September 2006

Warranties, Material Change of Risk, Relief from Forfeiture and Reasonable Expectations: Abell v. M.J. Oppenheim

In the recent British Columbia decision of Abell v. M.J. Oppenheim 2005 BCSC 1715 the question arose as to whether the owner of a floating home voided his insurance coverage by failing to comply with his warranty that the floating home was permanently moored and his failure to advise the insurer of a material change in risk.

Mr. Abell became the owner of a floating home. Mr. Abell called the insurance agent and advised that he had purchased a lot in Queensgate floating home community and that he intended to move the floating home to that location. The policy included coverage for fire loss. The policy contained a provision which stated, "It is warranted that the dwelling is permanently moored at the location described on the Coverage Summary page. Breach of this warranty shall render this policy voidable at the option of the insurer."

The floating home was never installed in Queensgate. The purchase of the lot never took place. For a few weeks the floating home was simply tied by rope to some pilings in Queensgate. The owner of Queensgate demanded in writing that the home be removed from the location. Mr. Abell never complied with Queensgate's demand. Mr. Abell never advised the insurer the home was not permanently moored nor that he had not secured the lot for moorage. Queensgate had the home towed away from their facility and tied the house by rope to some offshore pilings in the riverbed. In the area there was no water or other utility service, no fire protection, and no wharf giving dry-foot access to the floating home. The floating home caught fire and burned. The insurer denied coverage based on breach of warranty and failure to advise of a material change in risk.
The court found that Mr. Abell had received the policy in the mail with a letter recommending that he read the documents that came with it. The warranty was on prominent display in the policy endorsement. "It was not hidden away in some obscure corner that no reasonable person would ever pay attention to. " The words were in bold. The warranty was reasonable. There was a nexus between the breach of warranty and the loss. At the location in Queensgate the home would have been part of a community of floating homes which would have enhanced the chance of early detection of a fire. There would have been easy access to the house from the shore via the wharf and dock system. And critically, there were fire hydrants on the shore in the developed part of the community. The insurer was entitled to decline to pay the claim.

The court also found that the contract was subject to s. 13(1) and s. 126 of the Insurance Act of B.C. requiring disclosure of material facts to the insurer in the application or proposal for the insurance. The court held that there was a material change in risk and Mr. Abell was under a positive duty to disclose it to the defendant. Interestingly the court did not discuss the fact that the failure to disclose occurred after the policy was in place, not during in the application or proposal for insurance. It appears that the court found that if an applicant in an application or proposal sets out certain material facts, which then change during the course of the policy, the insured has a positive duty to inform the insurer.

Mr. Abell other argument was also shot down. He argued that he should be afforded relief from forfeiture pursuant to the Insurance Act. The court found that the section applies to post-loss failings by an insured. The section could not assist Mr. Abell for his pre-loss actions.

Finally Mr. Abell argued that to deny him coverage would defeat his reasonable expectations under the policy. The court stated "If it was reasonable for Mr. Abell to expect that he would be insured after telling his insurer one thing about the material risk of the home's location and then allowing the home to be put somewhere else, and after he failed to comply with his obligation to moor the house permanently, then his position might have some merit. But I find that no reasonable person in Mr. Abell's position could genuinely believe that he should still have insurance coverage after failing to comply with the policy in two such important particulars."

Rui M. Fernandes