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

Cole's claim against Aviva arose out of the leakage of furnace oil from an oil tank that was located outside the residential dwelling house of Cole but within the boundaries of her lot.  When Cole discovered the oil leak, she contacted Aviva which engaged Mr. Frank Power, the principal of an insurance adjusting firm known as Adjusters Incorporated Ltd. to adjust the claim.  Cole testified that Frank Power assured her that the oil spill would be completely cleaned up.  She maintained that he represented that any oil which had leaked out of her tank would be cleaned up, regardless of whether it remained on her premises or had flowed onto the property of neighbours.  This assurance was made to her despite the fact that her insurance policy with Aviva did not cover cleanup of her own property.

Some time subsequent to the oil spill, Cole decided to list her property for sale.  Cole's real estate agent was advised of the oil spill and advised Cole to obtain a clearance certificate from her insurance company certifying the spill had been cleaned up.  Cole was unable to obtain such a certificate as there remained some residual contamination from the oil spill.

In reviewing the policy, the court found that the oil spill caused property damage to the subsurface water which gave rise to a "legal liability" as contemplated by the Premises Liability section of the policy.  Therefore, Aviva was liable to compensate Cole for the clean up costs insofar as it related to remediating the contamination of the groundwater.  Aviva had taken steps to complete that clean up and, therefore, complied with the conditions of the policy.

Cole also claimed that she relied to her detriment upon the representations made by Frank Power on behalf of Aviva.  The court agreed that Frank Power negligently misrepresented to Cole that the spill would be "completely cleaned up" and that Cole suffered damage by reason of this misrepresentation in that she relied upon the work being completed and a clearance certificate being obtained and incurred expenses in making arrangements to purchase another property.  The court found that expenses incurred on the basis of these negligent misrepresentations included $500 on the loss in the sale of old appliances and U-Haul expenses of $305.  In the result, the plaintiff's claim for negligent misrepresentation against Aviva was allowed and the plaintiff was awarded $805.

This case was digested by Jonathan D. Meadows and edited by David W. Pilley of Harper Grey LLP.

A condominium corporation sought a declaration that the cost of replacing a damaged standpipe system in the condominium complex was covered under the property section of its all-risk insurance policy issued by ING Novex Insurance Company of Canada (“ING”).  At trial, the judge found that the loss was covered by the policy and ordered ING to pay the entire replacement cost of the system.  ING appealed.

A standpipe system is a system of large pipes in high-rise building that supplies water to the sprinkler and fire hose systems on each floor of the building.  At trial, there was uncontroverted evidence that the standpipe system in question had been improperly designed and/or installed.  Two floods occurred as a result of those deficiencies when water hammers developed in the system, causing significant flood damage and damage to the system itself.  ING indemnified the condominium corporation for the losses resulting from the flood.  The condominium corporation subsequently replaced the entire standpipe system and brought this action seeking a declaration that the expense was covered by the policy.

At trial, the judge found that coverage under the policy was triggered as the damage to the standpipe system had been caused by the water hammer event in combination with the faulty/improper workmanship/design of the standpipe system.  On appeal, the Court considered whether the loss was "fortuitous", ie. was it a loss that would "not have occurred save for the unusual event not ordinarily to be expected in the normal course of things”?  A standpipe system, due to its intended function, is under considerable pressure and should be able to withstand sudden changes in pressure resulting in a water hammer effect.  The Court held that the loss in this case was not fortuitous in that it occurred because “the system failed to do what it was designed to do - it failed to keep contained water under pressure and it failed to do so because it was improperly designed and/or installed".  Had the system been properly designed and installed, it would have contained the water during the water hammer incident.  The Court concluded that the impact of the water hammer on the standpipe system could not be considered fortuitous and that the true cause of the  loss was the improper design and/or installation of the system.

The Court of Appeal further noted that the policy was not intended to provide coverage for events which predated the insurer “going on risk” and that at the time that ING had assumed the risk, the system was already flawed and therefore not capable of performing its intended purpose.  The trial judge had erred when he found that the cost of replacing the standpipe system was covered under the terms of the policy as the real cause of the loss, i.e. the faulty workmanship, had occurred prior to ING coming on risk.

The Court agreed that the loss, if covered, would have been excluded by the clause excluding loss or damage caused directly or indirectly by faulty or improper workmanship or faulty or improper design.  It then considered the application of s.99(3) of the Ontario Condominium Act which provided:

An exclusion in the insurance required by this section is not effective with respect to damage resulting from faulty or improper material, workmanship or design that would be insured but for the exclusion.

