Vacating property insured by a policy of fire insurance constitutes a material change in the risk insured by the policy. Failure to notify the insurer will void the policy. If the insured’s insurance broker is advised that the property has been vacated, the insurance broker has an obligation to advise the insured that the property may no longer be insured by the policy. However, if the insured was aware that vacating the property could void his insurance, the insurance broker will not be liable for any damages resulting from an uninsured loss.

Ken Murphy Enterprises Ltd. v. Commercial Union Assurance Co. of Canada, [2005] N.S.J. No. 114, Nova Scotia Court of Appeal

Ken Murphy Enterprises Ltd. (“Murphy”) was the owner of a number of rental properties. Ken Murphy was the company’s principal owner. Murphy used the brokerage services of Vaughne Assurance Limited (“Vaughne”) and obtained fire insurance through the Commercial Union Assurance Co. of Canada (“Commercial Union”) for a five-unit apartment building known as Rock Cottage.

On December 4, 1996, Ken Murphy advised Vaughne that he wished to remove insurance coverage from three of his properties because they were vacant; however, he wished to obtain fire insurance for Rock Cottage. He advised Vaughne that Rock Cottage was under renovations, but that it would be rented on February 1, 1997. In fact, Rock Cottage had been vacant since August of 1996, and remained unoccupied until a fire on October 31, 1997. Ken Murphy made no formal report about the vacating of Rock Cottage to Commercial Union or to Vaughne. However, Ken Murphy had had several informal chit-chats with Vaughne in June or September of 1997 in which Vaughne was advised that Rock Cottage was vacant and was being vandalized. Commercial Union, through Vaughne, issued a renewal policy covering Rock Cottage in August 1997. After the fire on October 31, 1997, Commercial Union refused to cover the fire loss, refunded Murphy its insurance premiums on the basis that Murphy’s vacating of Rock Cottage constituted a material change in the policy, and that the material change voided the insurance. Murphy commenced an action against Commercial Union for payment of the fire loss, and against Vaughne Insurance, for failing to advise that the material change in risk caused by the vacating of Rock Cottage would void the insurance policy.

The trial judge found that the vacating of Rock Cottage constituted a material change in risk, that the insurance policy was void, and that Murphy was not owed any compensation by Commercial Union for the fire loss under the policy of insurance. With respect to Vaughne, the trial judge noted that the insurance policy was voided in the fall of 1996. At that time, Murphy did not advise either Vaughne or Commercial Union of the material change of risk to Rock Cottage. He further found that any failure on the part of Vaughne later in 1997 did not cause the loss of coverage because the policy had already been voided by February 1, 1997. The claim against both Commercial Union and Vaughne was dismissed.

Murphy appealed on the basis that the trial judge did not consider whether Vaughne was negligent in failing to advise Murphy that the insurance policy would not cover Rock Cottage in the event of a fire loss after the insurance policy on Rock Cottage was renewed in August of 1997. The Court of Appeal noted that the trial judge did not appear to turn his mind to the question of Vaughne’s alleged negligent failure to advise Murphy that he had no insurance on Rock Cottage when he renewed the policy. In analysing the nature of the relationship between an insured and an insurance broker the Court noted that it was Murphy’s duty to provide accurate information respecting the risk to Vaughne and pay the premiums of the policy. It was Murphy’s duty to report material changes in risk to Vaughne.

The Court of Appeal determined that although Vaughne, as an insurance broker, was not legally responsible for actively monitoring the nature of the risk during the term of the policy, Murphy provided Vaughne with sufficient information such that Vaughne should have enquired about a material change of risk in Rock Cottage in June or September of 1997. One cannot infer that Murphy would or could have arranged insurance in response to notification from Vaughne. Ken Murphy was an experienced insured, and knew without Vaughne’s advice that conditions existed which made it unlikely that Rock Cottage was still insured after February of 1997. Ken Murphy did nothing to protect his interests, apart from rather ambiguous conversations with Vaughne. The Court of Appeal determined that Murphy was aware that vacating Rock Cottage would void the insurance, and that he took no steps to obtain valid insurance after Rock Cottage had been vacated. The court determined that although Vaughne had failed in his obligation to advise Murphy of the risks of vacating Rock Cottage, no damages flowed from Vaughne’s failure to notify Murphy because it was not his intention to keep the property insured. The appeal was dismissed.

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