Prior to a loss, an insurer has a duty of good faith to advise a policyholder in plain language about what the insurer considers a "material change" to a risk, the New Brunswick Court of Appeal has ruled.
In Aviva Insurance Company of Canada v. Thomas, Aviva denied coverage to a policyholder, Hubert Thomas, after a fire had damaged his home. Adjusters found the fire was the result of a non-disclosed wood stove that Thomas had installed to supplement his electrical heating.
When first securing fire insurance for his home in 2000, Thomas correctly told the insurance agent that the primary means of heat in his home was electrical. The agent had made a diagonal cross mark through a portion of the form asking for "auxiliary heating sources."
In the fall of 2001, Thomas built a woodstove in his back porch to supplement his home's electrical heating. He told the court he did not inform the insurer about the woodstove because he did not know that would constitute a "material change" of his risk.
Aviva renewed the insurance six times without any request that Thomas complete another Habitational Insurance Application. Each time the policy was renewed, the auxiliary heating sources section was left blank.
Shortly before Christmas of 2007, Thomas' home was damaged by fire, which was caused by fire escaping from the woodstove he had installed.
Aviva argued at trial that Thomas should have informed the insurer of a "material change" of risk as a result of his installing the wood stove.
Thomas argued he did not know he had to inform the insurer about the woodstove, noting that the renewal notices did not ask him to renew his application.
Also, he noted, the renewal notice said only to indicate if information in the policy was incorrect. The policy noted the primary source of heat was electrical, which was always correct (even with the installation of the woodstove).
The trial judge found in favour of Thomas, as did the New Brunswick Court of Appeal.
"The only information provided by Mr. Thomas had been recorded six years previous in the Habitational Insurance Application, and that information, which was summarized in the renewal documentation, was accurate at renewal time," the Court of Appeal found. "In those circumstances, I can only conclude Aviva did not consider, prior to the fire, that the installation of a woodstove in the porch of Mr. Thomas' electrically heated home was a material circumstance requiring disclosure."
Aviva was therefore disentitled from denying coverage on the basis of non-disclosure of a "material change" of the risk, the court concluded.