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Material change in risk under insurance policies

The risk insured against is a fundamental aspect of any insurance contract. The insurer considers the risk being insured against not only when setting the insurance premiums to be paid, but also when deciding whether to issue the policy at all. Therefore, not only is it important that the insured disclose the nature of the risk when applying for the policy, but it is also important the insured advise the insurer of changes to the risk while the policy is in place. The obligation to notify the insurer of a change in risk is set out in statutory condition #4:
 
(1)        The insured must promptly give notice in writing to the insurer or its agent of a change that is
(a)        material to the risk, and
(b)        within the control and knowledge of the insured.
(2)        If an insurer or its agent is not promptly notified of a change under subparagraph (1) of this condition, the contract is void as to the part affected by the change.
(3)        If an insurer or its agent is notified of a change under subparagraph (1) of this condition, the insurer may
(a)        terminate the contract in accordance with Statutory Condition 5, or
(b)        notify the insured in writing that, if the insured desires the contract to continue in force, the insured must, within 15 days after receipt of the notice, pay to the insurer an additional premium specified in the notice.
(4)        If the insured fails to pay an additional premium when required to do so under subparagraph (3) (b) of this condition, the contract is terminated at that time and Statutory Condition 5 (2) (a) applies in respect of the unearned portion of the premium.
(Insurance Act, RSBC 2012, c. 1, s. 29, condition #4).
 
Changes of risk may occur due to a variety of circumstances. For example, a building becoming vacant will increase the risk of vandalism which may be insured under a property insurance policy.
 
Depending on the magnitude of the change of risk the insurer may increase the premium, or even cancel the policy relying on statutory condition #5:
 
(1)        The contract may be terminated
(a)        by the insurer giving to the insured 15 days' notice of termination by registered mail or 5 days' written notice of termination personally delivered, or
(b)        by the insured at any time on request.
(2)        If the contract is terminated by the insurer,
(a)        the insurer must refund the excess of premium actually paid by the insured over the prorated premium for the expired time, but in no event may the prorated premium for the expired time be less than any minimum retained premium specified in the contract, and
(b)        the refund must accompany the notice unless the premium is subject to adjustment or determination as to amount, in which case the refund must be made as soon as practicable.
(3)        If the contract is terminated by the insured, the insurer must refund as soon as practicable the excess of premium actually paid by the insured over the short rate premium for the expired time specified in the contract, but in no event may the short rate premium for the expired time be less than any minimum retained premium specified in the contract.
(4)        The 15 day period referred to in subparagraph (1) (a) of this condition starts to run on the day the registered letter or notification of it is delivered to the insured's postal address.
(Insurance Act, RSBC 2012, c. 1, s. 29, condition #5).
 
Issues related to change of risk under particular types of policy (e.g. property policy, liability insurance policy) are considered in the parts of the website dedicated to those types of policy.

 

 
This book was written by Michael Dew, a Vancouver lawyer who practices civil litigation, including representing persons who have been denied coverage under property insurance policies, or liability insurance policies. If you have been denied insurance coverage and require assistance with making a claim against your insurer call Michael at 604 895 3160.