Mah v. Wawanesa Mutual Insurance Company, 2012 ABQB 577

Court of Queen ’ s Bench of Alberta Citation: Mah v. Wawanesa Mutual Insurance Company, 2012 ABQB 577 Date: 20120919 Docket: 0703 06149 Registry: Edmonton Between: Gordon Mah Plaintiff - and - Wawanesa Mutual Insurance Company Defendant _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice T.D. Clackson _______________________________________________________ I. Circumstances [ 1 ] The plaintiff bought 7812 106 Street (hereinafter 7812) from his brother Peter in January 2005.

Peter had previously insured the house with the defendant through its agent Pratt Lambert and Brown (hereinafter PLB). On May 2, 2005, the plaintiff asked PLB to add 7812 to an existing policy that he had with the defendant. That was done and 7812 was insured until June 30, 2005, the remainder of the existing policy. At the time, 7812 was added to the policies, it was valued at $180,000.00, replacement cost. On or about June 30, 2005, the policy was renewed and extended to June 30, 2006.

At the time, the defendant insisted that the plaintiff do some things to the property prior to June 30, 2006, or the policy would not be furthered renewed. One of those things was to put a railing on the back deck.

[ 2 ] As of May 2, 2005, the property was vacant and uninhabited. That continued to be the case until the house was ultimately demolished. [ 3 ] On May 10, 2005, the City of Edmonton issued an order to remedy the unsightly nature of the property at 7812 by May 24, 2005 (the unsightly premises order). The order required the owner to clean up the garbage, miscellaneous items and debris. On May 12, 2005, Capital Health issued a “ Notice of Health Hazard ” which declared the house at 7812 unfit for human habitation (hereinafter the unfit notice).

That notice was registered against the property ’ s title on May 25, 2005. The notice was sent registered mail to the plaintiff ’ s 773 post office box but was returned unclaimed. The plaintiff admitted that 773 was his post office box but he testified that he did not routinely access the box because his work

schedule made it difficult to get to the box when the post office was open. [ 4 ] However, Mr. Don, issuer of the unfit notice also testified that he laminated the two page notice and posted it on the door. At the time, the defendant said he was not aware that the unfit notice had been issued as affixed to the door. [ 5 ] At all material times, PLB had authority to bind the defendant to insure 7812. The defendant having received the request to extend coverage to 7812 asked for an inspection and photographs. PLB in turn directed Bill Laurie to do that.

The photographs taken by Laurie were taken on May 13, 2005, and sent to Wawanesa. The report prepared by Laurie may also have been sent to the defendant. In any event, it appears that neither PLB nor the defendant appreciated that the two laminated orange pages on the rear door of 7812 represented the unfit notice. [ 6 ] The plaintiff acknowledged that he did get the unsightly premises order and told his brother to get rid of the garbage.

While the plaintiff did not personally do the work required, he believes it was done because when he periodically attended at the premises to cut the lawn and the like, the garbage was gone. As well he noticed the front door had been reinforced. The unsightly premises order makes no mention of the problem with the front door, but the unfit order does. Some of the deficiencies outlined in the unfit notice were addressed when Mr. Don visited the property on May 17, 2005. From that, one can only conclude that someone had become aware that the front door needed fixing and did it. Since Mr.

Don attempted to contact Peter about the unfit order, and the plaintiff talked to Peter about the need to remove the garbage left by Peter ’ s previous tenant at 7812, once could conclude that Peter or someone at his direction fixed the front door. [ 7 ] However, while the plaintiff did not receive the registered unfit order, he agrees that it is standard practice for the Land Titles Office to send a copy of an unfit notice once it is registered on title to the land. The transmission is to the registered land owner, in this case, the plaintiff.

The Land Titles mailout would have gone to the plaintiff ’ s post office box 773. The plaintiff admits that the notice would have been mailed on May 25, 2005. [ 8 ] The evidence compels the conclusion that whatever was sent to post office box 773 by ordinary mail would eventually be picked up by the plaintiff. Therefore, I have concluded that within days of May 25, 2005, the plaintiff would know that the unfit order for 7812 existed.

He may have assumed the concerns were dealt with and failed to recognize that simply addressing the problems was insufficient as the unfit order required further inspections and approvals. [ 9 ] The plaintiff testified that he had not seen the unfit notice at any time prior to the fires which are the subject matter of this action. He did admit that he got notice that the defendant required him to put up railings on the deck and he did so.