The Court of Appeal held that the trial judge had erred in concluding that the damage to the standpipe system itself was resultant damage stemming from both the water hammer event and the faulty/improper workmanship/design of the standpipe system.  The water hammer was not a fortuitous event in respect of the damage to the standpipe system as it was precisely the sort of occurrence the standpipe system ought to have been designed to withstand.  It held therefore that s.99(3) had no application in this case.

Finally, the Court held that the condominium corporation would only be entitled to recover the cost of repair or replacement of the part that was damaged, if the loss was covered.  There had been no evidence at trial that it was necessary to replace the entire system of 4 pipes when only 1 had been involved in the flood incident.  Without evidence that damage had been occasioned to the other 3 pipes, there was no basis on which the condominium corporation would be entitled to the replacement cost of the entire system.  Given the Court’s earlier finding that the damage to the standpipe system was the result of inherent defects in the system and not the result of a fortuitous event, the condominium corporation was not entitled to recover anything for the cost of replacing the system.

This case was originally summarized by Emily M. Williamson and edited by David W. Pilley of Harper Grey LLP.

The Applicants sought a Declaration of Coverage, as mortgagees, under the Standard Mortgage Clause in a fire insurance policy. The policy was issued by the Respondent Insurer to an Insured who was not a party to the proceedings. The Insurer had denied coverage on the basis of a Tenant Exclusion Endorsement which provided that loss and damage caused directly or indirectly by vandalism or criminal or malicious acts was excluded. The fire had been deliberately set by the property's tenant. The Applicants argued that the Standard Mortgage Clause was all encompassing and should prevail over the Tenant Exclusion Endorsement. The Court agreed finding that while the Tenants Exclusion Endorsement expressly excluded coverage for loss or damage resulting from malicious or criminal acts, it was inconsistent with the Standard Mortgage Clause which protected the Applicants from any act of the occupants and expressly stated that it superseded any policy provisions in conflict with it. The Tenant Exclusion Endorsement was therefore unenforceable.

This case was originally digested by Cameron B. Elder and originally edited by David W. Pilley.

This appeal raised the question of whether the subrogation right of an insurer under the Standard Mortgage Clause in a home insurance policy may be exercised simply on the insurer paying the loss award to the mortgagee without the insurer establishing that it has no liability to the insured.

The Respondent Insurer had insured the home of the Appellant Insureds. The Insureds had a mortgage with the Bank of Montreal. The Insureds submitted a claim to the Insurer seeking indemnity for repairs to the house, damage to its contents, and additional living expenses following a fire. The Insurer denied their claim on two grounds:

1)         the Insureds had voided the policy by failing to notify the Insurer of a material change in the risk, namely, a change in the heating system of the premises; and

2)         the Insureds had made wilfully false statements with respect to their contents claim and their claim for alternative living expenses, thus vitiating their right to recover.

The Bank of Montreal submitted a Proof of Loss seeking payment of the mortgage under the Standard Mortgage Clause and the Insurer paid that claim. The Insurer then, relying on its right of subrogation under the Standard Mortgage Clause, claimed the sum it had paid to the Bank of Montreal from the Insureds. The motions judge granted summary judgment against the Insureds in the amount paid by the Insurer to the Bank of Montreal. The Insureds appealed seeking an Order dismissing the Insurer's Motion for Summary Judgment directing that the two Actions be tried together (the Insureds had commenced a separate proceeding against the Insurer seeking a Declaration that the policy was valid and enforceable).

The Court of Appeal held that there are two preconditions to the Insurers' entitlement to subrogation under the Standard Mortgage Clause. First, the Insurer must make payment of the loss award, or part of it, to the mortgagee. Second, the Insurer must establish a claim that it has no liability to the mortgagor insured. The Court found that this conclusion flows from the construction of the Standard Mortgage Clause and is not dependent on the specific facts of the case.

This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley.

The Insureds held a policy of insurance on a home they rented to tenants. They were covered for fire and loss of rental income. The Insureds' property was severely damaged by a fire on or about October 10, 2006. The Insureds' tenants had moved out of the property on August 5, 2006 and the Insureds had not replaced them. When the tenants moved out of the property, they only returned the keys to the front door. The Insureds did not change the back door locks nor advise the Insurer that the previous tenant had failed to return the back door keys. The Insurer denied coverage on the basis of an exclusion clause which provided that the Insurer would not insure direct or indirect loss or damage "occurring after your dwelling has, to your knowledge, been vacant, even if partially or fully furnished, for more than thirty consecutive days". The Insurer also denied coverage on the basis that the Insureds had breached statutory condition no. 4 of the Insurance Act, R.S.O. 1990, C1.8, which requires an Insured to advise an Insurer of any change material to the risk within the control and knowledge of the Insureds. The Insureds disagreed with the decision of the Insurer to deny coverage and commenced this action.

