In this case, a homeowner ("Johnson") brought an action against his insurer ("AXA").
Following a fire at his house, AXA denied coverage for a fire loss because it alleged Johnson failed to disclose the presence of a massage parlor in his basement suite and, further, that Johnson himself had started the fire.
The court held that Johnson had made a material misrepresentation in the application for insurance and had committed arson with respect to the fire loss at issue, and upheld the denial of coverage.
In doing so, the court reaffirmed that morally blameworthy civil conduct, such as arson, need only be proved on a balance of probabilities.
Johnson v. AXA Pacific Insurance Co.,  B.C.J. No. 414, March 14, 2011, British Columbia Supreme Court, T.C. Armstrong J.
Johnson owned a 4,100 square foot house in Surrey, British Columbia. He purchased the house in May 2001 for the sum of $220,000 and lived in the house over the relevant time period. After 2003, he invested about $40,000 in renovating the house. Johnson created two suites in the house. At the time of the fire, the basement suite was rented by Julie McNamara and the upstairs suite was rented to Alex Ingram. On September 10, 2007, the fire started in three distinct areas on the second floor of the house.
In June 2007, Johnson purchased fire insurance for the house through Gold Key Insurance. In the application for insurance, Johnson was asked questions about the house and indicated "no" to the question as to whether there were going to be any business operations at the location. Mr. Johnson also answered "no" to the question as to whether there were any other income producing opportunities at the house. Johnson acknowledged signing the application but stated that he did not read the small print.
Julie McNamara testified for AXA. She rented the suite but used it only for her aromatherapy and massage business. She and her daughter resided in a townhouse in a different location in Surrey. Ms. McNamara testified that she had advised Johnson of her use for the suite. Ms. McNamara did not have a business licence to operate her massage practice at the house. The Court accepted Ms. McNamara's evidence noting that it would not make sense for her to pay rent on two residential units unless one was used for a purpose other than a home. As well, Ms. McNamara had no apparent motive to be untruthful in her evidence and was not successfully challenged during cross examination.
AXA argued that the failure to disclose this business operation at the house was a material misrepresentation on the application for insurance. AXA called evidence from an expert in insurance underwriting, Ms. Patricia Stirling, an Underwriting Manager with BCAA Insurance Corporation, who noted that additional information would have been required if the business use had been disclosed. If the business use had been acceptable, it could have been approved but with increases in premiums and higher deductibles. A second witness on the issue, a personal lines underwriting manager with AXA, also gave evidence that the information with respect to business use would have been material to the consideration of the application. In this case, the personal lines manager noted that it was unlikely that the risk would have written as aromatherapy was not an approved business.
The Court noted that Johnson was obliged to make an honest and full disclosure of the use of property to AXA. The Court found that Johnson intentionally failed to disclose to the insurance agent the use or intended use of the suite by Ms. McNamara for her aromatherapy/massage business. The Court noted that it was irrelevant whether the insured's failure to disclose was deliberate, inadvertent, overlooked, or unintended: Lafarge Canada Inc. v. Little Mountain Excavating Ltd., 2001 BCSC 218. The Court held that the failure to disclose material information was fatal to the insured's claim under the policy. AXA met the burden to show that it was acting as a reasonable or a prudent insurer in treating the non-disclosure by Johnson as material to the risk and was entitled to void the policy for this reason: see Kehoe v. British Columbia Insurance Co (1993), 28 B.C.A.C. 68. The Court specifically held that Johnson had signed the application and could not avoid the consequences of the deficiencies in his disclosure even if he had not read the application and documents, citing Lee v. Canadian Northern Shield Co., 2005 BCSC 866.
The Court went on to review the elements of arson noting that AXA needed to prove, on the balance of probabilities, that it was more likely than not that Johnson intentionally caused the fire. The elements to be considered in this analysis were:
- the fire was of an incendiary origin;
- Johnson had sufficient motive that the fire be set; and
- Johnson had the appropriate opportunity to do so.
The Court reviewed these elements and the law with respect to the burden of proof as set out by the Supreme Court of Canada in F.H. v. McDougall, 2008 SCC 53, where the Court had confirmed that there was no higher burden of proof for allegations of arson than the civil standard.
In this case, the fire causation experts gave persuasive evidence that the fire was caused by an incendiary act due to well defined multiple origins and the absence of any viable accidental cause. As well, positive test results for gasoline were found at the points of origin and a gasoline jerry can lid was located in one of the bedrooms. Johnson did not challenge the opinion of the fire causation expert with respect to the cause of the fire.
The Court rejected Johnson's evidence with respect to the possibility that another individual may have set the fire. The Court noted that Johnson agreed that he had left his doors open but stated that he had left his dog in the house to guard against burglars. However, he went on to admit that the house had been broken into over 40 times prior to the fire including many times when the dog was present. Johnson did not provide any compelling evidence that any other individual entered the house. The Court noted that there was no evidence of anyone else being at the property at the time and no suggestion that Johnson had any enemies or other persons who might have wanted to burn his house. Johnson did not argue that the fire was caused by an intruder. The Court held that there was no rational alternative to Johnson being the probable fire-setter. Though not impossible, it was too speculative to contemplate that an unknown third party would have sufficient motive and opportunity to plan this fire and go through the convoluted process of lighting gasoline in multiple suites in the circumstances of the case. Based on all the evidence, the Court concluded that Johnson had an almost exclusive opportunity to light the fire.
The Court reviewed the evidence with respect to Johnson's financial difficulties. He had failed to pay his utility bills and his ex-wife was advancing a support claim of over $200,000. He had been off work for some time as a result of an injury and was in arrears on his mortgage payment. The Court noted that financial problems were the most common motives alleged and accepted for people to commit arson of their own property, citing Abmrus v. Prudential Assurance Co. Ltd. (1989), 41 C.C.L.I. 115 (B.C.S.C.). A degree of financial strain making the acquisition of money important at the time of the fire provides evidence of motive for arson: Lally v. Safeco Insurance Co. of America (1990), 49 C.C.L.I. 83 (B.C.S.C.). On the basis of the evidence, the Court was satisfied that Johnson was in sufficient financial difficulty that he needed money at the time.
The Court concluded that it was more likely than not that Johnson had started the fire. In the result, the Court held that Johnson had started the fire and breached his insurance policy and dismissed the action.