An insurance company has an obligation to ensure that a policyholder has been notified of any failure to renew a homeowner’s insurance policy. If the insurance company fails to notify its former insured that the policy has lapsed, the insurance company is responsible to compensate its former insured for the loss that would have been insured under the policy.

Banadera v. Co-Operators General Insurance, [2004] A.J. No. 767, Alberta Provincial Court

From July 1998 to June 2001, the Co-Operators General Insurance (“Co-Operators”) insured Banadera’s automobile. Banadera also had a homeowner’s insurance policy with Co-Operators. In 2001, Banadera was dissatisfied by the rates quoted by Co-Operators for renewal of her automobile policy and after discussions with Mr. Jack, her insurance broker, she advised she would be obtaining her automobile insurance elsewhere. Mr. Jack presumed Banadera also intended to obtain her homeowner’s policy with another insurer, and did not renew either the homeowner’s policy or the automobile policy. Banadera testified that she did not receive a renewal notice for her homeowner’s insurance from Co-Operators, and that she was under the impression that she had a valid homeowner’s insurance policy. Witnesses for Co-Operators testified that renewal notices were sent out to insured’s in the normal course of business, but had no evidence indicating whether the renewal had been sent or received by Banadera. Co-Operators cancelled both of Banadera’s policies in the spring of 2001.

Approximately eight and a half months after the policy expired, Banadera’s condominium and contents were completely destroyed by fire. Banadera submitted claim to Co-Operators pursuant to her homeowner’s policy. Co-Operators denied the claim on the grounds that the policy was no longer in effect. Banadera commenced a claim in negligence against Co-Operators and Mr. Jack in failing to follow an established practice of notifying insureds that their insurance was about to lapse. All parties agreed that Banadera’s loss totalled $63,134.

Mr. Justice Hess dismissed the claim against Mr. Jack on the basis that there was no evidence to suggest that the industry practice for insurance brokers was to notify their clients that insurance coverage was about to lapse. In addition, although Mr. Jack had a system of notifying clients that their insurance policy was about to lapse, Banadera was unaware of this system and therefore could not have relied upon it. With respect to Co-Operators, Mr. Justice Hess relied upon Morash v. Lockhart & Ritchie Ltd. (1979) 95 D.L.R. (3d) 647, in which Hughes C.J.N.B. noted at page 650:

… In my opinion the evidence at trial justifies the conclusion that the standard of reasonable care called for in circumstances as were disclosed in the instant case required the defendant to notify the plaintiff in some way that his policy was being renewed and the omission to do so constituted negligence on the part of the defendant.

Mr. Justice Hess concluded that Co-Operators was negligent in breaching a duty imposed by law, or if no such duty existed at law, by breaching a self-imposed duty, owed to Banadera, to notify her of the failure to renew her insurance policy. The judge specifically noted that Morash placed an obligation on insurance companies to ensure that policyholder are notified of a failure to renew their policy; and that a business practice of sending out renewal notices was not sufficient to fulfil this obligation. Since this duty was not discharged by Co-Operators, and Banadera had suffered damages as a consequence, Co-Operators was liable to Banadera in negligence for the limits of the policy.

Mr. Justice Hess determined that Banadera was contributory negligent, noting that she must share responsibility for failing to make enquiries of Co-Operators, and/or Mr. Jack, with respect to the status of her policy. The loss occurred eight and a half months after her policy had expired, and it would be reasonable to conclude that Banadera should have taken some steps to determine the status of her insurance. The monetary jurisdiction of the court was $25,000. Relying upon Kondro v. Parker [1983] 6 W.W.R. 380, Mr. Justice Hess determined that the contributory negligence would be taken from the total insured loss, such that Banadera was entitled to damages of $15,250.

To stay current with the new case law and emerging legal issues in this area, subscribe here.