Jianlong Zheng - v - John Galon Insurance Services Ltd. Operating as Galon Insurance Brokers v. Saskatchewan Government Insurance, 2016 SKPC 090

IN THE PROVINCIAL COURT OF SASKATCHEWAN CIVIL DIVISION Citation: 2016 SKPC 090 Date: June 27, 2016 File: SC 400/14 Location: Regina _____________________________________________________________________________ Between: Jianlong Zheng - v - John Galon Insurance Services Ltd. Operating as Galon Insurance Brokers and Saskatchewan Government Insurance Operating as SGI Canada Self Represented For the Plaintiff Darby Bachynski For the Defendant, John Galon Insurance Don Harmon For Saskatchewan Government Insurance JUDGMENT P. DEMONG, J Introduction

[ 1 ] The plaintiff’s home was damaged when a fire broke out. Subsequent investigation by his insurance company revealed that he had three paying tenants living with him at the time. His insurance company denied coverage under his ‘owner-occupied’ policy of home insurance on the basis that his decision to rent his premises to a number of tenants constituted both a misrepresentation and a ‘change material to the risk within the control and knowledge of the insured’. [ 2 ] The plaintiff brings this action against his insurance broker and his insurance company.

He alleges that his insurance broker breached its duty of care to him because it failed to advise him that his decision to take in paying tenants might have the effect of voiding his insurance.

He alleges that SGI also failed to draw this to his attention and that, because the fire itself was not caused by a renter, and because he was not subjectively aware that renting to others would constitute a material change in risk, his insurance company breached its contract with him when it failed to cover the loss. [ 3 ] The defendant insurance broker denies that it breached its duty of care to the plaintiff and asserts that it not only met, but exceeded the standard of care required of it.

It further asserts that the plaintiff, in fact, had actual knowledge that renting out his home to others might constitute a change which would contravene a term of his contract which would result in voiding coverage. [ 4 ] The defendant insurance company relies on the insurance broker’s defence as stated above and argues that even if the plaintiff was not subjectively aware that his decision to take on renters was material to the risk, subjective knowledge of the insured in these circumstances is not required - and that in law, it is entitled to void coverage if there is a material change in the risk that had been underwritten.

It further maintains that it does not matter that the tenants were not the cause of the fire. It argues that according to law, the only issue for consideration is that if both subjectively and objectively, an insurance company would have either declined to offer insurance coverage, or would have charged a larger premium to insure premises that includes tenants, than the risk is material regardless of how the fire started. Evidence Relating to the Formation of the Contract and Resulting Loss [ 5 ] The plaintiff (‘Mr. Zheng’) had moved to Regina from Brampton, Ontario in or about 2012.

He and his wife wanted to purchase a home, and its lender sought, as a precondition to offering a mortgage, confirmation that the home would be insured. To that end he attended at John Galon Insurance Services Ltd. (‘Galon’) on March 27, 2012, and met with one of its broker representatives, David Romanow. Mr. Zheng says that when he met with Mr. Romanow he discussed his needs and advised him of the home that he was in the process of buying. He says that Mr. Romanow searched his computer, and filled in a ‘Habitational Insurance Application form` without the assistance of Mr. Zheng, and without asking Mr.

Zheng any questions. He says that he was then provided an SGI Canada (‘SGI’) price quote from Mr. Romanow, which was satisfactory to Mr. Zheng. Mr. Zheng says that after a cursory read of the Habitational application form, he signed it. After receiving the price quote, and after having paying for the insurance, he was then asked to sign a ‘Consent & Disclosure’ statement. Mr. Zheng said he did so after Mr. Romanow went through it with him. Mr.

Zheng says that he asked about the vacancy provisions in the form, and had certain questions about basement flooding, and once they were explained to him, he gave the document a cursory read and signed it. [ 6 ] Mr. Zheng says that he was not provided with a booklet describing the type of insurance that he had bought (a 30 page SGI Canada Easy Read Insurance Policy Booklet which describes the terms and conditions of the insurance he was buying). He says rather that he was given a receipt and a copy of his application form and was told that his policy would be sent to him in the mail.

He inclines to the view that the entire meeting took place over the course of perhaps ten minutes. He does confirm that a few days later he received the insurance policy cover page, which identified broadly the various types of insurance coverage he purchased, along with a letter confirming that coverage was in place. [ 7 ] David Romanow could not attend the trial. The Court was advised by Galon’s counsel that he was bedridden and in the hospital with a most unfavourable diagnosis. Under the circumstances I allowed his evidence in by way of sworn affidavit.

