make sense.

Mr. Forget: Thats, absolutely, thats what
    the authorities suggest. So that avoids, if I can, that avoids a person such
    as, I believe its [indiscernible] to say I didnt read it. I dont know whats
    in there. I didnt read it. My lawyer prepared it or my adjuster prepared it or
    my representative prepared it. That avoids that, because you have a duty to
    ensure that the contents contained therein are accurate. So that applies in
    this case to Joyce, because she executed the proof of loss.

The Court: But you havent made an issue of
    that in this case. I understand your legal position  but there really hasnt
    been anything in this trial about Joyce making false statements.

Mr. Forget: No, there hasnt been.

The Court: No, so youre just saying from a
    legal  perspective.

Mr. Forget: Yes, and I didnt make it because
    she wasnt involved at all in the preparation of the schedule, and that

The Court: Your allegation is that Cindy made wilfully
    false statements.

Mr. Forget: Yes, if I could kind of break it
    down. The schedule of loss, the written schedule, the May 12, 2004 letter,
    thats all Cindy, but what happens is the schedule of loss is contained, is
    attached to the proof of loss thats signed by Joyce. By signing it, she owns
    the statement, and thats, I can give you the cite for that.

The Court: I understand what youre saying
    from the legal perspective  but does it really make any practical difference.

Mr. Forget: It makes a practical difference, I
    didnt think it did, thats why I rise now, and thats why I didnt make this huge
    issue of it yesterday. It doesnt make a difference, except that the
    submissions that were made were that Joyce made wilfully false statements,
    acted recklessly, made statements knowing, that, as a matter of law, she did
    because she executed the proof of loss. So I believe, all Im asking Your
    Honour, is that in your charge, that you make a comment with respect to that to
    respond to.

The Court: So I think maybe the difficulty
    were getting into is, Mr. Kwinter made a few statements, which I will say
    were, perhaps overstating it, made them tongue in cheek, sarcastically, so when
    he said Joyce made wilfully false statements, as a question  hes not saying
    that Joyce made wilfully false statements. That would be contrary to his
    clients position.

Mr. Forget: Yes.

The Court: So thats why, youre getting into
    the issue now, but I dont think Mr. Kwinter made a submission that she did. In
    fact, I think what he said was to the opposite.

Mr. Forget: Yeah. Youre absolutely correct,
    Your Honour, but he suggested that the insurance companys suggesting that she
    did.

The Court: Alright.

Mr. Forget: So, and its not a matter of
    evidence. Its not a matter, because all she did, and thats acknowledged, is
    she executed the proof of loss which contains false statements, and thats the
     I can provide you with that.

The Court: No, I read that case.

Mr. Forget: Yes, so as a matter of practical
    reality, the jury should not, could, should not be going into the jury room
    thinking well this is all Cindy, Joyce has nothing to do with this. Joyce does
    have something to do as a matter of law because she executed the proof of loss.

The Court: Mr. Kwinter, Im not sure I need to
    hear from you on this, but if you wish to say something, of course you can.

Mr. Kwinter: Well, I mean, Joyce had to sign
    it because its her house. I dont think anybody applied their mind to whether
    she was [indiscernible] contents or not, but
I dont think it matters. If
    theyre going to reject the claims, theyre going to reject them both. I think
    its, practically, I dont think it matters.

The Court: All right, thank you very much. I
    will think about this over the evening. [Emphasis added.]

[110]

There is nothing to
    indicate that anything further was said on this issue. The trial judges ruling
    on the various objections of counsel did not address this point.

[111]

Whether Joyce was
    bound by Cindys misstatements, and whether Joyce and Cindy had separate
    insurable interests that ought to have been considered separately, were legal
    issues that, if contested, would have had to have been determined by the trial
    judge. The appellants trial counsel did not, however, take the position that
    Joyce and Cindys claims should be considered separately, choosing instead to
    deal with their claims together, likely for strategic purposes. The insurer had
    provided case law to the trial judge, and was advancing his argument about why
    Joyce, having signed the Proof of Loss, would be bound by Cindys
    misstatements. It was at this point that the appellants trial counsel had the
    opportunity to address the legal issue  to argue that Joyce was not bound by
    Cindys misstatements as a matter of law, and that their interests ought to be
    considered separately.