He denies that he ever saw the orange laminate unfit notice on the rear door of 7812. [ 10 ] It appears that the defendant had notice that the property was vacant in April of 2006.

However, the timing of the notice of vacancy and the fact of vacancy are not issues in this proceeding, except that vacancy is consistent with the defendant ’ s allegation that the property was abandoned as the plaintiff was intent on razing the house and then building upon the resulting vacant space. [ 11 ] In that regard, the defendant argues that the plaintiff did not attempt to move into the property, sought no tenants, and had all the utilities and water to the property turned off. As well, the plaintiff ’ s mother, whom the plaintiff authorized to attend to insurance matters on his behalf, advised Mr.

Brown of PLB in April 2006 that the intent was to tear down 7812. The plaintiff denies that intent and said he intended to fix the place up and move in. To that end he said he checked on the price of new kitchen cabinets. However, on June 30, 2006 while on site dealing with the last fire at 7812, Wayne Pawlowski, an investigator with the Edmonton Fire Department, testified that the plaintiff said that “ insurance will have to tear it down this time ” . As well, a numbered company which lists the plaintiff and his

mother as sole directors, had purchased 7804-106th Avenue, a property immediately adjacent to 7812. That property had been a store. The transfer of 7804 closed on June 30, 2006, the date of the final fire at 7812. Ultimately, the structures on 7804 were razed sometime after the building on 7812 was demolished by the City of Edmonton. [ 12 ] The first fire at 7812 occurred in mid-May, 2006. There was significant damage. The second fire occurred in mid-June, 2006. It was a garbage can fire on the front porch.

The third fire occurred June 30, 2006 and caused extensive damage. [ 13 ] Both parties called expert evidence as to the cost to repair the premises. The details of that evidence will be explored in the damages

section of the analysis. [ 14 ] The main issue between the parties is whether the plaintiff ’ s coverage was lost because of his failure to notify the defendant of the material change to the risk. The material change alleged is the unfit declaration and the plaintiff ’ s abandonment of the property. II. Analysis A. Liability 1. Policy [ 15 ] The policy provisions which are relevant to the liability issues in this proceeding are as follows: Statutory Conditions (Alberta) 4(1) The insured must promptly give notice in writing to the insurer or its agent of a change that is (

a) material to the risk, and (

b) within the control and knowledge of the insured.

(2) If an insurer or its agent is not promptly notified of a change under subparagraph (1) of this condition, the contract is void as to the part affected by the change.

(3) If an insurer or its agent is notified of a change under subparagraph (1) of this condition, the insurer may (

a) terminate the contract in accordance with Statutory Condition 5, or (

b) notify the insured in writing that, if the insured desires the contract to continue in force, the insured must, within 15 days after receipt of the notice, pay to the insurer an additional premium specified in the notice.

(4) If the insured fails to pay an additional premium when required to do so under subparagraph (3)(

b) of this condition, the contract is terminated at that time and Statutory Condition 5(2)(

a) applies in respect of the unearned portion of the premium. [ 16 ] The Insurance Act RSA 2000

chapter I-3 at the relevant time, had the following relevant provisions:

512 Except where otherwise provided and where not inconsistent with any other provision of this Act, the provisions of this Subpart apply to every contract of insurance other than a contract of life insurance to which Subpart 4 applies. 513(1) All the terms and conditions of a contract of insurance must be set out in full in the policy or by writing securely attached to it when issued, and unless so set out no term of the contract or condition, stipulation, warranty or proviso modifying or impairing its effect is valid or admissible in evidence to the prejudice of the insured or any beneficiary. . . .

(8) The question of materiality in any contract of insurance is a question of fact for the jury, or for the Court if there is no jury, and no admission, term, condition, stipulation, warranty or proviso to the contrary contained in the application or proposal for insurance or in the instrument of contract or in any agreement or document relating to the contract of insurance has any force or validity.

(9) Nothing in this

section impairs the effect of any statutory condition required by this Act to be inserted in any contract of insurance, or of any express provision of this Act. . . . . . 524(1) Subject to any statutory condition and subsection (2), any notice given by an insurer for any of the purposes of this Act, when the mode of giving notice is not otherwise expressly provided for, may, in the case of a member or person insured, be given by mailing it to the post office address given in the member ’ s or person ’s original application for insurance or otherwise notified in writing to the insurer.

