Pietrangelo et al. v. Gore Mutual Insurance Company [Indexed as: Pietrangelo v. Gore Mutual Insurance Co.]

104 O.R. (3d) 468

2011 ONCA 162

Court of Appeal for Ontario,

Laskin, MacPherson and LaForme JJ.A.

March 2, 2011

Insurance -- Exclusion clauses -- Property insurance excluding loss or damage to dwellings used in processing or manufacture of marijuana -- Insured suffering loss as result of explosion caused by tenant who was producing cannabis resin in rented residence -- Insured unaware of tenant's activities -- Trial judge not erring in finding that exclusion clause applied and that it was neither unjust nor unreasonable.

The insured suffered loss to one of its residential properties when a tenant caused an explosion while producing cannabis resin. The insured was unaware of the tenant's activities. The insurance policy excluded coverage for loss or damage to dwellings used in the processing or manufacture of marijuana. The insurer relied on that exclusion to deny coverage. The insured's action to enforce its claim under the policy was dismissed on the basis that the exclusion clause applied. The insured appealed.

Held, the appeal should be dismissed.

The trial judge did not err in interpreting the word "used" in accordance with its ordinary, commonly understood and literal meaning. The exclusion clause was not unjust or unreasonable.

APPEAL from the judgment of Ducharme J., [2010] O.J. No. 5907, 2010 ONSC 568 dismissing an action to enforce a claim under an insurance policy.

Cases referred to Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133, 112 D.L.R. (3d) 49, 32 N.R. 488, [1980] I.L.R. Â1-1176 at 595, 1 A.C.W.S. (2d) 169

Statutes referred to Controlled Drugs and Substances Act, S.C. 1996, c. 19 [as am.] Insurance Act, R.S.O. 1990, c. I.8, s. 151 [page469]

Edward Posliff, for appellants. Pino Cianfarani, for respondent.

[1] Endorsement BY THE COURT: -- The appellants owned four residential properties in the Windsor area, three of which they used as rental properties. The Mickle property was one of them. Michael Arquette, along with his mother, rented this property from 2005 until the date of loss, January 30, 2006. On this date, Arquette caused an explosion in the property resulting in total destruction of the house.

[2] As a consequence of the explosion, Arquette subsequently pleaded guilty to (i) intentionally or recklessly causing damage to a dwelling house; and (ii) unlawfully producing cannabis resin contrary to the Controlled Drugs and Substances Act, S.C. 1996, c. 19.

[3] After the explosion, the appellants filed a proof of loss claim under their policy of residential insurance. The insurer, Gore Mutual Insurance Company, investigated the claim and denied the loss based on an exclusion clause in the policy. The appellants commenced an action to enforce the fire loss claim under the policy.

[4] The trial judge dismissed the appellants' action. He held that Gore Mutual was entitled to rely on the exclusion clause in the insurance policy, which reads [at para. 20]:

We do not insure . . . [n]or do we insure direct or indirect loss or damage . . . . to dwellings . . . used in . . . processing [or] manufacture . . . of marijuana. (Emphasis added)

[5] The appellants appeal.

[6] The appellants do not contest that the policy was subject to an exclusion clause, nor do they dispute that the explosion was caused by the illegal activities of Arquette. However, they submit that the trial judge's interpretation of the exclusion clause was in error in three respects: (1) The word "use" in the clause is ambiguous and it should not apply to exclude the claim. In part, they say it was an error to hold that the exclusion clause was intended to apply regardless of any knowledge or involvement of the insured. (2) The exclusion clause was "unjust or unreasonable" and s. 151 of the Insurance Act, R.S.O. 1990, c. I.8 should apply. They say [page470] this for several reasons, including: an insured should not be expected to pay for wreckage caused by the criminal acts of a third party; and the clause exacts a penalty on the innocent insureds. (3) By accepting evidence of the draftsperson as to his intent, the trial judge ignored the clear language of the insurers notice that the clause was in relation to "marijuana grow houses".

[7] We would reject each of these submissions.

[8] First, the trial judge applied the correct law in the interpretation of the exclusion clause, namely, Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133. He rejected the appellants' argument to define "used" through the technical approach; rather, he interpreted it in accordance with its ordinary, commonly understood and literal meaning. He committed no error in doing so.

[9] Second, the appellants' fundamental argument here is that the exclusion clause is unjust and that it operates to create an unfairness on them primarily because of their innocence or their inability to prevent the events that caused the loss. However, the trial judge correctly observed that the issue in this regard is not whether the clause creates unfairness to the insured, but whether there is a rational basis for its existence.

[10] Indeed, it is in respect of this issue that the trial judge relied on the evidence of the draftsperson. That is, the draftsperson's evidence did not go to the interpretation of the clause; rather, it was in relation to the reason for the existence of such a clause.

[11] The trial judge was of the view that s. 151 of the Insurance Act has no application in this case because the exclusion clause was neither unjust nor unreasonable and that its purpose was valid and legitimate. Thus, whether or not s. 151 applied in the circumstances of this case, it has no impact on the critical finding of the trial judge that the clause was not unjust or unreasonable.

[12] We agree with the trial judge; the exclusion clause in the circumstances of this case is not "unjust or unreasonable". There are certain risks which insurers are entitled not to cover for legitimate business reasons relating to the ability to assess risk and set premiums.

[13] For these reasons, the appeal must be dismissed.

Appeal dismissed.