[112]

If the appellants trial
    counsel had made this argument at this point in the trial and obtained a ruling
    that Cindy and Joyces claims were separate and that, as a matter of law, Joyce
    was not bound by Cindys misstatements, it would have required a rewording of Question
    5, an instruction to the jury to consider the evidence separately for Joyce and
    Cindy, particularly on the question of what was said about the contents of the
    house, and a corrective instruction about the references in the appellants
    closing that the insurers counsel had objected to.

[113]

However, instead of arguing
    that Cindy and Joyces claims should be treated separately, the appellants
    trial counsel stated, [i]f [the jury is] going to reject the claims, theyre
    going to reject them both  I dont think it matters. Not only did the
    appellants trial counsel fail to insist that the claims be dealt with
    separately, he effectively conceded the point by stating his position that the
    claims would stand or fall together.

[114]

There is no reason to
    interfere, essentially second-guessing the trial strategy of counsel. For these
    reasons, I would not give effect to this argument on appeal.

(3)

Did the trial judge err in
refusing
relief from
    forfeiture?

[115]

Relief from forfeiture
    was not addressed in the appellants notices of appeal, and was touched on only
    briefly in their factum, to submit that the trial judge ought to have given
    separate consideration to whether Joyce was entitled to relief from forfeiture,
    even if Cindy was not. In oral argument, the appellants counsel also submitted
    that relief from forfeiture ought to have been granted to both appellants
    because, once the value of the claim was determined by an appraisal, there was
    no prejudice to the insurer resulting from Cindys misstatements in relation to
    the contents.

[116]

The insurer asserts
    that relief from forfeiture is not available in respect of statutory condition
    7, and that, in any event, there was no error in the trial judges refusal to
    grant relief from forfeiture.

[117]

I would not give
    effect to the appellants arguments. A decision to grant or refuse relief from
    forfeiture is highly discretionary. Appellate intervention is warranted only
    where the judge below erred in principle, failed to take into consideration a
    major element of the case, misapprehended, disregarded or failed to appreciate
    relevant evidence, or made a finding or drew an inference not reasonably
    supported by the evidence:
Monk v. Farmers Mutual Insurance Company
    (Lindsay)
, 2019 ONCA 616, 92 B.L.R. (5th) 1, at para. 78, leave to appeal
    refused, [2019] S.C.C.A. No. 384. No such error has been demonstrated here.

[118]

Relief from forfeiture
    was sought in this case under s. 129 of the
Insurance Act
and s. 98 of
    the
Courts of Justice Act.
Section 129 of the
Insurance Act
applies in the specific context of forfeiture or avoidance of insurance
    resulting from imperfect compliance with a statutory condition as to the Proof
    of Loss or other matter required to be done with respect to the loss. It provides:

Where there has been imperfect compliance with
    a statutory condition as to the proof of loss to be given by the insured or
    other matter or thing required to be done or omitted by the insured with
    respect to the loss and a consequent forfeiture or avoidance of the insurance
    in whole or in part and the court considers it inequitable that the insurance
    should be forfeited or avoided on that ground, the court may relieve against
    the forfeiture or avoidance on such terms as it considers just.

Section 98 of the
Courts of Justice Act
is a
    general provision that provides: A court may grant relief against penalties
    and forfeitures, on such terms as to compensation or otherwise as are
    considered just.

[119]

In
Kozel v.
    Personal Insurance Co.
, 2014 ONCA 130, 372 D.L.R. (4th) 265, at para. 58,
    LaForme J.A. held that s. 98 of the
Courts of Justice Act
can apply to
    contracts of insurance governed by the
Insurance Act
. However, he suggested,
    as did Brown J.A. in
Monk
, at para. 79, that s. 98 operates in respect
    of a breach of a statutory condition, where the breach took place before the
    loss.

