An insurance company cannot rely upon communications with a broker to change coverage to an insured. An insured must be notified directly by the insurance company of any change in coverage

Walker v. CGU Insurance Co. of Canada, [2003] O.J. No. 4064, Ontario Superior Court of Justice

Mr. Walker obtained insurance through his insurance broker Mr. Saunders. Saunders obtained an all risk policy on behalf of Walker from April 20, 1999 to April 20, 2000. In August of 1999, CGU Insurance Company of Canada (“CGU”) negotiated a change in policy with Mr. Saunders, and changed the all risk policy to a fire and extended coverage policy for the period August 19, 1999 to April 20, 2000. On March 18, 2000 a portion of Mr. Walker’s roof collapsed. He immediately advised Mr. Saunders of the incident and made a claim under his all risk policy. The claim was denied on the basis that the risk of roof collapse was not covered under the fire and extended coverage policy that was put into effect in August of 1999. Mr. Walker commenced an action against CGU and Mr. Saunders. Mr. Walker brought a motion for summary judgment on the basis that the all risk policy was not properly terminated, and that CGU could not rely upon the exclusion in the fire and extended coverage policy.

Pitt J. determined that the issue was whether Mr. Walker, having purchased an insurance policy and paid the appropriate premium for the coverage, that included the loss actually suffered, could lose his coverage without being notified of CGU’s intention to exclude the coverage, or without any knowledge of the loss of the coverage until two months after the fact. Even if Mr. Saunders had ostensible authority to bind Mr. Walker for the change in the policy, an insured must have an opportunity to reject the agent’s or broker’s advice in order to protect himself when the coverage is at risk. This opportunity can never be guaranteed if the insured has no obligation to notify the insured directly of the change in coverage. Therefore Pitt J. determined that Mr. Walker was insured by the all risk policy issued by CGU.

To stay current with the new case law and emerging legal issues in this area, subscribe here.