The situation
Piotr had spent nine years building a small real estate brokerage out of a converted retail unit in Scarborough, with Tomasz running the office as manager and handling the books. On a Friday night in late winter, a supply line feeding an upstairs unit failed. Water ran through the ceiling of their office for most of the weekend before a neighbouring tenant noticed and called the property manager. By Monday morning, the brokerage's flooring, several workstations, a server closet holding years of transaction files, and a wall of paint and drywall were ruined.
The office closed for six weeks while the space was gutted and rebuilt. Piotr and Tomasz filed a claim with their commercial property insurer covering the physical damage and the income the brokerage lost while it could not operate normally. Between the two, the claim came to roughly $210,000: about $130,000 in property damage and contents, and about $80,000 in lost commission income tied to the closure. They expected the process to be slow. They did not expect a denial.
The insurer's position
Two months into the adjustment, the insurer's letter arrived. It denied the claim in full, citing a provision that let the insurer void coverage for a material misrepresentation in the application. The brokerage had renewed its policy about eighteen months earlier, and on that renewal form, a question asked whether the business had experienced any prior water damage losses in the previous five years. Tomasz, who completed the renewal, had answered no. In fact, a much smaller leak from a rooftop unit had caused about $4,000 in ceiling damage three years before, repaired quietly through the landlord's insurer without a claim ever touching the brokerage's own policy.
Under Ontario's Insurance Act, an insurer can treat a policy as void from the start if the insured misrepresented a material fact when applying for or renewing coverage — a fact significant enough that, had the insurer known the truth, it might have charged a different premium, imposed different terms, or declined to offer the policy at all. The insurer argued the earlier leak was exactly that kind of fact, and that failing to disclose it, even honestly forgotten, was enough to unwind the entire policy.
Alongside the denial, the insurer invoked a condition found in most commercial property policies: its right to require the insured to submit to an examination under oath before any claim decision is finalized or revisited. This is a formal, recorded interview conducted by the insurer's own lawyer, with the insured answering questions under oath about the loss, the business, and anything relevant to coverage. Refusing to attend, or attending unprepared, can itself be treated as a breach of the policy. Piotr and Tomasz were given a date about three weeks out and told to appear.
What we did
- Reviewed the policy and the renewal question in context. The disclosure question on the renewal form asked about prior water damage losses, not prior water damage generally. Our team pulled the record of the earlier incident and confirmed no claim had ever been made against this brokerage's own policy — the cost had been absorbed entirely by the landlord's insurer. Whether an unclaimed, landlord-side repair counted as a loss the renewal question was asking about was genuinely arguable, not a clear-cut omission.
- Assessed materiality realistically. A misrepresentation only voids a policy if it is material — if it would plausibly have changed the insurer's decision to write the policy or its terms. A $4,000 incident handled outside the policy entirely, three years earlier, is a thin basis for voiding coverage on an unrelated $210,000 loss. We built the case around that gap between what was omitted and what the insurer was trying to walk away from.
- Prepared Piotr and Tomasz for the examination under oath rather than trying to avoid it. Refusing or delaying the examination would have handed the insurer a second, cleaner ground to deny the claim. Instead, we treated it as a fixed event to prepare for: reviewing the loss timeline, the renewal history, and the brokerage's financial records with both owners so their testimony would be accurate, consistent, and free of the kind of vague or inconsistent answers insurers use to build a credibility argument later.
- Attended the examination with the clients. Counsel is entitled to be present at an examination under oath, to object to improper questions, and to ensure the process stays within the scope the policy actually allows. We kept the questioning focused on the loss and the disclosure issue, and did not let it wander into unrelated aspects of the brokerage's finances that had no bearing on either.
- Reconstructed the business interruption figure independently. The insurer's adjuster had informally floated a much lower interruption number, based on average industry closure periods rather than this brokerage's actual commission pipeline. We had Tomasz's books and prior years' tax filings put together a defensible calculation of lost commission income tied to the actual six-week closure, which held up better than the insurer's estimate once both sides compared methods.
- Opened settlement discussions once the record was clear. With the misrepresentation argument weakened and a credible interruption figure on the table, we proposed resolving the file directly rather than heading toward a Superior Court action, which would have taken well over a year and added cost neither side wanted to carry through a full denial fight.
The outcome
The insurer did not withdraw its misrepresentation position outright — insurers rarely concede that kind of argument fully once raised — but it agreed to negotiate rather than litigate the coverage question to a verdict. After roughly ten weeks of back and forth, the file settled for about $125,000, covering most of the property damage and a reduced portion of the business interruption claim, in exchange for a full release of any further claims arising from the loss.
That left Piotr and Tomasz roughly $85,000 short of what they had originally claimed. It was not the outcome they had hoped for walking in, and it is worth being honest about that: a genuine, if arguable, disclosure gap on the renewal form gave the insurer real leverage, and no negotiation was going to erase that leverage entirely. What the settlement did avoid was the alternative — a full denial standing unchallenged, or a year-plus court fight over whether a $4,000 unclaimed incident from three years earlier could void a $210,000 policy, with legal costs and business disruption stacking up on both sides regardless of who eventually won.
The brokerage used the settlement, along with funds the owners had set aside, to finish paying down the renovation and cover the shortfall in commission income from the closed weeks. Piotr and Tomasz kept the same insurer for their next renewal, this time reviewing every disclosure question line by line before signing.
What you can learn from this
- Renewal and application forms deserve the same care as the policy itself. A prior incident that never became a formal claim can still count as something you were asked to disclose — read the question as written, not as you assume it means.
- An examination under oath is a policy obligation, not an accusation to fight by refusing to show up. Preparing for it with counsel present protects you far better than trying to avoid it.
- A misrepresentation only voids coverage if it was material to the insurer's decision to write the policy. A small, unrelated, unclaimed incident is not automatically enough — but expect the insurer to argue that it is.
- Business interruption figures should be built from your own financial records, not accepted from an adjuster's industry-average estimate. The gap between the two is often exactly where negotiation room exists.
- A denied claim is rarely the final word. Many disputes that start as outright denials resolve as negotiated partial payments once both sides can see the real cost and risk of taking the coverage question to court.
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