Changes in “occupants” found not to be a material change in risk for the purpose of voiding a home insurance policy

The British Columbia Supreme Court in Dubroy v. Canadian Northern Shield Insurance Co., 2021 BCSC 352 held that a home insurance policy was not rendered void because there was no material change in risk arising from a change in occupants. The Court further found that, even if there was a material change in risk, the insured was protected by the principles of relief from forfeiture under s. 32 of the Insurance Act, R.S.B.C. 2012, c. 1 (the “Act”).

Brief Facts

In April 2016, the plaintiff spoke with a mortgage broker about taking out a mortgage on a home owned by the plaintiff (the “Property”). On the mortgage application, the plaintiff stated that the Property was not her principal residence, that it was to be used as a rental, and that it was her intention to occupy the Property. One of the conditions of the mortgage was that the plaintiff would obtain insurance for the Property.

On May 19, 2016 the plaintiff and the plaintiff’s brother signed the insurance policy application and the defendant granted the policy on this date. In June 2016, the plaintiff received a copy of the policy that had a cover letter attached to it which asked the plaintiff to notify the defendant if the dwelling was left vacant, unoccupied or if there were any other change in occupancy. In August 2016, the plaintiff’s son and daughter-in-law moved in and in October 2016, the plaintiff’s brother moved out.

On April 12, 2017 and March 28, 2018, the defendant sent out policy renewal documents to the plaintiff and her brother. These documents asked the plaintiff to inform the defendant if there had been any change in occupancy and that failure to inform the defendant could affect or void the policy. The plaintiff acknowledged that she needed to call the defendant to let them know of the change in occupancy and that she wrote herself a reminder note, but she ultimately forgot to inform the defendant of the change.

In June 2017 and May 2018, the plaintiff’s grandchildren and a roomer moved into the Property, respectively. On January 20, 2019, a fire destroyed the Property.

The defendant voided the policy on the basis that the plaintiff had failed to inform the defendant of material changes in risk that arose after the policy had been issued. Specifically, after the policy was issued, the plaintiff’s brother, who was a named insured, moved out and the plaintiff’s son, daughter-in-law, and a roomer moved in. The plaintiff at no point informed the defendant that these changes had taken place. It was the defendant’s position that these changes amounted to a “material change in risk” and that the policy was void in accordance with statutory condition 4 of the Act.

Analysis

Material change in risk

The Court analyzed the legal principles related to a material change in risk and stated that to successfully argue that the policy was validly voided, the defendant had to prove the following:

1. there was a material change to the risk;
2. the change was within the plaintiff’s control;
3. the plaintiff had knowledge of the change; and
4. the plaintiff did not notify the defendant promptly and in writing of the change.

The Court held that the real issue in this case was whether there was a material change in risk from the inception of the policy to the date of loss. There was a misunderstanding between the defendant and the plaintiff as to whether the Property was the primary residence of the plaintiff; however, the Court found that this did not affect the validity of the policy. Regardless of this misunderstanding, the policy was valid at inception, even though it was not the primary residence of the plaintiff. The Court held that the risk insured by the defendant at the inception of the policy and at the date of loss was the same, namely, that the Property was a private dwelling whose primary residents were family members of the plaintiff.

While the Court found that it was important for the plaintiff to inform the defendant of any changes in occupancy of the Property, the changes were in “occupants” as opposed to changes in “occupancy.” The primary residents continued to be family members of the plaintiff and the Property was not the plaintiff’s primary residence.

The defendant argued that if they had known that the plaintiff’s brother had moved out and the new residents had moved in, they would not have renewed the policy. In response, the Court held that statutory condition 4 does not allow an insurer to void a policy for inaccurate information in a renewal notice. This condition only allows a policy to be voided on the basis of a failure to inform the insurer of a material change in risk.

The Court found that the policy was valid, the risk was the same at the date of inception as it was at the date of loss, and there was no basis to void the policy. In other words, there was no material change in risk.

Relief from forfeiture

The Court held that even if it was wrong and the plaintiff had failed to disclose a material change in risk, the plaintiff was entitled to relief from forfeiture of her insurance policy under s. 32 of the  Act.

The Court stated that provisions like s. 32 are to be given wide scope to provide relief where the result would otherwise be unjust or unreasonable. Relief from forfeiture is a purely discretionary equitable remedy and when deciding whether to exercise its discretion and grant the equitable relief, a court must consider these factors:

1. the conduct of the applicant;
2. the gravity of the breach; and
3. the disparity between the value of the property forfeited and the damage caused by the breach.

The Court found that the plaintiff’s conduct had been imperfect, but reasonable. The plaintiff had acted honestly and the breach was a result of an unfortunate misunderstanding. The plaintiff did not take steps to correct the breach but that was because she reasonably did not appreciate that there had been a material change in risk.

The Court found that the breach was serious. Based on the underwriting guidelines, if there had not been a breach, it is highly likely that the defendant would have reasonably declined to renew the policy.

The defendant admitted that even if they would have declined to renew the policy, the insurance broker could have found other ways to insure the Property. The Court contended that it is impossible to say what would have happened if the plaintiff had informed the defendant that the plaintiff’s brother had moved out and that other family members had moved in. As a result, the Court considered the disparity factor to be neutral.

The defendant acknowledged that the reasonableness of the plaintiff’s conduct was the most important factor. The Court weighed all the elements and concluded that the plaintiff acted imperfectly, but reasonably, which tipped the scales in favour of granting relief from forfeiture under s. 32 of the Act.

The Court ordered that the plaintiff have judgment against the defendant plus pre-judgment interest.

Practical Considerations

It is imperative to review the specific facts surrounding material changes in risk in order to determine if a reasonable insurer would have declined the risk at the time of the policy’s inception. Even if a Court finds that a policy is void as a result of a material change in risk, relief from forfeiture provisions in the Act may provide a remedy to the insured.