On June 20, 2018, the B.C. Ministry of Finance released a white paper on draft legislation that will require reporting on beneficial ownership of land in B.C. The draft legislation, titled the Land Owner Transparency Act (LOTA), follows the government’s announcement in the 2018 budget that it intends to collect and make available information about beneficial ownership of land in a public registry. The government’s stated intention behind the registry is to end hidden ownership of real estate to prevent tax evasion, fraud and money laundering.

The scope of the reporting obligations under LOTA is extensive and will have implications for anyone who currently holds, or in the future may acquire, an interest in land in B.C., including shareholders of a corporation that holds or acquires an interest in land. Broadly speaking, the intent behind LOTA is to identify all individuals who ultimately own real estate in B.C.

The government is accepting comments on the draft legislation until August 19, 2018. More information about the consultation, including a copy of the white paper and draft legislation, is available on the Ministry of Finance’s website.

WHO IS IMPACTED?

LOTA may impact anyone who holds, or in the future acquires, an interest in land in B.C., which includes freehold and leasehold interests. LOTA introduces the concept of a “reporting body”, meaning:

• A relevant corporation, which generally captures all corporations except exempt entities such as government entities, statutory authorities, public companies and institutional entities.
• A trustee of a relevant trust, which generally captures any trustee of a trust, including trustees commonly known as nominees or bare trustees; certain types of trusts are excluded from the meaning of relevant trust, including charitable trusts, pension plan trusts, bankruptcy trustees, mutual fund trusts and real estate investment trusts (REITs).
• A partner of a relevant partnership, which generally captures partners in all types of partnerships, including general partnerships, limited partnerships and limited liability partnerships.

Also important to the application of LOTA is the concept of an “interest holder”, which is limited to individuals who hold beneficial interests in land directly, or through corporations or partnerships. The following classes of individuals are interest holders under LOTA:

• A beneficial owner, which captures an individual who: (a) has a beneficial interest in an interest in land; (b) has the power to revoke a trust in respect of an interest in land; or (c) is a “corporate interest holder” (i.e., a significant shareholder) of a corporation that has a beneficial interest in an interest in land or that has the power to revoke a trust in respect of an interest in land.
• A corporate interest holder, which captures an individual who: (a) has ownership or control, directly or indirectly, of 25 per cent or more of the equity or voting rights in a corporation; (b) directly or indirectly, can appoint or remove a majority of the directors of a corporation; or (c) has “significant influence” or control over a corporation.
• A partnership interest holder, which captures an individual who: (a) has an interest, as a partner in a partnership, in an interest in land that is partnership property registered in the name of a partner; or (b) is a corporate interest holder (i.e., a significant shareholder) of a corporation that has an interest, as a partner in a partnership, in an interest in land that is partnership property registered in the name of a partner.

FILING REQUIREMENTS

Under LOTA, three main circumstances give rise to a requirement to file certain information with the government: (a) the acquisition of an interest in land; (b) pre-existing ownership of an interest in land; and (c) a change in beneficial ownership.

Firstly, on an application to register an interest in land in the land title office:

1. The transferee must file a “transparency declaration” indicating whether or not the interest in land will be registered in the name of a reporting body.
2. If the interest in land will be registered in the name of a reporting body, the reporting body must file a “disclosure report”.

In practice, a transparency declaration will be required for all applications to register an interest in land subject to LOTA, including transactions where a disclosure report is not required because the interest will not be registered in the name of a corporation, trustee, or partner to which LOTA applies. Failure to submit a transparency declaration and, if required, a disclosure report, will result in the land title office refusing to register the interest in land.

Secondly, a reporting body that is currently a registered owner of an interest in land in B.C. must file a disclosure report on or before a date to be prescribed by regulation. This requirement will apply to any reporting body that owns an interest in land in B.C. immediately before the relevant section of LOTA comes into force.

Thirdly, LOTA will require a reporting body to file a new disclosure report within two months after the date it becomes aware of a change in interest holders (i.e., individuals).

CONTENTS OF DISCLOSURE REPORTS

A disclosure report filed by a reporting body must include specified identification information about the reporting body, which is unique depending on the entity. For corporations, this includes their name, address, business number and jurisdiction. For individuals, this includes their name, citizenship and principal residence.

A reporting body must also make reasonable efforts to disclose specified information for each interest holder (i.e., individuals) in the reporting body, including their name, citizenship, principal residence, date of birth and social insurance number. If the reporting body is a trustee, it must also disclose information about the settlor of the trust. Additional information that must be disclosed on a reasonable efforts basis includes the following, which depends on the type of reporting body: (a) if a corporation, the rights and interests that each corporate interest holder (i.e., significant shareholder) has in the corporation; (b) if a trustee, the interests and powers that each beneficial owner has in respect of the interest in land; and (c) if a partner, the interests the partnership interest holder (i.e., an individual partner or significant shareholder of a corporate partner) has in respect of the interest in land.