I advised counsel that it may prove to have somewhat less weight in light of the fact that Mr. Zheng would have no opportunity to cross-examine on the affidavit. [ 8 ] Mr. Romanow has been an insurance agent with Galon for about nine years. He asserts that when he met with Mr. Zheng he felt that Mr. Zheng’s English was a little slow but that he appeared to understand the questions put to him and the discussions that they had. He did not believe that language acted as a barrier to their meeting. Mr. Romanow says that he collected information online in relation to the physical attributes of the home and asked Mr.

Zheng several other questions about the home and any special attributes. This information was subsequently incorporated into a ‘Habitational Insurance Application’ form. He asserts, contrary to Mr. Zheng’s

evidence, that Mr. Zheng assisted him when the form asked questions about the issue of rental income, the number of weeks that the location is rented to others, and the number of rooms rented to others. He says that he discussed a number of other features of that document with Mr. Zheng, including additional coverage options and liability exposures. He says that Mr. Zheng then had full opportunity to read the document, and then Mr. Zheng signed it. [ 9 ] Mr. Romanow says that thereafter he presented a further document to Mr. Zheng identified as a ‘Consent and Disclosure’ form which they again reviewed together.

He asked Mr. Zheng certain questions and wrote down Mr. Zheng`s answers, after which Mr. Zheng again read over and signed the document. Mr. Romanow says that he then provided Mr. Zheng with a copy of the application form, the SGI Canada Policy booklet referred to above, and a receipt. [ 10 ] While Mr. Romanow does not advise how long the meeting lasted, he indicates that the process he followed is mandated by Galon, and that he followed his normal and usual practice. [ 11 ] Where the evidence of Mr. Romanow and Mr. Zheng differ on certain points, I prefer the evidence of Mr.

Romanow, even though he was not available for cross-examination. When listening to the evidence of Mr. Zheng I was left with the distinct impression that he was trying to minimize his interaction with Mr. Romanow, especially in so far as that interplay affected the potential merits of his claim. [ 12 ] First, I do not believe that the meeting lasted less than fifteen minutes. I have read the documents that Mr. Zheng signed, and which he said he read (albeit in a cursory fashion). I consider myself relatively fluent in English, and it takes me twelve minutes just to read the documents.

This does not include stopping and answering questions that would have been put to Mr. Zheng. This does not include any introductory formalities that might have been discussed at the beginning of the meeting, nor does it include the time it would have taken to Mr. Romanow to source the physical information relating to the home that he found on line and subsequently inputted onto the application form. It does not include a discussion of any specific coverages or a discussion in respect of certain liabilities that were covered and for which answers were inputted.

It does not incorporate or take into consideration a discussion of the various price quotes that were provided. It does not take into consideration the time it would take to make payment for the insurance, and it does not take into consideration the limitations in Mr. Zheng’s English which was obvious and discernible at trial. [ 13 ] Second, I do not believe Mr. Zheng when he says that Mr. Romanow did not ask any questions of Mr. Zheng when he was assisting Mr Zheng in filling out the Habitational Insurance Application form. Many of the answers recorded on that form could not, in my view, be filled in without Mr.

Zheng providing an answer - examples of which would include Mr. Zheng`s date of birth, his wife`s date of birth, his previous address in Ontario, the number of years Mr. Zheng would have been claims free in order to obtain a claims free discount, and the like. [ 14 ] Third, on cross-examination, when asked about whether he had been specifically asked about whether or not he would be having any renters or boarders, he took what I would best describe as a long, significant pause, squirmed a bit as he thought about it and then answered in the negative.

This, notwithstanding that he clearly had discussed other aspects of the questionnaire with Mr. Romanow, including the issues of vacancy and basement flooding, and each of those questions are on the same page and immediately above and below the questions relating to renters. A single incident of a change in demeanour is rarely, in my view, determinative when assessing credibility, but when that demeanour shifts so significantly between questions, particularly when the question is key, it forces a judge to wonder why the demeanour shifts so radically. In this case it did. Mr.

Zheng had no problem and did not pause for lengthy periods when answering other questions. [ 15 ] Finally, and again on cross-examination, Mr. Zheng was asked about his other, post-fire dealings with Galon. After having indicated that he had never directly advised Galon about the fire, he was made aware of the existence of a computer generated activity log which is prepared by all insurance agents at Galon.

Once presented with the fact that this log indicated that he had in fact told Galon about the fire, he changed his evidence. [ 16 ] In isolation, any one of these concerns might be overlooked, but taken together, all of these concerns are sufficient to persuade me that either Mr. Zheng has attempted to understate the amount of service and the numbers of issues dealt with by Mr. Romanow, or at the very least, that his memory of the events in question is limited, and less reliable than the evidence tendered by Mr. Romanow.

