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BC Court of Appeal clarifies difference between material misrepresentation and omission in application for insurance

In Nagy v. BCAA Insurance Corporation, 2020 BCCA 270, the BC Court of Appeal clarified the difference between a misrepresentation and an omission in an insurance application. Statutory condition 1 states that a policy is void if the insured “misrepresents or fraudulently omits” any material information when applying for a policy. A policy is void for any material misrepresentation but an omission must be fraudulent.

The insureds’ disclosed one theft claim in response to the requirement to: “State all losses or claims by the applicant or other members of the applicant’s household in the past 10 years”. In fact, they had also had a total fire loss at the Point Roberts property, and roof damage at Mayne Island property. What they stated was literally true, but since it answered a request for disclosure of all losses, it suggested that they had no other claims, which was false. The trial judge found this to be an omission which was upheld on appeal.

On a separate question, in relation to the cancellation of a past policy the Court found that the error was a misrepresentation rather than an omission. The answer “No” was given to the question “Has any insurer cancelled, declined, refused or imposed any special conditions on habitational insurance for the applicant in the past 10 years”. This was based on the insureds’ misapprehension of a letter from their previous insurer. The statement to the insurer was untrue. It follows that to characterize it as an omission, instead of a misrepresentation, was a palpable error. The statement “no” was not an omission, or a half-truth; it was a positive representation that no insurer had cancelled, declined, refused or imposed any special conditions on habitation or insurance in the last 10 years. That was false, however the respondents might have perceived it. In result the case was returned to the trial court to be retried in light of the Court of Appeal’s directions.

As a bonus, the Court of Appeal went out of its way to reaffirm that an insurer’s evidence of fraud does not require “heightened scrutiny” but instead will be assessed with the same scrutiny applied to all civil cases. This is helpful for insurers as the “heightened scrutiny” evidentiary test could often feel like the standard of proof was not the civil standard of the balance of probabilities but instead something close to the criminal standard of beyond a reasonable doubt.

Case summary by Laura E. Miller