June 14, 2013 by Canadian Underwriter
A Nova Scotia Court has ruled that a brokerage that was sued by a home policyholder with an unsuccessful fire claim was negligent and breached the standard of care required in the insurance industry.
Paul Keizer’s garage near Wolfville, N.S. was damaged in a fire nearly four years ago. He sued both his broker, Founders Insurance Group Inc., and his homeowner carrier, The Portage LaPrairie Mutual Insurance Company.
On June 11, Mr. Justice Robert Wright of the Supreme Court of Nova Scotia in Halifax ruled in favour of Portage LaPrairie Mutual, finding that the carrier was not informed of the risk presented by a change in Keizer’s use of the garage attached to his home.
The carrier had not been informed of Keizer’s intention to use his garage as a woodworking shop and to have it heated by a wood stove – a risk that Portage LaPrairie Mutual is unwilling to underwrite.
In denying Keizer’s claim, Portage LaPrairie Mutual was entitled to treat the situation as a material change in risk and a breach of statutory conditions, Judge Wright found.
Keizer, a retired carpenter, started doing work in his home garage in Centreville, in 2008. On Sept., 17, 2009 he had applied varnish on chairs for a customer and then went into his house to do some paperwork when his smoke alarm sounded. The fire department put out the fire in his garage before it spread to the house but not before it caused $81,102.16 in damages, including power tools.
Court records indicate that in 2007, Keizer had told a broker with Founders that he was talking to a customer about doing some furniture repair and was not ready to proceed but “wanted to know what his insurance needs would be for such work.”
The broker wrote notes on an application form by hand but left the information under “heating” blank. Although Founders obtained a quote from the carrier, that quote was not bound.
The following year, Keizer was contracted by Home Depot to work on kitchen cabinets and countertops. Home Depot told Keizer he would require insurance and Keizer testified that in October 2008, he described his insurance needs to a different Founders employee, whose name he did not recall, telling her he intended to do carpentry and furniture repair in his garage. Portage LaPrairie Mutual issued him a “Contractors Pro” policy for one year, which covered his tools and liability but did not provide building coverage.
“What Portage did not know, nor had it any reason to be alerted to, was the fact that Mr. Keizer was also starting a home based business using his wood stove heated garage as a woodworking shop,” Judge Wright wrote.
Two managers with Portage LaPrairie Mutual had testified that a woodworking shop using a wood stove as its source of heat is “beyond that level of risk tolerance acceptable” to the carrier because such a risk does not comply with the Canadian Standards Association’s installation code for solid fuel burning appliance and equipment.
Judge Wright agreed with Portage LaPrairie Mutual’s contention that using the garage as a woodworking shop heated by a wood stove would constitute a “material change in risk,” and that Portage LaPrairie Mutual would not have underwritten the risk had it known about it.
So he ruled that Keizer was not entitled to relief from the statutory condition requiring policyholders to promptly notify carriers or their agents of changes material to the risks. To do so, Judge Wright suggested, would have required the carrier to pay a fire damage claim for a risk that it would never have accepted.
Judge Wright also found that the Founders employee who spoke with Keizer in October 2008, was Paulette Josey. Court records indicate she disobeyed a subpoena and did not testify.
Relying on a transcript of Josey’s evidence given during the discovery phase, Judge Wright found that Josey “failed to address, or record, the second sphere of work activity” which Keizer had told her of, “which was the furniture repair and carpentry business that he planed to carry on in his garage.”
Founders’ lawyer had admitted the case “turns on the credibility funding” of whether Keizer had told Josey in October 2008 of his intention to operate a home-based business in his garage, and Judge Wright found in favour of Keizer.
He also found that Keizer’s loss could have been averted had Founders’ president in 2009, Donald Abbey, called Keizer in July of that year to confirm the accuracy of information on a policy renewal questionnaire. Court records indicate that Abbey completed the fields himself without reviewing it with Keizer.
“Clearly, the taking of that shortcut without contacting the plaintiffs in any manner whatsoever to confirm the accuracy of the requested information for purposes of the policy renewals was a breach of the standard of care on the part of Founders,” Judge Wright wrote.
Portage LaPrairie Mutual used the information from that questionnaire to offer to renew Keizer’s policy effective Oct. 20.
Judge Wright noted it is important for a broker to ask clients’ questions about their home based businesses, “including the nature and extent of the intended business activity and what type of heating will be used for that business.”