The Insurer’s Guide: Combatting Motor Vehicle Fraud

The Insurer’s Guide: Combatting Motor Vehicle Fraud

By: Bogdan Miscevic (Partner)

About the Author: Bogdan Miscevic is a Partner at MBBM Lawyers LLP, and he specializes in insurance defence litigation. He is a preferred defence counsel for many prominent insurers and companies who manage aspects of their own risk (“SIR clients”), especially when it comes to special investigations and fraud defence work. Bogdan has successfully represented his insurer and SIR clients at various court and administrative tribunal levels. He is regularly invited to speak and present at various insurance industry events and has been named by The Best Lawyers in Canada for his outstanding expertise in the area of Insurance Law.


In recent times, there has been a noticeable uptick in motor vehicle fraud cases, reflecting a concerning trend in the automotive industry. One contributing factor to this increase is the growing sophistication of fraudulent techniques, which have become more difficult detect and prevent.

Moreover, the global shift towards digital platforms for vehicle sales and transactions has created new opportunities for fraudsters to manipulate systems and deceive unsuspecting buyers and insurers. This includes activities such as falsifying vehicle histories, forging ownership documents and staging accidents to make fraudulent insurance claims.

The impact of this uptick in motor vehicle fraud extends beyond financial losses to individuals and insurers. It can erode trust in the automotive market, disrupt insurance operations, and ultimately lead to higher premiums for honest policyholders. As such, there is a pressing need for collaborative efforts between insurance companies, regulators, and law enforcement agencies to develop robust fraud prevention measures and educate consumers about potential risks.

In this article, I outline basic steps that an insurance investigator (and insurance defence lawyer) should follow when investigating a potentially fraudulent claim. Of course, these steps are not exhaustive and should be considered in conjunction with other internal insurer’s guidelines and best practices.

General Principles Relating to Fraud

The general principles relating to insurance claims and fraud are well established in Canadian law. According to these principles, an insured must provide sufficient information and specific details in the proof of loss and extent of damage sustained to allow the insurer to determine whether the nature and amount of a claim brought by the insured is valid. The insured must provide the fullest account possible and the best particulars of the loss. Compliance with these requirements is a matter of judicial interpretation. The onus of proving fraud, a false statement, or staged accident, is on the insurer.1

Generally, in order to recover for a loss, the insured bears the onus of establishing, on a balance of probabilities, that the loss occurred and the amount of the loss – the onus does not shift to the insurer merely because the insurer raises the defence of fraud. In preparing the proof of loss, an insured owes a duty to the insurer of honesty and accuracy. Before addressing whether the insurer has proved that the insured’s valuation is flawed, the trial judge must first satisfy himself or herself that the insured has proved, on balance, that his or her evidence in support of the loss is credible and reliable.2

A defence of fraud may be established by presumption or inference from circumstantial evidence. The onus of proving fraud or false statement is on the insurer. Having said that, it is important to note that mere exaggeration of a claim may not be sufficient to vitiate the claim.

Relevant Regulation:

(i) Insurance Act

7. Fraud Any fraud or willfully false statement in a statutory declaration in relation to any of the above particulars, vitiates the claim of the person making the declaration. [Emphasis Added].

233(1) Misrepresentation or violation of conditions renders claim invalid Where,

(a) an applicant for a contract,

(i) gives false particulars of the described automobile to be insured to the prejudice of the insurer, or

(ii) knowingly misrepresents or fails to disclose in the application any fact required to be stated therein;

(b) the insured contravenes a term of the contract or commits a fraud; or

(c) the insured wilfully makes a false statement in respect of a claim under the contract, a claim by the insured is invalid and the right of the insured to recover indemnity is forfeited. [Emphasis Added]

(ii) Ontario Automobile Policy of Insurance (OAP1)

The Statutory Condition(s) of the Ontario Automobile Policy of Insurance OAP1 pertain to the insured’s responsibility to cooperate, and the relevant sections read as follows:

Statutory Condition 5(3) states:

Requirements Where Loss or Damage to Persons or Property

(3) The insured shall, whenever requested by the insurer, aid in securing information and evidence and the attendance of any witness and shall co-operate with the insurer, except in a pecuniary way, in the defence of any action or proceeding or in the prosecution of any appeal.

