- within Intellectual Property topic(s)
- with readers working within the Insurance industries
In Smitten Baby Products Inc. v. FirstOnSite Restoration Ltd., 2025 ONSC 4281 (CanLII), the Ontario Superior Court dismissed a negligence claim against an insurance investigator retained by an insurer, holding it was "plain and obvious" that the investigator owed no duty of care to the insured for alleged delays in claim payment. The ruling reinforces the limited circumstances in which claims for pure economic loss may succeed and confirms that insureds must pursue delay-related damages primarily against their insurers, not third-party investigators.
Background
Smitten Baby Products Inc. ("Smitten") operated a commercial warehouse that suffered water damage in October 2018. The loss arose when rainwater entered through a displaced tarpaulin during renovations. Smitten submitted an insurance claim under a policy issued by multiple insurers.
The insurers retained ClaimsPro Inc. as an independent adjuster, which in turn retained FirstOnSite Restoration Ltd. ("FOS") to investigate the loss and report on causation. Smitten alleged that ClaimsPro and FOS prematurely concluded the loss was caused by "seepage" (an excluded peril), conducted a biased investigation, and suppressed evidence supporting coverage.
Although Smitten ultimately obtained payment under the policy, it claimed the investigation caused undue delay, leading to substantial business losses and eventual failure of the business. It sued the insurers, adjusters, and FOS, seeking almost $1 million in damages for pure economic loss. FOS brought a motion to strike the claim, arguing it owed no duty of care and did not cause the alleged losses.
Decision
The Court concluded that it was plain and obvious that FOS, as an insurance investigator retained by the insurers, did not owe a duty of care in negligence to Smitten for claims of pure economic loss. The Statement of Claim was found to be deficient, as it failed to plead material facts capable of establishing the necessary elements of proximity, reasonable reliance, or any undertaking by FOS toward Smitten.
It was recognized by the Court that the applicable framework, known as the Anns/Cooper test, has three elements: proximity, reasonable foreseeability of harm, and the absence of any countervailing public policy considerations.
The Court further held that, even if a prima facie duty of care could be made out under the Anns/Cooper framework, compelling policy considerations militated against recognizing such a duty, including the risk of distorting contractual relationships and creating conflicts of loyalty for insurance investigators. In addition, the pleadings failed to establish causation, as the alleged decision to delay or deny coverage was made before FOS attended the site, and FOS's involvement concluded before Smitten submitted any proof of loss.
Given the nature of these deficiencies and the length of time the action had been ongoing, the Court declined to grant leave to amend and dismissed the claim against FOS in its entirety.
As a result, the claim against FOS was struck under Rule 21, and the motion for partial summary judgment was rendered moot.
Key Takeaways
- Insurance investigators do not owe a duty of care to insureds for economic losses arising from claims handling or coverage determinations when retained by insurers.
- Pure economic loss claims face heightened scrutiny and cannot succeed merely by fitting within a recognized category; proximity and reliance must be specifically pleaded.
- Undertaking and reliance are essential to claims for negligent performance of a service with general involvement in an investigation is insufficient.
- Policy considerations matter: courts will avoid creating duties that distort contractual risk allocation or create conflicts of loyalty for investigators.
- Delay-related damages are to be brought against insurers, who owe contractual and good faith duties, not third-party investigators or consultants.
- On pleadings motions, courts will strike claims that are fatally flawed and will deny leave to amend where defects cannot realistically be cured.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
