Failure to disclose information material to a contract of insurance voids an insurance contract. In such a situation the insurer does not have a duty to defend.

The Plaintiff Insured brought an application for a declaration that the Defendant Insurer had a duty to defend it in an Action brought against the Plaintiff in the province of Ontario. The Court found that there was no duty to defend because the Insured failed to disclose information material to the contract, and the insurance contract was therefore void pursuant to section 13 of the Insurance Act.

Agresso Corp. v. Temple Insurance Co., [2007] B.C.J. No. 21, British Columbia Supreme Court, January 5, 2007

In September and October 2000, the Insured, Agresso Corporation (“Agresso”), entered into a series of agreements with the Sault College of Applied Arts and Technology (“Sault College”) to provide software.

On January 14, 2002, Agresso applied for Information Technology Errors and Omissions insurance from Temple Insurance Company (“Temple”). A policy was issued from February 28, 2002 to February 28, 2003. The policy insured Agresso for “wrongful acts” that occurred within the policy.

There were problems with the software, and by January 20, 2003, Agresso was aware that Sault College was not satisfied with its progress on solving a major problem. On February 21, 2003, Agresso applied for a second policy. Temple issued a new policy on the same terms as the first one from March 28, 2003 to March 28, 2004, and a retroactive date of February 28, 2002. The Insured did not disclose to the Insurer that there was a potential claim from Sault College.

The Court found that on the basis of the pleadings, the Statement of Claim alleged a statement of facts that properly construed, would support an action that could potentially fall within coverage. However, the Court found that there was no duty to defend because Agresso had failed to disclose information material to the contract. The application form for the policy required the Insurer to answer a number of questions regarding knowledge of prior errors or claims. Agresso’s own evidence confirmed that it first became aware of a potential claim on January 20, 2003, a month before the application for the second policy was completed. The Court found that the true question was whether a reasonable person would have concluded that the circumstances constituted a dispute, allegations of non-performance, or facts, circumstances, or situations which may reasonably give rise to a claim. The Court found that Agresso was aware of Sault College’s view that a key problem could not be solved, that the College abandoned the entire system only a few months later, and that it notified Agresso of its intention to start legal proceedings a few months after that. The Court was satisfied that a reasonable person in Agresso’s position would have been of the opinion that the circumstances indicated that there was a reasonable likelihood a claim would be made against it. The Court was also satisfied that if the Defendants had been informed of the situation, they would have acted differently by refusing to accept the risk or imposing special conditions. The insurance contract was therefore void pursuant to section 13 of the Insurance Act.

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