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> August 2011
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In this issue:
1. Firm and Industry News
2. "Unoccupied" Might Not Really Mean "Unoccupied":
Stay Tuned…
3. And Finally
1. Firm and Industry News
- September 8th 2011 Toronto or Montreal:
Tentative Date for Association of Average Adjusters of Canada
Annual Dinner
- September 18-21 2011 Paris France: International
Union of Marine Insurers Meeting.
- September 28-30 Malahide Dublin Ireland:
International Marine Claims Conference
- October 6th, 2011 New York: Association
of Average Adjusters of the U.S. Annual Meeting and Dinner
Rui Fernandes will be attending the IUMI
meetings in Paris France in September. He will be giving a short
speech on Canadian maritime law and loss prevention.
Kim Stoll will be the moderator on the
Modal Update panel at the Canadian Transport Lawyers Association
Annual Conference in Winnipeg, Manitoba. Martin Abadi
will be presenting on the modal update for Marine Law. Gordon
Hearn will be presenting a paper at the Conference on Electronic
Discovery ("e-Discovery") in Canada.
Fernandes Hearn LLP Named One of Top 6 Maritime
Boutique Firms in the Country. "This boutique came on the
scene in 1996, when Rui Fernandes and Gordon Hearn left Cassels
Brock & Blackwell LLP. Maritime law is a major component
of its general transportation law practice, which also deals
with matters involving aviation, trucking, and rail carriage.
Its nine lawyers serve key clients such as Royal & Sun Alliance
Insurance, Allianz Insurance, Chubb Group of Insurance Companies,
JEVCO Insurance Co., NYK Logistics, Quik X Transportation Inc.,
and Whirlpool Jet Boat Tours. Fernandes has helped solidify
the firm's strong reputation by publishing five texts on transportation
law." - Canadian Lawyer Magazine
2. "Unoccupied"
Might Not Really Mean "Unoccupied": Stay Tuned…
The recent decision of the Ontario Superior Court
in Shaeen v. Meridian Insurance Group Inc. et al (*1) packs
a real "punch" in a review of the duty of care owed by
insurance brokers to their clients and of certain principles in
the interpretation of insurance policies.
Background Facts
The plaintiff, Ms. Shaeen, is an 85 year old woman.
She is still active in the management of various commercial rental
properties. For some time, she had placed insurance for the properties
through the defendant insurance broker, Meridian Insurance Group
Inc. One of the properties, being the subject of this lawsuit, came
to be insured on a subscription policy with a group of insurers.
Ms. Shaeen was provided with a copy of the insurance policy for
this particular property, but she did not read it. As she had done
business with the defendant broker for quite some time, and as she
knew very little about insurance, she apparently came to rely on
her broker to ensure that her needs and interests for the properties
were adequately insured.
There was a home on the subject property that had
been rented out, which was vacated by the tenants at the end of
May, 2009. Ms. Shaeen then arranged for certain renovations to the
property which commenced at the end of June of that year and continued
into early August. The plan was that the property would be rented
out at the end of August when the work was completed. During the
renovations, no one resided in the home on the property, which sustained
water damage in early August as a result of a suspected act of vandalism.
The policy of insurance was a named perils policy
that provided indemnity for loss or damage due to specifically insured
perils. One of the insured perils pertained to 'vandalism' or 'malicious
acts'.
The policy, however, contained a common exclusion
found in such policies:
This form does not insure loss or damage to:
(a) property at locations which, to the knowledge of the insured,
are vacant, unoccupied or shutdown for more than 30 consecutive
days.
The policy did not define the terms "vacant"
or "unoccupied".
The insurers denied coverage on the basis of this
exclusion, also citing Statutory Condition 4, which was attached
to the policy and which provided that the insurance contract may
be voided where there has been a change in risk:
4. Any change material to the risk and within
the control and knowledge of the Insured avoids the contract as
to the part affected thereby unless the change is promptly notified
in writing to the Insurer or its local agent.
The Proceedings
The defendant insurance broker and defendant insurers
both brought a motion for "summary judgment" to dismiss
this action.
Rule 20.01(3) of the Rules of Civil Procedure (*2)
allows a defendant to move for summary judgment after delivering
a defence. It provides:
(3) A defendant may, after delivering a statement
of defence, move with supporting affidavit material or other evidence
for summary judgment dismissing all or part of the claim in the
statement of claim.
Rule 20.04(2)(a) in turn provides:
(2) The court shall grant summary judgment if,
(a) the court is satisfied that there is no genuine
issue requiring a trial with respect to a claim or defence.
