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Misrepresentation Voids Coverage
Published in the March 2009 issue of Litigation Notes - View Article
A misrepresentation as to the principal operator of a vehicle led to a denial of coverage. Relief from forfeiture was not available
Lexis Holdings International Ltd. of Vancouver, British Columbia was the lessee of a BMW motor vehicle, which was insured with the Insurance Corporation of British Columbia (“ICBC”). The lease had been arranged by Mr. Teap, the principal of Lexis Holdings. One night, the BMW was vandalized while parked in the parking garage of the building where Mr. Teap lived. It was declared a total loss and its assessed value was approximately $33,000.
ICBC denied the claim on the basis that there had been a misrepresentation in the application for insurance with respect to the principal operator of the vehicle. In fact, no principal operator had been declared in the application for insurance, whereas ICBC took the position that Mr. Teap was in fact the principal operator.
The Court reviewed the law, which holds that the onus was on the insurer to prove the misrepresentation made by Mr. Teap. “Principal Operator” is defined in a regulation under the Insurance (Motor Vehicle) Act of B.C. as the person who operates the vehicle the majority of the time.
The Court went on to consider the meaning of “knowingly” and referred to case law which establishes that it is defined as being “in possession of information that what is in fact stated in the application is untrue or does not disclose the truth”. Consequently ICBC had to establish that Mr. Teap knew that he was to be the principal operator of the BMW, contrary to the statement in the contract that there was no principle operator.
Mere speculation of fraud is not sufficient and the Court reviewed a number of cases where insurers had relied on circumstantial evidence to demonstrate fraud and were unsuccessful.
The Court distinguished those cases from the case at bar in that in this case there was no theft of a vehicle or other physical act which could leave a potential evidentiary trail. Everything depended on Mr. Teap’s state of mind and his reliability and credibility as a witness were fundamental to the outcome of the case.
The Court went on to review the evidence which pointed to the likelihood that he had made a misrepresentation and ultimately concluded that he had. A fundamental factor was that he had had a number of accidents which would have resulted in his insurance premium being in excess of $45,000/annum, instead of the $5000 which he in fact paid, if he had declared himself to be the principal operator. His evidence was highly suspect and evasive. When he signed his proof of loss he indicated that he was the sole shareholder and director of Lexis Holdings but at the time of examination for discovery he claimed that he did not know if there were other directors or whether he was even a shareholder. Lexis Holdings had no other employees who could have operated the vehicle. There had been one other employee who could potentially have been an operator, but he had since been deported. Mr. Teap had also been the person who arranged the lease and had customized the BMW to his own taste with a costly stereo system, fancy tires and other enhancements. The Court therefore concluded that on a balance of probabilities he knew that he was going to be the principal operator and had misrepresented his status in order to save on the insurance premium.
The Court went on to consider whether or not relief from forfeiture should be granted under The Law and Equity Act of B.C. The Court raised the question whether it even had the authority to do so where the forfeiture results from a statutory provision and the statute itself does not provide for relief from forfeiture. However, the Court went on to conclude that it did not have to decide the point because even if it had the power to exercise it’s discretion to grant relief, it would not have done so. Apart from the fact that the misrepresentation in this case was tantamount to fraud the other salient point was that if relief from forfeiture were granted, it would nevertheless have to conclude that Teap was the principal operator and should be liable to pay the $45,000 premium. Since the amount claimed for the loss of the vehicle was only $33,000., this would not have been to his advantage.
Lexis Holdings Int’l Ltd. v. Insurance Corporation of British Columbia, 2009 BCSC 344 (CanLII)