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Insurance is Valid If You Don’t Know What Your Tenant Is Up To

In Bahniwal v. The Mutual Fire Insurance Company of British Columbia, 2016 BCSC 422, the plaintiff sued her insurer for indemnity after it voided a fire insurance policy. The policy covered a storage facility with an attached living suite, the latter of which the plaintiff had rented to a tenant. A fire destroyed the entire facility and its contents. The insurer voided the policy, arguing that the plaintiff had failed to disclose that the living suite had housed a marijuana grow operation. The plaintiff denied any knowledge of the grow operation.

At trial the insurer argued the plaintiff knew or ought to have known about the grow operation because the tenant lived alone but rented both a house and the suite, he paid rent in cash, his hydro bills were high, and the plaintiff was often around the attached suite and would have smelled the odours of the grow operation. However, the court found the plaintiff was not aware of the grow operation and she was entitled to indemnity by the insurer. The plaintiff had testified that the tenant was a good tenant who paid his rent and hydro bill, directly, on time, and that she had had no reason to suspect a grow operation.

The plaintiff also sought punitive damages against the insurer, arguing that it had “jumped to a conclusion” to deny coverage on a mere suspicion, without any foundation for the belief that the plaintiff was aware of the grow operation. The court declined to order punitive damages, however, finding that the insurer had investigated the claim fairly and diligently, there was, in fact, a grow operation located in the attached suite, and the insurer had a reasonable basis for denying coverage.

This case reminds that an insurance policy is only voidable if the insured is aware of a material risk.

Case law summary by: Trevor Morley