The broker argued that a trial was not necessary,
there being only one issue as to whether it acted negligently or
in breach of its contract with Ms. Shaeen. It asserted that it acted
properly throughout and that the matter should not proceed to trial
against it.
The insurers in turn raised the issue whether, at
the time of the loss, the property was "vacant, unoccupied
or shut down for more than 30 days, and if so, whether the exclusion
excluded coverage for the loss". The insurers also raised the
issue of the change in the status of the property was being a 'material
change in risk'.
On a motion for summary judgment, each side is required
to put its best foot forward, in terms of evidence to support its
position. Accordingly, the plaintiff, broker and insurers filed
materials with a view to the Court determining if these issues required
a trial with witnesses at a later date. The plaintiff asserted that
there were issues deserving of a trial, while the defendants asserted
that they should be vindicated and released from liability at the
motion for summary judgment.
The Arguments on the Motion for Summary Judgment
The plaintiff asserted that the property was never
"vacant" or "unoccupied". She visited the property
daily to check the renovations, and as, mentioned above, the plan
was to rent out the property again in the short term once the renovations
were completed. As to the broker, the plaintiff stated that she
relied on it to protect her interests, that it knew that the property
was a rental property and that it never advised her to purchase
additional coverage, if this was in fact required. The plaintiff
also asserted that the broker was aware that the renovations were
underway but that it never asked her if anyone was still living
at the property.
For its part, the broker asserted that the policy
was clear that, with any material change in risk, the insured was
required to advise the insurer accordingly. The broker also cited
the policy language as indicating that there was no coverage and
that, by inference, the plaintiff purchased a product with limited
coverage but was taken to be aware of this. The broker complained
that the plaintiff never advised it that the property was vacant
and that the tenants had moved out, and asserted that it, in fact,
did not know that renovations were underway. The broker also cited
an interesting historical fact: apparently one of the other properties
within the plaintiffs 'portfolio' was left vacant at some earlier
point in time, as a result of which the plaintiff had then obtained
additional coverage to account for the vacancy. The broker argued
that, because of this experience, the plaintiff knew that she had
to purchase a different policy of insurance for vacant property.
The insurers in turn cited the above exclusion and
contended that the vacancy was a "material change in risk".
The Analysis by the Court
The judge found that there were "genuine issues"
requiring a trial in respect of the claim against both the broker
and the insurers. Notwithstanding that this decision accordingly
did not finally adjudicate on the issues, the Court does cite some
important legal principles deserving of study.
(Author's Note: Before summarizing the points addressed,
the undersigned weighs in with a cynical touch. It is of some concern
that the claim was not dismissed in favour of the insurers at this
early stage. As one reads on, you might share a sense of overt 'consumer
protection' in the Court deferring the 'unoccupied' issue to be
determined at trial at a later point in time.)
i) The Claim Against the Broker
The Court cited important case law precedent on the
question of an insurance broker's "duty of care" in Fletcher
v. Manitoba Insurance Corp. (*3) and Fine's Flowers Ltd. v. General
Accident Assurance Co. of Canada. (*4) In the Fletcher decision
the Supreme Court of Canada confirmed that insurance agents owe
a duty of care to their clients. Such duty arises when a consumer
reasonably relies on information provided by an agent, in circumstances
where the agent knew or ought to have known that the client would
rely on the information.
In this regard, the Court found that there was evidence
that the plaintiff did rely on the broker and that the high level
of the plaintiff's deference to the broker was known to it. Accordingly,
it appeared that the broker did owe a duty of care to the plaintiff
when providing her with insurance advice and subsequent coverage.
With respect to the scope of the duty owed by insurance
agents, the court in Fletcher approved of the following passage
from the Fine's Flowers case:
In many instances, an insurance agent will be
asked to obtain a specific type of coverage and his duty in those
circumstances will be to use a reasonable degree of skill and
care in doing so or, if he is unable to do so, to inform the principal
promptly in order to prevent him from suffering loss through relying
upon the successful completion of the transaction by the agent.
But there are other cases, and in my view this
is one of them, in which the client gives no such specific instructions
but rather relies upon his agent to see that he is protected and,
if the agent agrees to do business with him on those terms, then
he cannot afterwards, when an uninsured loss arises, shrug off
the responsibility he has assumed.
