Sunday, February 12, 2012

False Claims in SPIS fall under Protection of Homeowners' Policy

insurance policy
Insurer Must Back Up False Statements Made by Seller

By Brian Madigan LL.B.

In Aiken v. Unifund Assurance Co. the Superior Court in Ontario had to consider whether there was a duty to defend under a homeowners’ policy, where the claim arose as a result of a false Seller Property Information Statement.

A purchaser sued a vendor claiming misrepresentation and fraudulent concealment. The purchaser later amended the claim presented to include negligence. That is an unintentional tort and might be covered under an insurance policy.

In the Amended Statement of Claim, it is alleged that the Applicants:

1.     falsely, knowingly, carelessly or negligently failed to disclose or misrepresented a number of facts about the property in the SPIS,
2.     that they consciously omitted to disclose material information relating to the subject property:
a)     with knowledge that the omissions would mislead the Plaintiff or
b)    were careless as to whether such omissions would mislead the Plaintiff;
3.     that they deliberately failed to disclose information about the subject property; and
4.     that they were negligent in relation to information and renovations relating to the subject property.

The Court commented on the duty to defend as follows:

“An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim.  Similarly, where a claim raises the possibility of indemnity by the insurer, the insurer must defend the action on behalf of their insured.  The recent Supreme Court of Canada decision in Progressive Homes Ltd. V. Lombard General Insurance Co. of Canada found:

                        It is irrelevant whether the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy.”

So, the Court is saying that the duty to defend does not depend upon the merits of the plaintiff’s lawsuit. Whether it would ultimately be successful is not relevant. The insurer must come to the rescue and pay the defence costs. That’s the point of having insurance in the first place.

The Court also reviewed with approval another recent case:

“The case of Poplawski v. McGrimmon involved a similar fact situation to the one at issue.  In Poplawski, home owners were sued by the purchasers after the sale of their home for alleged misrepresentations and negligence as it related to a SPIS.  The homeowner’s insurer refused to provide coverage and claimed an exclusion under the policy applied which placed the claim outside the coverage of the policy and therefore resulted in no duty to defend or to indemnify.  Mr. Justice C. McKinnon disagreed and found the exclusion did not apply and held there was a duty to defend.  His reasons and findings were upheld by the Ontario Court of Appeal.”

Both cases involved an interpretation of the insurance contract, being a limitation to prevent a homeowner from claiming under the policy themselves. In this case, as well as Poplawski, the Court felt that that principle was still intact, since the homeowners had sold their properties.


If there is insurance, then there will be more claims. Also, why allege fraud, if fraud is not covered under the insurance policy. Just allege negligent behaviour and then the insurance company must come to the rescue.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.