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Homeowners’ licensed medical marijuana grow operation voids insurance policy.

Schellenberg v. Wawanesa Mutual Insurance Company, 2020 BCCA 22.

Bob and Linda Schellenberg owned a house and a two-storey building at their property in Chilliwack, British Colombia.  The Schellenbergs insured the property with a policy underwritten by Wawanesa Mutual Insurance Company and procured by insurance broker Hub International Canada West.

In approximately 2012, Health Canada granted the Schellenbergs licenses to produce medical marijuana indoors at the property.  The Schellenbergs built an elaborate marijuana growing operation in the two-storey building.  The operation consisted of approximately 300 plants with irrigation, lighting and ventilation systems.

On January 21, 2014, a fire occurred in the two-storey building causing significant damage.  The fire was unrelated to the grow operation.  After the fire, Wawanesa discovered the  marijuana grow operation and voided the Schellenbergs’ insurance policy.  Wawanesa claimed the marijuana grow operation constituted a material change in risk that the Schellenbergs failed to disclose.

The Schellenbergs brought an action against Wawanesa for voiding the insurance policy, and against Hub for failing to procure adequate insurance coverage.  The British Columbia Supreme Court dismissed the Schellenbergs’ actions.  Fleming J. concluded the marijuana grow operation was a material change in risk and the Schellenbergs knew this.  Wawanesa was justified in voiding the insurance policy.  The action against Hub failed for two reasons.  First, the Schellenbergs did not present expert opinion evidence concerning an insurance broker’s standard of care.  Expert evidence is necessary to establish the standard of care, except when the breach is obvious or when the standard of care relates to matters within the knowledge of an ordinary person.  Second, Fleming J. found the Schellenbergs would not have divulged the existence of the marijuana grow operation, even if Hub had directly enquired.

The Schellenbergs appealed.  The British Columbia Court of Appeal dismissed the appeal and confirmed Fleming J.’s reasoning and findings.

With Canada’s recent legalization of cannabis, insurers and brokers would be wise to discuss the issue of growing cannabis with their insureds.

You can read Schellenberg v. Wawanesa Mutual Insurance Company 2020 BCCA 22 here.

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