REGISTRY AND ACCESS TO INFORMATION

LOTA will create a registry to be administered by the Land Title and Survey Authority pursuant to which information filed in transparency declarations and disclosure reports on reporting bodies and interest holders (i.e., individuals) will be accessible by the general public, law enforcement, taxing authorities and regulatory authorities. The government intends that this information will be searchable in a manner similar to what currently exists for land title information, including searches by parcel identifier (PID) to ascertain the individuals holding beneficial interests in such parcel or searches by name to identify beneficial interests in land held by such individual.

Publicly accessible information will be restricted to certain identification information for reporting bodies and interest holders (i.e., individuals) such as name, address, business number and jurisdiction (for corporations) or name, citizenship and principal residence (for individuals). However, such publicly accessible information will not be available for interest holders until at least 30 days after a disclosure report is filed. During this 30-day period, individuals can apply to omit certain identification information from the public record. Information about individuals under 19 years of age and those determined to be incapable of managing their financial affairs will be omitted from the publicly accessible information.

ENFORCEMENT

Failure to submit a transparency declaration and, if required, a disclosure report, will result in the land title office refusing to register the interest in land.

Contraventions of LOTA may be subject to administrative penalties of up to C$50,000 (for corporations) or C$25,000 (for individuals) or may be found to be an offence subject to a fine of up to C$100,000 (for corporations) or C$50,000 (for individuals).

Inspection powers are granted to the Land Title and Survey Authority in order to determine compliance with LOTA, including powers to enter a place of business or records office, to require a person to produce records or answer questions relevant to an inspection, and, subject to a claim of solicitor-client privilege, to inspect records in the possession of a lawyer.

The Canadian government introduced in 2014 the first procedural step toward ratifying and implementing five intellectual property law treaties in order to align Canadian practice with that of most other countries in the world. The government has also introduced amendments to its existing intellectual property legislation, which have not yet come into force.

Amendments to the Trade-marks Act and related regulations will come into force on June 17, 2019. This action will coincide with Canada’s accession to theSingapore Treaty on the Law of Trademarks (Singapore Treaty); the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (Madrid Protocol); and theNice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks (Nice Agreement).

As discussed in a previous communication, notable changes include the following:

• An expanded definition of what may qualify as “trademarks,” including a word, design, colour, 3D shape, hologram, moving image, sound, scent, taste, texture and other such signs.

• The removal of the necessity to identify the date of first use of a mark in Canada in a new application or to file a declaration of use to secure registration. This amendment will likely increase the number of applications that are filed in Canada without needing show use of the mark in Canada for a certain period of time. In the absence of other factual evidence, it will also be more difficult for applicants to evaluate competing rights of third parties.

• The use of the Nice Classification for the description and classification of goods and services included in all new trademark applications and existing registrations. This amendment will affect the filing of, and renewal fees for, all trademarks because it will impose separate fees for each class of goods and services covered in an application or registration. Filing or renewing trademark applications before the amendments come into force is therefore recommended.

• The possibility of using the Madrid Agreement to file applications in certain foreign countries, through a single application originating from Canada.

• The examination of new applications for distinctiveness (not only for descriptiveness or likelihood of confusion with other marks).

• The possibility of dividing pending applications to speed up registration of part of an application.

• The reduction of the term of protection, from 15 to 10 years, from registration. Renewing trademark registrations before the amendments come into force is recommended.

• Other amendments regarding the corrections of errors, the streamlining of formalities for assignments, and other similar provisions.

On Wednesday, November 21, 2018, the Ontario Legislative Assembly passed Bill 47, the Making Ontario Open For Business Act, 2018. We previously outlined some of the main features of Bill 47 in Bill 148 Update: New Regulations and Bill 47 Public Consultations Announced. The original Bill 47 passed with very few amendments. Of the changes made before passing, the most notable was that the MPPs on the committee overseeing Bill 47 removed a proposed new power for the Ontario Labour Relations Board to amend bargaining units where those bargaining units were no longer appropriate for collective bargaining.

The Lieutenant Governor of Ontario gave Royal Assent to Bill 47 upon its passing. As a result, the Bill 47 changes to the Labour Relations Act, 1995 came into effect on November 21, 2018, and the Bill 47 changes to the Employment Standards Act, 2000 will come into effect on January 1, 2019. Those subject to current applications before the Ontario Labour Relations Board for employee lists, first contract mediation-arbitration, card check certification in the security, temporary help agency, home care/community services or building services sectors, or remedial certification, may wish to seek legal advice as soon as possible given Bill 47's coming into force.