[ 17 ] I am satisfied that when Mr. Zheng attended to discuss his insurance needs with Mr. Romanow the meeting would have lasted far longer than the scant ten minutes Mr. Zheng has suggested. I am satisfied that when they met, Mr. Romanow properly concluded that Mr. Zheng`s English was of sufficient quality that each could understand what the other was saying. I am satisfied that both the Habitational Insurance form and the Consent and Disclosure form were reviewed by Mr.

Zheng and that he participated in providing the answers to those questions that were filled in as it relates to the essential issues in this lawsuit. I am satisfied that Mr. Zheng had full opportunity to read and sign each of the completed forms, and did so, even if they were read by him in a cursory fashion. [ 18 ] I have heard no evidence whatsoever that Mr. Zheng asked any questions of Mr. Romanow regarding any matter which is pertinent to this lawsuit and I have heard no evidence whatsoever that if he had any concerns Mr.

Romanow would not have attempted to assist him in that regard as is, according to John Galon`s evidence at trial, an expected and typical function of an insurance agent when meeting with a client. [ 19 ] Finally, while the evidence is equivocal as to whether or not Mr. Zheng was presented with a copy of his Insurance booklet following his attendance on Mr.

Romanow, I note that when he received a copy of his policy cover page a few days after this meeting, and had he read it, he would have noted the short paragraph, on the first page, written in bold lettering advising him that: Your policy is made up of this cover page and one or more SGI CANADA policy booklets as identified in the Booklet column. If you have not received a copy of the booklet(s), your broker will provide them to you upon request.

Simply put, even if he had not received a copy of the policy booklet when he left the broker’s office, within seven days he was made aware of the fact that he need only ask and one would be provided to him. [ 20 ] Although Mr. Zheng did not originally have any renters, within five short months of obtaining his insurance he took in a renter. Shortly thereafter, he took in another renter, and then another and finally another.

At one point in time he was renting to four different renters, although at the time of the fire in October of 2013, he says that he only had three and was taking in almost $1,500.00 per month in rent. He and his parents and children lived on the second floor and the renters occupied the first floor and basement. Notwithstanding this, when his insurance came up for renewal in March of 2013, and notwithstanding that the renewal letter specifically asked Mr. Zheng to check to ensure that the coverage reflected his then correct situation - he sought no changes.

When his renewal policy came a short time later, the cover page included the same paragraph relating to an opportunity to request a booklet as described in the immediately preceding paragraph. [ 21 ] The information that Mr. Zheng provided when he applied for the insurance, and the warnings that were set forth in writing on the forms that he says he read and signed are, in my view, central to the issues to be decided. [ 22 ] In the Habitational Insurance Application form Mr. Zheng was asked, among other things, about whether he was seeking coverage for rental income and he answered no.

Under the liability exposures provision of the form he was asked about the number of weeks [the] location rented to others. He answered zero. He was asked about the number of rooms that were being rented to others and he answered zero. At trial, Mr. Zheng made the somewhat disingenuous argument that he was technically telling the truth at that time because he had not yet started renting rooms to others. The fact that on renewal he was asked if his information was still correct seems to have escaped his attention.

He had been renting to others for almost seven months when he received the renewal and the request that he correct his information if necessary. [ 23 ] The Habitational Insurance Application form includes a paragraph titled FULL DISCLOSURE. It reads: I, the applicant ... have reviewed all parts of and attachments to this application and declare that all of the information is true and correct even if the information had been altered or suggested by the representative of the insurer or by the insurance broker.

I understand that acceptance of this application for insurance is based on the truth and completeness of this information, and that ... if I falsely describe the property to the prejudice of the insurer, or misrepresent or fraudulently omit to communicate any circumstance that is material to be made known to the insurer in order to enable it to judge the risk to be undertaken, the contract may be void in whole or as to any property in relation to which the misrepresentation or omission is material.

[ 24 ] Mr. Zheng also provided answers in relation to the Consent and Disclosure document that he says he read and signed. That document is two pages long. The first and second paragraphs read: Where (

a) an applicant to this contract gives false particulars to the prejudice of the insurer or misrepresents or fails to disclose any fact in any part of this application required to be stated therein: or (

b) the Insured contravenes a term of the contract or commits a fraud; or (

c) the insured makes a false statement in respect of a claim, a claim will become invalid and the insured`s right to recovery is forfeited. The Applicants have reviewed all parts and attachments of this application and acknowledge that all information is true and correct and understand that this application for insurance is based on the truth and completeness of this information. [ 25 ] In this Consent and Disclosure form Mr Zheng answered the following questions: Will you be running any business out of the premises? Answer : No. Once completed, will the dwelling be owner-occupied, tenant-occupied, or vacant?

