CITATION: Intact Insurance Company v. Laporte et al., 2023 ONSC 1828

DIVISIONAL COURT FILE NO.: 383/20

DATE: 2023/03/31

BETWEEN:

ONTARIO SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

D. L. Edwards, Ryan Bell and Leiper JJ.

Intact Insurance Company

– and –

John Laporte o/a Warrior Gear

Applicant )

Respondent )

Anthony Bedard, Alex Sharpe for the Applicant

Natalia Rodriguez for the Respondent

HEARD at Toronto (by videoconference):

March 9, 2023

D. L. EDWARDS J.

Introduction

This is a judicial review of an assessment at appraisal of the Actual Cash Value (“ACV”) of the Respondent’s commercial use building (the “Property”) determined for insurance purposes following a fire. The Applicant seeks an order quashing the ACV valuation.

The Respondent resists the application.

For the following reasons, I would grant the application and quash the assessment of the ACV dated May 12, 2020.

Factual background

The Respondent owns a commercial use property at 1142 Magnesium Road, Haley Station which forms the subject matter of this application. In November 2018, a fire significantly damaged the building. The Applicant insured the building pursuant to an insurance policy (“Policy”) that provided for the payment of either the replacement cost or the actual cash value (“ACV”) of the Property after damage or destruction.

Under the Policy, if the Respondent elected to repair or replace the Property, it was entitled to a valuation based on replacement cost: “whichever is the least of the cost of replacing, repairing, constructing or reconstructing the Property on the same site with new property of like kind and quality and for like occupancy without deduction for depreciation.”

In determining ACV, “[v]arious factors shall be considered in the determination of actual cash value. The factors to be considered shall include, but not be limited to, replacement cost less any depreciation and market value. In determining depreciation, consideration shall be given to the condition of the property immediately before the damage, the resale value, the normal life expectancy of the Property and obsolescence.”

Following the fire, the Respondent filed a claim. The parties agreed that $2,5000,000 was the replacement cost amount. The uncontested market value of the Property, based upon comparable sales, was $265,000. However, the parties could not agree upon the amount of the ACV.

The Applicant’s position was that the ACV, in these circumstances, was the market value. The Respondent initially sought an ACV calculated based upon the replacement cost ($2.5 million) less depreciation.

The parties triggered the appraisal process under the Policy and the Insurance Act[^1]. An

Umpire was agreed upon. Each party’s appraiser advocated their respective positions.

The Applicant’s appraiser asserted that the ACV was the Property’s market value, namely

$265,000, whereas the Respondent’s appraiser argued that the Respondent was entitled to the sum of $2,093,046, being the replacement cost less depreciation.

Following receipt of the appraisal briefs and oral submissions, the Umpire suggested an ACV of $886,000. However, there was no agreement.

As there was no agreement on value, the Umpire directed the appraisers to each provide a final valuation and he would choose one. The Applicant’s appraiser provided a value of $390,000 and the Respondent’s appraiser provided a value of $1,084,000.

[^1]: S.O. 1990, c. I.8.

On May 12, 2020, the Umpire, with the concurrence of the Respondent’s appraiser, assessed the ACV at $1,084,000.

The Applicant seeks judicial review of this determination.

Court’s Jurisdiction

The court has jurisdiction to hear the application for judicial review pursuant to ss.6(1) and 2(1) of the Judicial Review Procedure Act.[^2].

Standard of Review

The parties agree that the standard of review on the judicial review is one of reasonableness.[^3]

I agree that the standard of review in these circumstances is reasonableness. However, it is useful to consider the nature of that standard.

As the Supreme Court stated in Vavilov,

Reasonableness review is an approach meant to ensure that courts intervene in administrative matters only where it is truly necessary to do so in order to safeguard the legality, rationality and fairness of administrative process. It finds its starting point in the principle of judicial restraint and demonstrates a respect for the distinct role of administrative decisionmakers. However, it is not a” rubber stamping” process or a means of sheltering administrative decisionmakers from accountability. It remains a robust form of review.

