Broker Liable for Failing to Advise Insured of Vacancy Exclusion

An insured brought an action against his insurance broker for failing to advise him about the vacancy exclusion in his policy.  The action was allowed and the insured was awarded damages.

Cheecham v. Saskatchewan Government Insurance [2011] S.J. No. 500, August 2, 2011, Saskatchewan Court of Queen’s Bench, B. Scherman J.

The plaintiff, Mr. Roy Cheecham, brought an action against his insurer, Saskatchewan Government Insurance, and his insurance broker, Meadow North Agencies Ltd. (“Meadow North”) after coverage was denied for damage sustained to his vacant rental property. The claim against the insurer had been dismissed following a summary judgment application on the basis that the policy excluded coverage for vandalism if the property was vacant. The issues left to be decided by the Court were whether Meadow North had breached a duty owed to the plaintiff as his broker, whether the breach was a proximate cause of the loss, and whether the plaintiff had breached his duty to advise of a material change in the risk thus voiding the policy.

In 1993 the plaintiff attended at Meadow North’s office and completed an application for insurance for the property. The policy was issued and renewed annually thereafter. A booklet that outlined the policy stated that coverage for vandalism while the property was vacant was excluded.  It also stated that the plaintiff was required to notify the insurer within 30 days if the property became vacant. The insured was operating under the assumption that during those 30 days he would be coved for vandalism. That was not the case, as his coverage ended immediately upon vacancy.

In 2004, the property sustained $30,000.00 in damage shortly after the plaintiff’s tenants had vacated the property. The plaintiff asserted that he was not aware of vacancy exclusion.

The Court found that Meadow North breached the duty of care owed to the plaintiff and that it was a proximate cause of the loss. There was no evidence that the plaintiff was provided with the booklet that outlined the coverage and the exclusions, nor was he advised about the fact that coverage would not be provided immediately when the property became vacant. It was reasonably foreseeable that a policy holder may think that they had 30 days to advise of the vacancy. Meadow North had a stringent duty as an insurance broker to provide information and advice to the plaintiff about his insurance coverage, including any gaps it may have had.

The plaintiff was awarded $30,000.00 in damages, plus pre-judgment interest, and costs.

This case was digested by Kim Yee and edited by David W. Pilley of Harper Grey LLP.

Grow-ops qualify as an act of vandalism

 

An insured homeowner sought insurance coverage for the damage caused by a marijuana grow-operation carried out by  the insured's tenants.  The insured argued that a grow-op falls within coverage for vandalism or malicious acts.   The insurer argued that mould and moisture damage caused by the grow-op fell outside of coverage. The British Columbia Supreme Court held that a tenant who has a grow-op shows a reckless disregard for the landlord's rights.   That disregard provides a sufficient basis to infer malice on the part of the tenant.  The Court held that the mould and moisture damage caused by the grow-op can therefore be considered damage caused by an act of vandalism.

Hanlon v. ING Insurance Co. of Canada, [2011] B.C.J. No. 84, January 24, 2011, British Columbia Supreme Court, R.J. Sewell J.

The insured’s home was rented to tenants who caused considerable damage in the course of carrying out a marijuana grow operation. The insured had a home insurance policy with the Defendant insurer that provided coverage for certain specified perils. At issue was the Vandalism Or Malicious Acts peril.

At the summary trial, the insurer sought a declaration that damages were limited to $5,435.33, while the insured sought a declaration that she was entitled to coverage under the policy for all damage.

 

The insurer recognized coverage for damage caused by the tenant such as cutting holes in walls, damaging carpeting and destroying plumbing. However, the insured’s home had significant mould and moisture damage and the insurer denied coverage for damage that was caused by excess humidity.

 

The insurer argued that the excess heat and moisture were caused by poor tenant maintenance and/or wear and tear and neither was covered under the policy. Further, the insurer argued that the mould and moisture damage could not be said to be caused by acts of vandalism because the tenants did not intend to cause such damage.

 

The insured argued that the marijuana grow operation was an unlawful act and that as a necessary part of that act the tenants created an excessively warm and moist environment. In doing so, the tenants acted with reckless disregard for the insured’s home. Essentially, a person who acts recklessly has the requisite intent to constitute his actions to be acts of vandalism.

 

The Court referred to and adopted Bowers v. Farmers Insurance Exchange, (2000) 99 Wash App. 41, 991 P. 2d 734, where the Court of Appeals of Washington State held at paragraph 4 that “malice can be inferred from the act of destruction. It is sufficient if the actor is guilty of wanton or intentional disregard of the rights of others.” The Court found that the tenants’ acts of turning the insured’s home into a grow op were clearly wanton in that they showed reckless disregard for the landlord’s rights.

 

The insurer also argued that coverage was only provided for damage caused directly by vandalism and the mould and moisture damage was not directly caused by vandalism but by a chain of events leading to the damage. The insured perils portion of the policy read as follows:

 

You are insured against direct loss or damage caused by the following perils as described and limited: …

 

7.         Vandalism Or Malicious Acts…

 

The court found that the word “direct” was used as an adjective to describe the damage or loss and not as an adverb to describe or modify the verb “caused”. Therefore, the Court saw no restriction on the application of the ordinary meaning of the word “caused”. As a result, the Court found that the mould and moisture damage was caused by the marijuana grow operation.  Accordingly, the insured’s declaration was granted.

 

 

 

This case was digested by Aaron D. Atkinson and edited by David W. Pilley of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact them directly at aatkinson@harpergrey.com or dpilley@harpergrey.com or review their biographies at http://www.harpergrey.com