The Pot Is Not Stirred, The Court Of Appeal Confirms – Marijuana Grow Op Is Material Change In Risk

A 2019 B.C. Supreme Court decision dismissing an insurer's claim for damages against a homeowner insurance company was recently upheld on appeal in Schellenberg v. Wawanesa Mutual Insurance Company, 2020 BCCA 22.

At the trial level (Schellenberg v. Wawanesa Mutual Insurance Company, 2019 BCSC 196), the insured Plaintiffs claimed against their homeowner insurance company, Wawanesa Mutual Insurance Company ("Wawanesa"), for wrongfully voiding their insurance contract following a fire loss. The trial court dismissed the Plaintiffs' claim finding that Wawanesa was entitled to void the insurance contract based on the Plaintiffs' failure to disclose a material change in risk, being the presence of a legal medical marijuana grow operation and an electrical upgrade. For more on the 2019 Supreme Court case, see our previous article here insurable interest article "Legalizing Cannabis and Risk: Stirring the Insurance Pot", published April 17, 2019, which also sets out the relevant facts.

The Issues on Appeal as against the Insurance Company

With respect to Wawanesa, the Plaintiffs argued that, first, the trial judge misapplied the legal test for determining material change in risk pursuant to the Insurance Act, R.S.B.C. 2012, c. 1 (the "Insurance Act"); and, second, the trial judge made errors of fact in finding that the Plaintiffs knew that the presence of the marijuana grow operation was material to the insurance policy and ought to have been disclosed to Wawanesa.

The Trial Judge Did Not Err in Finding that the Grow Operation and the Electrical Upgrade were Changes Material to Risk

Section 29 of the Insurance Act requires every insurance contract in British Columbia to include certain conditions. One such condition, statutory condition 4, requires an insured to promptly give notice in writing to its insurer or agent of a change that is "material to the risk" and "within the control and knowledge of the insured." Statutory condition 4 allows an insurer to void a policy based on non-disclosure of a material change in risk which is what Wawanesa did in this case.

On Appeal, the Plaintiffs argued that the trial judge erred in respect of applying the test of materiality by failing to consider whether statutory condition 4 requires an insurer to prove, as a precondition to voiding a policy, that the insured knew that the change in risk was material to the insurer. It was the Plaintiffs position at trial that they did not breach their obligation to...