The Court found that the damage caused by the fire occurred after the rental property had, to the Insureds' knowledge, been vacant for more than thirty consecutive days. Further, the Court found that the Insureds should have advised the Insurer when the last tenants moved out and that they had not returned all of the keys.

This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley.

A seven and half month old infant (the “Infant”) was cared for at a day nursery operated by the insured caregiver (the “Caregiver”) in her home. The Caregiver dropped the Infant, who suffered serious injuries which resulted directly in her death. The Caregiver was charged and convicted of the offence of criminal negligence causing death. The Infant’s parents (the “Parents”) subsequently brought an action against the Caregiver and obtained a consent judgment against her. The Caregiver filed a proposal in bankruptcy. At the relevant time, the Caregiver was insured by the Defendant insurers under a Homeowners Insurance Policy which included coverage for the day nursery. The Defendants denied coverage to the Caregiver on the basis of an exclusion in the policy which excluded coverage for claims arising from bodily injury caused by any criminal act or wilful negligence by an insured. The judgment remained unsatisfied and the Parents brought this action to recover the judgment from the Defendants. The sole issue was whether the Defendants could rely on the exclusion clause.

The Parents argued that the term “criminal act” was not defined in the policy and was ambiguous as written and in the face of s. 529(2) of the Insurance Act, R.S.A. 2000, c.I-3 which allows an insurer to specifically exclude coverage for unintentional criminal acts and otherwise provides that coverage may only be denied in relation to criminal acts committed with the intent to bring about loss or damage.

The Court reviewed a number of decisions from other provinces interpreting similar exclusion clauses and cited with approval the judgment of the Ontario Court of Appeal in R.E. v. Wawanesa Mutual Insurance Co., 2007 ONCA 92, citing Buttar v. Safeco Insurance Co. of America 1986 CanLII 1260 (B.C. S.C.), wherein the Court stated:

In any event there is no authority for the proposition that the exclusionary clause in the policy is to be read as if “criminal act” applies only to criminal offences carried out with the intent of causing the loss. The exclusionary clause is not so worded. It does exclude criminal acts causing the loss. There is no ambiguity or uncertainty in the language used. Criminal acts causing the loss are excluded. In addition wilful acts causing the loss are excluded.

In the result, the Court found that the words “any criminal act” in the policy exclusion were clear and unambiguous and did not require a modifier for clarity. Section 529(2) of the Insurance Act did not apply because the “any criminal act” exclusion “otherwise provided”. Therefore, the “criminal act” exclusion applied and the Parents could not recover their judgment against the Defendants.

The Court further found that the Defendants were not entitled to rely on the “wilful act” exclusion as the incident had been characterized as an “unintentional act committed with no degree deliberation” in the reasons for judgment convicting the Caregiver.

This case was originally summarized by Emily M. Williamson and originally edited by David W. Pilley.

The insureds' residence was located near Elbow River, Calgary, which flooded in June 2005. The insureds evacuated their residence at approximately 11:30 p.m. on June 18, 2005. At that time they were also advised that the city would be removing service from a nearby lift station, as it had become overwhelmed, and that, as a result, sewer would back up into their basement. When the insureds returned the next day, river water surrounded their house. They testified that the inside of their home was full of foul smelling water and refuse to a depth of about 10 inches.

The insureds had an “all risks” insurance policy that excluded water damage caused by sewer back-up. However, they had purchased an additional endorsement that covered such damage. The endorsement contained an exclusion for loss or damage that “occurs before, during or after flood damage to the premises.” The insurer denied coverage based on the exclusionary clause.

The insureds argued that all the damage to the interior of the house was due to sewer back-up and that the house was not otherwise damaged by the flood, therefore the exclusion should not apply. The insurer took the position that the sewer-water damage was not the only water damage to the interior of the house and that, even if it was, there was additional damage to the exterior of the premises caused by the flood.

The court accepted the insureds' expert evidence, that the damage to the residence was caused by sewer back-up and that if any river water did enter the house in addition to the sewer back-up, it did not contribute in any material way to the damage already caused by the sewage back-up. Therefore, the court found that the insurer did not satisfy its onus of establishing that there was any damage caused by flooding to the interior or exterior of the dwelling and thus the damage caused by sewer-back-up did not occur “before, during or after flood damage to the premises.” Further, the court found that evidence such as silt covering the lawn, driveway and deck did not constitute “damage” within the ordinary meaning of the word.