(2) Notices given by provincial companies to policyholders are governed by

section 228.

(3) Subject to any statutory condition, delivery of any written notice to an insurer for any of the purposes of this Act, when the mode of delivering the notice is not otherwise expressly provided for, may be delivered by letter to the chief agency of the insurer in Alberta or sent by registered mail addressed to the insurer, its manager or agent at that chief agency, or sent in any other manner to an authorized agent of the insurer. 525(1) An insurer must on request furnish to the insured a true copy of (

a) the insured’s application or proposal for insurance, and (

b) the insured’s policy of insurance.

(2) The insurer may charge a reasonable fee to cover its expenses in issuing any additional copies of the policy other than the first copy. Statutory conditions 540(1) Subject to subsections (2) and (3), (

a) the conditions set out in this

section are deemed to be part of every contract in force in Alberta and must be printed on every

policy under the heading “Statutory Conditions”, and (

b) no variation or omission of or addition to any statutory condition is binding on the insured. 549(1) The conditions set out in this

section are deemed to be part of every contract in force in Alberta and must be printed on every policy with the heading “Statutory Conditions”, and no variation or omission of or addition to any statutory condition is binding on the insured. [ 17 ] In my view, the defendant seeking to rely upon the “ material risk change ” condition must establish that the plaintiff was bound by that condition.

Therefore, the defendant must in compliance with s. 513 show that the plaintiff actually was aware of the material risk change condition. [ 18 ] The defendant makes two arguments in support of the disputed fact of knowledge. Firstly, the defendant argues that the evidence supports the conclusion that the plaintiff did get sent a copy of the applicable policy and declaration pages in the course of being insured with the defendant. The defendant ’ s practice was to send policy wordings to their insureds. Therefore the plaintiff would have received such wordings sometime in 1988 when he first insured with Wawanesa.

In addition, the defendant ’ s practice in 2001 was to send out a new policy booklet to reflect wording changes with the declarations page at the time of renewal. Ms.

McLennan of the defendant testified that this was done automatically and since there is no record of the declarations page having been returned, the plaintiff must have received the same, with his 2001 renewal or at the latest with his 2002 renewal. 7812 was an added property to the original policy held by the plaintiff with the defendant so no “ new ” policy was necessarily issued for 7812. [ 19 ] The declarations page lists the plaintiff ’ s address as the 773 box at all relevant times. [ 20 ] The plaintiff testified that he did not receive a copy of the policy until after June, 2006.

I do not accept the plaintiff ’ s evidence. In my view, he has simply forgotten as it is likely that getting a copy of the policy was a non-event in his life. Therefore, I have concluded that the defendant did comply with s. 513 and is entitled to rely upon the material risk change condition. [ 21 ] As a result it becomes unnecessary for me to determine whether, conditions mandated by statute are deemed to be known by the insured or must be provided to the insured in compliance with s. 513 to be effective. 2.

Material risk change [ 22 ] The defendants position is that while it is deemed to know that 7812 is vacant, it did not know it was abandoned or declared unfit for human habitation. The evidence of Ms. McLennan on behalf of the defendant was that, had the defendant known, it would have terminated coverage.

a) Was 7812 abandoned? [ 23 ] The plaintiff testified that it was not. The evidence of Mr. Pawlowski and Mr. Brown suggests that the plaintiff intended to raze 7812. The plaintiff denies this. The condition relied upon benefits the insurer and therefore the onus falls on it to establish the fact. If the property was abandoned, it makes no sense to have insured it for fire. There is certainly no evidence beyond the ill informed speculation by Mr. Pawlowski that the plaintiff had anything to do with the fires.

Furthermore, the defendant ’ s agent, PLB was advised in April that the property was vacant and the defendant is bound to that knowledge. Ms. McLennan testified that an additional premium and a reduction of coverage would occur on vacancy. Again, it makes little sense to incur an additional premium if the property is abandoned. As well, the plaintiff testified and was not challenged on the evidence that he periodically attended the property to care for

the yard. That is not consistent with abandonment. [ 24 ] In result, I have concluded that while demolishing 7812 was a potential, the defendant has not proved that the plaintiff firmly intended to do so and therefore has not proved that the plaintiff abandoned the property.

b) The unfit notice

i) The plaintiff ’ s knowledge [ 25 ] In my view, the plaintiff must be taken to have known that 7812 had been declared unfit for human habitation. That fact would have come to his attention as a result of the mail out from Land Titles and the posted notice on the rear door of the property. The plaintiff must be taken to have seen the notice on the rear door of the property when making his periodic visits to the property and when he fixed the railing. In any event, I do not accept his evidence that he did not know.

