Canadian Underwriter

When ‘residence employee’ is key in home insurance wording

June 3, 2019   by Greg Meckbach

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A coverage dispute, arising from severe electric shock injuries to a baby in a rented house, shows disagreement over the exact meaning of “residence employee” in a home insurance policy.

Doris Wong and her brother Johnny Wong were sued in British Columbia for failing to exercise reasonable care in inspecting a North Vancouver home they were renting out. They are insured by Economical and Optimum West respectively.

Economical Mutual Insurance Company v. Optimum West Insurance Company Inc., released May 29 by the B.C. Court of Appeal, raises several questions for home insurance providers. If your clients are offshore landlords, what measures are they taking to have their Canadian properties properly inspected? And who is liable if the landlord and property manager failed to notice a major risk caused by a previous tenant who decided to play amateur electrician?

Johnny Wong – who lives in Hong Kong – bought the home in 1992 but never set foot in it. His sister, who does live in Vancouver, was paid a small amount to look after the property – including signing lease agreements and interviewing tenants.

Living in that home in 2007 was Cora Boyes, then less than a year old. While playing, she was severely injured after touching the end of an extension cord that turned out to be live. The cord was altered by someone else – the courts have not determined who – to make it male-to-male.

A lawsuit was launched in 2011. In Boyes v. Wong, released in 2016, Justice Barbara Young of the B.C. Supreme Court found three defendants equally liable: Johnny Wong, his wife (Kit Bing Lai, who also lives in Hong Kong) and Doris Wong. This, Justice Young reasoned, was because the electrical hazard could have been discovered with a basic visual inspection and further inquiry. Such an inspection could have happened when tenants moved in or out.

Economical (Doris Wong’s home insurer) argued Optimum (Johnny Wong’s home insurer) should share costs for Doris Wong’s defence and damage costs in the underlying lawsuit. Initially, Justice Gordon Funt of the B.C. Supreme Court sided with Economical.

But that decision was overturned in last week’s B.C. Court of Appeal ruling.

Johnny Wong’s policy with Optimum includes “residence employees” as named insureds. This is why Economical wanted Optimum to share in Doris Wong’s liability claim cost.

But Optimum’s policy wording says residence employees are not insured if they perform duties “in connection with” the client’s business.

In the original 2018 ruling, Justice Funt said the Optimum policy should be interpreted to exclude an employee while performing duties other than the residential rental business.

“The definition of residence employee would undoubtedly capture situations such as where a wealthy offshore owner has a residential property which he or she visits from time to time. A regular caretaker or housekeeper would be a residence employee except while performing duties in connection with the insured’s business (say, preparing the books for an owner who has a fund management business),” Justice Funt wrote in 2018.

That was an error, the appeal court ruled last week. The home was being used by her brother for business purposes and Doris Wong was providing services to that business. Optimum’s definition of residence employee is unambiguous and excludes Doris Wong, Justice Richard Goepel wrote in the appeal court’s unanimous ruling.

In the underlying lawsuit, Justice Young found that Johnny Wong and his wife “abdicated their obligation as offshore property owners to take steps to hire a properly qualified property manager.” The Vancouver-based sister, Doris Wong, shared liability because a reasonable inspection on her part should have led her to hire an electrician to inspect a built-in entertainment cabinet. Such an inspection should have revealed code violations to an electrician, Justice Young found.

B.C. law requires landlords to make reasonable inspections of their premises for defects, regardless of whether they have actual knowledge of those defects, Justice Young wrote.

The home in which Cora Boyes was injured was built in the late 1950s. The woman who sold it in 1992 (who was initially a named defendant but found not liable) had lived there since 1969. The built-in cabinet was probably installed in the early 1980s. That cabinet was meant to house entertainment equipment of that time – including a television, VCR, cable box, record player and tape deck.

It was near this cabinet that the baby was playing peek-a-boo with her aunt on Aug. 24, 2007. When the baby hid and did not re-appear, her aunt discovered the baby face down with the male end of the extension cord in her mouth. Her injuries – which have probably changed her life forever – included severe burns to her face, mouth and lips.

After the accident, an engineer took the cabinet apart and discovered receptacles and a junction box built in. The engineer also discovered the extension cord, which injured the baby and was crudely altered to make it male-to-male. It was the first such extension cord that engineer had ever seen in 30 years of engineering.

One end of that male-to-male extension cord was plugged into a junction box at the bottom of a built-in entertainment cabinet.

Two receptacles were built into compartments on the right side of the cabinet. Getting power to one of those receptacles from the bottom receptacle was probably the thinking behind the improvised male-to-male cord. A third receptacle was installed above the second.

The first receptacle, on the bottom of the cabinet, is a metal box with building wire being fed into it. That was apparently installed before Johnny Wong bought the house. It was required to be fixed to a structural member of a building but instead was attached to the floor.

Justice Young found that it was likely that the second and third receptacles were installed by someone renting the place from the Wongs before 2006. It was not unit May, 2007 when Boyes and her parents moved in. The Wongs had more than a year to discover the hazard, Justice Young found. A trio of tenants lived there from August, 2006 through May, 2007. One of those tenants was found to have been aware of – but did not install – the extension cord and the two newer receptacles in the cabinet.

Doris Wong testified that she was not aware of the extension cord or of any electrical work done on the cabinet by any previous tenants.

A professional residential property manager testified as an expert witness in the underlying lawsuit. That witness was shown photographs of the built-in cabinet. Had he discovered something like that during a property inspection, he would likely have noticed the two receptacles on the right end were not installed according to code and he would likely have called an electrician, the witness told the court.

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