The impact of the omission of the insured to declare the increase of insurable risk

Haddou c. Alpha (L’), compagnie d’assurances inc., 2016 QCCS 6184
In this case, the insured have their home burnt down. Over the course of the investigation, the insurer realized that the insured operated a family day care center that they never reported in their annual insurance renewal declarations.
The insurer also observed that, in addition to the failure to declare their commercial activities within the property, the insured made deceitful representations, this aspect being dealt with in a separate article.
In demand, the insured claims $90.000,00 in repairs, cleaning clothes and damages for inconvenience.
In defense, the insurer argues:
1. failure to disclose circumstances that aggravate the risks stipulated in the insurance policy;
2. Inconsistent and contradictory statements made in the follow-up investigation, including the operation of the day-care center;
3. The loss is the result of willful misconduct;
As a result, the insurer requests (1) the cancellation of the insurance contract, (2) reimbursement of expenses incurred for accommodation, cleaning and partial demolition following the fire, (3) $7.000 in damages for troubles and inconvenients.
Pursuant to sections 2408, 2466 and 2467 of the Civil code of Quebec (C.c.Q.), the insured has a duty to disclose the circumstances that may influence the acceptance of the risk, both at the insurance application stage and at any time during the insurance contract.
2408 C.c.Q.  The client, and the insured if the insurer requires it, is bound to represent all the facts known to him which are likely to materially influence an insurer in the setting of the premium, the appraisal of the risk or the decision to cover it, but he is not bound to represent facts that the insurer knows or is presumed to know because of their notoriety, except in answer to inquiries.
2466 C.c.Q. The insured is bound to promptly notify the insurer of any circumstances that increases the risks stipulated in the policy and that result from events within his control if they are such as to materially influence an insurer in setting the rate of the premium, appraising the risk or deciding to continue to insure it.
If the insured fails to discharge his obligation, the provisions of article 2411 apply, adapted as required.

2467 C.c.Q. On being notified of the new circumstances, the insurer may cancel the contract or propose, in writing, a new rate of premium, in which case the insured is bound to accept and to pay the premium at the new rate within 30 days of the proposal, otherwise the policy ceases to be in force.

However, if the insurer continues to accept the premiums or pays an indemnity after a loss, he is deemed to have acquiesced in the change notified to him.
However, in order for the insurer to oppose the insured’s failure to disclose facts that may influence the acceptance of the risk in order to refuse to cover the loss, the insurer must prove that a reasonable insurer, had he been informed, would not have issued or renewed the insurance policy.
On the other hand, the issuance of an internal policy by the insurer is not acceptable. The insurer should have rather provided external elements or statistical data showing an increase of the insurable risk.
Therefore, this ground of refusal of insurance is rejected.
Me Sébastien Fiset
Me Sébastien Fiset