Insurer should have known of additional vehicle's risk increase, said Court
The Nova Scotia Court of Appeal has ruled that a newly acquired vehicle is still covered in a commercial fleet insurance policy, and the insurer cannot decline to defend or indemnify the insured based on alleged increased or material change in risk.
In Aviva Insurance v. PK Construction Ltd., 2021 NSCA 66, the appellant had declined to defend or indemnify the respondent’s claim, stating that the vehicle was not insured at the time of the accident. The appellant had admitted that it insured all the automobiles owned by the respondent and the insurance policy covered newly acquired vehicles. But Aviva argued that this vehicle should not be considered a newly acquired vehicle because not only would it increase the risk, but it was also of a different nature and character, constituting a material change in risk.
In rejecting Aviva’s argument, the trial judge devised a test based on material change in risk and reasonable expectation of coverage. To deny coverage, he said, there must be “rare and exceptional circumstances,” which would require the new automobile to be so dramatically different and unique, it would sever any reasonable expectation for coverage. In this case, the trial judge found no such circumstance.
While it agreed with his conclusion, the Court of Appeal had ruled that there was no need for the trial judge to devise a legal test in this case. The insurance contract between the appellant and the respondent is covered by the Standard Automobile Policy (SAP), a policy that provides for mandatory conditions for every automobile policy in Nova Scotia. Although its wording is approved by the Government of Nova Scotia, the SAP is nonetheless a contract and must be interpreted as such, said Justice Duncan Beveridge, who wrote the decision in this case.
In the case of an additional vehicle on a fleet policy, the newly acquired vehicle usually always adds to the insurer’s risk, said Beveridge. To compensate, the policy would require all the insured’s vehicles be insured by Aviva in exchange for additional premium revenue. Thus, at the time it set the fleet insurance premium, the company already knew of the likelihood of an increased risk from the potential of a newly acquired automobile, said Beveridge. Therefore, the vehicle is considered a newly acquired vehicle covered by the policy.
Even if the material change in risk was considered and the insured is required under the SAP to notify the insurer of such change, breach of this condition may have consequences for the insured, but not for the insurer’s obligation to injured third parties, said Beveridge.