Landlord avoids voiding of homeowners policy, but is denied replacement cost value:

In Bahniwal v. The Mutual Fire Insurance Company of British Columbia, 2016 BCSC 422, the BC Supreme Court considered the application of statutory conditions 1 and 4 and a replacement cost endorsement in a homeowners insurance policy. The claim arose as a result of a fire that destroyed a storage facility and attached suite on the insured property in Oliver, B.C. The owners/landlords of the property rented the home, attached suite and storage facility to a tenant. The cause of the fire was unknown but firefighters observed equipment associated with marijuana grow-operations in the attached suite, including large lights.

The insurer denied the claim on the basis that a marijuana grow-operation was being or had been operated out of the attached suite. Specifically, the insurer elected to void the policy pursuant to Statutory Conditions 1 and 4 of the Policy, which read:

1. If any person applying for insurance falsely describes the property to the prejudice of the insurer, or misrepresents or fraudulently omits to communicate any circumstance which is material to be made known to the insurer in order to enable it to judge of the risk to be undertaken, the contract is void as to any property in relation to which the misrepresentation or omission is material.

Material Change
4. Any change material to the risk and within the control and knowledge of the insured avoids the contract as to the part affected by the change, unless the change is promptly notified in writing to the insurer or its local agent;

The insurer’s vice president testified that had the company been advised of the grow-operation, it would not have insured the property. The homeowners testified that they had no knowledge of the grow-operation. In taking the opposite position, the insurer relied upon the homeowner’s admission during a pre-trial examination that they conducted regular inspections of the attached suite and that they had seen the hydro bills, which showed excessive consumption of electricity. Upon weighing the evidence, the court concluded that the homeowners were unaware of the grow-operation. As a result, the insurer was not entitled to void the policy under statutory conditions 1 and 4.

The Plaintiff sought recovery for the replacement cost of the property. That is, the total cost of rebuilding new for old, as opposed to the assessed value of the property at the time of the fire, known as actual cash value. The Replacement Cost Endorsement included the following conditions, among others:

  • replacement shall be effected by the Insured with due diligence and dispatch; and
  • settlement on a replacement cost basis shall be made only when replacement has been effected by the Insured and in no event shall it exceed the amount actually and necessarily expended for such replacement

At the time of the trial (approximately 5 years after the fire), the storage facility and detached suite still had not been rebuilt. The homeowners stated that they had not rebuilt the structures because they did not have the money. The court found that this was not accurate as they owned other real estate and would have been able to fund the rebuilding. In any case, the court relied upon the BC Court of Appeal decision of Anastasov v. Halifax Insurance Co., [1987] B.C.J. No. 1437 (C.A.), where the court found that on similar policy wording, there was no obligation on an insurer to fund the replacement. The court found that the homeowners had failed to meet the requirement of rebuilding with due diligence and dispatch and, therefore, they were only entitled to the actual cash value.

Finally, the court refused to make an award of punitive or exemplary damages against the insured. The court held that while there was insufficient evidence to conclude that the homeowners were aware of the grow-operation, the claim had not been denied based on a mere suspicion.

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