Furthermore, it follows that the plaintiff knew of the fact of unfitness for many months prior to the losses. ii) Is the unfit notice a material change? [ 26 ] The plaintiff does not argue that unfitness is not a material change. Plainly, it is. iii) Did the defendant know of the unfitness notice? [ 27 ] Since Laurie inspected the property and his photographs show the orange notices of unfitness posted on the rear door, one could assume that Laurie knew of the notice. However, he did not testify. The evidence led on this subject is that neither PLB nor the defendant knew of the notice until after the fires.

I accept that as fact. Since the plaintiff did not notify the insured as required by the policy. It follows that the plaintiff was in breach of the policy. 3. Relief from Forfeiture [ 28 ] Section 552(1) of the Insurance Act as it existed at the time, provided: 552(1) When a contract (

a) excludes any loss that would otherwise fall within the coverage described in

section 544, or (

b) contains any stipulation, condition or warranty that is or may be material to the risk including, but not restricted to, a provision in respect to the use, condition, location or maintenance of the insured property, the exclusion, stipulation, condition or warranty is not binding on the insured if it is held to be unjust or unreasonable by the court before which a question relating to it is tried.

[29] It is not the condition which is assessed but rather the operation of the condition in the specific circumstances of the claimwhich matters: Marche v. Halifax Insurance Co. 2005 SCC 6 , [2005] 1 S.C.R. 47. [30] It is generally unjust and unreasonable for a court to give affect to a breach which is not causily connected to the loss:Marche v. Halifax Insurance Co. 2002 NSSC 62 , [2002] 202 N.S.R. (2d) 345, (N.S.S.C.). [31] In this case, plainly the fires which occurred were caused by persons on the premises with no right to be there.

A vacantproperty that is otherwise cared for does not necessarily attract squatters, drifters, and other sorts of people who have no interest inmaintaining the property. However, a condemned house, or one vacant and not cared for and apparently abandoned, is likely to attractthose very sorts of people. That is what makes the change material. The property was in greater peril because of its obvious status. Thatnot one, but three fires occurred was predictable.

In the circumstances, the status of 7812 was causily connected to the fires, and thereforethe failure to advise of the status change is a causily connected breach of the policy. [32] Additionally, the plaintiff knew about the change in status of the property for months before the first fire. He offered noexplanation for why he did not act. In my view, any reasonable person would have recognized the increased risk which came to pass. Forthose reasons, I have concluded that it is neither unjust nor unreasonable to allow the defendant to act upon the breach of the statutorycondition 4.

It follows that the plaintiff’s claim was rightly denied by the defendant. As a result, the plaintiff’s claim is dismissed.

b) Damages [33] In keeping with the practice of this court, I will assess damages even though I have dismissed the plaintiff’s claims in theevent a successful appeal is launched. [34] Each of the parties called an expert witness to estimate the cost to fully repair the damage caused by the fires. David Wallacetestified for the plaintiff and advised that by using software designed for the purpose, the actual measurements he had taken, andannually updating prices charged by renovation contractors for various services, he was able to calculate the cost to repair.

In doing so,he made the assumption that virtually all interior structures would have to be removed in order to be sure that smoke odours wereeliminated. [35] John Moorhouse testified for the defendant and calculated the cost of repair based upon his knowledge of the cost of generalconstruction services, his actual measurements of the property, and his assumption that the use of a sealant would be sufficient to sealsmoke odour into the structures without necessitating their removal. [36] Mr. Moorhouse’s calculation was that 7812 could be repaired at a cost of $44,875.33. Mr.

Wallace’s opinion was that thecost would be $97,812.37. 1. Actual cash value or replacement cost? [37] The foregoing are estimates of replacement cost. I was told that 75% of those amounts represents the actual cash value of thedamage caused. The defendant argued that because the plaintiff intended to demolish 7812, he should not recoup a windfall whichreplacement cost would represent. Earlier in these reasons, I concluded that the defendant had not established that the plaintiff intendedto demolish 7812 and therefore, the plaintiff would have been entitled to replacement cost had his action been successful. 2.

