Background
Parveen and Gurvinder Kallu insured their Abbotsford residential property, including a large outbuilding, under a Wawanesa homeowner policy. The policy incorporated a statutory condition requiring prompt written notice of a material change in risk within the insureds’ control and knowledge.
After a candle caused a fire in the main house, an adjuster discovered a marijuana grow operation in the outbuilding. Wawanesa denied coverage because the Kallus had not disclosed that risk. The trial judge rejected their claim that they knew nothing about the operation, found that they had established it after buying the property, and held that it constituted an undisclosed material change in risk. She also found that a form asking their broker to remove the leaking outbuilding from coverage neither reached Wawanesa nor resulted in a policy change.
The Court’s Holding
The Court of Appeal dismissed the Kallus’ appeal. Their reduction-of-coverage form did not notify Wawanesa—or anyone who might be treated as its agent—of the material risk at issue. The form said only that the outbuilding was leaking and requested its removal from coverage; it did not disclose the marijuana grow operation.
The Kallus did not challenge the trial judge’s findings that they established the grow operation, that it was material to any reasonable property insurer and to Wawanesa, that its location in the outbuilding did not eliminate the risk, and that they never disclosed it. Those unchallenged findings were dispositive. The Court also found ample evidence supporting the conclusion that the outbuilding remained insured, including the policy’s terms, unchanged premiums, and Wawanesa’s evidence that it never received—and would have rejected—the removal request.
Key Takeaways
- A request to remove a structure from coverage does not satisfy a duty to disclose when it omits the material risk prompting the insurance issue.
- An undisclosed marijuana grow operation may constitute a material change in risk even when it is inactive or located in an outbuilding away from the residence.
- Unchallenged factual findings that establish nondisclosure of a material risk can be a complete answer to an insurance-coverage appeal.
Why It Matters
The decision emphasizes that insureds must disclose the material risk itself, not merely communicate information or request a coverage change that might prompt further investigation. Notice stating that an outbuilding leaked did not amount to notice that it contained a grow operation.
It also confirms that the materiality analysis may extend across an insured property: locating a hazardous activity in a separate structure does not necessarily confine the resulting risk to that structure or preserve coverage for losses elsewhere on the property.