Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

The Insured obtained home insurance for both her real and personal property through the defendant Broker between March 2000 to November 2004. A fire occurred on November 4, 2004, which resulted in destruction of the Insured's home and contents. The policy contained a clause which provided for replacement costs of the home in excess of the limit of coverage, which was only $186,000. Accordinlgly, the Insurer agreed to pay the actual cost of $357,000 to replace the Insured's house despite the lower limit of coverage. There was no similar term in the policy that applied to the contents, which were subject to the same limit. As a result there was a shortfall in insurance coverage for the contents of the house, which were valued at roughly $338,000.

The Insured claimed that the Broker was negligent or in breach of contract by underestimating the cost to replace her house. If the value had been estimated correctly this would have resulted in the higher limit of coverage being applicable to the contents of the house as well The parties agreed that incorrect information had been used in calculating the replacement cost of the house.

The Court found that the Broker had breached his duty of care to exercise reasonable skill in estimating the replacement cost of the house and to obtain insurance coverage that would meet this estimate. However, there was no finding of liability since the breach was not found to have caused the Insured's loss. Mr. Justice Halfyard held that the Broker's conduct in underestimating the house replacement cost did not create the risk that the Insured would suffer harm by way of inadequate coverage for her personal property. His Lordship found that the risk of inadequte coverage for the house contents was not known nor reasonably foreseeable by the Broker and that there was no evidence of carelessness on his part in respect of obtaining coverage for the contents. In the result, the Court dismissed the Insured's claim.

Had Justice Halfyard found liability, he would have assessed 50% contributory negligence against the Insured due to her failure to exercise reasonable care in reviewing the insurance coverage renewal materials, which contained erroneous information regarding the characteristics of her house.

The Plaintiff was a passenger is a motor vehicle driven by Mr. Larkin. Mr. Larkin swerved to avoid a dog, owned by Mr. Hogeterp, and crashed into a telephone pole, causing the Plaintiff to suffer a severe brain injury. An action was commenced by the Plaintiffs against Mr. Larkin and Mr. Hogeterp. In August of 1997, Lombard Insurance entered an Appearance on behalf of Mr. Hogeterp and retained an independent adjuster to investigate the claim. The adjuster obtained two statements from the Defendant Mr. Larkin. Mr. Hogeterp's counsel provided the statements of Mr. Larkin to Mr. Larkin, and to the Plaintiff. The Plaintiff brought an Application seeking production of Lombard Insurance's entire adjuster's file. 

The Chambers Judge ruled that there would have been no waiver of privilege had Mr. Hogeterp's counsel released the statements to Mr. Larkin, as he was the maker of the statements, and was therefore entitled to the statement. The trial Judge relied upon Hanna v. Maritime Life Assurance (1995), 137 N.S.R. (2d) 339 (S.C.) for this proposition. However, the Chambers Judge found that the Plaintiff and Mr. Larkin were adverse in interest and as such, the disclosure of the statements waived privilege over the statements, and all other relevant documents dealing with the same subject matter. The Chambers Judge relied upon Walsh v. Smith (1999), 180 N.S.R. (2d) 173 for guidance with respect to the extent of the waiver of privilege. The Chambers Judge ordered that Mr. Hogeterp had to disclose documents that had any reference to the statements and the circumstances under which they were obtained. However, these references could be severed from the remaining filed documents. 

In determining what documents were privileged and what documents were not privileged, the Chambers Judge determined that the most appropriate method would be to examine the entire file over which privilege was claimed and make an individual assessment of each document.

The Insureds obtained home insurance coverage through the Defendant Broker in 1982. Between 1982 and 1991, the Insureds' policy contained a sweage backup endorsement ("SBU"), which insured their home against water damage sustained as a result of sewage backup. The Insureds experienced a sewage backup in 1992 under a subsequent policy that had not been placed by the Defendant Broker. This loss was covered under their policy, however, the Insurer refused to renew the Insureds' policy when it expired later that year. The Insureds then contacted the Defendant Broker to secure a new home insurance policy. A policy was subsequently secured and took effect in November 1992. The Insureds' home sustained significant water damage in July 2001 as a result of a sewage backup. They were told by the Insurer that this loss was not covered since their policy did not contain a SBU endorsement.

The Court was asked to determine whether the Defendant Broker had either breached its contract with the Insureds or was negligent by failing to obtain the SBU endorsement that was bargained for. The Insureds conceded that they were aware that the endorsement was not initially included in the policy, but argued that the Broker had informed them that this would be incorporated after 2-3 years without them having to do anything further. The Broker argued that it did not inform the Insureds that the endorsement would be incorporated into their policy, and would not have made this representation as it is not possible for any clause to be automatically incorporated into an insurance policy.

