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This article was originally published by The Lawyer’s Daily, part of LexisNexis Canada Inc.
Insurance law is one of the many domains affected by the Canadian government’s legalization of cannabis. While the possession, distribution and use of cannabis have generally been legalized in Canada, many cannabis-related activities remain forbidden depending on the provincial jurisdiction. Consequently, these prohibitions related to the cannabis market can have a significant impact on exclusion clauses relating to illegal or criminal activities. In particular, policyholders who engage in such activities may forfeit their right to insurance indemnity. This point was recently illustrated by the Quebec Superior Court in Vo c. Compagnie d’assurances Desjardins (Desjardins Groupe d'assurances générales) 2019 QCCS 1382.
Legalization of cannabis
Following years of debate and despite ongoing controversy concerning its effects on health, the federal government legalized cannabis across Canada on Oct. 17, 2018. Licensed producers rapidly took advantage of the new and growing market created by the legalization. In addition to the product being sold on its own for smoking purposes, several corporations are now attempting to innovate by infusing cannabis with other products such as chewing gum, cigarettes, edibles and beverages.
Besides the many corporations that produce and distribute cannabis products, some individuals choose to cultivate the substance at home, which is an illegal activity in Quebec and, as such, can impact the application of home insurance policies.
The Superior Court case
In Vo c. Desjardins, the court decided in favour of the defendant insurer by applying the home insurance policy’s general exclusion clause pertaining to illegal or criminal activities, as it pertains to the cultivation of cannabis or other drugs or illegal substances.
The plaintiffs, owners of a building insured under a home insurance policy, sued the insurer following the destruction of the building by a fire. The plaintiffs lived in one of the building’s apartments and used the other three exclusively for the cultivation of cannabis. In 2013, one of the high intensity discharge lamps used for the at-home cannabis cultivation caused the fire. The plaintiffs claimed an indemnity from the insurer who refused to cover the loss, arguing that the cultivation of cannabis was an illegal activity, which precluded the application of the home insurance policy.
Despite assertions by the plaintiffs that the other three apartments in the building were currently or had previously been occupied by tenants, the evidence brought by the insurer at trial showed that the dwellings in question were uninhabitable and used exclusively for cultivating cannabis.
Application of exclusion clause
The insurer bore the burden of establishing that the exclusion clause pertaining to illegal or criminal activities applied because the plaintiffs were engaging in such activities. However, according to the court, it was unnecessary for the insurer to prove that the prohibited activities caused the fire since the plaintiffs themselves admitted that the cannabis cultivation in one of the apartments had been the origin of the damage.
The plaintiffs’ allegation that the apartments in which cannabis was cultivated were occupied by tenants was rendered highly doubtful by several pieces of evidence. Among other things, the apartments were in a squalid state and the court found the absence of personal belongings in the dwellings to be evidence that they were unoccupied at the time of the fire. Furthermore, none of the alleged tenants could be traced by the plaintiffs or by the police. More generally, the court found that the plaintiffs’ evidence was incomplete and that their testimonies lacked credibility.
The insurer satisfied the necessary burden of proof: the exclusion clause pertaining to illegal or criminal activities applied because the plaintiffs illegally owned cannabis plants. The court therefore rejected the plaintiffs’ claim.
Vo c. Desjardins is a reminder that there are still limitations to the possession of cannabis. Despite legalization, many cannabis-related activities remain heavily regulated. Quebec still forbids the possession of cannabis plants, while other provinces have imposed restrictions on the cultivation of cannabis. British Columbia, for example, forbids the possession of more than four plants in the same dwelling house.
The legalization of cannabis has impacted insurance policies by preventing the application of some exclusion clauses pertaining to illegal or criminal activities, especially in matters of insurance of persons. Therefore, it is crucial for policyholders to remember that some cannabis-related activities remain prohibited and that engaging in them may preclude the right to an insurance indemnity.