IN THE SUPREME COURT OF BRITISH COLUMBIA
| Citation: | Chase v. The Personal Insurance Company, |
|
| 2019 BCSC 936 |
Date: 20190611
Docket: S28178
Registry: Cranbrook
Between:
Clarence Walter Chase and Gayle Hope Chase
Plaintiffs
And
The Personal Insurance Company and, In French,
La Personelle, Compagnie D’Assurances
Defendants
Before: The Honourable Mr. Justice Ball
Reasons for Judgment
| Counsel for the Plaintiffs: | T. Colgur |
| Counsel for the Defendants: | D. Romanick |
| Place and Date of Trial/Hearing: | Cranbrook, B.C. May 13, 2019 |
| Place and Date of Judgment: | Cranbrook, B.C. June 11, 2019 |
[1] These are reasons for judgment on a summary trial application by the defendant seeking an order to dismiss the claim of the plaintiffs and for costs.
[2] The parties agreed that this was a suitable case for the summary trial procedure under Rule 9-7 of the Supreme Court Civil Rules, B.C. Reg. 168/2009. Based on the agreement of the parties, and after a review of the evidence submitted and the cited authorities including Gichuru v. Pallai, 2013 BCCA 60, this Court concluded that this was an appropriate case for disposition by summary trial.
[3] In summary, the plaintiffs obtained a standard “principal residence” insurance policy from the defendant on August 1, 2012. Policy information, to the effect that the property was not used for other than residential purposes, was provided by the plaintiff, Ms. Chase, in a telephone conversation to an employee of the defendant, Ms. Ahuja. The defendant alleges that Ms. Chase made misrepresentations in her application for insurance.
[4] Thereafter, the policy was renewed annually without the defendant being informed of any change in use of the premises although there were significant changes in the use and configuration of the property including use of the property as a farm, leasing a portion of the premises to a third party for a cow and calf operation, and use of the property to raise pigs. A significant steel frame fabric-covered building was installed on the property. That building collapsed because of a heavy snow load in February 2017. That building was used for the storage of farm equipment. The plaintiffs made a claim under the policy to recover losses resulting from the collapse.
[5] After investigation of the claim of loss, the defendant denied the proof of claim of the plaintiffs on the basis of misrepresentation. The defendant declared the policy void and returned premiums paid. The plaintiffs subsequently sued for breach of the insurance contract and sought recovery of the value of the lost building.
[6] When Ms. Chase called the defendant company to arrange for a homeowner’s insurance policy on August 1, 2012, she spoke to Ms. Ahuja. At the time, Ms. Ahuja was employed with a company affiliated with the defendant and was authorized to process insurance applications for the defendant. When Ms. Ahuja asked questions of Ms. Chase, Ms. Chase told her that the premises were occupied as a principal residence by the insured, the premises were not occupied by others, there was no business or income earning activity on the premises, the premises were not a commercial location, there were no detached structures on the premises of 800 square feet or larger and there were no pets or other animals on the premises.
[7] Neetu Ahuja and Remo Moretto, employees of the defendant, in affidavits filed herein, both stated that information provided by an applicant for insurance is important so that the insurer may determine the appropriate policy and level of premium for the risk that is being insured. In the case at bar, if the plaintiffs had told the insurer that a significant portion of the premises, that is, pasture land, was rented to another party for a farm purpose such as raising cattle, the defendants would have automatically declined the application. This is because renting or leasing a property to a third party and farm operations are not insured by the defendant as a matter of policy. The same policy would prevent an insurance contract being issued if the defendant had been aware that calves and pigs were raised on the premises.
[8] The plaintiffs leased a portion of the property to graze cows and calves producing an income each year. This lease has been in place since 2009 or 2010, prior to Ms. Chase making the original application for the insurance policy. (Affidavit #1 of G. Chase, para. 3, Exhibit 1, page 3)
[9] In the homeowners’ policy as issued in this case, the word “premises” means “the land contained within the lot lines on which the dwelling is situated”.
