It is a deemed condition of every insurance contract that if a person applying for insurance misrepresents or fraudulently omits to communicate any circumstance that is material to the insurer to judge the risk, the contract is void. What constitutes a misrepresentation and fraudulent omission was recently considered by the B.C. Court of Appeal in Nagy v. BCAA Insurance Corporation 2020 BCCA 270. The writer was counsel for BCAA at both levels of court.
The insureds in this case owned a home on Mayne Island, B.C. The insureds submitted an application for home insurance (the “Application Form”) to BCAA and answered “no” to the question “Has any insurer cancelled, declined, refused or imposed any special conditions on habitational insurance for the applicant in the past 10 years”. In fact, the insureds’ previous insurer, Wawanesa, refused to renew their policy due to claims frequency and the frequency of change of occupancy. Further, the insureds disclosed one previous insurance claim in the past 10 years when in fact they had made a number of insurance claims during this period. Most notably, the insureds previously suffered a total fire loss at another home located in Point Roberts, Washington. The insureds provided these answers to a BCAA telephone broker and the broker recorded the answers on the Application Form and emailed a copy to the insureds. The insureds signed and emailed the Application Form back to the broker and the policy was placed in March 2016.
On December 4, 2016 the Mayne Island home suffered a total fire loss and the insureds submitted a claim for coverage to BCAA. Subsequent investigations by BCAA revealed the Wawanesa denial and previous claims. BCAA denied the insureds’ claim on the basis that the policy was void due to misrepresentations and omissions by the insureds at the time coverage was placed.
The trial judge treated the answer “no” and the failure to disclose the other insurance claims as omissions. The trial judge held that BCAA failed to prove that these omissions were fraudulent. The trial judge accepted the insureds’ evidence that after emailing the Application Form they mailed an addendum to BCAA disclosing the previous claims and attaching a letter from their previous broker advising of Wawanesa’s denial (the “Addendum”).
The Court of Appeal overturned the trial judge’s finding that the answer “no” as to whether an insurer had cancelled, declined, or refused insurance was an omission. Grauer J. held as follows:
“. . . to characterize it as an omission, instead of a misrepresentation, was a palpable error. It was not an omission, or a half truth. It was a positive representation that no insurer had cancelled, declined, refused or imposed any special conditions on habitation or insurance in the last 10 years. That was false, however the [home insurance claimants] might have perceived it.”
The Court of Appeal clarified that it makes no difference whether a material misrepresentation was innocent, negligent or fraudulent. However, if the insured omits to communicate a material circumstance, that omission must be fraudulent. An incomplete statement or half truth will prima facie amount to an omission. The Court of Appeal gave deference to the trial judge’s determination that the previous losses answer, which correctly reported a previous theft claim but neglected to mention other significant losses, was an omission. As an omission it would only void the policy if proven to have been fraudulently made. The Court of Appeal held that the trial judge failed to discuss these distinctions between a misrepresentation and an omission and by characterizing both inaccuracies as omissions, she reached a result that was plainly wrong.
The trial judge concluded that the omissions were not fraudulent because the insureds disclosed the information by subsequently preparing and mailing the Addendum. The insureds also told the court they had followed up on the mailing with a phone call to make sure the insurer had received it. BCAA contended that it had received neither the addendum, nor a phone call describing the discrepancy. The Court of Appeal held that the trial judge misunderstood the evidence in support of the follow up call to BCAA and certain aspects of the evidence in support of the addendum. Due to these factual errors the judgement was set aside and the matter was remitted for a new trial.
With respect to curing the misrepresentation, the Court of Appeal held that it was not enough to simply have mailed the Addendum as the trial judge had held. The Court of Appeal said that BCAA must also have received it since it is the insurers state of knowledge that is important to cure the misrepresentation. With respect to any fraudulent intention, it is the insured’s state of knowledge that is relevant. A fraudulent intent can be rebutted by evidence that the insureds forwarded the complete and correct information to the insurer, even if there is no evidence that it was received.
The case will serve as a useful precedent when considering misrepresentation and omissions. Many insurers may be considering their practices and application documents so as to ensure that, wherever possible, material information is disclosed as a positive representation with little room for insureds to take the position that the failure to disclose was an innocent omission.