In Schellenberg v. Wawanesa Mutual Insurance Company, 2020 BCCA 22 (“Schellenberg”), the BC Court of Appeal addresses what constitutes material change in risk and what is required to establish the standard of care of an insurance broker.

In this case, the insureds-appellants owned a property that was damaged by fire in 2014. The homeowner’s policy was underwritten by Wawanesa Mutual Insurance Company (“Wawanesa”), obtained through the insured’s broker, Hub International Canada West ULC (“Hub”). Sometime between acquiring the policy and the fire, the insureds started a licensed medical marijuana grow operation in the outbuilding. The insureds also increased electrical service to the house. The initial policy was subsequently renewed for years following.

Despite reminders contained in the renewal letters for the policy, the insureds did not report the grow operation nor the electrical upgrade. After the fire, Wawanesa became aware of the change in use and voided the policy as it constituted a material change in risk. The fire, however, was not related to the grow operation. The insureds commenced a suit against Wawanesa for wrongfully voiding the policy and against Hub for negligence in failing to ensure adequate insurance coverage. The trial judge dismissed the insureds’ action.

On appeal, the Court upheld the lower court decision. On the issue of material change in risk, the trial judge and Court left open the question of whether, statutorily, the insurer had to prove the insureds’ subjective knowledge of materiality to constitute a material change in risk. Nonetheless, the Court relied on evidence that the insureds subjectively knew that the grow operation and electrical upgrade were material changes; thus, should have been disclosed. This was sufficient to justify voiding the policy. The Court also decisively held that no causal connection is required between the beach and the cause of loss, relying on an earlier Supreme Court case, Marche v. Halifax Insurance Co., 2005 SCC 6.Whether expressly communicated to the insured or causally related to the loss, grow operations are clearly a material change.

With regards to insurance brokers, the law was also clear in establishing that expert evidence or in the least, evidence of the industry standard and practice was required to determine the requisite standard of care of a reasonable insurance broker except when the breach is obvious or where the standard relates to matters within the knowledge of the layperson.

When acting for insurance brokers or insurers, Schellenberg should be kept within your arsenal of cases; not only does this case reaffirm the added challenge of expert evidence to establish negligence of insurance brokers, but it also makes clear that a loss need not be causally connected to the breach to justify voiding a policy. What remains to be seen is whether the courts will impose a greater burden on insurers to show the insureds’ knew what is material or not.