B.C. appeal court clarifies difference between omission and misrepresentation on an insurance form

Retrial ordered in case of couple who failed to report previous denial of coverage

B.C. appeal court clarifies difference between omission and misrepresentation on an insurance form
B.C. Court of Appeal orders retrial in case of couple who failed to report previous denial of coverage.

B.C.’s Court of Appeal has clarified the critical difference between an “omission” and a “misrepresentation” on a home insurance claim, overturning a lower court decision that had given the policyholders the benefit of the doubt.

In Nagy vs. BCAA Insurance Corporation, the appeal court ordered a retrial of the case, saying the trial judge had made overriding errors in fact and law.

Common-law spouses Zoltan Nagy and Margaret Kuhn filed a claim for the complete loss of their house and its contents on Mayne Island, B.C., in 2016.  BCAA rejected the claim, alleging the policy was void due to misrepresentations and omissions by the respondents at the time coverage was placed.

Following a summary trial, BCAA Insurance was ordered to pay the claim. The trial judge ruled that any errors or missing information on their policy were an “omission” rather than a misrepresentation. However, the three-judge panel of the appeal court overturned that interpretation.

“What matters for present purposes is that the answer ‘No’ given to the question ‘Has any insurer cancelled, declined, refused or imposed any special conditions on habitational insurance for the applicant in the past 10 years?’ can be objectively compared to the truth. It was untrue,” B.C. Court of Appeal Justice Christopher Grauer wrote for the panel hearing the case.

“It follows that to characterize it as an omission, instead of a misrepresentation, was a palpable error. It was not an omission, or a half truth. It was a positive representation that no insurer had cancelled, declined, refused or imposed any special conditions on habitation or insurance in the last 10 years. That was false, however the [home insurance claimants] might have perceived it.”

A related issue in the case centred around whether the insurer had received the claimant’s attempt to correct the erroneous and incomplete information on the initial application.

The claimants insisted they had mailed an addendum — which included a note from their brokerage stating that their policy would not be renewed by the original insurer, Wawanesa — to their new insurer, BCAA, the day after coverage was bound.

They also told the court they had followed up with a phone call to ensure the insurer had received the mailed letter. BCAA contended that it did not receive the addendum or a phone call explaining the discrepancy.

In 2016, Nagy and Kuhn owned three properties: a residence in Coquitlam, BC; the property that was destroyed, on Mayne Island, which was sometimes rented out; and another at Point Roberts, Washington State. BCAA issued the policy on Mar. 8, 2016, and the fire at the Mayne Island property occurred on Dec. 4, 2016.

The couple had made various insurance claims over the years, including a total fire loss at the Point Roberts property in March 2008; a claim for damage to the Mayne Island property’s roof in January 2013; and a claim for theft at the Point Roberts property in December 2014.

Before the Mayne Island fire, Nagy and Kuhn had a home insurance policy with Wawanesa, which was due to expire on Mar. 8, 2016.  About a month before the expiry date, their insurance broker, Eaton & Starr, wrote them to advise the following: “Please be advised that the above-noted policy will be lapsed on its expiry date of Mar. 8, 2016, due to the following reasons [The letter goes on to state: “Claims Frequency & the Frequency of Change of Occupancy.”] There will be no coverage in place through Wawanesa Mutual Insurance Company as of Mar. 8, 2016 at 12:01AM.”

Nagy then applied for a home insurance policy with BCAA. The broker could not do this for the couple because only BCAA members can apply.

On the same day, the Wawanesa policy was set to expire, Nagy spoke with a representative at BCAA, who agreed to provide coverage for the respondents’ property. The BCAA representative emailed an application form to Nagy and Kuhn with information that she had filled in based on her talking to Nagy on the phone. Nagy and Kuhn were to sign, scan, and return the application electronically as time was running out.  They did so, and BCAA gave them coverage that day.

“In both the telephone conversation and on the application form, [Nagy and Kuhn] were asked for a list of previous losses within the past 10 years,” the court noted. “In both instances, only one such loss was disclosed: the theft in December 2014.” There were two other significant matters not disclosed on the form, including the loss from fire in 2008.

“And in answer to the question ‘Has any insurer cancelled, declined, refused or imposed any special conditions on habitational insurance for the applicant in the past ten years?’ the respondents answered ‘No,’ both by telephone and on the application form.

The trial judge found not disclosing two of the three previous claims constituted simple “omissions,” which did not rise to the level of fraudulent misrepresentation. Furthermore, the trial judge found that Nagy had sent BCAA a written addendum disclosing the information omitted on Mar. 8, and had followed up with the insurer with a phone call on Apr. 29. As it turned out, records show Nagy had contacted the insurer on Apr. 26, with the call being a simple voicemail message requesting a callback.

The trial judge found that it was enough for the claimant to have sent the changes, regardless if that information was received. However, the appeal court ruled that the insurer’s state of knowledge was more important than the claimant’s good intentions. Had BCAA received the correct information when it gave coverage on Mar. 8, 2016, the insurer might have changed its decision about underwriting the risk, the appeal court said.

As well, while the absence of two prior claims on the form could be construed as omissions, the appeal court said, saying “No” to the question of whether they had insurance denied or cancelled was, in fact, a misrepresentation that would void the policy.

Crucially, the appeal court found, while the absence of the two claims losses on the form may have been “omissions,” the statement that they had not had an insurance policy cancelled or renewed was, in fact, a misrepresentation, which would void the policy.

Steven Abramson, partner with Harper Grey in Vancouver, who represents insurers, says that proving fraud by omission is very difficult – you have to prove that “you left something out on purpose because you were trying to deceive us.”

On the other hand, he says, misrepresentation doesn’t need as high a bar of proof. “I told you something but it’s not exactly true, that’s much more factual.”

He adds: “You have a much higher threshold as an insurer to prove that there’s been a fraudulent omission as opposed to a misrepresentation.”

Laura Miller, associate with Carfra Lawton LLP in Victoria, says that while the decision doesn’t make new law, “it clarifies what is already there and pulls it together.” It clearly outlines what an omission is, what is a misrepresentation and what is a fraud, she says, “and sets it out very concisely.”

She adds that the court makes it clear that a misrepresentation doesn’t necessarily have to be fraudulent, and sending back the case for retrial is probably a way of getting clarification on that point.”

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