February 2014

The obligation to disclose any aggravation of risk in insurance

By Genevieve Forget Lawyer

When entering into an insurance contract, the policyholder must disclose any circumstances which could influence the insurer's acceptance of risk. The policyholder must not only answer the questions which are asked but also, in a spontaneous manner, declare what a reasonable person would consider to be information that the insurer would want to know.

Are the policyholder's obligations with respect to declaration of risk over once the insurance contract has been concluded?

Does the policyholder have the obligation to contact the insurer where a change in circumstances occurs in such a manner as to impact the initial declaration of risk?

With respect to the initial declaration of risk, the obligation applies to all types of insurance. But the issue of aggravation of risk must only be considered in relation to certain insurance products.

As a general principle, in matters of personal insurance (health insurance, life insurance), the policyholder is not obligated to disclose risk aggravation since any such appreciation is determined only once, when the insurer and policyholder enter into the contract.

But this is not the case for general insurance. The Civil Code of Québec provides that, for property and liability insurance, the policyholder must disclose all circumstances which aggravate the risk set out in the policy and which are the result of events within the policyholder's control.

This information must be made known as soon as possible after the occurrence of an aggravating circumstance. The declaration process is simple: a call to the insurance broker suffices.

Here are a few examples from the caselaw in which the policyholder was considered to be obligated to declare an aggravation of risk: • Changes to the use of a building • Storage of goods in the basement of a home • Installation of a wood fireplace or stove • The operation of an active business in a home or garage • Structural changes to a property • Cessation of an activity • Vacancy for more than 30 days

Failure to disclose such information could have significant repercussions. The insurer may seek to proportionally reduce the claim or even cancel the policy if it can be proven that it was not advised of the risk aggravation.

Disclosure is therefore an important obligation. In doubt, we recommend you exercise caution and notify your broker.