COURT OF APPEAL FOR ONTARIO

DATE: 20000602

DOCKET: C31190

RE: 702535 ONTARIO INC. and 702536 ONTARIO INC.

(Plaintiffs/Respondents) and EDWARD W. TINMOUTH IN

HIS QUALITY AS ATTORNEY IN CANADA FOR THE NON-

MARINE UNDERWRITERS MEMBERS OF LLOYD’S LONDON,

ENGLAND, (LLOYD’S OPEN MARKET) and CANASSURANCE

GENERAL INSURANCE COMPANY INC.

(Defendants/Appellants)

BEFORE: BORINS, MACPHERSON AND SHARPE JJ.A.

COUNSEL: Eric R. Williams

S. Mercier

for the appellant

Paul N. Leamen

for the respondent

HEARD: May 30, 2000

On appeal from the judgment of Chadwick J. dated November 25,

1998 made at Ottawa.

BY THE COURT:

E N D O R S E M E N T

[1] The appellant Canassurance submits that Chadwick J. erred in

calculating the quantum of business interruption losses payable

to the respondents pursuant to a business interruption policy.

[2] The measure of recovery is defined by the following

provision in the policy:

The measure of recovery in the event of loss

hereunder shall be the reduction in “gross

earnings” directly resulting from such

interruption of business less charges and

expenses which do not necessarily continue

during the interruption of business, for not

exceeding such length of time as would be

required with the exercise of due diligence

and dispatch to rebuild, repair or replace

such part of the described property as has

been destroyed or damaged, commencing with

the date of such destruction or damage and not

limited by the date of expiration of this

Policy, but not exceeding the actual loss

sustained by the Insured resulting from such

interruption of business. Due consideration

shall be given to the continuation of “normal”

charges and expenses, including payroll, to

the extent necessary to resume operations of

the Insured with the same quality of service

which existed immediately preceding the

destruction or damage by the perils insured

against.

[3] The appellants submit that Chadwick J. erred in refusing to

deduct from gross earnings the monthly mortgage payments on three

mortgages as a non-continuing expense. The appellants submit

that as the respondents did not make their monthly mortgage

interest payments during the period of the claim for business

interruption loss and as those mortgages have now been fully paid

from the proceeds of the fire insurance policy on the property,

the amount of the mortgage interest payments ought to be brought

into account in calculating the respondents’ business loss.

[4] In our view, the trial judge properly rejected this

argument. We agree with the trial judge that on the wording of

this policy, the monthly mortgage interest payments cannot be

interpreted as constituting “charges and expenses which do not

necessarily continue during the interruption of the business.”

The reduction of non-continuing expenses from gross earnings to

calculate the measure of recovery relates to expenses the

business would have to incur in order to achieve gross earnings

but which do not continue due to the fact of the business

interruption. For example, a business would have to pay

employees in order to achieve its earnings. This clause provides

that if the employees are laid off because of the business

interruption and are not being paid, the amount they would have

been paid must be subtracted from the gross earnings the business

would have earned had they continued to be paid. On the other

hand, fixed expenses which do continue notwithstanding the

interruption of the business are not deducted as they must be

paid whether or not the business is operating and earning money.

Mortgage interest payments fall into this category. In our view,

it is irrelevant whether or not the mortgage interest payments

were paid during the period for which the claim is made. The

mortgage obligations were “charges and expenses” which

necessarily did continue during the interruption of the business

and accordingly, on the language of the policy, they cannot be

deducted. We agree with the view expressed by the trial judge

that “to accept the position of the defendants insurer would be

to re-write the policy.”

[5] The respondents incurred a continuing liability for the

mortgage interest payments during the period of business

interruption and that liability was satisfied from the fire

insurance proceeds to which the respondents would have been

entitled but for the mortgage clause in the fire insurance

policy. We do not accept the contention that there is some

element of double recovery due to the fact that the mortgages

have been paid from the proceeds of other insurance policies.

The trial judge’s award does not reflect amounts that would have

been paid on account of the mortgage, but rather, reflect the

respondents’ business interruption loss as defined by the policy.

[6] It was conceded by the respondents that the trial judge

should have taken into account the $5,000.00 deductible on the

policy and that the amount of the judgment should be reduced by

that amount. Subject to that alteration in the judgment, the

appeal is dismissed with costs.

“S. Borins J.A.”

“J.MacPherson J.A.”

“Robert J. Sharpe J.A.”