The Court noted that if the Broker had failed to obtain the type of insurance coverage that it agreed to obtain, it would be liable for breach of contract on the basis of the Ontario Court of Appeal’s decision in Fine’s Flowers Ltd. et al vs. General Accident Assurance Co. of Canada et al (1977) 81 D.L.R. (3d) 139 para. 13 (Ontario Court of Appeal). The factual issue for the Court was whether the parties had bargained for future inclusion of the SBU endorsement. The disagreement concerning what transpired at a 1992 meeting between the Insureds and the Broker boiled down to a contest of credibility and the evidence concerning this meeting was diametrically opposed.

On the evidence, the Court found that the parties had likely exited the 1992 meeting with an imperfect understanding of the importance of the SBU endorsement and what was to be done about this clause in the future. The evidence failed to establish that the Broker and the Insureds had come to any mutual understanding as to what steps were going to be taken. As a result, the Court could not find that the endorsement was a term “bargained for” as discussed in Fine’s Flowers and the Insureds' claim for breach of contract could therefore not succeed. However, the Court found that the Insureds had relied upon the Broker to obtain insurance for their home, including the SBU endorsement. In the particular circumstances of the case, the Broker owed a duty of care regarding the future treatment of the endorsement. 

The Court noted that the scope of the duty owed to the Insureds was governed by Fine’s Flowers and the subsequent decision of the Supreme Court of Canada in Fletcher vs. Manitoba Public Insurance Co. [1990] 3 S.C.R. 191. In particular, the Court found that the Broker had a duty to provide sufficient coverage and that any failure on the part of the Insureds to specifically articulate their needs did not absolve the Broker of liability. The evidence was that the parties were aware of the possibility that future losses might result from a sewage backup and despite this, the Broker did absolutely nothing to inform the Insureds about the sewage backup gap. 

Brian Issel farmed with his father, Arnold Issel, in the Melville area. His father purchased an air seeder in Fargo, North Dakota. To facilitate picking up the equipment, he rented a truck (the “Vehicle”) from Wheat Country Motors in Regina. Brian Issel planned on driving the Vehicle to pick up the air seeder. The owner of the Vehicle required confirmation that Brian Issel had insurance to drive the vehicle before he would rent it. Brian Issel had no vehicle insurance at that time. He was aware that his father had motor insurance (the “Policy”), and was aware that he was not covered under that Policy.   Brian Issel contacted Brent Paidel, an insurance broker at Melville Agencies. As a result of the discussion between the two, Brian Issel understood that he did not need to purchase insurance because he would be covered by the Policy. Brian Issel drove the Vehicle and was involved in an accident. 

He commenced an action against his father’s automobile insurer and Melville Agencies to recover the damages associated with the accident. At the trial, Mr. Paidel testified that he had no recollection of speaking with Arnold Issel, but believed that what he would have done in the circumstances was read from the insurance booklet issued by the Saskatchewan General Insurance Company. The advice contained in the insurance booklet says that the sibling of an Insured is covered under the policy for rental vehicles if they are driving with the consent of the Insured. Mr. Paidel agreed that in the circumstances he would not have told Arnold Issel that he was not covered under his father’s insurance Policy as he had no knowledge of the specific circumstances of the Policy. Mr. Paidel said that he receives a number of general insurance inquiries on the phone and it is not his practice to provide anything but the advice provided by the insurance booklet. 

Green Prov. Ct. J. determined that Brian Issel had no claim against his father’s automobile insurance company, but that he had a valid claim against Melville Agencies. Green Prov. Ct. J. determined that Mr. Paidel owed Brian Issel a duty of care, and that he breached that duty of care by failing to advise him that he was not covered under the Policy for rental purposes. The insurance broker was found to be responsible for the loss, despite the fact that Brian Issel was aware that he was not covered under the Policy before he spoke with the broker.

The Insured was a crane operator who contracted with the owner of a printing press to move the printing press from one building to another. The value of the printing press was in excess of the Rider for "on-the-hook" property covered by the Insured’s policy. Accordingly, the Insured contacted its broker and requested an increase in the coverage for "on-the-hook" property to ensure that the printing press would be insured in case of any damage during the move. The printing press was in fact damaged and its owner made a claim against the Insured, not only for property damage but also for loss of profits.

