Canadian Underwriter

Court sides with condo insurers that used the wrong policy to deny a $4.4-million water damage claim

January 20, 2021   by David Gambrill

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Six subscription policy insurers that denied coverage to a condo corporation in a $4.4-million water damage claim — a denial based on reference to the wrong policy — have had the matter tossed out of court.

The Court of Queen’s Bench of Alberta has ruled that the insurers had simply made a mistake in referencing the wrong policy wording in the denial letter to the claimant and did not intend to mislead the condo corporation making the claim. Furthermore, the court found, the condo corporation should have discovered the error in fewer than five years, which exceeded the province’s statute of limitations for making a claim to challenge the error.

The owner of a residential condominium known as Palisades Park Villas, located in Edmonton, Alta., sued Aviva Canada, Commonwealth Insurance Company, Peace Hills General Insurance Company, Lloyds Underwriters, Intact Insurance, and Economical Mutual Insurance after the insurers denied the condo corporation’s $4.4-million water damage claim in 2012. Aviva was the lead subscriber and responsible for coordinating any claims with the other subscriber insurers.

Renfrew Insurance Ltd. was the insurance broker for the condo corporation and York West Asset Management Group was the property manager.

Renfrew arranged a liability and property policy of insurance for the condo corporation on July 15, 2009. From July 2009 to June 2011, the policy was renewed, amended, or updated on nine occasions. Copies of the initial policy and each revision were provided to the condo corporation or York West and Renfrew.

The policy renewed on July 1, 2011, with new property coverage wording.

On or around June 29, 2011, the condo corporation discovered water damage at the Palisades Park Villas property. York West asked Darren Kneller, who worked as an insurance adjuster at Crawford Adjusters Canada Incorporated, to assess loss and coverage.

Responding to a request from Kneller, Renfrew provided him with the July 1, 2011 policy.

Over the course of Dec. 12 and 13, 2011, Kneller communicated with Renfrew, York West, and members of the Palisades condominium board. He advised them that the claim needed to be reported to the insurers to get an answer on coverage.

On Dec. 15, 2011, Kneller advised Aviva of the loss and gave his opinion that coverage denial was possible. The next day, Dec. 16, 2011, Aviva authorized Kneller to proceed with the denial on the basis that the damage being claimed was not the result of an insured peril.

In late January 2012, Peace Hills, one of the subscribing insurers, contacted Kneller and requested a copy of Aviva’s policy wording. Peace Hills raised the possibility with Kneller that there may be coverage and Aviva may want to re-examine their position on denial.

Kneller responded by providing the July 1, 2011 policy exclusions to Peace Hills. Peace Hill replied as follows: “That is better. Different than the ones I had. Still think that there is a loophole for the insured…But will follow lead’s discretion. Will await final report/denial.”

On Mar. 23, 2012, Crawford issued a formal denial letter to York West and Renfrew (the agents of the condo corporation), advising that “upon review of your policy and consultation with your insurers, it has been noted that your policy does not provide coverage for damages sustained in relation to the above noted loss.”

The letter specifically quotes policy wordings and exclusions from the July 1, 2011 policy — the wrong policy, as the Alberta court notes.

“The policy wordings and exclusions used in the denial letter were those in effect as of July 1, 2011,” the Court of Queen’s Bench observed in Condominium Corporation No 0427067 v Aviva Canada Inc., released Jan. 15, 2021. “Given that the water damage to Palisades occurred on or around June 29, 2011, the policy effective from July 1, 2011 did not apply to the claim. Rather, the wordings and exclusions in the policy that was placed on July 15, 2009, and as amended, was the applicable policy.”

The condo corporation sued various entities in November 2012 for the damages arising from alleged construction deficiencies. During this litigation (which is still ongoing), counsel representing the condo corporation requested materials in Kneller’s file in March 2017. Only at this time did the condo corporation discover that the wrong policy, as cited in the denial letter, was used to assess its claim.

The condo corporation sued the insurers in June 2017, alleging fraudulent concealment. The insurers countered that the June 2017 went beyond the two-year limitation period to initiate a claim.

Alberta Court of the Queen’s Bench Justice Bonnie L. Bokenfohr sided with the insurers, finding that “I am satisfied that the [insurers and Kneller] did not know at the time that the incorrect policy wordings were being referenced instead of the correct wordings in place at the date of loss. They were ‘unaware that [they had] committed a wrong,’ and in the circumstances did not perpetrate fraud.”

Another test for fraudulent concealment is whether the plaintiff made reasonable efforts to discover the error.

“If [the condo corporation and its agents] had performed their due diligence, the [condo corporation] would have realized that the denial letter contained wordings and exclusions from the incorrect policy,” Bokenfohr wrote. “Discovering that incorrect policy wordings were relied on after approximately five years does not persuasively indicate or demonstrate that the [condo corporation] met its duty of reasonable due diligence.”


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