[120]

The trial judge referred
    to both s. 129 of the
Insurance Act
and s. 98 of the
Courts of
    Justice Act
. She

concluded that relief from forfeiture was
    available in the case of imperfect compliance with a requirement. She rejected
    the appellants submission that in the absence of fraud, errors on the proof
    of loss were made only inadvertently or carelessly, that they constitute only
    imperfect compliance and, therefore, the court can grant relief from
    forfeiture. She concluded that this was not a case of imperfect compliance and
    that relief from forfeiture was thus not available.

[121]

The trial judge did
    not err in refusing relief from forfeiture in this case. I agree that, in the
    circumstances of this case, relief from forfeiture was not available or
    warranted under s. 129 of the
Insurance Act
.

Even assuming,
    without deciding, that s. 98 of the
Courts of Justice Act
can apply to
    a post-loss breach of a statutory condition, the appellants would not be
    entitled to relief from forfeiture under this provision.

[122]

In addition to being
    limited to instances of imperfect compliance, relief from forfeiture requires
    the consideration of three factors: 1) the reasonableness of the insureds
    conduct; 2) the gravity of the breach; and 3) the disparity, if any, between
    the value of the property forfeited and the damages caused by the breach:
Monk
,
    at para. 79;
Kozel
, at para. 59. While these three elements must be
    considered and balanced by the court in determining whether the insured is
    entitled to relief from forfeiture in the circumstances of each case, the
    reasonableness of the insureds conduct lies at the heart of the relief from
    forfeiture analysis:
Monk
, at para. 93. Accordingly, a party whose
    conduct is not seen as reasonable will face great difficulty in obtaining
    relief from forfeiture:
Monk
, at para. 93.

[123]

Here, the appellants conduct
    was not reasonable and the conduct that vitiated the appellants claims was
    serious. The jury concluded, in their response to Question 6, that the
    appellants had made 39 wilfully false statements in the Proof of Loss. The
    evidence suggested that a number of the items claimed were either not owned by
    Cindy or did not exist at all. As noted by the trial judge, the jurys findings
    on Question 6 were inconsistent with the appellants assertion of inadvertence
    or carelessness. Relief from forfeiture was properly refused in the
    circumstances of this case, whether under s. 129 of the
Insurance Act
or s. 98 of the
Courts of Justice Act
(assuming, without deciding,
    that s. 98 could apply).

[124]

As for the appellants
    contention that the insurer would not be prejudiced if relief from forfeiture
    were granted because the appraisal fixed the value of the contents, I disagree.
    The appraisal valued the contents claimed by the appellants, while assuming
    that they existed. The wilful misstatements here went beyond the exaggeration
    of the value of certain items. Accordingly, it cannot be said that the appraisal
    eliminates the prejudice to the insurer. In any event, this was not a case of
    imperfect compliance and the unreasonableness of the appellants conduct, as
    well as the severity of their breach, preclude relief from forfeiture in the
    circumstances of this case.

[125]

Finally, I would not
    give effect to the appellants submission that the trial judge erred in failing
    to consider separately whether Joyce was entitled to relief from forfeiture in
    respect of her claim for the value of the house. There is no indication that
    this argument was made to the trial judge, and for good reason. As I have
    already explained, the appellants case at trial assumed that Joyce and Cindys
    claims stood or fell together and that, if wilful misstatements were made, they
    were made by both appellants. I have already concluded that there was no error
    in the failure to treat Cindy and Joyces claims separately. As such, it is not
    open to the appellants to attempt to separate their claims for the purpose of relief
    from forfeiture. As a result of the jurys answers to Questions 5 and 6, which
    were formulated in accordance with the appellants trial counsels deliberate
    trial strategy, both Cindy and Joyce were found to have made 39 wilfully false
    statements in the Proof of Loss.

[126]

Given my conclusion
    that the trial judge did not err in refusing to grant relief from forfeiture,
    it is unnecessary to determine whether, as the insurer submits, relief from
    forfeiture is generally not available in relation to statutory condition 7. In
    the circumstances of this case, the appellants were not entitled to relief from
    forfeiture in any event.

