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FIRE INSURANCE - Statutory conditions

Wednesday, July 26, 2017 @ 9:03 AM  

Appeal by Marsh, an insurance broker, cross-appeal by Grafton Connor, a building owner, and cross-appeal by Lloyd’s, the insurer, from a decision dismissing Marsh’s cross-claim against the insurer, following a fire which destroyed a pub in March 2017. The pub building was owned by Beaufort Investments, which was part of the Grafton Connor Group of Companies. Beaufort Investments was a named insured under the policy at issue. The pub was insured by Lloyd’s of London Underwriters, and was described as sprinklered and of masonry construction when the insurance was placed. The pub was neither sprinklered nor was it entirely of masonry construction. Lloyd’s denied coverage after investigating the fire, which spawned a lawsuit by Grafton Connor against Lloyd’s and Marsh, Grafton Connor’s insurance broker. Marsh cross-claimed against Lloyd’s for the amount it could be required to pay Grafton Connor. Lloyd’s counterclaimed against Grafton Connor for the amount it paid for debris removal before denying coverage. The trial judge found the policy was void under Statutory Condition 1 of the policy as a result of material misrepresentations on the part of the insured. He dismissed Grafton Connor’s claim against Lloyd’s, allowed Lloyd’s counterclaim against Grafton Connor, and dismissed Marsh’s cross-claim against Lloyd’s. The trial judge found that Marsh was 50 per cent contributorily negligent to Grafton Connor for the losses suffered in the fire. Marsh appealed, Grafton Connor cross-appealed and Lloyd’s cross-appealed and filed a Notice of Contention. There were several issues on appeal, including: whether the trial judge erred in failing to interpret and apply the policy provisions to find coverage in Grafton Connor's favour; whether the trial judge erred by failing to attribute to Grafton Connor actual knowledge regarding the construction and sprinklering of the pub; and whether the trial judge erred by failing to apply the co-insurance provisions of the policy against Grafton Connor.

HELD: Appeal by Marsh allowed in part; cross-appeal by Grafton Connor dismissed; cross-appeal by Lloyd allowed. The finding that Marsh was 50 per cent contributorily negligent for Grafton Connor’s damages was set aside. Marsh’s appeal against Lloyd’s was dismissed. Lloyd’s Notice of Contention on the issue of Grafton Connor’s recklessness in providing the information to it was allowed. Taking into consideration the wording of the policy, the circumstances of the parties and commercial realities, it was never intended that the insured would be relieved of its obligations under Statutory Condition 1. An insured’s duty to disclose material facts was an ongoing obligation. Failure by Lloyd’s to show that the co-insurance clause was triggered in the circumstances was sufficient to dispose of the issue of applying the policy against Grafton Connor. Beaufort Investments was reckless in providing information to the insurer. Even if unintentional, pre-contractual misrepresentations were not excused by Endorsement 10 in the policy and the policy was also void for this reason. Marsh was not liable to Grafton Connor for any portion of the loss.

Grafton Connor Property Inc. (c.o.b. Grafton-Connor Group) v. Lloyd's of London Underwriters, [2017] N.S.J. No. 235, Nova Scotia Court of Appeal, D.P.S. Farrar, C.A. Bourgeois and E. Van den Eynden JJ.A., June 15, 2017. Digest No. TLD-July242017007