On the one hand, courts must recognize the legitimacy and authority of administrative decision makers within their proper spheres and adopt an appropriate posture of respect. On the other hand, administrative decision makers must adopt a culture of justification and demonstrate their exercise of delegated public power can be “justified to citizens in terms of rationality and fairness”…[^4]

The Supreme Court identified two potential fundamental flaws in decisions:

What makes a decision unreasonable? We find it conceptually useful here to consider two types of fundamental flaws. The first is a failure of rationality internal to the reasoning process. The second arises when a

[^2]: R.S.O. 1990, c J.1.

[^3]: Canada (Minister of Citizenship and Immigration) v. Vavilov 2019 SCC 65.

[^4]: Vavilov, at paras. 13-14.

Issues

decision is in some respect untenable in light of the relevant factual and legal constraints that bear on it….[^5]

Also, decision makers will be constrained by applicable law:

…Where a relationship is governed by private law, it would be unreasonable for a decision maker to ignore that law in adjudicating parties’ rights within that relationship…[^6]

The Applicant asserts that the ACV valuation is unreasonable for two reasons. First, the ACV violates the principle of indemnity.

Second, the ACV is not consistent with the evidence.

The Law regarding the Appraisal Procedure

The appraisal mechanism under the Insurance Act is a unique process without formalized rules or procedures, which derives its jurisdiction from the terms of the policy of insurance and s. 128 of the Insurance Act.

Justice Perell summarized the process as follows:

(a) First the appraisers are appointed. As noted above, the prerequisite that appraisers be competent and disinterested was removed from the Insurance Act. Thus, the appraiser, but not the Umpire, may be a partisan advocate for the insured or the insurer that appointed the appraiser. A review of the cases reveals that sometimes lawyers act as appraisers and other times experts with subject matter expertise are the appraisers….

(b) Second, the appraisers appoint an Umpire. A properly appointed Umpire must be impartial and much like an expert at trial might be an expert in the field at issue between the parties either from special training or experience.

(c) Third, the appraisers determine the matters in disagreement.

(d) Fourth, if the appraisers do not agree, then they submit their differences to the Umpire, and the finding in writing of any two determines the matter. The decision of the two appointed appraisers and/or the Umpire is determinative and is a binding valuation of the insured property that is damaged or lost.[^7]

[^5]: Vavilov, at para. 101.

[^6]: Vavilov, at para 111.

[^7]: Northbridge General Insurance Corp. v. Ashcroft Homes-Capital Hall Inc., 2021 ONSC 1684, at para 28.

The process contemplates that the appraisers and Umpire will arrive at a binding decision based upon their own knowledge and expertise. The process is designed to be collaborative and not adjudicative. The Umpire is the ultimate decision-maker. The Umpire may permit viva voce testimony under oath and receive affidavit evidence but is not required to do so.[^8]

The Ontario Court of Appeal has also confirmed that the appraisal mechanism is not adjudicative or quasi-judicial in nature but rather one based upon discussion and on the sharing of expertise in valuation. It is not an arbitration and does not require a hearing, consideration of evidence, or reasons.[^9]

The Supreme Court has opined on situations where no reasons are required:

There will nonetheless be situations in which no reasons have been provided and neither the record nor the larger context sheds light on the basis for the decision. In such a case, the reviewing court must still examine the decision in light of the relevant constraints on the decision maker in order to determine whether the decision is reasonable. But it is perhaps inevitable that without reasons, the analysis will then focus on the outcome rather than on the decision maker’s reasoning process. This does not mean that reasonableness review is less robust in such circumstances, only that it takes a different shape.[^10]

Positions of the Parties

Applicant’s Position

The Applicant submits the assessed ACV valuation is unreasonable because it is contrary to the indemnity principle. In this case, the ACV is almost four (4) times the Property’s market value. The Applicant submits that insurance policies should be interpreted consistently with the principle of indemnity, and a windfall should be avoided.[^11]

The Applicant asserts that, regardless of the methodology used to determine ACV, it is the market value of the Property that sets the defining boundary of the indemnity principle which governs the valuation. The Supreme Court has confirmed that replacement costs less depreciation is not the correct calculation of the ACV if the person will not replace in the damaged property.[^12] The Applicant submits that the assessed ACV will not indemnify the insured, but rather will give a profit, as it would provide recovery for an amount beyond the loss suffered by the Respondent.

