There is a lot to think about and to review when applying for insurance. Whether it is for your home or business, you have to make sure you disclose the possible risks involved, also known as material facts, so your insurer can provide you with the proper coverage.

Why is it so important to give accurate material facts to your insurer? Because if you don't, you could risk having your insurer not pay part of or the entire claim, or even finding the policy invalid.

What material facts do you need to disclose?

Not sure what material facts you would need to disclose at the beginning and before renewing your policy?  Policyholders need to share any changes to their home or business that may cause a difference in their insurance coverage and premium.   

Some examples of questions you may be asked:

Change in Mailing Address – we need to know where to send your policy

Who is permitted to discuss or make changes to your insurance policy?

Please report when you have acquired or sold a property – we need to schedule the location and details of the property that we are insuring.

Building a new dwelling, office or warehouse – your current policy may not automatically extend to a building during construction

Increase in property replacement cost – especially due to the rising cost in building materials.  What is the current cost to repair or replace your building?

Do you have a snow plow attached to your vehicle?  Do you clear snow for your neighbours?

Do you run an at home daycare, hair salon or doggy daycare?

Physical hazard versus moral hazard

For insurers, there are two types of material facts they are looking from a policyholder: physical and moral hazards.

A physical hazard is when an action, behaviour or condition can bring about or be a factor of harm to a person or a property.  An example of this could include disclosing that you will be undergoing major building renovations such as replacing or moving a load bearing wall, asbestos or mold removal, or an addition of an in-law suite to your home.  

Another type of physical hazard to be aware of is a liability policy. This is where a policyholder causes harm to other people and their property. An example of Bodily Injury Liability is a manufacturers product causes bodily injury to the consumer. An example of property damage is A baseball goes through a neighbours window during a family day event.

A moral hazard applies to all types of policies and deals with a policyholder committing risky behaviour or not acting in good faith knowing another party would bear the economic consequences of their behaviour. There are various types of moral hazards policyholders can fall into. This includes having a record of dishonest or a criminal history, failing to disclose previous claims or losses when asked, not being honest with the true nature of the business being insured, or a policyholder having a history of cancelling policies. 

What are you and the Insurers responsible for?

Insurers have a responsibility to find out material facts from a policyholder.

Policyholders must also keep in mind that any changes to their business are material facts and must be reported to their insurer.

While this blog post is for guidance only and are not intended as a substitute for appropriate professional advice, we always recommend doing your research before purchasing an insurance policy. If you have questions about material facts and your insurance policy? Contact an OTC insurance broker for more information!

Resources

https://www.insuranceopedia.com/definition/413/material-fact
http://www.ibc.ca/on/resources/consumer-resources/code-of-consumer-rights-and-responsibilities 
https://www.investopedia.com/ask/answers/040815/what-are-some-examples-moral-hazard-business-world.asp
https://www.hornerblakey.co.uk/what-is-a-material-fact-and-why-is-it-so-important/