Case Review: Insurance and Material Change in Risk (Drechsler v Canadian Northern Shield Insurance)
On August 25, 2021, the BC Supreme Court dismissed the claim of a plaintiff seeking indemnification (ie. coverage) from an insurer with respect to a fire loss of a home. The question to be determined by the Court in 2021 BCSC 1673 was whether events leading up to the fire loss constituted a "material change in risk that the plaintiff was obligated to disclosure, but failed to disclosure". Notably, the plaintiff never lived at the home and instead rented it to a tenant.
In the weeks predating the loss, the RCMP investigated whether a marijuana grow operation was conducted on the property. A large quantity of plants were found along with growing equipment. The electrical supply and electrical meter had been changed or altered. A Do Not Occupy notice was posted. The plaintiff was sent a letter by the local district about the use of the home. The fire at the house was the result of arson (with the culprit never identified).
In denying coverage, the defendant relied on statutory condition 4 of the Insurance Act. Section 4 outlines the requirements with respect to a "material change in risk":
. . . 4. Any change material to the risk and within the control and knowledge of the insured avoids the contract as to the part affected by the change, unless the change is promptly notified in writing to the insurer or its local agent; and the insurer when so notified may return the unearned portion, if any, of the premium paid and cancel the contract, or may notify the insured in writing that, if the insured desires the contract to continue in force, the insured must, within 15 days of the receipt of the notice, pay to the insurer an additional premium; and in default of such payment the contract is no longer in force and the insurer must return the unearned portion, if any, of the premium paid.
5.(1) This contract may be terminated
(a) by the insurer giving to the insured 15 days’ notice of termination by registered mail, or 5 days’ written notice of termination personally delivered, or . . .
The Court found that the letter from the local district put the plaintiff on notice about a material change in the risk associated with the home. Upon being notified, she ought to have contacted her insurer within a few days of her visit to the home. In failing to do so, she was in breach of Statutory condition 4. As a result, the plaintiff was found to have no coverage with respect to the fire loss.
The well-establish test as to whether there is a material change was reiterated s as follows:
a) there was a change that was material to the risk insured;
b) the change was within the insured’s control;
c) the insured had knowledge of the change; and
d) neither the insurer nor its local agent were promptly notified in writing of the change.
Individuals with insurance policies must remain alert to any changes to circumstances that may be considered material to the risk and ought to advise their insurers of such changes. Failure to do so may result in a denial of coverage.
Travis Sippel and John Bradbury of Bradbury Sippel Law Corporation are based in Nanaimo, British Columbia and offer personal injury and insurance defence services across British Columbia and Canada.