With respect to the second issue, the Applicant submits that the ACV valuation of

$1,084,000 is not justified on the evidentiary record. The Property had an uncontested market

[^8]: Northbridge General, at para. 29.

[^9]: Desjardins General Insurance Group v. Campbell, ONCA 128, at para. 47.

[^10]: Vavilov, at para 138.

[^11]: Brissette v. Westbury Life Insurance Co., 1992 32 (SCC).

[^12]: Canadian National Fire Insurance Co. v. Colonsay Hotel Co., 1923 49 (SCC), [1923] S.C.R. 688.

value between $265,000 and $390,000, and there was no quantifiable evidence proving that the Property had a greater pecuniary value.

The Applicant concedes that the requirement to provide reasons under the Insurance Act is very low, but it is not non-existent and, in this case, where a valuation flouts the legal constraints, the hallmarks of reasonableness are absent.

Respondent’s Position

The Respondent submits it was open to the Umpire to conclude that the indemnity principle requires a valuation of ACV higher than the market value. The Respondent submits the Umpire could do this by:

a. taking the replacement value and subtracting the depreciation;

b. based on the intrinsic value of the Property; or

c. considering both, together with the market value of the Property, as required.

With respect to the second issue, the Respondent submits the Umpire was provided with caselaw, a detailed description and explanation of the Respondent’s use of the Property and its unique intrinsic value to him. It was open to the Umpire to make the decision that he made.

Analysis

Does the ACV violate the principle of indemnity?

The Applicant asserts that, as the assessed ACV violates the principle of indemnity, the decision suffers from the second fundamental flaw identified by the Supreme Court in Vavilov: the decision is untenable in light of the relevant factual and legal constraints imposed upon the Umpire.

The approach to interpretation of insurance contracts is well-settled law. Those principles include:

a. effect should be given to clear and unambiguous language;

b. ambiguous language should be interpreted using general rules of contract construction; and

c. courts should avoid interpretations that would give rise to an unrealistic result or one that would not have been in the contemplation of the parties at the time that the Policy was entered.[^13]

Justice Laskin, writing on behalf of the Ontario Court of Appeal, stated that “indemnity is a main objective of insurance and, to the extent possible, coverage provision should be interpreted with that objective in mind”.[^14] He described a policy providing for actual cash value coverage as

[^13]: Progressive Homes v. Lombard General Insurance Co of Canada, 2010 SCC 33, at paras 21-25.

[^14]: Carter v. Intact Insurance Co. 2016 ONCA 917, at para. 48.

a pure indemnity contract: “actual cash value recovery prevents insureds from profiting or benefitting from their loss.”[^15]

Justice Sopinka stated that “[a]n interpretation which will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided”.^16 Justice Laskin explained how insurers control or limit the “moral hazard” in the context of replacement cost coverage:

But, allowing insureds to replace old with new raises a concern for the insurance industry. The concern is moral hazard: the possibility that insureds will intentionally destroy their property in order to profit from their insurance; Or the possibility that insurers will be careless about preventing insured losses because they will be better off financially after a loss.

To put a brake on moral hazard, insurers will typically only offer replacement cost coverage if insureds actually repair or replace their damaged or destroyed property. If they do not, they will receive only the actual cash value of their insured property.[^17]

The Declaration Page of the Policy states “[i]n consideration of the premium stated, [Intact] will indemnify the [Respondent] with the terms and conditions of the Policy.” It also states that should the insured’s property be “lost or damaged during the policy period by an insured period, the insurer will indemnify the Insured against the direct loss or damage so caused…”

Under the Policy, the Respondent had a choice to either rebuild or accept the ACV. Had the Respondent elected to rebuild, he would have had access to the replacement cost amount, which the parties had agreed was $2,500,000.00.