(4)

Did the trial judge err in her
costs

award?

[127]

The appellants seek leave
    to appeal the costs award of $616,843.27. The costs award included partial
    indemnity costs up to the date of the insurers offer to settle, and
    substantial indemnity costs thereafter. The appellants submit that the trial
    judge erred in two ways. First, they contend that the trial judge incorrectly
    stated in her reasons for decision on costs that they had not contested the
    amount of costs, and that she failed to undertake any analysis of whether the
    amount of costs sought by the insurer was fair and reasonable in the circumstances.
    Second, they submit that the trial judge erred in awarding costs on a substantial
    indemnity scale from the date of the insurers offer to settle to the close of
    trial.

[128]

Since costs awards are
    discretionary, intervention on appeal is warranted only where
the trial judge has made an error in principle or if
    the costs award is plainly wrong:
Hamilton v. Open Window Bakery
    Ltd.
, 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27;
Boucher v. Public
    Accountants Council for the Province of Ontario
(2004), 71 O.R. (3d) 291
    (C.A.), at paras. 19-20. Leave to appeal a costs award will only be granted
    where there are strong grounds to find that the trial judge erred:
Hobbs v.
    Hobbs
,

2008 ONCA 598, 240 O.A.C. 202, at paras. 32-33.

[129]

For the reasons that
    follow, I would grant leave to appeal the costs award, and reduce the insurers
    costs of the proceedings in the court below to the partial indemnity amount of $430,000,
    inclusive of taxes and disbursements. While I would not give effect to the
    appellants first argument, I agree with the appellants that the trial judge
    erred in principle in awarding substantial indemnity costs from the date of the
    insurers offer to settle.

[130]

The record on appeal
    contains the parties written submissions on costs, as well as a transcript of
    their oral submissions. The insurer sought costs on a substantial indemnity
    basis for the entire proceeding (including its action to recover the mortgage
    pay out), in the sum of $646,842.10, on the grounds that the appellants were
    wholly unsuccessful in their claim of bad faith and their claim for $1 million
    in punitive damages. In the alternative, the insurer sought substantial
    indemnity costs from the date of its offer to settle made in November 2010. The
    alternative claim for costs (based on partial indemnity costs to the date of
    the offer and substantial indemnity costs thereafter) was $616,843.27. The
    appellants position before the trial judge was that no costs should be awarded
    to the insurer notwithstanding its successful defence of the action, in light
    of various allegations of misconduct and delay on the part of the insurer.

[131]

The trial judge denied
    the appellants argument that the insurer should be deprived of its costs. She
    rejected the appellants allegations that the insurer demonstrated bad faith by
    engaging in tactics to delay the action and wear them down. She found that the appellants
    had significantly contributed to the delay in the action. She further found
    that there was no trial unfairness caused by the insurers failure to call a
    witness to speak to their decision to deny coverage, and that there was no
    trial unfairness or bad faith that resulted from the fact that the insurer had
    not provided particulars regarding the alleged wilfully false statements.

[132]

The trial judge noted
    that the appellants did not contest the amount of costs the insurer sought, just
    the entitlement. She then turned to the question of the scale of costs that
    should be awarded to the insurer. She noted that, on November 19, 2010, the
    insurer offered to settle the appellants action and the insurers action for the
    recovery of the amount it had paid out to Joyces mortgagee, by a dismissal of
    both actions without costs.

[133]

The trial judge considered
    the conduct of the insurer before it made its offer to settle. She referred, at
    paras. 60 and 61 of her reasons, to the insurers refusal to attend the
    appraisal until after the appellants brought a motion, its unsuccessful appeal
    of the order that followed the motion, as well as its unsuccessful motion for
    summary judgment and appeal in the mortgage action. She stated that, while
    costs were likely addressed on these motions, this was not a case where
    substantial indemnity costs should be awarded from the outset of the matter,
    and she concluded that the insurer was entitled to partial indemnity costs up
    to the date of the offer.

