Canada’s laws are not set in stone, and decisions from the courts as well as changes enacted by lawmakers can lead to laws having significant changes. Sometimes a person might find that changes to the law might make something they had previously done no longer illegal (such as possession of marijuana). In other situations, such as the one described in this week’s blog, a law’s updating might mean that though they weren’t able to collect damages for an insurance-related matter in the past, they would be able to collect today. Unfortunately, that does not necessarily mean the insured can go back to retroactively collect damages.

An illegal grow-op leads to damages

The plaintiff involved in the case owned a home that they used to live in. They eventually moved out of the home and began renting it out as an income property. Unbeknownst to the plaintiffs, the tenants living in the house used it as an illegal marijuana grow-op. When the house suffered damages, the couple turned to their insurer to receive compensation. When the insurer realized in 2011 that there had been illegal activity taking place in the house, they refused to pay, citing a clause in the contract that stated,

“We do not insure against loss or damage: Caused directly or indirectly, in whole or in part, by illegal drug operations or by an activity or decision of a government agency or other entity to prevent, respond to or terminate drug operations, regardless of any other cause or event that contributes concurrently or in any sequence to the loss or damage. Drug operations mean cultivating, harvesting, processing, manufacturing, distributing or selling of any substance falling with the Controlled Drug and Substances Act. This includes, but is not limited to cannabis (commonly known as marijuana) or any product derived from or containing cannabis.”

Unable to collect insurance, the plaintiffs eventually lost the house to foreclosure.

Changes to the law

On July 1, 2012, the Insurance Act was updated to include a section stating that a contract excluding coverage for loss or damage to property by a criminal act could only lead to a refusal to pay if the insured was responsible, consented to, or knew/should have known about the act.

In this case, the insured did not know about the grow-op until after the losses were incurred.

The plaintiff was not aware of the change in law until February 7, 2015 when it was discovered when reading for an insurance law course. The action, however, was not brought to the courts until 2017, more than six years after the insurer refused payment.

The insurer asked the court to grant summary judgment in its favour for two reasons. The first was that the law as written today did not exist in 2011. Secondly, they argued that even if the updated law could be applied retroactively, the limitation period for bringing an action had already passed since it was brought more than six years after the refusal was issued, with the limitation period being four years.

The court agreed with the insurer, finding the plaintiff’s claim to have no merit since it fell under the illegal drug operations exclusion. Even if it had merit, the court said it would have dismissed it since it fell outside of the limitation period.

At HMC Lawyers our Insurance Team has decades of collective experience and a deep, thorough understanding of potential risks as well as legal issues that commonly arise.  We understand the importance of risk management, especially when it comes to questions of insurance coverage and strive to provide our clients with certainty by helping them identify and avoid potential problems wherever possible. To discuss an insurance coverage matter or related dispute, call 1-800-480-3534 or contact us online.