As the Respondent has elected to not rebuild, under the terms of the Policy he is only entitled to receive the ACV. The principle of indemnity applies.

In the text, Insurance Law, Denis Boivin describes the factors involved in determining ACV as follows:

Actual cash value is the default basis of valuation; the method that is the most consistent with the indemnity principle. In the absence of a valued policy or replacement cost option, the insured's loss will be settled on this basis. The expression has acquired a technical meaning in the industry and case law. “Actual cash value” signifies (1) the cash value of the damaged, destroyed or lost property, (2) to the person insured by the contract, (3)

[^15]: Carter, at para. 21.

[^17]: Carter, at paras. 24-25.

calculated at the time of the loss. This definition has three interrelated components.[footnotes removed][^18]

The Ontario Court of Appeal has described ACV in similar terms:

“actual value” means the actual value of the property to the insured at the time of the loss and not its replacement value… the actual cash value is not or is not necessarily the replacement value nor the market value. The value to the insured may depend on many factors; there may be a value in use by the insured much higher than its market value; at the same time its value to the owner may be much less than the cost of replacement even allowing for physical and functional depreciation.[^19]

The Supreme Court in Colonsay Hotel identified actual cash value as:

… “the actual value of the property to the insured at the time of the loss,” having regard to all the conditions and circumstances then existing--not necessarily its market value on the one hand and certainly not, on the other, its “replacement value” which, while it may sometimes be less than its actual value to the insured, will more often exceed that value and sometimes, as in the present instance, very grossly exceed it. The right of recovery by the insured is limited to the actual value destroyed by the fire.[^20]

I will now apply these principles to this case.

The appraisal process began before the Umpire on May 12, 2020. The parties’ appraisers presented their appraisal briefs and made oral submissions.

The Applicant’s appraiser advocated for a value of $265,000, based upon the market value assessment of Usher Capordelis Seguin and Associates (“Capordelis Appraisal”). The Respondent’s appraiser advocated for a value of $2,093,046, based primarily upon the replacement cost less depreciation.

The Umpire did not agree with either figure. He proffered a valuation of $886,000. As neither appraiser agreed to this number, the Umpire requested each appraiser provide a valuation and he would choose one.

The Applicant’s appraiser provided a valuation of $390,000, based upon the income approach contained in the Capordelis Appraisal. The Respondent’s appraiser provided a valuation of $1,084,000.

[^18]: Denis Boivin, Insurance Law, 2nd edition, Toronto, Irwin Law Inc., 2015 p. 462.

[^19]: Barrette et al v. Elite Insurance Co. et al, 1987 4160 (ON CA).

[^20]: Colonsay Hotel, at p. 694.

The Umpire agreed with the Respondent’s valuation. Accordingly, the ACV was established at $1,084,000.

The Umpire’s reasons were limited to the following:

In determination of the Actual Cash Value of the Building loss, the Tribunal took into account factors including but not limited to, replacement cost less any depreciation and market value, with consideration given to the condition of the property immediately before the damage, the resale value, the normal life expectancy of the property, and the obsolescence. [emphasis added]

The Umpire’s reasons simply parrot the factors contained in the definition of ACV in the Policy, without explanation. The reasons themselves are therefore of little assistance in assessing the reasonableness of the decision.

There was no evidence in the record to support the change by the Respondent’s appraiser of his opinion of ACV from $2,093,046 to $1,084,000, nor the change by the Umpire of his ACV valuation from $886,000 to $1,084,000. By contrast, the change in the Applicant’s appraiser’s position from $265,000 to $390,000 was supported by the Capordelis Appraisal. The Applicant’s first position reflected the market value based upon comparable sales. The second value reflected the market value based upon an income approach.

