As the case of Zheng v. John Galon Insurance Services Ltd attests, when an insurance application specifically asks if the insured property will have renters and the insured says no, an insured who subsequently rents out his property could void his insurance coverage if he does not declare this change upon renewal.
Mr. Zheng sued his insurer, John Galon Insurance Services Ltd, and his insurance broker, Mr. Romanow. Mr. Zheng alleged that Mr. Romanow was negligent for failing to advise him that taking in tenants could void the insurance policy. The plaintiff further alleged that because his attention wasn’t drawn to this fact, and because he was unaware that renting his property could constitute a change in risk, the insurer was in breach of contract for failing to compensate him for his losses.
The loss in question was Mr. Zheng’s home (i.e. the insured property), which had been damaged by a fire. A subsequent investigation revealed that the plaintiff had three tenants living at the property, though he did not have any renters when he purchased the insurance policy.
By the time the policy was up for renewal, Mr. Zheng had as many as four renters living on the property. Under these circumstances, the insurer chose to deny coverage because the plaintiff’s decision to rent his property constituted a material change to the risk.
In court, Mr. Romanow argued that he had satisfied, and indeed exceeded, the requisite standard of care. He also argued that Mr. Zheng actually knew that renting his home might constitute a material change which could void his coverage. Both the insurer and broker argued that the only relevant issue before the court was whether the insurer should have declined to offer the plaintiff coverage or charged a higher premium to insure the property.
The plaintiff and the broker provided differing evidence as to what occurred during the purchase of the insurance policy. After much deliberation, Justice Demong concluded that he preferred the broker’s evidence. Justice Demong further concluded that Mr. Romanow had not been negligent and dismissed the claim against both defendants.