Answer: Owner. Will you have any renters or boarders? Answer: No. [Emphasis added] [ 26 ] Mr. Zheng received notification of his insurance policy renewal in or about February of 2013. As stated, at that time he had been taking in tenants for a number of months. The materials included a paper that specifically stated: We are pleased to enclose your insurance policy renewal. Please check the policy carefully to ensure the information is correct and the coverage reflects your current situation .... . [emphasis added]. [ 27 ] Had Mr.

Zheng attempted to obtain a copy of his coverage booklet, and read it, he would have noted the statutory conditions set forth in the booklet and which form part of his policy of insurance. Two of those conditions are relevant to Mr. Zheng’s action: Misrepresentation 1.

If any person applying for insurance falsely describes the property to the prejudice of the insurer, or misrepresents or fraudulently omits to communicate any circumstances which is material to be made known to the insurer in order to enable it to judge the risk to be undertaken, the contract shall be void as to any property in relation to which the misrepresentation or omission is material. Material Change 4.

Any change material to the risk and within the control and knowledge of the insured shall void the contract as to the part affected thereby, unless the change is promptly notified in writing to the insurer or its local agent; and the insurer when so notified may return the unearned portion, if any, of the premium paid and cancel the contract, or may notify the Insured in writing that, if he desires the contract to continue in force, he must, within fifteen days of the receipt of the notice pay to the Insurer an additional premium; and in default of such payment the contract shall no longer be in force and the Insurer shall return the unearned portion, if any, of the premium paid.

Issues [28] Mr. Zheng has structured the issues for determination of this Court as follows: 1. Did Galon breach the duty of care it owed to Mr. Zheng when:

a) it failed to review the application form and the consent and disclosure form with him prior to his signing of the documents;

b) it failed to advise him as to the existence of any insurance that might be available to him if he decided to accept paying tenants;

c) it failed to provide him with a copy of the SGI Policy Booklet that formed part of his contract of insurance when he first attended onGalon;

d) it failed, either at first instance or on renewal, to clearly and unequivocally advise him that a decision to accept paying tenants in hishome would be a material change of risk which would or could void his policy of insurance? 2. Did SGI breach its contract with Mr. Zheng when it decided to void an existing policy of insurance based on either misrepresentationor a material change of risk when Mr. Zheng did not have personal knowledge of the fact that accepting renters or tenants would, in factconstitute a misrepresentation of the use of the property or, in fact, a material change in risk? 3.

Did SGI breach its contract with Mr. Zheng when it chose to void the policy insurance notwithstanding that the fire was not, in anyway, proximately caused by the existence of the tenants in the home? Analysis Issue 1. Was Galon negligent? [29] There is no question that an insurance broker owes a duty of care to its customers.

In Cheecham v Saskatchewan GovernmentInsurance, 2011 297 (SKQB) Sherman J, of the Saskatchewan Court of Queen’s Bench, at paragraph 16 of his decision cited Fine’s Flowers Ltd. v General Accident Assurance Co. of Canada (1977) , (ONCA), 81 DLR (3rd) 139 (Ont CA) asthe seminal authority for the proposition that:

a) An insurance agent has a duty to procure insurance consistent with the client’s request or to advise the client that he/she cannotobtain it; and

b) Where a client gives no specific instructions but relies on the agent to see that he/she is protected, the agent has a duty to usereasonable care to understand the nature of the client’s business, assess the risks which ought to be insured against and to procure theinsurance coverage that is appropriate to the client’s needs. [30] That duty in turn must be considered in light of the facts that I have found to exist;

a) Mr. Zheng attended on Galon for the express purpose of obtaining insurance for a residential property in which he and his wife wouldlive.

b) At no time did Mr. Zheng ever advise Galon that he intended to take in paying tenants, and in fact, Mr. Zheng turned down insurancecoverage for rental income; advised that there were no weeks or number of rooms that were being rented to others; indicated that hewould not be running a business out of his home; evidenced that the property would be owner-occupied as opposed to tenant occupied,and that Mr. Zheng would not, in the future have either renters or boarders.

c) All of these assertions were in writing and discussed with him and signed by him and carried with it the written warning that hisinsurance would be based on the truthfulness and correctness of the information given; that if any circumstance was misrepresented andmaterial to be made known to the insurer to assess its risk that the contract if insurance may be void; that he acknowledged that theinformation was true and correct; and that if he misrepresented or failed to disclose any fact in any part of the application, any claim hemay have will become invalid, and his right to recovery would be forfeited. [31] Galon called an expert relating to the standard of care of an insurance broker.