In addition to passing Bill 47, the provincial government filed new regulations on October 24, 2018 which will result in the penalties for contravening the posting and records keeping requirements of the Employment Standards Act, 2000 being decreased on January 1, 2019 from:

• a fine of $350 for a first offence to $250;
• a fine of $700 for a second offence in a three year period to $500; and
• a fine of $1,500 for a third, or subsequent offence in a three year period, to $1,000.

The Government of Ontario is also soliciting further input on proposed new employment regulations here.

Bill 57 and the 2018 Fall Economic Statement

And that's not all the government has been up to. On Thursday, November 15, 2018, the Government of Ontario delivered its Fall Economic Statement, or "FES", an annual tradition. On the same day, Bill 57, the Restoring Trust, Transparency and Accountability Act, 2018, was introduced in the Legislative Assembly for the purposes of implementing several of the initiatives announced in the FES.

Outlined in this year's FES were several initiatives or pledges by the new government which will be of interest to Ontario employers, including:

1. changing the implementation date for the Pay Transparency Act from January 1, 2019, to an indefinite future date to be chosen by the government. Some features of the Pay Transparency Act were set to take effect on January 1, 2019, including requirements that:

• all public job postings (including online postings) required a stated salary range; and
• employers were barred from inquiring about job candidates' past income levels. 

The change to the Pay Transparency Act implementation date is part of the omnibus Bill 57, and will be expected to become law prior to the December holiday break of the Legislative Assembly.

For those familiar with the machinations at Queens Park, making such a change to the Pay Transparency Act likely indicates that the new government is not interested in having the Pay Transparency Act come into force at all;

2. changing the Fire Protection and Prevention Act, 1997, by way of Bill 57, by:

• making several changes to the interest arbitration process; and                                                                         
• permitting professional firefighters to also act as volunteer firefighters in other communities, without reprisal (by employers or unions). 

Given the current Fire Protection and Prevention Act, 1997 closely resembles interest arbitration legislation for other sectors (police, health care, etc.), this change could serve as a model for significant future changes in those sectors as well;

3. exempting all employees of the Crown, of Crown agencies, or of an authority, board, commission or corporation whose members are appointed by the Crown, from the hours of work and overtime provisions of the Employment Standards Act, 2000. In fact, prior to announcing this initiative in the FES, the Government of Ontario had already put this feature into law by filing unannounced regulations exempting Crown employees from these provisions, effective October 24, 2018;

4. exempting Ontario Hockey League ("OHL") players from the requirements of the Employment Standards Act, 2000. The new provincial government has already acted on this commitment, putting in place a standalone regulation which exempts "a player on a major junior ice hockey team" from the Employment Standards Act, 2000 if the player is eligible to receive a scholarship from the player's team or league for post-secondary education "for each hockey season the player plays". There are no other parameters set for the conditions for the scholarship, nor is there a required value for any scholarship;

5. increasing the Employer Health Tax exemption level from the first $450,000 in payroll up to the first $490,000 in payroll;

6. launching a review of the Workplace Safety and Insurance Board. The details of this review are not yet clear;

7. reviewing all tribunals under the purview of the Ministry of the Attorney General, including the Human Rights Tribunal of Ontario. Details of this review are not yet clear;

8. assisting the University sector to establish jointly sponsored pension plans;

9. affirming that children under the age of 25 with private drug plan coverage will be exempted from the government's OHIP+ prescription coverage. Given the Government of Ontario's OHIP+ plan will cover those under 25 without coverage, employers may wish to review any ongoing prescription coverage for employees' dependent children to see if this is still necessary; and

10. extending alcohol and cannabis sales to private retailers, which will require additional staff training for retailers.

The new provincial government has been active in reshaping provincial employment and labour laws and responsibilities, and we will continue to monitor their progress and new initiatives that may be of interest.

While recreational users of marijuana have counted down the days to October 17, 2018, the insurance industry has been preparing for the resulting changes, risks and opportunities that will occur as a result of the legalization of marijuana in Canada. With the passing of Bill C-45-The Cannabis Act, there is a new legal landscape that will impact premiums, coverages and claims. The legalization of recreational marijuana will have far-reaching impacts across many different lines of insurance, and will likely take years to fully measure and understand. Insurers must consider the consequences that legalization will have on their current standard policies including amendments to the wording to reflect the new law, and potential variations in the requirements across the country. Although this article deals with legalization related to homeowners insurance, there will be impacts on commercial general liability and automobile insurance as well. 