[10] The building which collapsed because of a heavy snow load was much larger than the 800 square foot limit discussed when the policy was applied for and issued.
[11] Expert evidence was called by the defendant from Jonathan Willoughby, Senior Manager in the Underwriting department of the BCCA Insurance Corporation. Mr. Willoughby has worked in the insurance industry since 2000 with extensive personal and commercial underwriting experience in both the United Kingdom and Canada working on behalf of significant insurance companies.
[12] Mr. Willoughby reviewed the insurance policy issued to the plaintiffs, the policy wording, as well as correspondence dated November 28, 2017 regarding the defendant’s denial of the claim, renewal letters and summaries, photographs of the property and a variety of other documents listed at page 1 of his opinion letter dated February 20, 2019. Based on that review, Mr. Willoughby opined that:
…the extent of farming-related activity described in the evidence would be considered too substantial for acceptance under a normal homeowner’s policy. The level of risk attached to the farming operations and the insurance coverage needs to adequately protect them would be considered too great. In my view, coverage adjustments or increased rates would not generally be considered suitable options to manage the increased risk in the scenario presented.
[13] Mr. Willoughby further opined:
In my opinion, the property being classified and operating as a farm with the size of livestock and nature of operations described would substantially alter the risk associated with the property. Consequently it would become much less suitable for a normal homeowner’s insurance policy, to the point where, in my view, most home insurance underwriters would consider it ineligible for such an insurance product.
There is typically a very limited risk tolerance for farming activity under a homeowner’s policy type. This is because of the heightened risk exposures that could exist, such as (in no order of importance):
· the liability risk resulting from the ownership of, or responsibility for, animals or crops. This increases the risk of:
A) injury/damage being caused to third parties or their property directly by the animals (larger and/or more aggressive animals posing the most concern)
B) injury being caused to third parties by containment measures in place for the animals (such as electrified fences)
C) injury being caused to third parties through contamination of foodstuffs produced by animals or crops
D) injury/damage being caused to third parties or their property form the use of farming machinery/equipment, fertilizers, pesticides, other chemicals or by irrigation systems.
….
[14] Mr. Willoughby’s letter of opinion continued to list other risks of farming operations which would exceed the risk tolerance of home insurance providers.
[15] Mr. Willoughby also opined that if the plaintiff had applied for a Hobby Farm policy, on the present evidence, the application would be declined by insurers. The presence of the cow/calf operation and the fact that 75 acres of the property were being leased, notwithstanding the income from the lease was low, would result in a refusal of insurance under a normal homeowner’s policy.
[16] The plaintiffs applied for and obtained tax status as a “farm” for the premises from the BC Assessment Authority, which provides a lower tax rate beneficial to the property owner. In order to maintain “farm” status, the owner must earn a prescribed amount from the property.
[17] Attached as exhibit “A” to the first affidavit of K. Tereskewitz, made on October 26, 2018, is a copy of the property insurance policy issued to the plaintiffs, numbered H3499956. At page 22 of that document, the following paragraphs appear:
1. Misrepresentation
If a person applying for insurance falsely describes the property to the prejudice of the insurer, or misrepresents or fraudulently omits to communicate any circumstance that is material to be made known to the insurer in order to enable it to judge the risk to be undertaken, the contract is void as to any property in relation to which the misrepresentation or omission is material.
…
4. Material Change in Risk
(1) The insured must promptly give notice in writing to the insurer or its agent of a change that is
(a) material to the risk, and
(b) within the control and knowledge of the insured.
(2) If an insurer or its agent is not promptly notified of a change under subparagraph (1) of this condition, the contract is void as to the part affected by the change.
(3) If an insurer or its agent is notified of a change under subparagraph (1) of this condition, the insurer may
(a) terminate the contract in accordance with Statutory Condition 5, or
(b) notify the insured in writing that, if the insured desires the contract to continue in force, the insured must, within 15 days after receipt of the notice, pay to the insurer an additional premium specified in the notice.
