A decision by the Ontario Superior Court of Justice examined whether after-market performance modifications made by Paul Manzon to his 2011 Chevrolet Corvette constituted a material change in risk. The modifications were made after his automobile policy with Aviva was renewed. The court also considered whether Aviva would have insured the vehicle had it known about them. Aviva's application was granted.

A fatal collision and a modified Corvette

The dispute arose from an August 2018 collision in which Mr. Manzon, driving his Corvette at high speed, struck another vehicle, killing three people and injuring two others. In October of 2021, he was convicted of three counts of dangerous driving causing death and two counts of dangerous driving causing bodily injury. Mr. Manzon has since died, and his estate is now a defendant in the civil actions arising from the collision.

At the time of the accident, Mr. Manzon held an automobile insurance policy with Aviva providing $2 million in liability coverage for the Corvette. Several civil actions followed the collision, while Aviva took the position that coverage was limited because the modifications had not been disclosed.

Mr. Manzon had applied for automobile insurance for the Corvette in September of 2016, through his broker, Mr. Calderon of Dalton Timmis. According to Mr. Calderon, he asked whether the vehicle had been modified and Mr. Manzon said it had not. This was also indicated on the Ontario Application for Automobile Insurance (OAF 1) completed by the broker. Mr. Mazon was not provided a copy of the OAF 1.

Aviva issued a policy for September 9, 2016, to September 9, 2017, and renewed it for September 9, 2017, to September 8, 2018 — the policy in force at the time of the accident. At the time of renewal, Mr. Manzon had not yet modified the Corvette. Although the recording of the original Corvette application could not be located, the court accepted the broker's evidence that he had asked Mr. Manzon about modifications.

Aviva argues it would not have insured the vehicle

Aviva argued that the after-market performance modifications to the Corvette constituted a material change in risk that Mr. Manzon had a duty to report without being prompted. Its underwriting rules prohibited coverage for vehicles with performance-affecting modifications, including superchargers, and the insurer maintained it would not have insured the vehicle had it known of the modifications.

The respondents disputed the materiality of the modifications and argued that Aviva had to establish a causal connection between the modifications and the collision. They also argued that the insurer and broker had not adequately informed Mr. Manzon of his disclosure obligations and that Aviva should have made further inquiries at renewal.

The modifications materially changed the risk

The undisputed evidence established that Mr. Manzon made the performance modifications after Aviva renewed the policy, meaning Aviva could not have known of them unless he reported them. The court found the $21,000 in engine modifications increased the Corvette's horsepower and affected its performance and risk profile.

On materiality, the court applied the two-part test from Sagl v. Cosburn, Griffiths & Brandham Insurance Brokers Ltd., 2009: a fact is material if it would influence a prudent insurer in deciding whether to issue the policy or in fixing the premium amount. The modifications were within Mr. Manzon's knowledge, and he did not disclose them; this was uncontested. The court found that both components of the materiality test were satisfied. Aviva's underwriting evidence showed that its rules prohibited coverage for vehicles with performance-affecting modifications, including superchargers. Its industry expert also testified that insurers generally do not accept vehicles modified to increase horsepower.

The court also rejected the respondents' argument that causation between the modification and the accident was required. The statutory condition governing material changes in risk addresses the insurer's right to assess the risk it agrees to underwrite, not post-loss causation.

Insured had duty to disclose

On the disclosure obligation, the court found that the insurer does not have a duty to explain to the insured what constitutes a material change in risk; the insured's duty to disclose all material facts and changes within their knowledge applies regardless of whether the insured subjectively appreciated their importance. These principles apply both at application and at renewal. The renewal of an automobile insurance policy constitutes the formation of a new contract.

The court also rejected the argument that the broker was required to explain that future modifications would have to be reported. Although an expert testified that a prudent broker should explain the purpose of the modification question and emphasize the obligation to report subsequent changes, no claim had been advanced against the broker, and the court found no authority establishing such a duty in these circumstances.

The argument that Aviva's failure to provide Mr. Manzon with a copy of the OAF 1 at renewal absolved him of the duty to disclose was rejected. While expert opinions confirmed that best practice includes reviewing the OAF 1 with the applicant at each renewal and providing a signed copy, the failure to follow best practice does not diminish the insured's statutory obligation to disclose material changes within his knowledge. 

Furthermore, he court rejected the argument that Aviva should have discovered the modifications itself, noting they were made after renewal and there was no public record the insurer could have searched to identify them.

Because Mr. Manzon failed to report performance modifications he made after renewal — regardless of any causal link between those modifications and the collision — Aviva's liability is limited to the statutory minimum of $200,000, and it has no duty to defend his estate in the four underlying actions.