In Bahniwal v. The Mutual Fire Insurance
Company of British Columbia, 2016 BCSC 422, the
BC Supreme Court considered the application of statutory conditions
1 and 4 and a replacement cost endorsement in a homeowners
insurance policy. The claim arose as a result of a fire that
destroyed a storage facility and attached suite on the insured
property in Oliver, B.C. The owners/landlords of the property
rented the home, attached suite and storage facility to a tenant.
The cause of the fire was unknown but firefighters observed
equipment associated with marijuana grow-operations in the attached
suite, including large lights.
The insurer denied the claim on the basis that a marijuana
grow-operation was being or had been operated out of the attached
suite. Specifically, the insurer elected to void the policy
pursuant to Statutory Conditions 1 and 4 of the Policy, which
1. If any person applying for insurance falsely
describes the property
to the prejudice of the insurer, or
misrepresents or fraudulently omits to communicate any circumstance
which is material to be made known to the insurer in
order to enable it to judge of the risk to be
undertaken, the contract is void as to any property in
relation to which the misrepresentation or omission is
4. Any change material to the risk and
within the control and
knowledge of the insured avoids the contract
as to the part affected by the change,
unless the change is promptly notified in writing
to the insurer or its local agent;
The insurer's vice president testified that had the company
been advised of the grow-operation, it would not have insured the
property. The homeowners testified that they had no knowledge of
the grow-operation. In taking the opposite position, the insurer
relied upon the homeowner's admission during a pre-trial
examination that they conducted regular inspections of the attached
suite and that they had seen the hydro bills, which showed
excessive consumption of electricity. Upon weighing the evidence,
the court concluded that the homeowners were unaware of the
grow-operation. As a result, the insurer was not entitled to void
the policy under statutory conditions 1 and 4.
The Plaintiff sought recovery for the replacement cost of the
property. That is, the total cost of rebuilding new for old, as
opposed to the assessed value of the property at the time of the
fire, known as actual cash value. The Replacement Cost Endorsement
included the following conditions, among others:
replacement shall be effected by the Insured with due diligence
and dispatch; and
settlement on a replacement cost basis shall be made only when
replacement has been effected by the Insured and in no event
shall it exceed the amount actually and necessarily expended
for such replacement
At the time of the trial (approximately 5 years after the fire),
the storage facility and detached suite still had not been rebuilt.
The homeowners stated that they had not rebuilt the structures
because they did not have the money. The court found that this was
not accurate as they owned other real estate and would have been
able to fund the rebuilding. In any case, the court relied upon the
BC Court of Appeal decision of Anastasov v.
Halifax Insurance Co.,  B.C.J.
No. 1437 (C.A.), where the court found that on similar policy
wording, there was no obligation on an insurer to fund the
replacement. The court found that the homeowners had failed to meet
the requirement of rebuilding with due diligence and dispatch and,
therefore, they were only entitled to the actual cash value.
Finally, the court refused to make an award of punitive or
exemplary damages against the insured. The court held that while
there was insufficient evidence to conclude that the homeowners
were aware of the grow-operation, the claim had not been denied
based on a mere suspicion.
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