….
[18] Following receipt of the claim of loss by the plaintiffs, a representative of the defendant, Mr. Jamie Lalonde, conducted an examination under oath of each of the plaintiffs on August 30, 2017. Mr. Chase gave evidence under oath that he operates a farm on the premises which is classified as a working farm in British Columbia. Mr. Chase also testified that he leases a portion of the pasture from which he derives an income and works on the farm full time. A Mr. Morley, the lessee of a portion of the pasture, derives an income from a cow/calf operation on the property. Mr. Chase also testified that there were 15 cattle on the property and that in the year 2017 there were eight pigs raised on the property which were slaughtered and sold. Also in the evidence of Mr. Chase was the fact that the son of the plaintiffs rents one of the detached structures on the property for a rental fee of $700 per month, and he is considered the “hired man” on the farm. He receives a reduction in rent for the work he performs. Mr. Chase also confirmed that changes to the premises and its operation as a farm were not the subject of any notice given to the defendants by the plaintiffs.
[19] During the examination under oath of Ms. Chase, she told the examiner that the plaintiffs kept farm equipment inside the structure that collapsed. The property is operated as a farm and has a legal “farm” classification for assessment purposes since 2010. She also stated under oath that acreage is leased for cows. The plaintiffs also have their own stock of pigs that they keep and sell to customers. With respect to leasing a portion of the property for cows, Mr. Morley has leased the property since 2010 or 2011 for the cow/calf operation. At the time of Ms. Chase’s examination, there were 7 cows and calves, one ball and one steer on the property. Mr. Morley paid the plaintiffs to run the cow/calf operation and, as a result, the plaintiffs derive income from the property.
[20] In February of 2017, the structure referred to above collapsed due to heavy snow load. After a proof of loss was received, the defendant sent an independent adjuster to the premises.
[21] The proof of loss, a copy of which was attached as exhibit “B” to the first affidavit of K. Tereskewitz, includes at page 26 the following statement: “Since the insurance policy went into effect, there has been no change in the use, ownership or location of the insured property or in the risks to which it is exposed, except as follows.” Nothing followed on the form. No notice of any change was provided by the plaintiffs to the defendant. A similar statement had been made annually by the plaintiffs, when the policy was renewed each year since August of 2012.
[22] The independent adjuster reported to the defendant that the premises included a number of acres leased for a cow/calf operation, a number of farm animals including cattle and pigs were on the premises which was in fact operated and categorized as a “farm”.
[23] As a matter of policy and practice, the defendant does not insure farms. On the basis of the facts uncovered by the independent adjuster, and the statements given by the plaintiffs under oath, the defendants voided the policy, returned the premiums paid and declined coverage.
[24] Thereafter, the plaintiffs began this action.
[25] In a spirited argument mounted by Mr. Colgur for the plaintiffs, the principal submission was that although there were aspects of farming about the activities on the premises, because of the limited size of those activities, this could not be considered to be a farm. Many people in the local community were said to conduct similar activities on similar properties. That said, it was not made clear what insurance policies were in place on the properties discussed or how the circumstances of those properties would reasonably affect the present case.
[26] The law is clear, and long settled that an insured has an obligation of utmost good faith to provide accurate particulars of all information relevant to the risks being insured by proposed insurance coverage. The insurance provider, acting on the utmost good faith of the proposed insured, is entitled to trust those representations to determine if the insurer is prepared to accept the risk of loss for the premium to be paid. (See Carter v. Boehem (1766), 3 BURR. 1905 (K.B.), cited in Lee et al. v. Canadian Northern Shield Insurance Co., 2005 BCSC 866 at para. 42.)