Judy McCuskee has forty-one years of experiencein the insurance business. After a career in insurance, she now consults and conducts seminars and writes texts on ethical standards forinsurance brokers, technical training, and errors and omissions insurance. She was accepted by the court as an expert qualified to giveexpert evidence on the standard of care of insurance brokers generally, and specifically as they interrelate with clientele. [32] Based on the facts as I have found, Ms. McCuskee inclines to the view that, at all material times, Mr.

Romanow (and byinference Galon) not only met, but exceeded the standard of care required of them. She inclined to the view that Mr. Romanow had theobligation to satisfy himself that Mr. Zheng could understand the process, something which even Mr. Zheng concedes he did. Shemaintained the Mr. Romanow properly assessed Mr. Zheng’s coverage needs, and, unlike some brokers and to the credit of Galon, tookthe further step of ensuring in writing that Mr.

Zheng understood the importance of providing accurate information as it related totenants, asking the question in different ways, and in no less than four different ways.

She inclined to the view that it is unusual, that is tosay, not at all a standard practice, on renewal to have the insured revisit each and every question originally put to him, and that rather,standard practice is to inform the insured, in writing of the need to check whether the insured’s circumstances have changed and thatgood brokers will, however, every three to five years contact the insured to meet personally and review and update the need foradditional or different insurance as might be necessary as circumstances change.

Her opinion on the former point is, in my view, inaccord with the decision of the Nova Scotia Court of Appeal in Ken Murphy Enterprises Ltd. v Commercial Union Assurance Co. OfCanada,

(2005) NSCA 53 at paras 42 and 43: [42] The customer’s duty is to provide accurate information respecting the risk, and to pay the premium. The customer is entitled to relyon the skill and expertise of the agency to obtain and deliver a policy, which provides the insurance coverage his premium, has paid forduring the coverage period.

If a material change in the risk occurs during the coverage period it is the duty of the customer, the insured,to notify the agency or the insurer.... . [43] Because it is the customer’s duty to report material changes in risk, the agency is not called upon to actively monitor the nature ofthe risk during the term of the policy. Once the agency becomes aware that there has been a material change in the risk, however, itsresponsibility changes. [33] Mr. Zheng did not challenge Ms. McCuskee’s expertise or her conclusions.

He called no expert to deal with the issue of thestandard of care of an insurance broker. [34] I accepted Ms. McCuskee’s conclusions but sought some further clarification as it dealt with the need for an insurance broker, inthe absence of a specific request by the insured, to identify the meaning of, and the implications of, ‘a material change in risk’. Herexpert opinion was no.

An agent or a broker should be sufficiently informed about the product that it is selling that it can explain thenature and effect of a particular provision relating to that product, but in the absence of a question in relation to that specific thing, thatbroker or agent does not fail to meet his or its standard of care if not asked the question. This particularly so, when, as in the present case,the answers given to the written questions posed were clear and unambiguous - Mr.

Zheng had no tenants, required no tenant’s insurance,was not carrying on a business in the home, and had no intention of taking in renters or boarders. [35] I am satisfied with the opinion of Ms. McCuskee on this latter point. To the uninitiated, insurance and insurance law is a

complicated concept, but so is banking, leasing property, and taking security on personal property, purchasing stocks and bonds and a whole host of other commercial ventures. People often, and to their potential detriment, enter into a commercial activity without reading, or truly understanding the document which defines the parameters of that relationship. We live in a complicated world. In the instant circumstances, the insurance that Mr.

Zheng purchased incorporated not only a cover page identifying the products he purchased, but the terms and conditions under which the insurer would be bound to provide coverage. In my view, it is not incumbent on an insurance agent or broker to explain each and every provision of those documents, unsolicited.

If however, a question is asked, or arguably even if a broker had reasonable cause to believe that an insured was confused on any given point, it would be incumbent on that broker to explain the import of any specific provision according to his experience and understanding, and if the question could not be answered, seek that answer and provide it to the client. In my view, the reason for this is obvious. If it were a requirement to explain the entirety of the document, unsolicited, the process of buying insurance would take hours and arguably days. [ 36 ] Nor, in my view, and as I understand Mr.

Zheng to suggest, should a broker or agent be required to cherry pick and explain certain provisions in the policy, again, unsolicited, in the hope that the client would need this explanation, at some point in the future. Were this the standard, and instead of, as in this situation, it was not a loss arising from a material change to the risk, but rather because it was an excluded peril under, say, clause t) of the policy, which is ‘loss or damage resulting from contamination or pollution, or the release, discharge or dispersal of contaminants or pollution’ - could Mr.