In order to settle the claim, the Insured contributed $35,000 in excess of the cost required to fix the printing press. It was later discovered that there were no insurers in the marketplace that would insure against "loss of profits" or consequential losses suffered by third parties. The broker was unaware that this type of insurance was not available and therefore did not disclose this fact to the Insured.

The Insured claimed that the brokerage firm failed in its duty to warn him of the "hole" in the policy and that, but for the brokerage firm’s breach of duty, the Insured would have had no exposure to loss beyond the amount for which it was insured.

After referring to Fines Flowers Ltd. et al v. General Accident Assurance Co. of Canada et al (1977), 17 O.R. (2d) 529 (Ont. C.A.), the Court concluded that the broker had breached his fiduciary duty and was negligent. The Court found that the broker had a duty to advise his clients on insurance coverage based on his knowledge of the client’s needs. The lack of coverage for business interruption was a gap or hole in the policy and the broker breached his duty when he failed to advise the Insured of this. The Insured was entitled to damages in the amount of $35,000, which it had paid toward settlement, plus legal fees expended in defending the claim by the owner of the printing press.

On January 23, 2000, four armed gunmen robbed the Haworth Jewellery Store in Kelowna, British Columbia shortly after the closing of the store. The owner was present and had not locked the backdoor. At the time, the jewellery had been removed from the display cases and was collected in trays ready for nighttime storage in the vault. Shortly before the robbery, the owner purchased, through her local insurance agent, Capri Insurance Services Ltd. ("Capri"), a Scottish & York jeweller’s block policy of insurance. The Scottish & York jeweller’s block insurance policy contained warranties that stipulated certain store closing procedures. One of those warranties required that the insured lock the exterior store doors before the jewellery was moved from the locked display cases to the vault. By the date of the robbery, the owner had not been provided with a copy of the warranties and consequently, having never previously purchased a jeweller’s block insurance policy, was unaware that some of her business practices breached the warranties. Scottish & York paid the loss and sued to recover the amounts paid out from Metrix for failing to advise the agent, Capri, of the content of the warranties and failing to obtain the insured’s acceptance of the warranties by the time the insurance was bound.

It was common ground that the store opening and closing warranty was not contained, nor referred to, in the application for insurance. Metrix argued that its obligations to Scottish & York were governed by contract, written and oral, and that it was never an express or implied term of the contract that Metrix was obliged to send warranties to the insured in the quotation or with the interim binder. Metrix’s standard practice was to send the policy and warranties to the agent, in this case, Capri, asking for the return of the signed warranties "as soon as possible". The Court also found that Scottish & York did not have a standard practice of requiring the return of the signed warranties at the time of the placing of the policy and that its usual practice was to obtain the warranty signed by the insured within four months of the placing of the policy. It was Scottish & York’s standard practice to stay on risk without the warranty in the period between the date of the binding and the signing of the warranties by the insured. Scottish & York did not expect the warranties to be accepted by the insured prior to the date of their delivery with the policy. The Court held that unless an insured had an ability to read and accept the full warranties before the loss, the warranties were unenforceable citing McKay v. Norwich Union Ins. Co. (1895) 27 O.R. 251 (Ont. C.A.). In this case, the owner of the Haworth Jewellery Store had not agreed to the warranties and Scottish & York was unable to enforce them and was liable to pay the loss under the policy.

The Court agreed with Scottish & York that Metrix did owe a duty of care to Scottish & York to communicate the content of the standard warranties of the policy to Capri, at least at the binding stage of the transaction, and that Metrix breached this duty of care in this instance. The issue then became whether Scottish & York was able to prove, on a balance of probabilities, that Metrix’s failure to inform Capri about the warranties caused or contributed to the loss. The Court noted that to succeed, Scottish & York would have to prove that if Metrix had informed Capri about the warranties, Capri would in turn have informed the owner of Haworth and that the owner would have altered her opening and closing procedures to comply with the policy, and further that the robbery probably would not have occurred if the door had been locked as required by the warranty. After reviewing evidence relating to the owner’s recklessness concerning her surveillance system and financial matters, the Court held that to find that the owner would have complied with the warranties would be largely speculative and, therefore, Scottish & York had failed to discharge its burden of proof.

In the result, Scottish & York’s claim against Metrix was dismissed, with costs.

The Insured and his wife had purchased a 32’ powerboat in July 2002. The Insured contacted an insurance brokerage firm, which assisted the Insured in obtaining insurance coverage for the boat. The brokerage firm was aware of the Insured’s plan to use the boat for commercial purposes, but suggested that the boat could be insured for personal use until such time as the Insured was ready to take paying customers on the boat. The Insured obtained a policy of insurance, which specifically stated that the boat would be used solely for private pleasure purposes and would not be "chartered or leased or used for any commercial purpose". This was an absolute warranty in the policy, meaning that it applied to the entire policy period.