In Fletcher, the court accepted that private
insurance agents "owe a duty to their customers to provide
not only information about available coverage, but also advice about
which forms of coverage they require in order to meet their needs":
In my view, it is entirely appropriate to hold
private insurance agents and brokers to a stringent duty to provide
both information and advice to their customers. They are, after
all, licensed professionals who specialize in helping clients
with risk assessment and in tailoring insurance policies to fit
the particular needs of their customers. Their service is highly
personalized, concentrating on the specific circumstances of each
client. Subtle differences in the forms of coverage available
are frequently difficult for the average person to understand.
Agents and brokers are trained to understand these differences
and to provide individualized insurance advice. It is both reasonable
and appropriate to impose upon them a duty not only to convey
information but also to provide counsel and advice.
In light of the foregoing, the Court in the present
case ruled that the determination of whether the broker met its
obligations required a trial. The determination of whether duties
were breached depended upon the nature of the relationship with
the plaintiff, what information was conveyed by the plaintiff, when
that information was given and what advice was provided in response.
These issues all necessitated a formal trial to be adjudicated.
ii) The Claim Against the Insurers
The parties agreed that the essence of this claim
concerned whether at the time that the damage was sustained the
property had been "vacant" or "unoccupied" for
over 30 days. The onus was on the insurers to show that there was
no genuine issue requiring a trial. As mentioned above, the Court
[somehow] found that the insurers had failed to satisfy this burden.
Citing case law precedent, historical definitions of these key words
were considered. "Vacant" has been interpreted to mean
"… deprived of contents, without animate object. It implies
entire abandonment, non-occupancy for any purpose". "Unoccupied"
in turn has been interpreted as follows: "… when it is
not used as a residence, when it is no longer used for the accustomed
and ordinary purpose of a dwelling or place of abode, or when it
is not the place of usual return and habitual stoppage, hence, a
mere temporary absence of occupants of a dwelling house from such
premises, with intention to return thereto does not render the dwelling
unoccupied".
The above definition had been employed in an earlier
decision, where it was found that a property was in fact "unoccupied"
on the basis that the owners lived in another city and had only
returned to the property once during a five-month period. Other
cases cited by the Court also seized on the frequency of visits
to the property, evidence of renovations being undertaken and the
length of the vacancy.
Given that the plaintiff had visited the property
on an almost daily basis with the clear intention of continuing
to rent the property when the renovations were completed, the Court
was unable to conclude that the property was "vacant"
or "unoccupied" at the time of the loss. Accordingly,
the summary judgment application by the insurers was also dismissed
as a result of which the matter was to proceed to trial.
Conclusion
As mentioned in the title to this case comment, we
have to 'stay tuned' towards the possibility of a trial and a published
decision in this case. This case provides a nice summary of the
governing principles concerning the duty of care owed by insurance
brokers. Unfortunately, it also provides a reminder that sometimes
the 'plain language' adopted in insurance policies does not carry
the day. Granted, the terms "vacant" or "unoccupied"
were not defined in the policy, and we have all come to embrace
the key canon of interpretation in insurance contracts that coverage
is to be interpreted broadly in favour of insureds (with exclusionary
wording being interpreted narrowly) however one struggles with the
history of the judiciary 'toying' with the concept of "unoccupied".
Either a property is occupied or it isn't. This does not mean that
someone always has to be on the premises. Of course, this cannot
be the case. However, presumably underwriters are entitled, in assessing
a risk, to have the benefit of knowing that someone actually lives
on the property as a means of deterring potential vandals or reducing
other risks of property loss. When the discussion comes to the level
of 'frequency of visits' or 'an owner's intention of what to do
with the land' this seems a bit far afield in terms of the real
question as to the 'presence' of someone on the actual property.
Perhaps this is further judicial activism with the
unfortunate result of insurance policies being for all intents and
purposes rewritten to benefit an insured.
This is, of course, something for insurers of such
risks to consider. Perhaps defining the terms in question might
assist.
The above aside, this is a nice case in its economical
review of leading concepts of the broker's duty of care, the interpretation
of insurance policies, and on the burden of proof of motions for
summary judgment.
Gordon Hearn
*1 2011 ONSC 1578
*2 R.R.O. 1990, Reg. 194
*3 [1990] 3 S.C.R. 191
*4 (1997) 17 O.R. (2d) 529 (Ont. C.A)
3. And Finally
Sky Diving
Bob, an experienced sky diver, was getting ready for
a jump one day when he spotted another man outfitted to dive wearing
dark glasses, carrying a white cane and holding a seeing eye dog
by a extremely long leash. Shocked that the blind man was also going
to jump, Bob struck up a conversation, expressing his admiration
for the man's courage. Then, curious, he asked, "How do you
know when the ground is getting close?"??"Easy,"
replied the blind man. "The leash goes slack."
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