Statutory Condition 6(4) states:

Examination of Insured:

“(4) The insured shall submit to examination under oath, and shall produce for examination at such reasonable place and time as is designated by the insurer or its representative all documents in the insured’s possession or control that related to the matters in question, and the insured shall permit extracts and copies thereof to be made.” [Emphasis added].

Basic Steps in Motor Vehicle Fraud Cases:

Now that we have outlined general principles and relevant regulation governing motor vehicle fraud in Ontario, we will look at some basic steps that an insurance investigator ought to consider when handling a potentially fraudulent claim.

Please see below list outlining steps that need to be considered in order for an insurer to deny or approve a potentially fraudulent motor vehicle claim:

1. Proof of Loss: the applicant must submit a valid and notarized proof of loss outlining exactly what is being claimed, the amount, details pertaining to the incident and other required information. This document will serve as a framework for the claimant’s claim, and it will define boundaries within which the insurer can navigate in the course of its investigation. The insurer should insist on production of a valid proof of loss before proceeding with the claim.

2. Personal Information Consent Form: the investigator should be requesting Personal Information Consent Form (or its equivalent) to be executed by the claimant. This consent form will allow investigator to share the claimant’s personal information with other parties in order to obtain documents/information for the purposes of investigating the file. For instance, it will allow the investigator to reach out to other insurance companies, other adjusters, credit organizations, medical professionals, police authorities and other third parties for the purposes of investigating the claim and gathering relevant documentation/information.

3. Photographs and/or Videos: if the investigation deals with a motor vehicle theft, arson, content loss or other similar claim, then the investigator should be requesting photographs and videos of the subject incident and items being claimed in the proof of loss.

4. Telephone Records and Bank Statements: the investigator may request telephone records and bank statements from the insured if those are relevant. For instance, if the claimant claims he or she purchased a re-VIN vehicle over Kijiji for cash and does not have documents to substantiate the transaction or contact information of the seller, the investigator may request telephone records and/or bank statements to verify those claims. Of course, telephone records and/or bank statements should be redacted and only relevant information substantiating the claim should be sought.

5. Social Media / Online Searches: the investigator should be conducting thorough searches of the claimant’s social media and online presence including saving all relevant information including photographs, videos, friend/connection lists, location check-ins, and business registries. Certain software engines allow for internet searches for content that has been deleted including Kijiji ads, online posts and other.

6. Other Useful Searches: the investigator should be obtaining the following information and documents:

a. AutoPlus Details

b. Carfax & Lien Searches

c. Mohawk Searches

d. Motor Vehicle Registration Documents

e. Corporate Searches

7. Recorded Statement: the investigator should be conducting a recorded statement with the insured to verify information provided, investigate facts of the case and surrounding circumstances. The recorded statement will serve two-fold purposes: (i) it will allow investigator to investigate the claim and (ii) it will provide external counsel, if retained, additional information before Examination Under Oath is conducted (see below for further information pertaining to Examination Under Oath).

8. Canvassing of Neighbourhood: the investigator should be canvassing the neighbourhood and speaking with the neighbours to obtain further information as well as obtain potential photographs/video footage of the subject incident. For instance, in a motor vehicle theft, many surrounding houses might have CCTV footage of the reported incident. This information is highly relevant as it has a potential to prove or disprove the claimant’s allegation regarding the subject incident and aid relevant authorities in catching the thieves.

9. Crown Disclosure: if there are criminal proceedings commenced against the insured, a complete crown brief disclosure should be obtained. If the claimant has a criminal defence lawyer, a relationship should be established, and crown disclosure and other relevant documents should be requested from the criminal defence lawyer (unless otherwise instructed). In many instances, the criminal defence lawyers wish to be part of the investigation process and prefer to attend recorded statements and/or Examination Under Oath of their clients. If such requests are made, they should be allowed.

10. Freedom of Information Request: the investigator should be considering a “LEVEL 2” Freedom of Information Request with the relevant authority. If completed properly, a “LEVEL 2” request will provide a number of relevant documents pertaining to the underlying incident including officer’s notes, diagrams, information pertaining to criminal charges (if any), and witness statements. Depending on the jurisdiction, the Freedom of Information Request will take several weeks (if not months) to be completed, so this step should be completed early in the investigation process. It is preferrable that the Freedom of Information Request is satisfied, and relevant documents obtained by the time external counsel conducts Examination Under Oath of the claimant.