Zheng by heard to say that the broker was negligent because this exclusion was not brought to his specific attention prior to entering into the agreement? I think not. [ 37 ] Issue 1 is answered in the negative. Galon did not breach its duty of care to Mr. Zheng. First, I have found on the facts the Mr. Romanow did in fact review the application form and the consent and disclosure form with Mr. Zheng. Second, it was unnecessary for Mr. Romanow to alert Mr. Zheng to the existence of any insurance that might be available to him if he decided to accept paying tenants. This is so because Mr.

Zheng not only failed to ask any questions in this regard, but in fact the matter was addressed in the Habitational Insurance application form which Mr. Zheng had full opportunity to read before signing - Mr. Zheng did not seek that coverage. [ 38 ] Nor was Mr. Romanow negligent in failing to provide Mr. Zheng a copy of the SGI Canada Booklet once his original meeting was concluded. I say this because there is no evidence before me whatsoever to suggest that the failure to receive this booklet in any way impacted on Mr. Zheng’s loss.

If his assertion is that by not having it he had no opportunity to review its contents, I find this disingenuous. He had confirmation, both when he received notice that his insurance was in place, and again, on renewal, that if he did not have a copy he need only ask and one would be provided to him. I am left to conclude that Mr. Zheng, more likely than not simply chose not to read the materials that were provided to him by mail following his meeting with Mr. Romanow or when his renewal insurance came to him in the mail. [ 39 ] Finally, I decline to find that Mr.

Romanow’s failure to discuss the meaning and importance of a ‘material change to the risk’ and in particular, that taking in paying tenants might constitute such a change in risk (with the ensuing consequences) was negligent. In the absence of any questions asked on this point or even any possible concern that could reasonably have been divined by Mr. Romanow when the insurance was placed and renewed, (particularly when considered in the context of the answers Mr. Zheng gave on the written forms), Mr.

Romanow did not have the obligation to gaze in a crystal ball and anticipate that this particular problem could, or would, arise. Issues 2 and 3. Did SGI breach its contract with Mr. Zheng when it voided the policy of insurance as a result of either a misrepresentation or a material change to the risk? [ 40 ] Mr. Zheng has alleged that SGI was in breach of its contract when it voided his policy following the fire.

SGI’s decision was grounded on an alleged breach of two of the Statutory Conditions which formed part of the contract of insurance. [ 41 ] These conditions are found at page 27 of his SGI Canada Policy Booklet, and are set out in paragraph 27 above. The essence of Mr. Zheng’s argument is that each of them speak to circumstances which ‘are material to be made known to the insurer in order to assess its risk’ (the misrepresentation statutory condition) or ‘any change material to the risk and within the control and knowledge of the insured’ (the material change statutory condition). Mr.

Zheng argues he did not know that having paying tenants increased the risk that might be considered by SGI, and that having never received statistical data analysis that shows tenants are a higher risk than an exclusively ‘owner -occupied home, he could not have known. He says therefore, that an insured need only disclose a material change in risk if he or she is subjectively aware of the fact that the change in risk would, in fact, be material.

Finally, he argues that in any event, his choice to take in three paying tenants did not change the risk because the fire was not caused, directly or indirectly by the tenants in his home.

[42] Mr. Zheng’s argument on these points has recently been the subject of judicial comment, and so some explanation is required.Insurance contracts are said to be uberrima fides, which is to say that both parties are obligated to exercise utmost good faith during thecourse of the contract’s negotiation and its performance (settlement). This duty is owed to the insurer because, at first instance, theinsurer is in a vulnerable position. It requires information in order to analyse the risk that it is going to underwrite and it must often relyon information which is in the exclusive possession of the insured.

The duty is owed to the insured because once a loss has been incurredhe is also in a vulnerable position because oftentimes he will have suffered a significant loss and requires the monies payable under thepolicy to get on with his life. [43] Insurance companies charge a premium (the price paid for the insurance) in order to provide insurance coverage, and thatpremium in turn is determined by the insurance company’s underwriting department.

By reviewing and considering its rather significanthistorical data, it can determine, with some accuracy, how much it is prepared to charge in order to underwrite the type of risk that hasbeen presented to it for its consideration. While it may not make a profit on each and every policy of insurance it underwrites, over time,it is hoped that the gross premiums charged will offset the amount of insurance monies it will have to pay out. In order to properly assesswhat it can reasonably charge for the coverage to be provided, it relies on the scrupulous honesty of those persons providing thatinformation.

