Using a boat for commercial purposes when it is insured for private use will void the contract

The Federal Court dismissed a claim by an Insured for a declaration that he was entitled to indemnity and/or specific performance from his Insurer for losses sustained as a result of the theft of his boat. The Court also dismissed the Insured’s claim against the insurance brokerage firm for breach of contract and negligence arising from the assistance it had provided to the Insured in obtaining insurance for his boat.

McIntosh v. Royal & Sun Alliance Insurance Co. of Canada, [2007] F.C.J. No. 22, Federal Court, Mactavish J., January 10, 2007

The Insured and his wife had purchased a 32’ powerboat in July 2002. The Insured contacted an insurance brokerage firm, which assisted the Insured in obtaining insurance coverage for the boat. The brokerage firm was aware of the Insured’s plan to use the boat for commercial purposes, but suggested that the boat could be insured for personal use until such time as the Insured was ready to take paying customers on the boat. The Insured obtained a policy of insurance, which specifically stated that the boat would be used solely for private pleasure purposes and would not be “chartered or leased or used for any commercial purpose”. This was an absolute warranty in the policy, meaning that it applied to the entire policy period.

Despite failing to obtain commercial insurance for his boat, the Insured and his wife set up a numbered company and began marketing activities to attract paying customers. They continued their efforts throughout the end of summer 2002 and during the summer of 2003. The boat was stolen in October of 2003 from where it was moored at the Insured’s family cottage.

The Insurer denied the Insured’s claim for insurance coverage in respect of the theft, finding that the Insured had used his vessel for commercial purposes in contravention of the policy. The Court agreed with the Insurer’s denial, concluding that the Insured had taken paying customers on his boat during the summer of 2003 and was knowingly in breach of his policy. The Insured’s claim against the Insurer was therefore dismissed.

The Court also dismissed the Insured’s claim against the brokerage firm for failing to advise him fully about the effect of not obtaining commercial insurance. The Court held that while the firm failed to meet the standard of care required of a reasonably prudent marine insurance broker, there was no causal link between the broker’s actions and the Insured’s loss. This was because the Insured had not relied on the advice of the brokerage firm, and instead had consciously chosen to take paying customers on his boat despite being aware that this would amount to commercial use and result in the policy being void.

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