11. VIN Searches: if the investigation involves a stolen motor vehicle and circumstances warrant, the investigator should be conducting VIN searches to determine whether the subject vehicle was a “re-VIN”. If that is a case, there could be an argument for lack of insurable interest to be made on the claim. In addition, if the vehicle was a re-possessed by the relevant authorities, then the insurer could argue that there was no insurable event (i.e., the insurance contract does not cover re-possession of the re-VIN vehicle by the relevant authorities). There has been a noticeable increase of re-VIN vehicles in the province of Ontario, and, in many instances, these follow a similar pattern: (i) the claimant purchased the vehicle for cash, (ii) with no proof of payment, (iii) over Kijiji or other similar online platform, (iv) from an unknown individual; and (v) the claimant no longer has contact information of that unknown individual. If your case contains one or more of the above factors, you should be completing a VIN search to ensure the subject vehicle is not a re-VIN. If it shows that the subject vehicle is a re-VIN, consideration as to whether the subject theft can be considered as an insurance event and/or insurable interest should be made.

12. Engineering Report(s): various engineering reports can be obtained to confirm or debunk the claimant’s testimony including “keyreads”, accident reconstruction reports and black box data analysis. For instance, a successful “keyreads” will provide information about when that particular key was last time used to start the subject vehicle. If that information does not match the claimant’s testimony, then there might be potential material misrepresentation and the file should be further investigated.

13. Appraiser Reports: these reports are typically supplementary but do have a potential of containing useful information including colour photographs of the subject vehicle, images of damaged areas, required repairs, value of the damage vehicle and other. These reports should be provided to engineers and external counsel for further analysis.

14. Examination Under Oath: if the above investigation reveals discrepancies between the insured’s statement(s) and factual evidence, the investigator should be retaining an external legal counsel to conduct an Examination Under Oath of the claimant. The external counsel should be serving Notice of Examination on the insured outlining the mandate for the examination. If practical, this should be completed in-person at a local Court Reporter’s Office close to where insured lives to accommodate him or her and the dates for Examination Under Oath should be canvassed with and agreed upon with the claimant in writing. The investigator should be in attendance. If the claimant fails to attend the Examination Under Oath, he or she could be deemed non-compliant. If that is the case, the claimant should be placed in non-compliance but a second opportunity to attend the Examination Under Oath should be provided with the claimant can provide a reasonable explanation for failing to attend the first time. The Examination Under Oath is a one-time opportunity to examine the claimant on the evidence and, arguably, one of the most important steps in the investigation of a claim. As such, the external counsel should be covering all areas, addressing all discrepancies, entering relevant exhibits into evidence, requesting relevant productions, and rending his legal opinion to the investigator following the Examination Under Oath in a timely manner. Based on the legal opinion and internal insurer team discussions and policies, the investigator will be deciding about whether to approve or deny the
claim. The approval or denial of the claim ought to be in writing and the concrete reasons must be provided.

Closing Remarks:

The recent years have witnessed a concerning surge in motor vehicle fraud, presenting a complex challenge for both insurers and law enforcement agencies (in addition to serving as an embarrassment to many local and national politicians). Additionally, the economic downturn and financial hardships experienced by many individuals during recent times have created incentives for fraudulent activities related to motor vehicles.

The impact of this uptick in motor vehicle fraud extends beyond financial losses. It also undermines trust in the insurance industry, raises costs for insurers and consumers alike, and strains resources allocated to fraud detection and prevention. As such, there is a critical need for increased vigilance, enhanced collaboration between industry stakeholders and law enforcement, and the adoption of advanced technologies such as AI-driven fraud detection systems to stay ahead of evolving fraud tactics and protect both insurers and consumers.

On another note, while fraud-detection is crucial, the insurers must not lose sight of the bigger picture and their role in the industry. In that regard, it must be stressed that most fraud investigations are typically first-party claims and, as such, the insurer owes a duty of good faith to its insured. This must be considered throughout the investigation process by the insurer’s investigator (and later external counsel) because it could potentially open the insurer to a bad faith claim if the investigation of the file is not conducted properly and in a timely manner.

It should be noted that there has been a noticeable uptick in successful bad faith claims against insurance companies in the recent years and, as such, the insurers should be mindful of these decisions when navigating these potentially turbulent claims.

1 Hanna v. Royal & SunAlliance Insurance Co. of Canada, 2007 CarswellOnt 3361.

2 Canadian Encyclopedic Digest, Fraud, Statutory Condition 7.