The court agreed that the insurer’s investigation of the claim was perfunctory and inadequate. However, it found that the insureds did not suffer injuries that would be compensable even if the conduct of the insurer was in bad faith. Furthermore, the disappointment, frustration and anger that the insureds suffered was not sufficient to found a claim for damages for mental distress.

This case was digested by Natasha D. Morley and edited by David W. Pilley

The Plaintiff Insured suffered an insurable loss when his house was broken into on June 19, 2006. At the time of the loss, the Insured had a policy with the Defendant Insurer which was in good standing. The Insured issued a Statement of Claim on June 4, 2007. The Insurer alleged that the claim was vitiated by the Insured's willfully false statements. In the alternative, the Insurer relied on Statutory Condition 11 of the The Saskatchewan Insurance Act which provides for an appraisal in the event of disagreement as to value of insured property. When the Insurer filed a Dispute Note, the Insured was still within the limitation period and was in the legal position to cure any irregularities. At the time of the Application, he was outside the limitation period. The Insurer asked the Court to dismiss his Statement of Claim which would have meant that the Insured would not be able to start another Action.

The issues before the Court were as follows:

1.   Had the Insurer waived the requirement of Statutory Condition 11 until after the trial?

2. If "yes", could the parties waive the requirements of s. 3(3) of The Small Claims Act?

3. If the answer to Issue No. 1 or 2 was "no", could this Court apply the remedial provisions of s. 109 of The Saskatchewan Insurance Act to the requirements of s. 3(3) of The Small Claims Act?

The Court answered No. 1 in the affirmative, found that submissions on No. 2 were insufficient for it to reach a conclusion, and since the Court found that it could apply the remedial provisions of s. 109 of the Saskatchewan Insurance Act, it did not decide the issue. Therefore, the Court found that it had jurisdiction to proceed with the trial.

This case was originally summarizxed by Cameron B. Elder and originally edited by David W. Pilley.

On Appeal, the Court upheld the trial judge’s finding that there had been no material misrepresentation at the time of the application for coverage. While the applicant has a duty to disclose all material facts, an insurer’s conduct may be relevant to the analysis of whether a particular fact is material. An insurer’s failure to ask a question may be evidence that the particular insurer does not consider the issue to be material, even if, objectively, the information would have been regarded as relevant by a prudent insurer. It runs contrary to the good faith obligation that the insurer owes to the insured for the insurer to agree to insure a risk, whether at the binder stage or at the time the policy is issued, when it knows or should know that there is information relevant to the risk that it does not have.On September 30, 1997, by the execution of a binder of insurance, the Insurer placed homeowner’s insurance on both of the Insured’s properties and their contents. The binder indicated that it was prepared for convenience only and was subject to the terms and conditions of the Insurer’s standard policy. On December 16, 1997, one of the Insured’s premises was destroyed by fire.

The Insurer pursued neither the completion of a detailed application for insurance nor an inspection of the properties, the contents, the jewelry or the fine art collections during the eleven weeks between the date the binder was issued and the fire. Nonetheless, there was extensive communication between the parties and oral negotiations about coverage.

The policy of insurance was issued on January 13, 1998.

At trial the Insurer defended the claim by denying coverage on the basis that the fire was the result of arson and that the Insured had intentionally made material misrepresentations both in her initial application for coverage and in presenting her claim under the policy. With regard to the Insured’s misrepresentations at the time of coverage, it was argued that the Insured did not disclose that she was in financial difficulties and that her husband was no longer registered on title as joint owner.

The trial judge rejected the argument that the Insured had anything to do with the fire at her residence. With regard to coverage, he found that, relying on s. 124 of the Insurance Act, none of the orally agreed upon modifications made subsequent to the issuance of the binder affected the extent of the coverage. Furthermore, he found that there had been no intentional material misrepresentation since, as the policy had not been issued prior to the fire, the Insured had no knowledge of her duty to disclose all material facts. Also, the judge found that the Insurer had not proven that the facts were “material” because the Insured had not been asked about any of these facts. He stated that any of the information that was argued to be material could have been gained from a proper application form.

The trial judge also rejected the argument that the Insured made misrepresentations in presenting her claim under the policy. He accepted a valuation of the Insured’s home and contents that was based on her recollection of the items in the home. Although he expressed reservations about the Insured’s claim of loss he found that she had nonetheless established the loss because of an inadequate response by the Insurer. He rejected the argument that the Insured’s appraiser had overvalued the claim because the Insurer’s appraiser had not reviewed and rebutted the report. He held the Insurer accountable for not properly appraising the collection prior to providing coverage.

