In Nagy v. BCAA Insurance Corporation 2020 BCCA 270, a decision released this morning, the BCCA reversed a summary trial decision granting judgment to the insured and remanded the case back to the trial list. This case is relevant to anyone looking at coverage for first party losses and in particular where there are issues of material misrepresentation or material change.
Nature of case
The insured made a claim under his homeowner’s policy following a total loss fire. The insurer denied the claim on the basis that the insurance policy was void due to material change in risk, and to misrepresentations and omissions made by the respondents at the time the insurance policy was issued.
Trial Court decision
At a summary trial, the judge found coverage under the policy, concluding in relation to the alleged misrepresentations and omissions that these were omissions that the appellants had failed to demonstrate were fraudulently made.
The Trial-level decision can be found at 2019 BCSC 930.
The insureds made certain misrepresentations and/or omissions in the application form for the BCCA policy including fully reporting all previous losses and in the response to the question “Has any insurer cancelled, declined, refused or imposed any special conditions on habitational insurance for the applicant in the past 10 years?”. The insureds answered “no” when their current insurer, Wawanesa, had refused to renew following a significant fire loss at another property.
Credibility was very much in issue as the insured took the position that they had sent a revised application correcting the material misstatements shortly after the application was complete, although that was never received by the insurer.
The summary trial judge accepted the evidence of the insured on the basis of the a Browne v Dunn analysis that led her to conclude there was a lack of trial fairness in the manner in which BCAA took the position that Mr. Nagy was not to be believed
(Brown v. Dunn is a House of Lords decision that states in part a conflicting statement must be put to a witness in cross-examination).
As a result, the summary trial judge found that the insurer failed to demonstrate that the insureds’ omissions were fraudulent and as a result the policy was not void.
Issues on Appeal
- Do the respondents’ incomplete and inaccurate answers to the questions raised by BCAA in its telephone discussion with Mr. Nagy and on its application form constitute misrepresentations or omissions?
- What follows from the standard of review considerations?
- Did the judge err in her findings that the insured sent the addendum?
- Did the judge erroneously apply Browne v Dunn in weighing the evidence?
Decision
The BCCA, decision by Grauer JA (Saunders JA and Bennett JA concurring) found that the judge made a material error and that the summary trial judgment was to be set aside.
Discussion
The Appellate decision swept aside the issue of whether the omissions were innocent, negligent or fraudulent, noting that there was a statutory obligation to tell the truth on all material matters on an insurance application.
Whether or not the incorrect information was a misrepresentation (incorrect) as opposed to an omission (absent) was of central importance as a material omission would have to be fraudulent to allow the policy to be voided. The court of appeal found that the summary trial judge failed to discuss the distinction between a misrepresentation and an omission, and was led into a palpable error in characterizing the inaccuracies as omissions rather than misrepresentations. Accordingly, her decision was plainly wrong.
The Court of Appeal also noted that the judge was wrong in applying the standard of “heightened scrutiny” to proving that the insureds had committed fraud, noting that the Supreme Court of Canada had specifically ruled that this was not the law in FH v McDougall, 2008 SCC 53. In light of the SCC decision, the Grauer, JA held that “Heightened scrutiny” should now be locked away in the vault of discarded phrases.
Having found that the judge erred in characterizing the statements as omissions and not misrepresentations, the court of appeal found that the decision of the summary trial judge in favour of coverage could not stand; however, the court could not reverse the earlier decision.
The court of appeal found that the summary trial judge, having analyzed the issue as one of whether the insurer had demonstrated fraudulent intent in relation to an omission, the judge did not consider the question of receipt of the addendum in relation to a misrepresentation.
The court of appeal also dealt with the Brown v. Dunn issue noting that the judge found that the case was suitable for determination by summary trial notwithstanding that she recognized that credibility would be a critical factor. Since credibility was critical, the fact that neither party sought to cross-examine on the affidavits militated against a finding that there was an issue with the fairness of the (summary) trial procedure.
As a result, the court found that the errors discredited the result and went to the core of the decision. Accordingly a new trial was ordered.
Practical considerations
- Pay attention to the difference between misrepresentations and omissions and the different evidentiary standards;
- Read the wording of the statutory conditions carefully;
- If credibility is an issue at a summary trial, consider seeking an order for cross-examination on the affidavits; and,
- Remember, the insurer will need to prove materiality.
For more information on this and other insurance law issues, contact Andrew Epstein at aepstein@LindsayLLP.CA
This article originally appeared in the November 2020 issue of the Risk Management Counsel of Canada. Subscribe to RMC newsletters and seminars