Despite failing to obtain commercial insurance for his boat, the Insured and his wife set up a numbered company and began marketing activities to attract paying customers. They continued their efforts throughout the end of summer 2002 and during the summer of 2003. The boat was stolen in October of 2003 from where it was moored at the Insured’s family cottage.

The Insurer denied the Insured’s claim for insurance coverage in respect of the theft, finding that the Insured had used his vessel for commercial purposes in contravention of the policy. The Court agreed with the Insurer’s denial, concluding that the Insured had taken paying customers on his boat during the summer of 2003 and was knowingly in breach of his policy. The Insured’s claim against the Insurer was therefore dismissed.

The Court also dismissed the Insured’s claim against the brokerage firm for failing to advise him fully about the effect of not obtaining commercial insurance. The Court held that while the firm failed to meet the standard of care required of a reasonably prudent marine insurance broker, there was no causal link between the broker’s actions and the Insured’s loss. This was because the Insured had not relied on the advice of the brokerage firm, and instead had consciously chosen to take paying customers on his boat despite being aware that this would amount to commercial use and result in the policy being void.[2007] F.C.J. No. 22

McIntosh v. Royal & Sun Alliance Insurance Co. of Canada

 Federal Court

 Mactavish J.

 January 10, 2007

The insured was in the business of providing audio-sound equipment to various venues. The insured’s audio-sound equipment was damaged while in transit to such a venue during a motor vehicle rollover. The defendant insurer, Canadian Northern Shield Insurance Company ("CNS"), refused to indemnify the insured for the loss.

The insured had sought insurance coverage for its audio-sound equipment on and off premises and while "in transit", and for replacement cost coverage. The Court found that the agent Wagner did not advise the insured’s insurance agents that the CNS policy would not include "in transit" coverage or replacement cost coverage.

The Court found that the language of the policy with respect to whether the policy included "in transit" coverage was ambiguous and confusing. As such, the Court concluded that the ambiguity should be interpreted in favour of the insured, and that the CNS policy included "in transit" coverage.

The Court concluded that on the basis of common law, the insured and its agent were entitled to rely on the insurer and its agent to provide the insurance coverage for which the insured had applied, unless the insurer advised, in writing, of the material differences between the application for insurance and the policy. In failing to do so, the insurer and its agent breached the duty of care owed to the insured.

The Court held that the insured’s insurance agents were also personally liable in failing to adequately read the policy and advise the insured of the lesser coverage.

The Court held that CNS, as principal, was vicariously liable for the negligence and breach of contractual obligations of its agents to the plaintiff’s agents, and hence to the plaintiff.

The Court held that the insured was not contributorily negligent in failing to read the policy of insurance as it was entitled to rely upon the expertise and advice of its agents and to assume that it would receive the coverage for which it had applied.

Burke was a homeowner in Windsor who had continuously purchased insurance for his home over approximately 25 years. In the fall of 2001, he obtained insurance through All-Risks Insurance Brokers ("All-Risks") to insure his home for a one year period. During this time, he experienced a break-in to the garage and received approximately $2800 in compensation for lost or damaged items. This claim was processed by the same agent who sold him the policy at All-Risks. Burke did not receive the renewal notice for this insurance policy. In late October 2002, Burke received a notice of non-renewal indicating that his policy had expired and that his previous insurer was no longer writing homeowner’s policies. Burke discussed this with his broker at All-Risks who recommended that Burke take out a new policy with the Guarantee Company of North America (the "Insurer"). On November 6, 2001, Burke’s broker confirmed that he was bound with insurance from the Insurer. The arrangement between the Insurer and All-Risks did not require prior notification in order to bind coverage. Burke was to attend All-Risks to sign the application and drop the premium cheque off on November 8. He was delayed because of work and called his broker on November 8. She indicated that it was fine to come in on November 11 to sign the application and drop the premium cheque off. On November 10, 2001, Burke sustained a fire in the garage of his home. Burke reported this to his broker who indicated that there was no problem because Burke had been bound as of November 6.

On November 11, Burke attended at All-Risks and signed the application form which had already been completed by his broker.

The Insurer refused to pay out on the policy on the basis that there were two errors on the application form:

1. there was no disclosure of the prior $2800 claim; and
2. there was no disclosure that Burke’s previous insurer had failed to renew his coverage.