[134]

The trial judge then
    considered whether substantial indemnity costs should be awarded after the date
    of the offer. She provided her reasons for awarding such costs at para. 63, as
    follows:

I agree with the defendants submission that
    the plaintiffs took a very aggressive approach in their claim for punitive
    damages. They made hard-hitting allegations to attack the integrity of the
    defendant. The plaintiffs position was that the defendants investigation was
    a sham, that the defendant had called them liars and fraudsters, that they had
    to bring the defendant to the court kicking and screaming regarding the
    appraisal issue and that the defendant had dragged out the litigation in the
    hope that the plaintiffs would give up or that Joyce Pinder would not last
    until the trial. The plaintiffs knew before trial that Cindy Pinder would have
    credibility problems and that their own adjusters evidence was that the insurers
    approach during the adjustment period was reasonable and expected. The
    allegation that the plaintiffs might give up or die because of delay caused
    by the defendant was particularly reprehensible because the plaintiffs were
    responsible for a good part of the delay in the action. As noted above, an
    examination of Joyce Pinder was scheduled for August 2007. She finally attended
    in February 2015. The plaintiffs made bad faith allegations which they could
    not substantiate.

[135]

The trial judge
    awarded costs to the insurer in the sum of $616,843.27. This represented
    partial indemnity costs up to the date of the insurers offer to settle and
    substantial indemnity costs thereafter, in accordance with the bill of costs
    provided by the insurer.

[136]

The appellants first
    argument is with respect to the assessment of the insurers costs. The
    appellants submit that the trial judge erred when she stated that they did not
    contest the amount requested for costs, and in failing to consider whether the
    amount awarded for costs was fair and reasonable, by assessing the costs
    sought in the insurers bill of costs. I disagree.

[137]

Apart from asserting
    that the insurer should not have its costs in relation to three failed motions
    it brought in the course of the trial (for a mistrial after the opening address
    of the appellants trial counsel, to amend the statement of defence, and to
    strike the jury after the appellants closing address), the written submissions
    of the appellants on costs were directed solely to the question of entitlement.
    The appellants position before the trial judge was that the insurer should not
    be awarded any costs, essentially because of the way it had treated them and
    their claim.

[138]

The appellants
    written submissions to the trial judge did not take issue with the number of
    hours spent by the insurers counsel or their hourly rates. The appellants trial
    counsel did not argue that the amount of costs was disproportionate to the
    claims made in the action or the length and complexity of the proceedings. The
    thrust of the appellants response to the claim for costs was that the insurers
    alleged misconduct should not be condoned by an award of costs. The trial judge
    was right when she said that the appellants had not contested the amount
    requested.

[139]

I disagree with the
    appellants argument on appeal that the trial judge ought to have considered whether
    it was fair and reasonable for the insurers counsel to bill nearly 1,300 hours
    for trial preparation and attendance and over 950 hours for the pre-trial
    stages of the litigation. This argument was not made to the trial judge, nor
    were any submissions made that would have assisted in a review of the specific
    time spent and hourly rates claimed at each stage of the proceeding.

[140]

Typically, the total
    amount of costs to be awarded in a protracted proceeding of some complexity
    cannot be reasonably determined without a critical examination of the parts which
    comprise the proceeding:
Murano v. Bank of Montreal
(1998), 163
    D.L.R. (4th) 21 (Ont. C.A.), at para. 100. However, the critical examination of
    the various parts of the proceeding cannot be performed in a vacuum. In the
    circumstances of this case, with litigation that was outstanding for 13 years,
    the trial judge needed the assistance of the appellants trial counsel in her
    assessment of the insurers costs if she was to make any reduction to the costs
    claimed by the insurer, which were supported by its detailed bill of costs.