Misrepresenting that information, or failing to disclose pertinent information undermines an insurance company’s ability toassess the risk and it is for that reason, in law, that if an insured misrepresents or conceals material facts, grounds exist for the insurancecompany to render the policy of insurance void. [44] Not all material facts need be disclosed. This is because, in many situations, the insurance company will be in possession ofmany of the facts it need consider in assessing the risk.

By example, it would have been unnecessary in the instant circumstances for Mr.Zheng to give information on the prevailing weather conditions in Regina because even though the weather may be material to the riskundertaken by the insurance company, the insurance company is in as good a position (and likely in a better position) than Mr. Zheng toobtain that information. However, information within Mr. Zheng’s possession, and not otherwise available to SGI, must be disclosed. [45] The test for what must be disclosed by an insured was established in Carter v Boehm (1766), 97 ER 1162 (KB).

In that case LordMansfield concluded that the duty which is imposed on the insured, is to (1) disclose facts, (2) within the knowledge of the insured, (3)unknown and inaccessible to the insurer, (4) which are material to the risk being insured. [46] At common law, as pointed out by Professor Denis Boivin, in his text Insurance Law (2d ed Toronto: Irwin Law Inc., 2015), atpage 135, it has historically been the rule that it was not necessary to establish that the applicant for insurance knows the importance ofthe facts to be disclosed, in the sense that he would be subjectively aware that the fact in issue may affect the mind of the insurer, knowledge of their existence was enough, and, if they were material, and not disclosed, the contract could be voided.

Material facts, inturn, are facts, which if known by a reasonable insurer, would have influenced its decision to either decline to offer insurance, oralternatively, charge a different premium for the insurance provided. [See, generally, Mutual Life Insurance Co v Ontario MetalProducts Co, (UK JCPC), [1925] AC 344 (PC)].

Generally speaking, and again, according to Professor Boivin asdiscussed at page 138 of his text, these facts can relate to either the gravity of the risk, or the probability that the risk will materialize. [47] SGI says that the historical common law approach to materiality does not demand that the insured have subjective knowledge ofwhether or not a change in risk is material before the insurance can be voided. It need only show that there has been a misrepresentationor omission, and that the information is material from its perspective only.

This traditional approach is discussed by Professor Boivin atpage135: ‘At common law, it is not necessary to establish that the applicant knew the importance of the facts to the decision makingprocess; the insured’s knowledge of their existence is enough’.

SGI says therefore that this court should follow the test for materiality asset forth by the Privy Council in Ontario Metal Products Co. at page 352 when it stated that a fact is material to an insurance contract ifit ‘would, on a fair consideration of the evidence, have influenced a reasonable insurer to decline the risk or to have stipulated for ahigher premium.’ [48] I am satisfied that this test anticipates that the insurance company itself would have to be influenced, which is a subjective test,and that, objectively speaking, a reasonable insurer would have been influenced. [49] Shari Mostaf gave evidence on behalf of the defendants.

Ms. Mostaf was the independent adjuster who investigated the loss. After having confirmed that Mr. Zheng had three paying tenants, two of which lived in the basement, she also became aware of the fact,through the fire department’s investigation, that Mr. Zheng had been fined both for failing to ensure that a fire alarm was situated in thebasement, and for allowing tenants to live in a basement with windows that were too small to allow for evacuation.

[50] Terry Manz also gave evidence on behalf of SGI. He is SGI’s senior director of underwriting with significant experience in ratingassessment and risk exposure, both of which are central to establishing the amount of premium to be charged for the risk underwritten.He gave evidence as to SGI’s own risk assessment practices, and he was also accepted as an expert as it related to the risk assessmentpractice of a reasonable insurer. [51] Mr. Manz was of the view that had SGI been made aware of the fact that Mr.

Zheng had intended to take in three paying tenants,it would have demanded not only a higher premium but it would have demanded a complete inspection of the premises together withphotographs of the interior and exterior of the home as a precondition to offering coverage. He says that any reasonable insurancecompany would do likewise because of both the increased risk of loss and the increased gravity of the risk.

On the former point he notedthat if additional people are living in the home, there is typically a greater draw on the electricity in the home, and a likelihood that morerooms would have appliances which conduct heat (cooking appliances, coffee makers, stereos and the like). All of these would increasethe possibility of a fire. On the latter point, an increased number of people in the home would demand a greater need for fire alarms(which were missing) in the basement and window renovation to allow for egress (again missing).

