Misrepresentation About Prior Non-Renewal & Concealment of Prior Claims Can Void Coverage
After a summary trial, the appellant, BCAA Insurance Corporation (“BCAA”), was found liable under a homeowner’s policy it issued to the respondents, who are common-law spouses, to indemnify them for the complete loss by fire of their house and its contents on Mayne Island, BC. BCAA issued the policy on March 8, 2016. The fire occurred on December 4, 2016. In Nagy v. BCAA Insurance Corporation, Court of Appeal For British Columbia, Docket: CA462032020 BCCA 270, October 7, 2020 the insurer challenged an order by the judge finding it liable under an insurance policy issued to the respondents.
The appellants denied the claim on the basis that the insurance policy was void due to material change in risk, and to misrepresentations and omissions made by the respondents at the time the insurance policy was issued.
The Court of Appeal concluded that the insurer’s state of knowledge was more important than the claimant’s good intentions and claims they had no intent to deceive. If BCAA had had the correct information when it bound coverage, the court noted, it may have changed its decision about whether to underwrite the risk.
On appeal, the appellants argued that the trial judge erred in her characterization of the missing information as omissions rather than misrepresentations, thus applying heightened scrutiny to the evidence that required proof of fraudulent intent. The insurer did not present sufficient evidence to establish a fraudulent intent of the insureds.
The Court of Appeal found that, while the absence of the two claims losses on the form may have been “omissions,” the statement that they had not had an insurance policy cancelled or non-renewed was in fact a misrepresentation, which would void the policy. Accordingly, the Court of Appeal overturned the trial judge’s order and sent the case back to the trial court for a new trial.
This decision affirmed that the duty of utmost good faith is central to insurance contracts referring back to Carter v. Boehm decided in the House of Lords in 1766.
Insureds must disclose all material facts relating to a risk, and a false statement about a material fact will not be excused easily as the omission of material information may be. While an insurer has a right to expect that material facts are fully disclosed, the Court’s interpretation of the “misrepresentation” and “omission” is consistent with their ordinary meanings. The Court of Appeal decision allows for greater predictability to insurers when deciding whether a policy is legally voidable if the insurer can prove an actual misrepresentation rather than an innocent omission because a statute requires proof of fraud for omissions but not for misrepresentations.
The Appeal was allowed; the order set aside concluding that the judge erred in finding one of the respondents’ answers on the application to constitute an omission rather than a misrepresentation, which error was palpable and overriding.
ZALMA OPINION Our neighbors to the north apply rescission of an insurance policy in a manner unique, due to a statute that limited the Marine rule first stated by Lord Mansfield in Carter v Boehm (1766), 3 Burr 1905, 97 ER 1162, that established the rule of utmost good faith in insurance transactions. The misrepresentation was obvious while the concealment of the two prior losses was visible, but could not be proved to be fraudulent. In California and other states that apply the old Marine rule, misrepresentation or concealment that effectively deceives the insurer, even if made innocently or in good faith, is sufficient to rescind the policy. Canada requires omissions to be proved fraudulent while it does not require the same for misrepresentations.