In the absence of reasons, the analysis will, necessarily, focus on the outcome rather than on the decision maker’s reasoning process. Here, the outcome is a valuation of the ACV, which is significantly higher than the market value, regardless of what methodology is used to determine market value.

The principle of indemnification underlies the Policy, with the exception that there is a replacement cost option available to the insured. As the Respondent has decided not to elect the replacement option, the Policy should be viewed as one of indemnification to the Respondent.

In my view, the definition of ACV contained in the Policy is ambiguous as it only describes factors to consider, without further direction as to the weight or impact of those factors. Consistent with the principles of interpretation, the definition should be interpreted to avoid an unrealistic result, or one contrary to any constraining legal principles.

The Court of Appeal has opined that the ACV is the actual value of the Property to the insured at the time of the loss. It also has stated that cash value to the owner could be much higher than its market value, but at the same time its value to the owner may be much less than the cost of replacement even allowing for physical and functional depreciation.

While I recognize that the actual cash value is not or is not necessarily the replacement value nor the market value, the ACV must be constrained by the indemnity principle: the insured must not receive a windfall. Cash value to the Respondent may be higher than the Property’s market value if there is quantifiable evidence that the Property has a special value to the Respondent.

The Respondent asserted, both during the appraisal process and before this court, that the

$1,084,000 ACV will provide him with the funds to conduct further repairs and should not be construed as a windfall.

Indeed, the Respondent’s appraiser’s brief asserted that,

… [t]his building is not a total loss, it is repairable and thus the value of the repair must be captured by way of the scope and not a market value assessment. The insured has taken steps to operate as best he can post loss with the limited capital he had available. He has commenced some repairs to allow him to used [sic] limited portions of the structure period to commence proper repairs, he requires an adequate ACV payment….

With respect, this argument conflates the replacement cost option in the Policy with the right to receive the ACV.

If one accepted the Respondent’s argument, it could be possible for the Respondent to pursue any number of different actions and pocket the excess proceeds, resulting in a windfall. For example, the Respondent could erect a smaller building and pocket the excess funds. He could sell the Property and either lease or purchase a less expensive property and pocket the excess funds. Both scenarios would result in a windfall to the Respondent, contrary to the principle of indemnity.

The Respondent had the option in the Policy to take the agreed replacement cost amount of $2,500,000 to repair and/or rebuild. The Respondent has elected to not do so. That argument should not now be employed to justify a higher ACV.

Absent evidence to establish that the Property had a particular value to the Respondent in excess of the market value, an ACV of $1,084,000, offends the indemnity principle, as it creates a potential windfall: Groupone Insurance Services v. Li, 2019 ONSC 3428, at para. 7. The decision would be untenable in light of the relevant legal constraints imposed upon the process.

Therefore, the analysis of the next question is crucial: was there evidence on the record to support a finding that the ACV was significantly in excess of the market value of the Property.

Was the ACV consistent with the evidence?

The Court of Appeal in Newfoundland and Labrador cited with approval a passage from Boivin as follows:

… Second, the loss must be evaluated from the perspective of the insured. The question is not what value a reasonable person would attach to the property. The question is what value the insured attached to the property. Accordingly, the insured may establish that the good had a particular value to him or her, as long as that value is quantifiable and capable of being proven. Third, the process of evaluation must be conducted in monetary terms. It is the value in cash that must be determined. Thus, non-pecuniary

factors such as attachment and sentimental value have no bearing in this analysis. [footnotes omitted][^21][emphasis added]

It is for the insured to establish that the Property had a particular pecuniary value to him, provided this value is quantifiable and capable of being proven. The key is that the value must be quantifiable and capable of proof.

What then was the evidence before the Umpire that proved that the Property had a value to the Respondent above market value?

The Umpire was presented with the appraiser’s briefs and the appraisers made oral submissions. However, because there is no record of the oral submissions and the Umpire’s decision merely parrots the wording of the Policy, the only record is the written briefs.

