January 24, 2020 by Greg Meckbach
British Columbia’s top court recently sided with a Hub International brokerage in a case in which a client sued the brokerage and the insurer for coverage that was denied because a building damaged by fire contained a legal medical marijuana grow op.
In Schellenberg v. Wawanesa Mutual Insurance Company, released Wednesday, the B.C. Court of Appeal upheld a ruling by Justice Margot Fleming of the B.C. Supreme court, released Feb. 2, 2019.
In January 2014, a fire damaged property in Chilliwack owned by Bob and Linda Schellenberg. Their property insurance from Wawanesa was placed by Hub International Canada West ULC doing business as Hub International Barton Insurance Brokers.
Wawanesa denied the claim. After the fire, Wawanesa discovered the grow op, which was licenced by Health Canada so the Schellenbergs could produce marijuana for medical use.
Neither the brokerage nor the insurer asked the client specifically if there was a grow op on the property. The client did not tell either the insurer or the brokerage about it.
Justice Fleming sided with Wawanesa, which argued that the grow op was a material change in risk which the client was obligated to disclose. That ruling was upheld on appeal.
Wawanesa said it does not provide coverage to homeowners if it knows there is a grow-op on site. Therefore, they would not have renewed the Schellenberg’s policy had they been told about the grow-up.
Justice Fleming also dismissed Schellenberg’s negligence claim against Hub. Key to her ruling was that Schellenberg did not introduce expert evidence on a brokerage’s standard of care, and therefore did not prove Hub breached its duty of care.
The fire occurred on the second storey of an “outbuilding” that Schellenberg finished in 2011 or 2012. That was a large two-story building. The lower story was made of concrete while the upper storey was wood frame. The inside of the upper storey was not finished.
The lower storey was used for both vehicle repair and to grow marijuana for medical use. Schellenberg was repairing vehicles for personal rather than commercial use.
During a conversation with a Hub broker in 2012 or 2013, Schellenberg told the brokerage about the vehicle repair facility in the outbuilding. He did not tell the broker about the grow-op.
Schellenberg argued that his disclosure of the car repair shop ought to have prompted the broker to make further inquiries on what the building was used for; had the broker asked him whether there was a marijuana grow-up, he would have said yes.
Schellenberg argued on appeal that Justice Fleming erred in ruling that Schellenberg should have brought in expert evidence on a brokerage’s standard of care. Writing for the appeal court in its unanimous ruling, Justice Patrice Abrioux said Justice Fleming made no palpable or overriding error on the absence of expert evidence about the standard of care of brokers.
Justice Fleming cited Firman Sales & Service Ltd et al v Winnipeg, released in 2017 by the Court of appeal of Manitoba. That case arose from a lawsuit against a roofing contractor. The Manitoba appeal court ruled that if a plaintiff alleges a professional is negligent, then as a general rule, the plaintiff needs to have evidence from an expert on the standard of care for that professional, unless the question is a non-technical matter or a matter within the common understanding of the ordinary person.
“The Schellenbergs have not suggested Hub’s alleged breach or breaches were egregious and therefore obvious,” Justice Fleming wrote in Schellenberg. “What inquiries a reasonable and prudent broker would have made, and what information if any he or she would have provided about coverage and potential gaps in coverage, at the time, in this context, is far from straightforward. In other words, the standard of care is not within the every day knowledge of the average person.”
In October 2013, three months before the fire, Schellenberg renewed his policy in response to a call from Hub.
Key to the court ruling in favour of Hub was testimony over a phone call between Schellenberg and Brenda Koehn of Hub. There was disagreement over exactly what was said. Neither Koehn nor Schellenberg could say when the phone conversation took place, but it was some time in 2012 or 2013. At the time of the call, Schellenberg recalled the vehicle repair shop had a crane and hoist.
In direct examination, Schellenberg said he told Koehn he wanted to be over-insured and the electrical system had been upgraded. In cross examination, Schellenberg conceded he did not tell her about the upgrade to the electrical system but he would have if she had asked. He said he told her he had a shop equipped with a hoist where he worked on cars; this should have prompted Koehn to ask about the electrical system.
In his testimony, he agreed he had an obligation to disclose changes to the property or its use. But he also said if the broker did not ask, he did not have to tell.
Before building the outbuilding, Schellenberg had his electrical service increased from 125 to 200 amps. Later he upgraded it to 400 amps.