Multiple policies - Apportionment and contribution; Homeowner's insurance - Actions - Coverage - Material non-disclosure; Policies and insurance contracts - Rights and duties of insurer

February 2008

Wells v. Canadian Northern Shield Insurance Co.

[2007] B.C.J. No. 2714

British Columbia Supreme Court
W. Ehrcke J.
December 20, 2007

The Insureds collected rare and expensive bottles of wine, which they kept in a temperature-controlled, architecturally designed wine cellar in their home.  The value of the collection was estimated at between $5,000,000 and $10,000,000.  In October 2003, a municipal sewer backup caused a flood in their home that ruined much of the wine.  The Insureds attempted to recover some of the loss on their homeowner's insurance policy, which was underwritten 50% by Canadian Northern Shield and 50% by Sovereign.  The Insurers refused to cover the loss.  Sovereign said it was not liable to indemnify the Insureds because the Insureds failed to disclose material facts relating to the value of the wine on the application.  The Insureds brought a summary trial application seeking a declaration that Sovereign was not entitled to deny liability to the Insureds on the basis that the policy was properly voided for non-disclosure by the Insureds of material facts.

The Insureds' application was allowed.  The onus of proof was on an insurer to prove that there was a misrepresentation or non-disclosure by the Insured of facts within his or her knowledge; that the misrepresentation was objectively material; and that the Insurer was induced by the misrepresentation to accept the risk at the stipulated premium.  In this case, Sovereign failed to meet the onus of proving the alleged non-disclosure on a balance of probabilities.  The Court found that Sovereign was told that there was a wine collection before entering into the contract.  While Sovereign was not required to ask questions about every possible circumstance that could be material to the risk, the fact that it demanded an appraisal for the residence itself, but asked no questions about the value of the contents, was some evidence that it considered the value of the building to be far more relevant in determining the risk than the value of the contents.  The fact that the Insureds asked for $1.5 million in contents coverage was only evidence that that was the amount of insurance they wished to purchase.  It provided no reasonable basis for inferring that the Insureds believed the contents to be worth no more than $1.5 million.

In the result, the Court held that Sovereign was not entitled to void its participation in the policy on the basis of material misrepresentation or non-disclosure and was not entitled to refuse to indemnify the Insureds for the loss or damage they suffered from the October 16, 2003 flood on that basis.

This case was digested by Jonathan D. Meadows of Harper Grey LLP. If you would like to discuss this or any other insurance law matter, please contact Mr. Meadows at 064.895.2809 or via email.