Lafarge Canada v Little Mountain Excavating [2001] BCSC

- Little Mountain had stored equipment at gravel site operated by Lafarge Concrete and destroyed old forest roads

- AXA issued insurance for Little Mountain, on completion of latter’s contract work, Little Mountain would return to normal operations of another nature

- In a logging contractor survey form, Little Mountain answered that there were no “welding regulations and controls” involved

- Two employees of Little Mountain used torches to cut through bolts on a Lafarge Plant, caused a fire damaging the tower

- AXA elected to void the policy claiming that Little Mountain had misrepresented the nature of its business operations when applying for insurance

- Lafarge claims damages arising from the fire

- The question of materiality is one of fact, onus of establishing materiality is on AXA

- Must be shown that, in treating a fact as material to the risk of the coverage being extended, the insurer was acting as a “reasonable or prudent insurer”

- Relevant time for assessing materiality is the time when application for insurance is completed

- Under the doctrine of good faith, insured must disclose any information material to risk, and it must be full and accurate, irrelevant whether failure to disclose is deliberate or inadvertent

- If facts withheld by insured are facts which ought to have been known by insurer due to deemed familiarity with business of which they are underwriting, then it is not a material fact

- There is a duty on insurer to make further inquiry as to nature of the risk, if facts disclosed by insured are such that would alert a reasonably prudent insurer of need to do so

• 
  AXA would’ve declined the risk, or required higher premium
  

• 
  Also Little Mountain’s duty to disclose was limited to past or present facts at time policy was issued and it could not predict future operations
  
• 
  Any ambiguity in wording of policy should be construed contra proferentem
  

• 
  AXA or any prudent insurer would be accordingly unwilling to provide coverage, or alter the scope of coverage
  

• 
  Use of such equipment would have increased severity of risk, and fact that AXA added a surcharge after learning of Little Mountain’s contract work indicates the position AXA would have took if it was aware of insured’s other activities
  

- Contra proferetem rule didn’t apply since scope of Little Mountain’s activities couldn’t be brought within description listed within policy

- W.r.t. statement of no welding and future unpredictability of activities, Court held that such a statement extends the representation so that there will never be any welding

- M was contacted by agent and persuaded to change insurers, was asked a number of questions relating to past drug use which he answered ‘no’, but he had previously used drugs

- Later M died of accidental drug overdose, though appeared that he was drug free before that time

• 
  Insured holds a duty to disclose full and accurate info about everything relevant to proposed insurance
  
• 
  Keeping back of such circumstance that would mislead an underwriter to estimate a risk as if it didn’t exist is fraud
  

- A fraudulent statement occurs where there is a false representation, made knowingly, without belief in its truth, or recklessly, without care whether it is true or false (Derry v Peek), i.e. there must be fraudulent intent (subjective)

• 
  Fraud must be proved by the insurer on the balance of probabilities
  
• 
  The seriousness of the conduct alleged is a circumstance to be considered in determining whether the matter has been sufficiently proven
  

• 
  In absence of explanation, he answered ‘no’ to questions about past drug use, failed to meet a reasonable standard of disclosure
  
• 
  M violated the statutory duty of disclosure under s.41(1) of the Act
  

• 
  s.41(1) of Act requires disclosure of only material facts
  
• 
  Drug use of M were neither minor nor remote, the hospitalization that was six years old would have affected mind of insurer in determining level of risk and setting of premium
  

• 
  Court held that M did not have fraudulent intent
  
• 
  If M answered agent’s first question about heroin or cocaine sensibly, it could indicate absence of intent to mislead
  
• 
  Court accepted P’s version of facts, finding agent to be unreliable in following standard practice of questioning
  
• 
  Also, fact that P had previous coverage would make it unlikely that they would give up coverage in favour of policy in danger of being declared void
  
• 
  Agent also did not impress the legal significance of false answer and its consequences, therefore more likely that M did not make statement with a fraudulent intent to mislead