The insurer denied the insured’s claim alleging non-disclosure of a material change in the risk. The use of the insured’s motor vehicle in a performance driving school was a change material to the risk; however, the insured did not know that the change in the situation was material to the risk and therefore the duty to disclose under Statutory Condition 1 did not apply. The insured’s action for breach of contract was granted.

[2012] N.B.J. No. 46

2012 NBQB 47

New Brunswick Court of Queen's Bench

L.A. LaVigne J.

February 10, 2012

The insured lost control of his motor vehicle and collided with a concrete wall while driving around a racetrack. The motor vehicle was a total loss. The insurer denied the insured’s claim on the basis the insured failed to notify it of a material change in the risk within his knowledge.

Statutory Condition 1 in New Brunswick’s Standard Owner’s Policy reads as follows:

Material Change in Risk

(1) The Insured named in this contract shall promptly notify the insurer or its local agent in writing of any change in the risk material to the contract and within his knowledge…

The motor vehicle was insured under Class 01 which is identified as “pleasure”. Under Class 1, the motor vehicle is to be driven less than 18,000 kilometers per year and may only be used to drive to work, provided the distance is less than five kilometers.

The insured enrolled in a two day performance driving class. The class was held at the Mont-Tremblant circuit and the practice took place on the racetrack. The racetrack had 15 turns, including a hairpin turn, no speed limit, no traffic signs and there could be as many as 15 other vehicles on the track at the same time.

A material change in the risk is one which, if disclosed in a timely fashion, would have a bearing on a reasonable or prudent insurer’s undertaking of the risk or its premium-setting decision: Aviva Insurance Company of Canada v. Thomas, 2011 NBCA 96, at para. 50. The court held that some of the exercises in the performance driving class presented a greater risk than what is covered under Class 01, where use is for pleasure. The court concluded that if the insurer had known of the information relevant to the risk it would have refused to insure the motor vehicle while it was used on the racetrack.

However, the court found that the insured did not know that using his motor vehicle in the performance driving class was material to the risk and therefore the duty to disclose under Statutory Condition 1 did not apply. The court found that Statutory Condition 1 was ambiguous and confusing and therefore adopted the interpretation most favorable to the insured. As a result, the insured’s subjective knowledge of any change material to the risk was relevant. The court noted that Statutory Condition 1 only applies when the insured knows that the change in the situation is material to the risk. The insured did not know that taking part in the performance driving class was material to the risk and thus the duty to disclose under Statutory Condition 1 did not apply. The insured’s action was allowed.