You’re off to Arizona for two months to avoid the prairie winter. Or perhaps you decide to move into the city for the winter. What impact does this have on your home
insurance?
All provinces have enacted laws dealing with every type of insurance, be it life, fire or vehicle. As part of these insurance laws, standard terms called statutory conditions are deemed to be part of all contracts.
A legislated term that is part of every fire insurance contract deals with material change. It provides that any major change to the risk and within the control of the insured nullifies the contract unless the change is promptly notified in writing to the insurer.
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The insurance company can accept the change, cancel the coverage and return any unused premium or reassess the risk and increase premiums accordingly. Courts have held that if no one is at home, a change in material risk has happened, exposing the insurance company to a greater chance of loss. Most insurance policies allow for some vacancy, often 30 days, as long as the premises are checked regularly.
How strictly should a material change be interpreted? That was the issue the Supreme Court of Canada dealt with in the recent case of Marche and Fitzgerald vs. the Halifax Insurance Company. Marche and Fitzgerald bought Fitzgerald’s family home on Nova Scotia’s Cape Breton island. They were unable to find work in Cape Breton, so they moved to British Columbia. Before doing so they converted the house into two apartments. However, the house was vacant for some time while they looked for tenants. Finally Fitzgerald’s brother, Danny, moved in. However, he failed to keep up with rent payments and Marche and Fitzgerald began to take steps to get Danny out. They had the water and electricity to the property disconnected.
A fire occurred in the house. At the time of the fire, it was unclear whether the brother was still occupying the house, although it was established that some of his possessions were in the house.
The insurance company denied coverage. While the company could not establish that the property was vacant at the time of the fire, it argued that because the property had been vacant before Danny occupied it, there was a material change of risk of which it had not been notified. Marche and Fitzgerald were unaware of the requirement to notify their insurance company that the house would be vacant.
At trial, the judge ruled against the insurance company, saying that this was a case where it was “unjust or unreasonable” to strictly apply the material change criteria. The court of appeal reversed the decision. It was appealed to the Supreme Court.
The legal issue was whether a judge’s power to waive the application of a condition, if its application was unjust and unreasonable, applied only to a term of the contract or whether it also applied to statu-tory conditions imposed by law.
Chief justice Beverley McLachlin, writing on behalf of the majority of judges, described this as a sad case and went on to rule that the power to relieve applied to statutory conditions and that this was an appropriate case to provide such relief.
This judgment does not mean that property owners no longer have to notify their insurance company if their homes are vacant for an extended time. Rather it means that in certain circumstances as determined by the judge in each case, a court can overlook the fact that an insurance company was not notified of the vacancy.
Property owners should also check their policies to see if there are other contractual terms dealing with vacancies.
Don Purich is a former practising lawyer who is now involved in publishing, teaching and writing about legal issues. His columns are intended as general advice only. Individuals are encouraged to seek other opinions and/or personal counsel when dealing with legal matters.
