Homeowners win battle to collect on fire insurance
Supreme Court rules that leaving house vacant did not void coverage

Cristin Schmitz CanWest News Service Friday, February 25, 2005

OTTAWA-- In a victory for homeowners and tenants against fire insurance companies across Canada, the Supreme Court of Canada has ruled 7-2 that Halifax Insurance Co. must cover the loss of a Cape Breton couple whose house burned down in 1999.

Describing it as a "sad case," Chief Justice Beverley McLachlin allowed the appeal Thursday of Theresa Marche and Gary Fitzgerald against a decision by the Nova Scotia Court of Appeal that the pair weren't entitled to the $51,245 value of their North Sydney, N.S., rental property.

The house burned down after they left Cape Breton in the late summer of 1998 to look for jobs in British Columbia.

Both flats in the property were vacant at the time but Marche was trying to find tenants. Fitzgerald's brother moved into one of the apartments in November 1999. The house was destroyed in a blaze two months later.

When Marche and Fitzgerald claimed on their fire insurance policy, Halifax Insurance Co. refused to pay.

The insurer said the policy was void because the house had been left empty for a few months in the fall, and the couple failed to comply with a condition in the policy, imposed by provincial law, that requires fire insurance policy holders to promptly notify an insurer, in writing, of any change that is "material" to the risk covered by the insurer.

Failure to do so will void the insurance policy. Vacancies are considered a material risk because they increase the risk of fire.

The pair won their lawsuit at trial. The trial court ruled that even if the vacancy was a material change to the risk -- which would normally invalidate the fire coverage unless the policy holders advised the insurance company -- the couple were entitled to be paid their losses because of section 171 of Nova Scotia's Insurance Act.

Section 171 is largely mirrored in all provinces' insurance laws except in Quebec. It states that a condition in a fire insurance policy will not bind the insured if a court finds the condition to be "unjust or unreasonable."

However, the Court of Appeal ruled the exception didn't apply because the requirement that an insurance company be informed of every material change to the risk is imposed by law, and not an optional requirement that insurance companies insert into policies for their own benefit. The appeal court concluded conditions imposed by provincial law cannot, by definition, be "unjust or unreasonable."

Chief Justice McLachlin disagreed.

She concluded that courts can relieve against fire insurance policy conditions, even those that are imposed by provincial law, when those conditions "are unreasonable in their application or draconian in their consequences."

"Section 171's purpose is to provide relief from unjust or unreasonable insurance policy conditions and should be given a broad interpretation," she wrote for seven judges. In this case any change to the risk created by the earlier vacancy had disappeared by the time of the actual fire.

Dissenting judges Michel Bastarache and Louise Charron pointed out that in order for the insurance system to work insurance companies have to be able to rely on policy holders to inform them of all facts that are significant in determining the risk of fire.

"The insurer has no other tool to determine any change to the risk," said the dissenters. "This is not a case of an insurer neglecting the information it received and shutting its eyes to the reality. Halifax Insurance was not willfully blind; on the contrary it was completely in the dark."

Daniela Bassan, lawyer for Halifax Insurance Co., declined comment.

Times Colonist (Victoria) 2005

This may be something to think about for those of you who have rental properties......