The recent decision of the Ontario Superior Court of Justice in Shaeen v. Meridian Insurance Group demonstrates the importance of ensuring that adequate insurance coverage is in place and the necessity of reporting material changes in circumstances to insurance brokers and agents.  The case also underscores the duty of insurance brokers and agents to provide full information to the insured concerning potential gaps in coverage.

Background

The plaintiff in the case, Lillian Shaeen, owned a number of residential and commercial properties.  The defendants were various insurance companies and the plaintiff’s broker.

In May of 2009, one of the plaintiff’s residential properties became vacant and underwent renovations.  During this time, the plaintiff did not notify her insurer that this property was “vacant” or “unoccupied.”  Had the plaintiff given her insurer notice of the vacancy, her insurance policy would have carried a higher premium due to the increased risk associated with vacant or unoccupied properties.

The insurers argued that the plaintiff had an obligation to inform them of this change within 30 days, pursuant to Statutory Condition 4, which obligates an insured to inform their insurer or local agent of a material change in risk of the policy.  Accordingly, the defendants brought motions for summary judgment to dismiss the case against each of them.

In response, the plaintiff argued that she informed her broker that the property would undergo renovations and her broker failed to warn the plaintiff that this may result in a gap in coverage.  The plaintiff argued that the insurer owed the insured a duty of care when providing insurance advice and coverage, which required the broker to advise of the gap in coverage.

Judgement

The Court found that the insurers failed to establish that there was no genuine issue for trial and dismissed the defendants’ motion.  In so doing, the Court held that the insurer owed the plaintiff a duty to provide detailed advice tailored to her specific needs.   In addition, the insurer owed the plaintiff a “positive duty” to inform her about potential gaps in coverage.

Lessons Learned

This case serves to emphasize the importance of making certain that an insurance policy covers the intended use of a property or activities to be carried on.  Charities are well advised to ensure that any new or existing policies cover all aspects of their operations, without any ‘gaps’ that might prevent coverage in respect of certain activities or in certain circumstances.  Charities should speak to their insurance brokers, informing them of the full scope of their activities and requesting confirmation that their insurance policies are adequate. 

Furthermore, charities should ensure that any changes that may affect insured property or businesses must be brought to an insurer’s attention, in writing.  This will eliminate the potential for an “I don’t remember” defence on the part of an insurer.