August 17, 2015 by Canadian Underwriter
A British Columbia court has ruled against Wawanesa Insurance Company, awarding more than $215,000 to a claimant whose Kamloops home was damaged by arson the day after police discovered a marijuana grow-up.
Court records indicate that Steven Davidson’s home was deliberately set on fire April 22, 2010. Much of the structure above the ground was destroyed. Davidson was working – and staying temporarily – in the area of 100 Mile House while his wife and two others were living in his Kamloops home.
The day before the fire, police raided Davidson’s home and found a marijuana grow-up in the basement – as well as property alleged to have been stolen – plus illegal firearms. Police removed the marijuana, firearms and personal property, and arranged for electrical services to be shut off.
Three months later, Wawanesa told Davidson his policy was voided as of the day before the renewal date, of Jan. 20, 2010. Wawanesa refunded the premium to Davidson, but Davidson did not cash the cheque.
Davidson, who represented himself, sued Wawanesa, asking for indemnity for his losses, aggravated damages, interest and costs. Wawanesa counter-sued for the amount it was required to pay the bank issuing the mortgage. The policy protected the bank if the policy were to be “voided for any reason relating to the insured.”
In a decision released Aug. 10, 2015, the Supreme Court of B.C. awarded Davidson $140,000 for his residence and $75,000 for property, plus interest and costs. The court declined to award him either additional living expenses or aggravated damages.
In May, 2010, the RCMP arrested Davidson and recommended that Davidson “be charged with various offences relating to the grow operation, the illegal weapons found in the Residence and the property, which were alleged to have been stolen from late January 2010 and before the raid,” wrote Madam Justice Shelley Fitzpatrick, the judge in Davidson’s lawsuit. “The Crown did not approve these charges and no charges were laid.”
In June, 2010, Wawanesa stated to Davidson that if Wawanesa had been “made aware” that the property was being used for illegal activity, it “would have declined” to issue a home insurance policy.
Wawanesa argued that Davidson’s failure to disclose illegal activities on his property “constituted material misrepresentation.”
The central issue, on the issue of misrepresentation, Justice Fitzpatrick wrote, was whether Davidson knew about the illegal activities.
Wawanesa “has not introduced any direct evidence that Mr. Davidson knew of the illegal activities in the Residence, but relies on various circumstantial evidence,” including a video, recovered by an insurance adjuster from Davidson’s camcorder, she wrote.
“This is a case close to the line, but I accept the evidence of Mr. Davidson and find, as a fact, that he did not know of the grow operation or even the other activities relating to potentially stolen property or potentially illegal firearms over the relevant period of time leading up to the fire,” she wrote. “Simply put, Wawanesa, while presenting a compelling case and raising a number of suspicions, did not meet that burden of proof.”
In order to prove material misrepresentation, Wawanesa would have to have proven: there was a change that was material to the risk; the change was within Davidson’s control; Davidson had knowledge of the change; and neither Wawanesa nor its local agent were promptly notified in writing of the change.
Davidson’s policy with Wawanesa excluded losses “resulting from illegal activity … arising directly or indirectly from the growing, cultivating, harvesting, processing, manufacture, distribution, or sale of any drug, including but not limited to cannabis, or any non-prescription controlled substance or illegal substance or items of any kind, the possession of which constitutes a criminal offence, whether or not ‘you’ have any knowledge of such activity or are able or unable to control such illegal activity.”
Wawanesa also relied on an exclusion in its policy for “loss or damage to structures or buildings used in whole or in part for ‘business’ or ‘farming’ purposes,” but Justice Fitzpatrick found that neither a farming nor a business exclusion applied to the grow op in Davidson’s home.
“There was no evidence that the ‘business,’ presumably the buying and selling of the product, marijuana, was taking place there,” she wrote.
In Davidson’s policy, “it cannot be reasonably interpreted that the parties intended to exclude a grow operation by use of the word ‘farming,'” Justice Fitzpatrick added. “Put another way, I fail to see how the parties could have intended that an illegal grow operation, in a residential house, fit within that term.”
Justice Fitzpatrick stated that Wawanesa had “failed to satisfy” her, on a balance of probabilities, that the fire resulted from the grow op, either directly or indirectly.
“By the time of the fire, the grow operation had been dismantled by the RCMP,” she wrote. “The only thing that Wawanesa relies on is the proximity in time between the grow operation and the fire. It points to the ‘coincidence’ in that the Residence was set on fire less than 24 hours after the RCMP raided the Residence and disassembled the marijuana grow operation. It argues that ‘resulting from’ includes the foreseeable consequences of operating a grow operation, including the possibility of reprisal by rivals, or an intentional fire by an interested party to destroy evidence following a police raid.”
But Justice Fitzpatrick added that there was “no evidence as to why the fire was set.”
Wawanesa “initially alleged” that Davidson had set the fire, but later withdrew that allegation.
Wawanesa also contended there was no coverage because Davidson was not “residing” at the house. However, Justice Fitzpatrick noted that argument was “not pleaded as a basis for denying Mr. Davidson’s claim.” She found that Davidson was only “temporarily” away from his residence.