Background

According to Statistics Canada, in 2017, almost 5 million Canadians between the ages of 15 to 64 purchased both medical and recreational cannabis, spending approximately $5.7 billion in the process. Nearly all of the cannabis consumed in Canada was produced in Canada. These figures are expected to increase now that cannabis has been legalized.[1]

The Cannabis Act allows adults (18 or 19 years of age, depending on the jurisdiction) to legally purchase, possess, share, cultivate and alter limited amounts of cannabis for recreational means.

The Act permits the cultivation of four plants per “dwelling house”. This limit applies regardless of the number of adults living in one house. The Act does not restrict the growing of cannabis plants indoors, and appears to contemplate that people will be able to grow the plants in their gardens, yards, or greenhouses.

According to the legislative provisions, provinces will have the ability to impose additional requirements on personal cultivation and possession limits. As a result, there could be varied restrictions and/or requirements from province to province. All insurers who underwrite business in multiple provinces will need to be aware of potential variations in recreational cannabis requirements across the country.

The Act also permits individuals to make cannabis-containing products (such as edibles), provided that dangerous organic solvents are not used in making them.

Impact on Homeowners Insurance

Although large-scale, personal growing operations (“grow-ops”) will remain illegal and void most homeowner insurance policies that are faced with related claims, the Act permits the cultivation of cannabis plants at home, as discussed above. Personal cultivation of cannabis will introduce another peril that is currently excluded under homeowners insurance, which is indirect or direct loss or damage to a dwelling used in the processing or manufacturing of marijuana. This exclusion will need to be amended to reflect the new law.

The typical homeowners policy includes some form of relatively standard criminal and intentional act exclusion. Under the new legislation, marijuana cultivation within the allowed restrictions would not fall within the typical criminal act exclusion. This will be a big change from both an underwriting and claims perspective.

Marijuana Cultivation and Disclosure

Home cultivation of marijuana has many inherent dangers, with a multitude of potential claims that could result. Growing marijuana plants indoors can require additional heat, water, and electricity. Electrical modifications and overloaded circuits can increase the risk of fire, while improper ventilation and irrigation can increase the risk of water damage and mould. Marijuana also grows faster when the amount of carbon dioxide increases, which is why many grow-ops have been found to use natural gas, propane, and other fuels to power carbon dioxide generators, which would dramatically increase the risk of fire.

Insurers will need to consider a requirement for insureds, or potential insureds, to disclose whether or not they are cultivating their own marijuana. Insurers currently do not typically ask applicants for insurance whether they are actively growing marijuana within their home. Whether or not someone is cultivating marijuana at home is likely to impact the premium that is charged. As a result, a failure to disclose cultivation could represent a material change in risk, as was argued by the insurer in Bahniwal v. The Mutual Fire Insurance Company.[2]

The insurer in the Bahniwal case was unsuccessful in proving that the insureds had knowledge of the grow-op on their property. The Court confirmed that if the insureds had been aware of the presence of the grow-op on their premises, their failure to disclose its existence would have constituted a failure to disclose a material fact.  As a result, insurers should consider their policy wording carefully, and determine whether or not such a disclosure should be included in their standard application process. 

An additional risk related to marijuana cultivation is presented when it comes to rental properties. Insureds as landlords may have no idea if their rental property is being used to cultivate marijuana plants. Insurers should consider whether or not questions posed on an insurance application for a rental property will require landlords to demonstrate that they have taken measures to inform themselves of the legal marijuana cultivation activities of their tenants. This could require landlords to show the insurer that they have included disclosure of marijuana cultivation as a question, or series of questions, on their lease/tenancy agreement to be completed by all prospective tenants. 

All of these additional risks could be heightened when looked at in the context of multi-unit housing complexes, such as large apartment and condominium complexes. The additional risk to adjoining or neighboring properties could be significant, with the potential for a rise in claims framed as nuisance/escape to land. There is the obvious risk of flooding, fire, and mould that could impact adjoining properties. In addition, there is the potential for nuisance claims as a result of escaping odors.

Insurers are expected to recognize the increased risk of claims, where homeowners cultivate marijuana within their residential premises, by reflecting this with increased premiums. Insurers must adjust their policy application process and develop a methodology for evaluating these increased risks. This might take some time as claims arise and new policies are issued/renewed after legalization.

Insurers must also consider that although possession and home cultivation is now legal in Canada, there are limits to both. As noted earlier, almost all standard homeowner insurance policies currently include criminal activity exclusions. As a result, if a homeowner is cultivating marijuana and selling it themselves illegally (including edibles), or exceeding the limits imposed by the Act, insurers might be able to exclude, fight, or void coverage on the basis of the criminal activity exclusion. That said, losses and/or claims arising from marijuana activity that fall within the legalization limits will not be excluded.

