Cannabis Production: A New Type Of Material Risk For Property Insurance Coverage

With the enactment of the Cannabis Act and its regulations, Canadians are now able to grow cannabis on personal property, for medical, recreational or commercial reasons. The recently issued decision of Schellenberg v Wawanesa Mutual Insurance Company, 2019 BCSC 196 ("Schellenberg") highlights an important consideration for all new and existing cannabis producers.

In Schellenberg, on January 21, 2014, a fire damaged an outbuilding on the plaintiff's property which contained a medical marijuana grow-operation licensed by Health Canada. Before that, in 2011 or 2012, Mr. Schellenberg, a longtime builder, finished the outbuilding along with an upgrade to the property's electrical system from 200 to 400 amps. Wawanesa had been insuring the property for many years and the Schellenbergs renewed their policy each year through Hub International insurance brokers. The Schellenbergs acknowledge they did not notify Hub or Wawanesa of the grow operation or the upgrade to the electrical system before the fire. After the fire, Wawanesa denied coverage and voided the policy based on a failure to disclose a material change to the risk.

The plaintiff sued their insurer, Wawanesa and the broker Hub International.

Issues

Wawanesa argued that the plaintiff failed to notify them when they performed upgrades to their outbuilding to accommodate a cannabis grow-op and higher electricity usage. Since the insurance policy extended only to the previous state of the outbuilding, and the addition of the cannabis grow-op substantially altered the risk contemplated, coverage was denied.

However, the plaintiff alleged that Wawanesa wrongfully voided coverage, that they breached an implied contract to ensure adequate coverage was present, and that their broker was negligent for failing to ask questions relating to the changes in risk to the building.

Decision

In the end, the Court decided for Wawanesa and Hub finding that...