Newsletter > August 2011
In this issue:
1. Firm and Industry News
2. “Unoccupied” Might Not Really Mean “Unoccupied”: Stay Tuned…
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.
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 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.
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.
*1 2011 ONSC 1578
*2 R.R.O. 1990, Reg. 194
*3  3 S.C.R. 191
*4 (1997) 17 O.R. (2d) 529 (Ont. C.A)
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