The court found that the application form had been completed by the agent and that Burke was entitled to rely on her to complete the form appropriately. The court was satisfied that Burke did not provide any misleading information to his broker. The broker testified that the error relating to the past claim should not have affected the binder as there had not been two incidents in the previous five years.

The court held that the errors on the application were not misrepresentations of such character as to affect the risk analysis of the Insurer when deciding to honor a binder placed by a broker. The court was satisfied that if the application had been processed in the ordinary course, the Insurer would have provided insurance and that it was the unfortunate timing of the fire loss four days after the binder and prior to the Insurer receiving the application that had influenced the Insurer’s decision to deny coverage.

In the result, the court held that the Insurer was fully responsible to indemnify Burke under the policy with no right of indemnity from All-Risks.

Ken Murphy Enterprises Ltd. ("Murphy") was the owner of a number of rental properties. Ken Murphy was the company’s principal owner. Murphy used the brokerage services of Vaughne Assurance Limited ("Vaughne") and obtained fire insurance through the Commercial Union Assurance Co. of Canada ("Commercial Union") for a five-unit apartment building known as Rock Cottage.

On December 4, 1996, Ken Murphy advised Vaughne that he wished to remove insurance coverage from three of his properties because they were vacant; however, he wished to obtain fire insurance for Rock Cottage. He advised Vaughne that Rock Cottage was under renovations, but that it would be rented on February 1, 1997. In fact, Rock Cottage had been vacant since August of 1996, and remained unoccupied until a fire on October 31, 1997. Ken Murphy made no formal report about the vacating of Rock Cottage to Commercial Union or to Vaughne. However, Ken Murphy had had several informal chit-chats with Vaughne in June or September of 1997 in which Vaughne was advised that Rock Cottage was vacant and was being vandalized. Commercial Union, through Vaughne, issued a renewal policy covering Rock Cottage in August 1997. After the fire on October 31, 1997, Commercial Union refused to cover the fire loss, refunded Murphy its insurance premiums on the basis that Murphy’s vacating of Rock Cottage constituted a material change in the policy, and that the material change voided the insurance. Murphy commenced an action against Commercial Union for payment of the fire loss, and against Vaughne Insurance, for failing to advise that the material change in risk caused by the vacating of Rock Cottage would void the insurance policy.

The trial judge found that the vacating of Rock Cottage constituted a material change in risk, that the insurance policy was void, and that Murphy was not owed any compensation by Commercial Union for the fire loss under the policy of insurance. With respect to Vaughne, the trial judge noted that the insurance policy was voided in the fall of 1996. At that time Murphy did not advise either Vaughne or Commercial Union of the material change of risk to Rock Cottage. He further found that any failure on the part of Vaughne later in 1997 did not cause the loss of coverage because the policy had already been voided by February 1, 1997. The claim against both Commercial Union and Vaughne was dismissed.

Murphy appealed on the basis that the trial judge did not consider whether Vaughne was negligent in failing to advise Murphy that the insurance policy would not cover Rock Cottage in the event of a fire loss after the insurance policy on Rock Cottage was renewed in August of 1997. The Court of Appeal noted that the trial judge did not appear to turn his mind to the question of Vaughne’s alleged negligent failure to advise Murphy that he had no insurance on Rock Cottage when he renewed the policy. In analysing the nature of the relationship between an insured and an insurance broker the Court noted that it was Murphy’s duty to provide accurate information respecting the risk to Vaughne and pay the premiums of the policy. It was Murphy’s duty to report material changes in risk to Vaughne.

The Court of Appeal determined that although Vaughne, as an insurance broker, was not legally responsible for actively monitoring the nature of the risk during the term of the policy, Murphy provided Vaughne with sufficient information such that Vaughne should have enquired about a material change of risk in Rock Cottage in June or September of 1997. One cannot infer that Murphy would or could have arranged insurance in response to notification from Vaughne. Ken Murphy was an experienced insured, and knew without Vaughne’s advice that conditions existed which made it unlikely that Rock Cottage was still insured after February of 1997. Murphy did nothing to protect his interests, apart from a rather ambiguous conversations with Vaughne. The Court of Appeal determined that Murphy was aware that vacating Rock Cottage would void the insurance, and that he took no steps to obtain valid insurance after Rock Cottage had been vacated. The court determined that although Vaughne had failed in his obligation to advise Murphy of the risks of vacating Rock Cottage, no damages flowed from Vaughne’s failure to notify Murphy because it was not his intention to keep the property insured. The appeal was dismissed.