[141]

The insurers costs submissions
    explained that this was not a typical insurance claim, addressing the
    complexity of the litigation and the various steps that were required before,
    during, and after the trial. There was no suggestion by the appellants that the
    amount sought was unreasonable or excessive. Even with respect to the insurers
    three unsuccessful motions, the appellants did not propose a specific reduction.
    Nor did the appellants trial counsel provide his own bill of costs, dockets or
    costs outline, which would have informed an assessment of the proportionality
    and reasonableness of the costs that were claimed by the insurer.

[142]

A claim that the
    opposing partys costs are excessive without providing evidence of ones own
    costs in the litigation is no more than an attack in the air:
Risorto v.
    State Farm Mutual Automobile Insurance Co.
, 2003 ONSC 43566, 64 O.R. (3d)
    135, at para. 10. Counsel were intimately familiar with the issues in the case
    and the various procedural steps that were taken. In these circumstances, if
    there was a concern about the amount of time the insurers counsel recorded in
    relation to a particular step, it was incumbent on the appellants trial
    counsel to address it so that the trial judge could have the tools and an
    informed basis for assessing the reasonableness and proportionality of the
    costs that were claimed. Without such submissions, it was entirely appropriate
    for the trial judge to observe that the quantum of costs was not at issue, and
    to proceed to determine entitlement and the scale of costs to be awarded.

[143]

I turn now to the
    appellants second argument: that the trial judge erred in awarding substantial
    indemnity costs from the date of the insurers offer to settle.

[144]

The appellants assert
    that the trial judge erred in principle in awarding substantial indemnity costs
    from the date of the insurers offer. They submit that she failed to
    distinguish between zealous advocacy of the appellants claim and true reprehensible
    conduct deserving of sanction. The appellants contend that their conduct was
    not reprehensible; rather they advanced a valid and arguable claim of bad faith
    and sought punitive damages. They argue that the fact that they were
    unsuccessful in these claims and that findings of fact and credibility were
    made against them did not warrant an award of substantial indemnity costs.

[145]

The insurer asserts
    that the trial judge was entitled to exercise her discretion to award
    substantial indemnity costs because she found reprehensible conduct that was
    deserving of sanction. The appellants levelled allegations against the insurer
    that were egregious and unfounded, and were made in the hopes of securing
    sympathy and unjustified favour from the jury.

[146]

I begin with the principle that an award of substantial indemnity
    costs is exceptional. Other than under r. 49.10 of the
Rules of Civil
    Procedure
(where a plaintiff recovers more than its offer to settle),
    substantial indemnity costs should only be awarded after trial
[4]
where the court deems that a partys conduct was reprehensible, scandalous or
    outrageous:
Clarington (Municipality) v. Blue Circle Canada Inc.
, 2009
    ONCA 722, 100 O.R. (3d) 66, at para. 29. The fact that proceedings have little
    merit is no basis for awarding costs on an elevated scale:
Young v. Young
,
    [1993] 4 S.C.R. 3, at p. 134. As noted by this court in
Net Connect
    Installation Inc. v. Mobile Zone Inc.
, 2017 ONCA 766, 140 O.R. (3d) 77, at
    para. 8, [s]ubstantial indemnity costs is the elevated scale of costs normally
    resorted to when the court wishes to express its disapproval of the conduct of
    a party to the litigation.

[147]

In its written
    submissions to the trial judge, the insurer stated the following:

[T]he law is settled that where an insured
    alleges the insurer has breached its duty of good faith and makes allegations
    of improper conduct required to justify an award of punitive damages and fails
    the insurer is entitled to its costs fixed on a substantial indemnity scale.

Similar submissions were made orally, and the insurer referred
    to a number of cases where bad faith claims had failed and substantial
    indemnity costs were awarded. The insurers submissions to the trial judge on
    this point were incorrect.

[148]

In
Hamilton
, the Supreme Court emphasized that the fact
    that a party makes unsuccessful allegations of fraud or dishonesty will not
    lead inexorably to the conclusion that substantial indemnity costs are
    warranted, since not all unsuccessful attempts to prove fraud or dishonesty on
    a balance of probabilities amount to reprehensible, scandalous or outrageous
    conduct:
at para. 26. Similarly, the
failure
    of a plaintiff to prove a claim of punitive damages or breach of the duty of
    good faith against an insurer does not in itself justify an award of
    substantial indemnity costs. There must be a finding that the plaintiff engaged
    in conduct which is deserving of sanction.

