Executive Summary: Key Legal and Evidentiary Issues

• Whether an insurance broker had authority to bind the insurer to cover Deasan Holdings for gravel pit operations.

• Interpretation of the term “insured” in the insurance policy, especially regarding affiliated companies.

• Impact of a certificate of insurance listing Deasan as an additional insured and its legal significance.

• Application of Statutory Condition 4 of the Insurance Act regarding material change in risk.

• Determination of whether Continental Casualty had a duty to defend Deasan in a third-party claim.

• Judicial error in narrowly construing agency scope and overlooking contextual conduct of the broker.

Facts and outcome of the case

Background and dispute

Deasan Holdings Ltd. owned and operated a gravel pit near Fort St. John, British Columbia. In 2018, a landslide occurred on the gravel pit lands, resulting in a third-party lawsuit (the Giesbrecht Action) alleging that Deasan’s operations caused property damage to neighboring landowners. Deasan sought insurance coverage from Continental Casualty Company under a policy arranged through a broker, CMB Insurance Brokers, which had long represented DRS Energy Services Inc.—a corporate affiliate of Deasan.

The insurance policy named DRS as the "Named Insured" and identified Deasan as an “additional insured” with respect only to a building located on other property, not the gravel pit. Deasan argued that the broker acted as an agent for Continental and that, by its conduct, Continental was bound to insure Deasan fully, including liability for the gravel pit operation. Continental denied coverage, asserting Deasan was not a named insured and that proper notice was not given of the change in risk when gravel operations commenced.

Lower court ruling

The British Columbia Supreme Court rejected Deasan’s claim, holding that the broker’s authority was limited to what was explicitly stated in the certificate of insurance. The trial judge concluded that the certificate unambiguously limited Deasan’s coverage to a building on a different site and found no communication from the broker that could extend coverage to the gravel pit operations.

Appeal and reversal

On appeal, the British Columbia Court of Appeal allowed the appeal. Justice Griffin, writing for a unanimous bench, found that the trial judge erred in narrowly construing the broker’s authority and failing to consider the broader factual context. The court determined that the broker, as agent for Continental, had authority to bind the insurer and effectively did so by including Deasan as an additional insured and by accepting notice of the commencement of gravel operations.

The court emphasized that the broker’s communications and conduct over time—including the preparation and issuance of the certificate of insurance and knowledge of the intended gravel pit operations—reasonably led Deasan to believe it had coverage. Furthermore, under Statutory Condition 4 of the Insurance Act, the broker’s receipt of notice of a material change in risk (i.e., the start of the gravel operations) was deemed receipt by the insurer, and Continental failed to respond with a disavowal or premium adjustment.

Final outcome

The Court of Appeal concluded that Deasan had insurance coverage as of August 31, 2018, and that Continental owed a duty to defend it in the Giesbrecht Action. There was no specific award of costs or damages in the decision, and the court focused solely on declaratory relief.