Proper replacement cost

a) Differences in the expert ’ s evidence i. Restoration versus general contractors [ 38 ] The defendant points out that the Wallace assessment relies on restoration contractors as opposed to general construction contractors. Mr. Moorhouse testified that the difference is that restoration contractors are insurance driven and their rates are higher than general construction contractors. In Mr. Moorhouse ’ s view, there would be no difference in the ability of either to be able to do the necessary work. [ 39 ] I accept Mr. Moorhouse ’ s evidence on this topic.

Once would think that a general construction contractor could do the work necessary. There was no evidence lead to support the conclusion that the job required someone with more expertise which is what the adjective “ restoration ” implies. However, I do not have any evidence that specifically identifies what impact that change would have made to Mr. Wallace ’ s estimate to repair the damage. ii. Efficiencies [ 40 ] Mr. Wallace treated the damages in each room as a separate job and had a significant allowance in each such job for waste. Mr.

Moorhouse ’ s opinion was that since one contractor would be doing the whole job, there were bound to be efficiencies realized, waste should be minimized. Again, I find myself in agreement with Mr. Moorhouse. Again, however, I have no evidence that specifically quantifies the degree to which the estimate of Mr. Wallace is overstated as a result. iii. Overhead [ 41 ] Mr. Wallace calculated overhead and profit at 20%. Mr. Moorhouse advised that it should be 15%. Again, this appears to be a restoration versus ordinary contractor issue. Again, I accept Mr. Moorhouse ’ s evidence. In result, Mr.

Wallace ’ s estimate is 5% too high and after making adjustment as suggested in his report and his evidence, his estimate should be reduced to a cost of $76,883.95 with the appropriate markups that becomes $92,260.74. iv. Smoke odour [ 42 ] This is the largest area of dispute between the parties. Plainly, the plaintiff is entitled to be restored to his property as it was before the fires. He is not obliged to accept any lingering smoke odour. Mr. Wallace conceded that the proper application of a smoke smell sealant is effective at achieving the necessary result.

However, his opinion was that the last most significant fire was such that smoke would have been pressurized and forced into the nooks and crannies of this old house. He pointed to the pictures to demonstrate how that would happen. Mr. Moorhouse was of the view that the lathe and plaster walls would have shielded the underlying structures from smoke permeation. I accept the evidence of Mr. Wallace. The walls in this house were unlikely to be perfectly sealed. There were many openings in the walls for switches and outlets and alike.

The floors whether ship lap or otherwise would certainly not stop the pressurized smoke from migrating. Finally, and perhaps most importantly, the insured is not obliged to accept anything other than a complete absence of odour. The insurer would have the onus of showing that that had been achieved. That same onus must apply where one is arguing that the estimate provided achieves that end. The defendant has not met that onus. v. Overestimation

[ 43 ] Mr. Wallace allowed for insulation in the walls, but Mr. Moorhouse advised that there was no insulation in the walls before the fires occurred. Given the age of the building, Mr. Moorhouse is most likely right. [ 44 ] Mr. Wallace ’ s opinion was that the roof structures could not be completely smoke sealed but I accept as Mr. Moorhouse testified that removal of the roof in the eave areas would get at the tricky spots and therefore the entirety of the roof structures do not have to be removed and replaced. The saving would appear to be around $7,300.00. [ 45 ] There were other inaccuracies in Mr.

Wallace ’ s estimate such as double counting a door. vi. Conclusion [ 46 ] Mr. Moorhouse ’ s estimate is clearly not adequate given my findings. Mr. Wallace ’ s estimate is clearly more than it should be. I have determined that reducing Mr. Wallace ’ s estimate to account for errors, overestimation, double counting, and the difference between using a general contractor as opposed to a restoration contractor is preferable because his basic premise respecting smoke odour and the elimination of it is more accurate. I have reduced the estimated cost that Mr. Wallace arrived at to a lump sum of $65,000.00.

To that, I would add 15% for overhead and profit and the G.S.T. of 6%. 3. Miscellaneous damage claims [ 47 ] In my view, the plaintiff is entitled to the miscellaneous damage claims of $342.00 relating to boarding the property and cleanup. [ 48 ] The parties may argue the matter of costs on appointment. Heard on the 11 th day of June, 2012. Dated at the City of Edmonton, Alberta this 19 th day of September, 2012. T.D. Clackson J.C.Q.B.A. Appearances: David R. Syme, Q.C.

Cleall for the Plaintiff Vaughn Cox Chatwin LLP for the Defendant