Material Changes in Risk – Duty of Insurers to Communicate to Insureds

Thomas v. Aviva Insurance Co. [2011] N.B.J. No. 371

A fire occurred in an elderly insured’s home which was caused by a wood stove. When the insured had applied for insurance seven years earlier, he had indicated that he had electric heat as his primary heating source. One year later, a wood stove had been installed as a secondary heat source.

The insurer voided the policy and denied coverage on the basis that the insured failed to notify them of the installation of the wood stove. The insurer took the position that the installation of the wood stove constituted a material change in risk.

The insured was sent renewal policy notices that contained a caution to ensure that all information in the policy was accurate. The insured had dropped out of school at the age of 16 and never read the policy and was unaware of the obligation to inform the insurer of the installation of the wood stove.

The insured sued for breach of contract and was successful at trial. The trial judge held that the “insured’s knowledge was the determinative factor and the lack of guilty knowledge on the part of the insured supported the conclusion that the wood stove, as a supplementary or auxiliary heating unit, was not a material change of risk”.

The insurer appealed to the New Brunswick Court of Appeal. The appeal was dismissed. Chief Justice Drapeau found that the insurer had treated the matter of auxiliary heating sources as inconsequential “and effectively advised [the insured] in its various renewal notices that only the information provided in the original application was material to the risk”. In the original application for insurance, the insured was only asked about his home’s primary heating source. This suggests that the insurer did not consider the installation of the wood stove to be a material circumstance requiring disclosure. Lastly, Chief Justice Drapeau held that even if the installation of the wood stove constituted a change material to the risk, the insurer’s duty of good faith to the insured required that the insured be advised of this in plain language. This last point seemed to be especially important in this case as the insured had “very limited formal education”.

- Kristen Dearlove, Student-at-Law