On Appeal, the Court upheld the trial judge’s finding that there had been no material misrepresentation at the time of the application for coverage. While the applicant has a duty to disclose all material facts, an insurer’s conduct may be relevant to the analysis of whether a particular fact is material. An insurer’s failure to ask a question may be evidence that the particular insurer does not consider the issue to be material, even if, objectively, the information would have been regarded as relevant by a prudent insurer. It runs contrary to the good faith obligation that the insurer owes to the insured for the insurer to agree to insure a risk, whether at the binder stage or at the time the policy is issued, when it knows or should know that there is information relevant to the risk that it does not have.

The Court of Appeal also agreed that s. 124 of the Insurance Act applies to binders as well as policies of insurance. Thus, changes to the binder of insurance must be agreed upon in writing in order to be enforceable.

However, the Court of Appeal allowed the appeal on the basis that the trial judge erred by not dealing with the challenges to the Insured’s credibility. The Insured’s credibility was intertwined with every major aspect of the trial judge’s decision; the proof of loss was no exception. It followed that in order to consider the Insured’s obligation to prove her loss and the Insurer’s argument that she intentionally misrepresented the amount of the loss, the trial judge had to address the challenges to the Insured’s credibility. He did not do so. Furthermore, the trial judge erred in curtailing his analysis of the Insured’s proof of loss for the reason that the Insurer did not call expert evidence to refute the Insured’s valuation, and in concluding that therefore he had “no basis” upon which to find that the valuation was flawed. This conclusion demonstrates that the trial judge’s reasoning missed an essential step in the analysis of the Insured’s evidence in relation to her loss. Before turning to whether the Insurer had proved that the Insured's valuation was flawed, the trial judge first had to satisfy himself that the Insured had proved, on balance, that her evidence in support of her loss was credible and reliable. In ignoring this step the trial judge effectively relieved the Insured of her burden to establish the existence and the amount of her loss. Also, there is no legal requirement to call expert evidence. The trial judge was required to critically examine the evidence in support of the Insured’s loss in relation to her art, even without the assistance of an expert.

Accordingly, the appeal was allowed, the judgment below set aside and a new trial ordered solely on the issue of the Insured’s proof of loss and whether the policy was void due to intentional misrepresentation in the proof of loss.

This case was originally summarized by Natasha D. Morley, and originally edited by David W. Pilley.

The Insureds owned a collection of Swarovski Silver Crystal figurines (the “Collection”) which was valued at approximately $9,950 and which they displayed in a glass display case in their home.  In 1992 they purchased a home insurance policy from the Insurer through a broker who negotiated additional special coverage for loss or damage due to accidental breakage of the Collection.  In 1993 the Insureds submitted a new application for insurance for their home and the Collection through the defendant broker (the “Broker”) and executed a form, at his direction, which cancelled the prior home insurance policy.  In response to the new application the Insurer issued a new standard “comprehensive perils” policy to the Insureds which contained an exclusion for accidental damage to and breakage of fragile items.  In 2004 the display case holding the Collection fell off the wall and many of the figurines were damaged or destroyed.  The Insureds made a claim under their policy but the Insurer denied the claim based on the exclusion.

The Insureds sued the Broker alleging negligence or breach of contract for failing to obtain the coverage for insurance as instructed by them.  The Broker issued a third party claim against the Insurer claiming it was negligent or in breach of contract or contributorily negligent for failing to issue a policy of insurance in accordance with the application submitted by the Broker on behalf of the Insureds.  At trial, the Court found the Broker liable in negligence for the loss suffered by the Insureds and that the Insurer had a duty of care to the Broker to properly underwrite and deal with the application for insurance.  The Insurer was found to have been negligent and to have contributed equally to the loss.

On appeal, the Broker’s liability was not disputed.  With regard to the Insurer’s liability, the Court held that when an insurer receives an application for insurance, absent a specific request by a broker, the insurer has no general duty to conduct its own review of the needs, wishes, or desires of the applicant.  Furthermore, even when there are references to a previous policy on the application, coupled with numerous changes in coverage, there is no basis for a new duty to be imposed on the insurer.  The insurer relies on the broker to apply for coverage in accordance with an insured’s needs.  References to a previous policy number do not request the insurer to provide the same coverage as existed under the previous policy.  When the coverage requested differs from the previous coverage the insurer has no duty to inquire into whether the coverage applied for is adequate and in accordance with the insured’s needs.  None of the circumstances warranted changing the longstanding commercial relationships or expectations of insurers, intermediaries, or insureds.  The Court further noted that the established duties of intermediaries to their clients is adequate to protect insureds.

In the result, the portion of the judgment finding the Insurer equally liable was set aside and the third party claim was dismissed.

This case was originally summarized by Emily M. Williamson and originally edited by David W. Pilley.