Theft and Damage of Marijuana Plants

If an insured homeowner is legally growing marijuana, it is not unreasonable to believe that the home is likely subject to an increased risk of theft as a result.

An increase in claims related to theft or damage to marijuana plants also presents an additional risk for insurers as private homeowners could become a lucrative target for thieves. Will policies allow homeowners to recover the cost of damaged marijuana plants? How will the value of the plants be determined? And, will marijuana plants be considered to be personal property for theft or damage claims, or will they fall under the “tree, shrub, and plant” portion of the policy (which typically has maximum recoverable amounts)? To ensure the smooth and efficient processing of claims, insurers are best advised to clarify the policy wording and set up a framework for adjusters faced with such claims.

Although there is limited judicial commentary on the treatment of recreational marijuana in the context of homeowners insurance policies, the Ontario Divisional Court addressed the issue of medical marijuana in Stewart v TD General Insurance Co.[3] The plaintiff had Health Canada’s permission to possess and cultivate his own marijuana for medicinal purposes. Eleven of his marijuana plants were subsequently stolen, and the plaintiff took the position that the plants were personal property.

The insurer in Stewart took the position that the plants were not personal property, but conceded that they were covered under the “extended coverage” clause for “landscaping”, and that it had already paid to the plaintiff the limited coverage of $1,000 per plant. The plaintiff claimed that the value of the plants was just under $50,000. The Divisional Court held that a loss due to the theft of the marijuana plants from the plaintiff’s home was excluded under the policy. The Court also noted that the standard grow-op exclusion did not apply because the plaintiff had Health Canada’s authorization to possess and cultivate the marijuana.

In reaching their conclusion, the Court in Stewart held that marijuana plants in a backyard could be considered personal property. The Court also noted that covered personal property under the subject policy must be “usual to the ownership of the maintenance of a dwelling”. As a result, the policy wording operated to exclude the marijuana plants from coverage as they could not be considered usual to the ownership and maintenance of a dwelling.

In coming to its conclusion, the Divisional Court in Stewart stated that fewer than one-third of one percent of the population of Canada was authorized to grow marijuana for their own medicinal purposes at the material times relevant to the action (the losses occurred in 2009 and 2011). It used this information to reach its conclusion that marijuana plants in a backyard are not “usual to” the ownership or maintenance of a dwelling itself. Given the expected growth in home cultivation of marijuana once the Act comes into effect, one can expect that such a judicial interpretation could be quite different in the context of legalized marijuana.

Social Host Liability Claims

Insurers should also be prepared for a possible increase in social-host liability type claims as they relate to marijuana. As Canadians are now able to share up to 30 grams of dried marijuana with other adults, insurers should be prepared for personal injury claims resulting from situations where a homeowner supplies guests with marijuana, whether cultivated at home or not.

What if a homeowner supplies tainted or “defective” marijuana to a guest who then drives high and causes an accident? What if a child visiting a home consumes and reacts to the homeowner’s home-grown marijuana? Not only is there the potential for social-host liability claims, there is also likely to be the potential for product liability type claims where a homeowner’s guest ingests marijuana cultivated by the homeowner.

Conclusion

The legalization of marijuana will result in additional risks and opportunities for the insurance industry. Insurers and their counsel must adapt to the changes that will be brought about by the Act, including undertaking an analysis of current insurance policy exclusions and prohibitions. There will also likely need to be changes to the policy application process, to reflect the increased risk posed by at-home marijuana cultivation.

Key Takeaways

• From a claims perspective, the expected growth in the number of homeowners cultivating their own marijuana will require insurers to develop an appropriate framework to ensure that claims are being adjusted effectively.
• Given that premiums are impacted by claims experience, compiling data on marijuana related claims will be critical from an underwriting perspective, so that premiums can appropriately reflect the risk posed by the legalization of marijuana.
• Under the new legislation, marijuana cultivation within the allowed restrictions would not fall within the typical criminal act exclusion. Policies will need to be amended accordingly.
• Personal cultivation of marijuana represents an increased risk of direct or indirect damage to property. Consideration should be given to amending standard policy applications to require disclosure of marijuana cultivation at the time of application and at renewal.
• It may take some time for insurers to develop a standard method for the evaluation of the additional risk presented by home cultivation of marijuana that can be applied somewhat consistently. Insurers should develop a framework to adjust marijuana claims and implement a system to track and evaluate such claims so that they turn the challenges faced by the legalization of marijuana into a profitable opportunity.