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.

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Striking a Balance between Insurer and Insured

In the Estate of Donald Farb v Manulife, 2020 ONSC 3037, the Court balanced the interests of the insured and insurer in its interpretation of the statutory condition applicable to accident and sickness insurance.

The insured telephoned his insurer to renew his annual travel insurance as he had done in the prior four years. During the span of the 27-minute telephone interview, the insured answered a series of questions to determine his eligibility and premium. For the medical questions regarding prescribed medication and pre-existing health conditions, the insured answered “no”. Subsequently, the insured’s travel policy was issued. The confirmation of insurance including the medical questionnaire and insurance policy was emailed and mailed to the insured.

While in Florida, the insured became unexpectedly hospitalized and incurred significant expenses as a result. Thereafter, his claim for reimbursement was denied on the grounds of misrepresentation. The answers he provided to the medical questionnaire were incorrect, therefore the travel policy was voided ab initio.

After his passing, the insured’s estate brought an application to determine coverage. A central question before the Court was whether as part of the telephone application process, the insured was provided with a written copy of his application for his review.

The Court noted that though the written application was not provided during the telephone interview, the insured had been provided with a written copy and given ample opportunity to review its content and make any necessary corrections before the policy took effect. The evidence further illustrated that the insured had been repeatedly advised, verbally and in writing, that if any of his medical answers were incorrect, the policy would be rendered void.

The Court found in favour of the insurer. However, in doing so, the Court did reject the insurer’s argument that Statutory Condition 2 (Accident and Sickness Insurance) does not require an application to be made in writing. The Court stated that a telephone interview alone would be insufficient as it does not give the applicant the opportunity to review the written version and make the necessary changes thereby undermining the consumer protection objective of the Insurance Act. Thus, while a telephone application can be taken, it should always be followed up with a written copy and the insured must be provided the opportunity to review and amended, as needed.

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