The Supreme Court of Canada considered the interpretation of “change material to the risk” in a New Brunswick policy for fire insurance. In a 5-2 decision, McLachlin C.J., writing for the majority, allowed the appeal and reinstated the decision of the trial judge, holding that if the insurance contract was void by reason of a statutory condition, the court should relieve against the result because a vacancy had been rectified. Bastarache and Charron JJ. dissented, holding that the statutory condition is clear and unambiguous, and the duty of disclosure was breached.

Marche v. Halifax Insurance Co., [2005] S.C.J. No. 7, Supreme Court of Canada

The owners of a family home converted it to apartments and then left Cape Breton to find work in British Columbia. While the owners were out of the jurisdiction, the house was vacant. It was then occupied for a short time, after which it was destroyed entirely by fire. The insurer, Halifax, denied the claim for fire loss on the basis that the owners had breached statutory condition 4 under Nova Scotia’s Insurance Act, R.S.N.S. 1989 c. 231, which states that undisclosed change material to the risk at issue invalidated coverage.

At trial, the court assumed that the owners breached the statutory condition, however held they should be relieved from the consequent invalidation under section 171 of the Act. Section 171 states that a policy condition is not binding on the insured if a court holds it to be “unjust or unreasonable”. The court reversed the decision on appeal, on the ground that section 171 did not apply to statutory conditions, but only to contractual conditions in the specific policy.

McLachlin C.J., writing for the majority, analyzed the case first by determining whether section 171 applied to statutory conditions, and then determining whether there in fact had been a statutory breach. The intention of section 171 was not only to delete conditions that are unreasonable on their face, but also to relieve against the results of applying conditions that are “draconian in their consequences”. She held, then, that the intention was remedial, and therefore applied not only to contractual terms but to statutory conditions if they were unjust in their application. She rejected the insurer’s argument for a “plain reading” of the phrase “where a contract … contains” to mean only contractual terms, holding that statutory conditions are also contained in the contract and therefore are included. The court also rejected the insurer’s argument that another section of the Act specifically refers to “statutory conditions” while section 171 does not, holding that the sections had different legislative histories and therefore the use of the term “statutory condition” in one section but not the other was not determinative.

The court went on to consider whether the prior vacancy was indeed a “change material to the risk”. It is well-established in insurance law that vacancy can be a change material to the risk of fire; however, there was no concrete evidence linking the earlier vacancy to the actual circumstances of the fire. Case law establishes that a statutory breach need not be causally connected to the loss in order to invalidate the contract, although the court held that the present case was distinguishable because the vacancy had been rectified and was not in play at the time of the loss. The court pointed out that many events can temporarily change risks relevant to home insurance and questioned whether homeowners are obliged, at the risk of losing coverage, to advise insurers of these temporary problems, even after they had been rectified.

The court declined to decide whether the statutory condition was in fact breached, holding that “arguments can be put for and against the proposition … on these facts”. The issue should be resolved by legislative amendment or in another case.

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