[27] The applicant for an insurance policy is required to provide the insurer clear and accurate information concerning the nature of the property and its use. A failure to disclose material information is fatal to a subsequent claim for recovery under a policy of insurance where there is a failure to disclose. It is irrelevant whether the insured’s failure to disclose his deliberate, inadvertent, overlooked or unintended: Lafarge Canada Inc. v. Little Mountain Excavating Ltd., 2001 BCSC 218 at para. 25.
[28] In the case of Lee v. Canadian Northern Shield Insurance Co., 2005 BCSC 866, the Lafarge case was followed at para. 62:
62 Mr. Lee did not disclose to Ms. Phung or Mr. Kwan that he intended to rent out rooms in the house to unrelated tenants. He may have overlooked it, he may have considered it unimportant, or he may have intended to hold that information back. The distinction is not crucial since "[i]t is irrelevant whether the failure to disclose is deliberate or inadvertent": Lafarge Canada Inc. v. Little Mountain Excavating Ltd., [2001] B.C.J. No. 732, 2001 BCSC 218 at para. 25.
[29] The Insurance Act, R.S.B.C. 2012, c.1, provides in s. 17:
(1) A contract is not rendered void or voidable by reason of any misrepresentation, or any failure to disclose on the part of the insured in the application or proposal for the insurance or otherwise, unless the misrepresentation or failure to disclose is material to the contract.
(2) The question of materiality is one of fact.
(Emphasis added.)
[30] A fact is material where, if it had been disclosed, it would have influenced a reasonable insurer to decline the risk, accept a different risk, or charge a higher premium: Ontario Metal Products Co. v. Mutual Life Insurance Co. of New York, [1924] S.C.R. 35, aff’d [1925] 1 D.L.R. 583 (J.C.P.C.).
[31] It is clear that the use of insured property is relevant to the reasonable insurer and that a misrepresentation as to the use of the property is a material misrepresentation. The case of Perreira v. Family Insurance Corporation, 2001 BCSC 1236, assists. It is an example of a case where the owner purchased a house insurance policy for a home which the owner had rented to a tenant. At the time of purchase of the insurance policy, the owner represented to the insurer that the home was single family and had no boarders living in the house. The tenant then renovated the home from single family to a nine-bedroom rooming house. The policy was renewed the following year and during that year the house was damaged by fire. The owner did not advise the insurer of the change in use of the property. The Court found that the occupancy of the rental property by boarders was a fact material to the risk to be evaluated by the insurer.
[32] In the case at bar, the fact that income was generated by leasing acreage to a cow/calf operation, and that the property was operated as a farm and other livestock was raised and sold by the owners, were factors material to the risk being insured. This view is consistent with the opinion of Mr. Willoughby referred to above, which I accept as evidence of what a reasonable insurer would do in the circumstances.
[33] In the case of Johnson v. AXA Pacific Insurance Co., 2011 BCSC 305 at para. 134, a tenant was operating a commercial massage business in a basement suite which was not disclosed to the insurer. A similar question to the one asked by the insurer to the insured in the case at bar was asked in the Johnson case which was concerning the existence of the business operation on the premises. In Johnson, and in the case at bar, the question was answered in the negative. Both answers were inaccurate and material to the risk involved. In Johnson, as in the case at bar, the policy was voided and the premium returned.
[34] In each of the cases discussed above, the Court accepted evidence of an expert in underwriting, a long-term underwriting manager from BCAA, who opined that the class of risk on the property was not within the guidelines for a homeowner’s policy and therefore the application would have been denied in each circumstance.
[35] A further case brought to the attention of this Court was Kehoe v. British Columbia Insurance Co., [1993] B.C.J. No. 1172 (C.A.). In Kehoe, the insured was asked in an application question if he had made prior claims on a home owner’s policy. He answered in the negative, although, in fact, there had been five claims previously made against the former insurer. The insurer demonstrated that the history of the claims made was material to the risk of coverage. The trial judge found that the claims history made by the plaintiff had been misrepresented but that the insurer had failed to prove that the misrepresentation was material to the decision of the insurer to extend coverage to the insured. The Court of Appeal found that the trial judge erred in failing to find that the misrepresentation was material and citing the Supreme Court of Canada decision in the Mutual Life case. Wallace J.A., for the Court, noted at para. 25:
In my opinion, where BCIC has demonstrated its own practice as to what it considered to be information material to the risk, and it has also demonstrated that Guardian, all other insurers contacted by the applicant's agent, and the industry generally adopted a similar standard, it is very difficult to categorize BCIC as other than a reasonable insurer.
