Insurer must show due diligence before voiding policy based on unreported “material change in risk”

An insurance company cannot void an auto insurance policy because it is not informed of a “material change in the risk,” unless the company takes steps to ascertain this material change itself — including obtaining the driving record of a high-risk driver added to an auto policy.
Ontario Superior Court Justice Peter Howden came to this conclusion in his August 2009 decision in DeKoning v. Vector Insurance Network (Ontario).
The court decision indicates Wawanesa Mutual Insurance Company insured Delores DeKoning and her husband since 1997 against third party liability on the couple’s two vehicles. (The application was made through the licensed broker Vector.)
On July 2001, DeKoning added her grandson, Trevor Bryan, to her policy as an occasional driver. At the time, Bryan was 16 years old and had just obtained his G2 license, a temporary license in force for at least 12 months until a road test has been passed.
Wawanesa obtained a copy of Bryan’s driver record, which at that time was clear.
One year later, on June 29, 2002, the policy came up for renewal.
In the interim between being added to the policy and renewal, Bryan had his driver’s license suspended for demerit point accumulation. The suspension ended on July 19, 2002.
Prior to policy renewal, DeKoning ensured that Bryan had paid up his fines, turned over the car and did not report Bryan’s previous driver’s convictions to Wawanesa, which renewed the policy.
On Aug. 2, 2002, Bryan was driving his grandmother’s car with three passengers when the car was involved in a serious collision. One of the passengers sustained a catastrophic injury.
Wawanesa argued before court that the policy was void because DeKoning did not report Bryan’s previous convictions, all of which represented a “material change in the risk.”
DeKoning said she did not know she had a duty to report these convictions to the insurer. She said the insurer did not make any inquiries of her at the time of the policy renewal.
Howden said the insurer failed to demonstrate to the court that it had performed its due diligence before voiding a policy.
“Here, the insurer had added a novice, under-25 male driver, a driver within a high-risk category known to the insurer,” Howden wrote. “It had searched his MVR (Motor Vehicle Record) before he was able to legally drive by himself, yet before accepting the risk the following year, it asks no question about his driving record nor did it obtain the information available to it for a small recoverable cost after he had legally been driving for the first time on his own…
“If the insurer saw no materiality to it accepting the risk for the 2002-03 policy term, I fail to see how the insured should.”