Obviously, the greater the number ofpeople residing in the home in these circumstances, the greater the risk of more injury or loss of life. [52] Mr. Manz opined that, had this additional risk been made known to SGI or any reasonable insurance company, the insurance thatwould more likely have been offered would come under the designation “Room and Boarding Houses’ and attracted a premium ofapproximately $6,000.00, or more than five times what Mr. Zheng was charged for an ‘owner-occupied’ residence. [53] I accept the evidence of Ms. Mostaf and the evidence and opinion of Mr. Manz. And I accept, Mr.

Zheng’s argument to thecontrary, that it is not necessary that the fire needed to have been caused by one of the tenant’s in assessing whether or not the change inrisk is material, it is the increased risk that loss might occur which is important. [54] That stated, what can be made of Mr. Zheng’s argument that regardless of whether or not the insurance company considers achange to be material, the contract cannot be voided unless the insured also knows that the change is material? Mr.

Zheng relies onAviva Insurance Company of Canada v Thomas, 2011 96 NBCA and invites me to conclude that statutory condition 4 shouldbe interpreted in a more contextual manner. Specifically, that the phrase ’Any change material to the risk and within the control andknowledge of the insured shall avoid the contract ....’ should be interpreted such that the work ‘knowledge’ is intended to refer to ‘thematerial nature of the change’ and not just the change itself.

As a result, he maintains that if the insured does not know that the change isactually material to the risk, the policy holder cannot be held in breach of the contract. [55] My review of that decision invites me to conclude that the case does not stand for the proposition advanced by Mr. Zheng. Thatdecision did not actually apply the

interpretation urged upon me by Mr. Zheng. It certainly discussed that

interpretation, and in thecourse of the discussion appears to lean in favour of that

interpretation. The Court, however, concluded firstly, that in the matter beforeit, the insurance company was precluded from relying on Statutory Condition 4 because it found that the insurance company had turned ablind eye to the insignificance it had attributed in the pre-loss period, to the information it claimed post-loss was, material to the risk.Secondly, it concluded that it was the insurance company’s own acts and omissions that resulted in the non-disclosure of what it latercontended was a change material to the risk.

The Court therefore concluded that it was not necessary for it to decide whether or not thelower court correctly ruled Statutory Condition 4 is only engaged when the insured knows that the insurer views a particular change incircumstances is material. The net effect is that there is no appellate authority that I am aware of which reconciles the competing caselaw and

interpretations urged upon me by SGI and Mr. Zheng. [56] Even if I were to accept the

interpretation urged upon me by Mr. Zheng, that alone would not end the matter. As ProfessorBoivin points out at page 180 of his text, a judge is not necessarily required to believe the testimony of an insured who claims ignorance.The subjective knowledge of an insured is a question of fact to be determined by the Court and therefore it is open for a decision makerto rely on what a reasonable person would have known or realized in making an assessment of the insured’s credibility.

In other words, Imay believe that the insured was subjectively unaware that the change was material, or I may conclude that it was unreasonable for himnot to know. [57] I can come to no other conclusion that, contrary to the factual scenario that was found to exist by the Court of Appeal in Aviva,Mr. Zheng either knew, or certainly should have known that his decision to take in paying tenants was material to the risk.

I say thisbecause, unlike the insurer in Aviva, the questions put to Mr Zheng on the Habitational Application Form and in particular, in theConsent and Disclosure form made it clear that the issue of renters was important to the insurer. When the Consent and Disclosure formasked the prospective question ‘will you have renters or boarders?’ and the answer given was no; and when that form clearly noted that

upon signing the form, Mr. Zheng was acknowledging that all the information was true and correct; and that he understood that his application for insurance would be based on the truth and completeness of the information; and when it clearly noted that a misrepresentation or failure to disclose any fact would result in a claim becoming invalid; Mr. Zheng either knew, or should have recognized the potential repercussions of subsequently taking in renters. [ 58 ] I am the more convinced of my conclusion when I consider that Mr.

Zheng acknowledged at trial that his decision to bring his action in this Court for its (then) maximum jurisdiction of $20,000.00, rather than in another court for the full $70,000.00 that was the extent of his loss, was in due consideration of what he felt was his proportionate share of the blame. [ 59 ] While I am sympathetic to the plight Mr. Zheng finds himself in, for all of the foregoing reasons, I conclude that SGI was not in breach of its contract with Mr.

Zheng when it decided to avoid the contract and on that basis his claims against each defendant both in contract and in negligence are dismissed in its entirety. [ 60 ] The defendants have not argued the issue of costs. Under the circumstances that Mr. Zheng finds himself in, the defendants may wish to abandon any costs that they might otherwise seek. Barring an application by either defendant on or before August 1 of 2016 seeking their costs, I direct that each party bear their own costs. P. Demong, J