[36] On the evidence before this Court, and relying upon the cases cited above, the evidence is uncontested that the defendant insurer acted as a “reasonable insurer” when treating the use of the premises as a significant factor in considering whether to extend insurance coverage to the plaintiffs. The evidence of Mr. Willoughby, and of the persons who submitted affidavits in support of the defendant, establishes that a reasonable insurer in the circumstances would have declined the risk, or at least accepted a different risk, had the plaintiffs made proper disclosure. In this case, the plaintiffs misrepresented the use of the premises, both initially and at the time of each of the annual renewals of the policy of insurance, and those misrepresentations were material. On that basis, the defendants were entitled to void the policy of insurance.
[37] The plaintiffs also had a positive duty to disclose changes to the use of the property. Cases such as Lazarakis v. Saskatchewan Mutual Insurance Co., [1996] B.C.W.L.D. 1683 at para. 13 (S.C.), are authorities in support of the duty to disclose changes in risk. In the case at bar, the evidence of Ms. Chase given under oath indicates that the premises were classified as a farm based on an application for that tax status by the plaintiffs, and the lease of acres of land for a cow/calf operation, and the raising of pigs for sale. These circumstances are inconsistent with the representations of a single principal residence without any commercial activity or animals present made by Ms. Chase. It is also of importance that Ms. Chase kept the books for the farming operation and that the farming operation had sufficient income to comply with the Classification of Land as a Farm Regulation, B.C. Reg. 411/95, s. 5(4)(b).
[38] After the initial application for a policy of insurance, on an annual basis the defendant sent a letter to the plaintiffs asking that the plaintiffs review the policy of insurance together with other enclosed documentation and to advise the defendants “as soon as possible if any changes are required”. Ms. Chase acknowledged receipt of this letter. Her affidavit also confirms that the leasing of part of the acreage of premises provides more than $3,000.00 a year in revenue.
[39] As noted above, when the proof of loss was filed with the defendant on June 22, 2017, it contained the words “since the above policy was issued there has been no change in use, possession, location, or exposure of the property.”
[40] Clearly, based on the evidence of the defendants, the substantial elements, of which is not the subject of any dispute by the plaintiffs, the proof of loss contained a misrepresentation of the material risk since the policy was issued as there had been a material change in risk. It is without doubt that acreage had been leased to a third party for use raising cattle and which activity produced revenue necessary to maintain the status of the premises as a farm. Farm equipment was stored in the structure which collapsed in February 2017. Using that structure to store farm equipment including a farm tractor was contrary to exclusion 23 contained in the issued policy, which provided that under the policy the defendant did not insure “buildings or structures occupied by the Insured or others and used in whole or in part for: – business or farming purposes, unless declared on the Coverage Summary page…”.
[41] The uses of the premises by the plaintiffs were misrepresented or otherwise the plaintiffs failed to disclose changes to those uses which, as outlined above, could not be insured by the defendants pursuant to a homeowner’s policy. The uses included earning income from the lease of acreage to a third party, farming and being under farm status, the presence of animals on the premises giving rise to income under the lease and by the sale of pigs to established customers. As a result, the application of the defendants to dismiss this action is granted as the defendants were entitled to void the policy granted and were under no obligation to indemnify the plaintiffs.
[42] The defendants are also entitled to their costs, pursuant to Appendix “B” of the Supreme Court Civil Rules, as a matter of ordinary difficulty, which costs are payable forthwith after assessment.
“Ball J.”
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