[149]

While there are cases where substantial indemnity costs have been
    awarded where plaintiffs made empty or unsubstantiated bad faith
    allegations, typically there is specific conduct on the part of the
    unsuccessful party that extends beyond challenging the conduct of the insurer
    or presenting its case vigorously. For example, in

Sagan
    v. Dominion of Canada General Insurance Company
,
    2014 ONSC 2245, 29 C.C.L.I. (5th) 284, where the plaintiffs statement of claim
    contained a litany of unsupported allegations of bad faith, misconduct and
    incompetence against the defendant, and the plaintiff provided no evidence to
    support those allegations, substantial indemnity costs were awarded for the
    hearing of the defendants successful summary judgment motion.
In
DiBattista
    v. Wawanesa Mutual Insurance Co.
(2005), 78 O.R. (3d) 445 (S.C.), affd on
    other grounds 83 O.R. (3d) 302 (C.A.), substantial indemnity costs were awarded
    after trial against plaintiffs who made serious allegations of intentional acts
    undertaken in bad faith, which they disseminated in the media.
I
n
Bustamante v. Guarantee Co. of North America
,
    2015 ONSC 94, 42 C.C.L.I. (5th) 202, the court awarded substantial indemnity
    costs on a motion for summary judgment dismissing a claim for accident
    benefits, concluding that there was no foundation whatsoever for the
    plaintiffs claims of fraud and bad faith and that the plaintiff was trying to
    intimidate the insurer with exaggerated claims.
In
Alguire
    v. The Manufacturers Life Insurance Company (Manulife Financial)
, 2018 ONCA 202, 14 O.R. (3d) 1, this court upheld an award
    of substantial indemnity costs where the appellants claim of bad faith had no air
    of reality and the appellant had fabricated his testimony.

[150]

In my view, the trial
    judge erred in principle in awarding substantial indemnity costs in this case. The
    appellants conduct did not reach the level of conduct that is deserving of
    sanction. The conduct that the trial judge viewed as reprehensible did not extend
    beyond vigorously challenging the insurers conduct in the context of their
    punitive damages and bad faith claims.

[151]

A fair reading of the
    trial judges reasons is that she awarded substantial indemnity costs because
    the appellants made a number of hard-hitting allegations attacking the
    integrity of the insurer in the context of their punitive damages and bad faith
    claims. The appellants made these allegations knowing before trial that Cindy
    would have credibility problems and that Mr. Coutu would testify that the insurers
    conduct was reasonable.

[152]

The trial judge specifically
    referred to the following allegations made by the appellants: that the
    insurers investigation was a sham; that the insurer had called them fraudsters;
    that they had to bring the insurer to court kicking and screaming regarding the
    appraisal issue; and that the insurer had dragged out the litigation in the
    hope that they would give up and that Joyce would not last until the trial.

[153]

The allegations
    referred to by the trial judge were made in the context of the appellants claims
    against the insurer for bad faith and punitive damages (in addition to coverage
    under their insurance policy). In making these claims, the appellants necessarily
    challenged the insurers handling of their claim and relied on the alleged misconduct
    of the insurer. Some of the allegations were made in the opening address of the
    appellants trial counsel, prompting an unsuccessful motion for a mistrial.
[5]
There was nothing improper
per se
in the fact that the allegations
    were made or in the way they were stated by counsel; indeed, there is no
    indication that the trial judge issued any form of corrective instruction to
    the jury following the opening addresses. The fact that the appellants
    persisted with these allegations (some of which were repeated in counsels
    closing address), despite certain weaknesses in their case (Cindys credibility
    problems and Mr. Coutus anticipated evidence), and were ultimately
    unsuccessful, is not egregious or reprehensible conduct warranting an award of
    substantial indemnity costs. The vigorous pursuit of an unsuccessful claim does
    not by itself justify an award of costs on an elevated scale: see
Upchurch
    v. Oshawa (City)
, 2014 ONCA 425, 27 M.P.L.R. (5th) 179, at paras. 31-33. Moreover,
    adverse findings of credibility do not justify an award of substantial
    indemnity costs:
Hunt v. T.D. Securities Inc.
(2003), 229 D.L.R. (4th)
    609 (Ont. C.A.), at paras. 147-150, leave to appeal refused, [2003] S.C.C.A.
    No. 473.

