The insurer had no duty to investigate the information provided by the insured to unearth misrepresentations by the insured. A broker was held liable for failing to make inquiries into whether an insured’s representative who completed the insurance applications had the necessary training or experience to do so and if not to discuss the benefits of property inspections with him. The insured was apportioned 50% liability for failing to ensure that its representatives handling the placement of insurance had sufficient knowledge of the properties to place coverage.

[2015] N.S.J. No. 270

2015 NSSC 195

Nova Scotia Supreme Court

A.J. LeBlanc J.

June 30, 2015

An insurer denied a claim based on material misrepresentation when a pub burned down and it was discovered that the pub was neither sprinklered nor was entirely of masonry construction. The insured brought an action against the insurer and the broker for indemnity under the policy, consequential damages as a result of the delay in rebuilding, and aggravated and punitive damages.

The insured argued that Endorsement 10 in the policy, which read in part “Any unintentional error or omission made by the Insured shall not void or impair the insurance hereunder …”, precluded the insurer from voiding coverage on the basis of unintentional misrepresentations. The insured argued in the alternative that the insurer negligently assessed the risk of the pub and that it was liable to indemnify the insured for the value of the claim under the policy. In the further alternative, the insured claimed against the broker in contract and tort, alleging that the broker was negligent in handling its account and that the broker had knowledge, and later possession, of an inspection report indicating that the pub was not sprinklered.

The Court noted that the “overriding concern” when interpreting insurance policies and other commercial contracts is to determine the intent of the parties and the scope of their understanding. As a result, the Court held that Endorsement 10 must have been intended to cover minor errors or omissions by an insured that do not materially affect the risk undertaken by the insurer. Because Endorsement 10 was not intended to excuse unintentional material misrepresentations by the insured, the insurer was entitled to void the policy. The Court also held that the insurer had no duty to investigate the information provided to unearth misrepresentations by the insured.

However, the Court held that the broker had breached the standard of care of a reasonable broker by failing to make inquiries to ascertain whether the insured’s representative had the necessary training or experience to accurately complete the insurance applications and to discuss the benefits of property inspections with him. Finally, the Court held that the insured was also negligent, as it failed to ensure that its representatives handling the placement of insurance had sufficient knowledge of the properties to place coverage. Accordingly, liability for the claim under the policy was apportioned equally between the broker and the insured.

The Court held that the insured failed to establish a breach of the duty of good faith by the insurers; therefore, consequential damages were not available as against it. As against the broker, the Court held that the only consequential damages claim was for the increased cost to construct a replacement pub and the loss of profits the pub could have generated from the replacement pub until the time of trial, and liability for these consequential damages was apportioned equally between the insured and the broker. Aggravated and punitive damages were not warranted.