[154]

The appellants bad
    faith and punitive damages claims, which were asserted in the context of
    seeking coverage under their insurance policy, were not empty, baseless or
    entirely without foundation. This case is distinguishable from those where
    plaintiffs made gratuitous claims of bad faith against their insurer for
    ulterior purposes or without any foundation or evidence to substantiate their
    allegations.

[155]

Although the trial
    judge characterized the allegation that the appellants might give up or die
    because of delay as particularly reprehensible when the appellants were
    responsible for a good part of the delay in the action, this submission of
    counsel was not the kind of reprehensible conduct that would justify an award
    of substantial indemnity costs against the appellants. The insurer was
    responsible for some delay in the proceedings and the trial judge did not
    instruct the jury to disregard this submission. As this court noted in
Clarington
,
    at para. 45, a distinction must be made between hard-fought litigation that
    turns out to have been misguided, on the one hand, and malicious
    counterproductive conduct, on the other.

[156]

The trial judges
    findings do not support an award of substantial indemnity costs, nor are costs
    on an elevated scale supported by a fair reading of the record. Accordingly, I
    would give effect to this ground of appeal, and substitute an order for partial
    indemnity costs in favour of the insurer.

[157]

Unfortunately, the
    insurers counsel did not provide a bill of costs setting out its costs of the
    action on a partial indemnity basis, except to provide a proposed amount for
    partial indemnity costs for the period preceding its offer to settle. Applying an
    appropriate discount to the substantial indemnity costs awarded by the trial
    judge, and accounting for taxes and disbursements, I would reduce the insurers
    costs to the all-inclusive amount of $430,000.

V.

DISPOSITION

[158]

For these reasons, I
    would allow the costs appeal and reduce the trial judges costs award to $430,000,
    inclusive of taxes and disbursements. I would otherwise dismiss the appeal.

[159]

Taking into
    consideration the appellants success on its costs appeal, I would award the insurer
    costs before this court fixed at $40,000, inclusive of taxes and disbursements.

Released: June 25, 2020 (K.M.v.R.)

K.
    van Rensburg J.A.

I
    agree. M.L. Benotto J.A.

I
    agree. Harvison Young J.A.

[1]

Joyce passed away in July 2019,
    following the trial and before the hearing of the appeal. Although her estate
    trustees are now appellants on behalf of Joyces estate, for ease of reference
    I refer in these reasons to Joyce and Cindy as the appellants.

[2]
At trial, the focus was on the alleged wilfully false statements in
    respect of items listed in the Schedule of Loss.

[3]
The
    insurers counsel
argued, unsuccessfully, that the change in heat source
    occurred as soon as the gas was shut off, and that Question 1 should be framed
    accordingly. The trial judge agreed with the appellants trial counsel that,
    unless the statement of defence was amended, the insurer was bound by its
    pleading, which claimed that the material change in risk was the use of
    electric heaters as the primary heat source. The trial judge refused to allow
    the amendment.

[4]

I
    note that r. 20.06 provides that the court may order costs of a motion for
    summary judgment by a party on a substantial indemnity basis if: (a) the party
    acted unreasonably by making or responding to the motion; or (b) the party
    acted in bad faith for the purpose of delay.

[5]
Although the initial objection of the insurers counsel is in the record on the
    appeal, counsels submissions on the motion for a mistrial and the trial judges
    ruling dismissing the motion were not transcribed. It appears from the
    transcript that, immediately after the ruling, the first witness was called.