The Respondent’s appraiser’s brief contained a section headed Background information. That section explained that the Respondent produces and supplies various items to the Department of National Defence (“DND”), police forces across the country as well as to the public.

The brief notes that the building was once a public school. However,

[t]he facility worked perfectly for his business. It is located just minutes from his largest customer, the Department of National Defence in Petawawa Ontario. The bulk of Mr. Laporte's business comes from the DND via multi-year contracts along with walk-ins from soldiers on the base who often purchase gear or come in for repairs. The location of this property is key to the success of his business as it allows him to keep in close contact with his largest client and provide service that is second to none.

The brief also speaks to the functionality of the building:

The building was also efficient to operate given its size; this primarily due to updated systems and fixtures. A few examples being the school board had installed a new boiler system just prior to selling the property and Mr. LaPorte had also converted all the lighting to LED’s. Overall the building was ideal for his needs in terms of location and physical features.

The brief further asserts that,

[i]t is important to recognize that Mr. LaPorte was enjoying the use of this building to operate his successful business. It was meeting his needs in function, utility and geography. There is a value to these items beyond that which can be captured in a market value appraisal.

[^21]: Cornhill Insurance v. Sphere Drake Insurance, 2006 NLCA, at para. 115.

There is nothing further in the record to support these bald statements. For example, there was no evidence to support the statement that the DND was the biggest customer nor that the Property’s proximity to the DND base had a special pecuniary value to the Respondent. In short, there was no quantifiable evidence before the Umpire to establish a particular value of the Property to the Respondent justifying an ACV four times more than the market value.

In addition, I note that the Umpire’s initial opinion of the value of the ACV was $886,000. There is nothing in the record to support the change in his opinion to $1,084,000, which is almost

$200,000 higher than his initial opinion, nor is there evidence in the record to support the Respondent’s appraiser’s change in position to $1,084,000, which is almost $1,000,000 less than his initial position. Both appear to be arbitrary. On the other hand, the Applicant’s Appraiser’s final position of $390,000 is support by the Capordelis Appraisal.

The Supreme Court has stated that the decision maker is constrained by the evidence in the

record:

[A] reasonable decision is one that is justified in light of the facts. The decision maker must take the evidentiary record and the general factual matrix that bears on its decision into account and its decision must be reasonable in light of them…. Moreover, the decision maker’s approach would also have supported a finding that the decision was unreasonable on the basis that the decision maker showed that his conclusions were not based on the evidence that was actually before him.[^22]

There was no evidence before the Umpire to justify the significant deviation from the

indemnity principle.

Although generally there is no obligation to provide reasons for determination of an ACV via the appraisal mechanism, when the determined ACV exceeds, by such a large amount, the uncontested market value, there must be either reasons or an ample record to support such a deviation from the indemnity principle so that a reviewing court can undertake a robust review of the reasonableness of the decision.

In conclusion, I find that the Umpire’s decision that the ACV was $1,084,000 is unreasonable because it is untenable in light of the relevant factual and legal constraints that bear on it.

Disposition

I would grant the application and quash the Assessment dated May 12, 2020, which determined the ACV to be $1,084,000. In accordance with the parties’ request, no further orders are made.

[^22]: Vavilov, supra note 2 at para 126

Costs

The Applicant was successful and is entitled to a cost order. I order that the Respondent

pay costs to the Applicant in the amount of $16,000.00 fixed inclusive of HST.

D. L. Edwards, J.

I agree

Ryan Bell J.

LEIPER J. (dissenting):

Overview

Section 128 of the Insurance Act legislates a unique, informal process for insurance industry professionals to settle claims for damage to property. An insured person submits a proof of loss to the insurer. This step entitles either the insured or the insurer to demand an appraisal. The insured and the insurer appoint appraisers. The two appraisers, along with an Umpire, ultimately make a binding determination of a claim. The Umpire’s role is to control the process. The appraisers, who advocate for their respective positions are expected to “put their best foot forward” with supporting evidence and documentation on behalf of their client.

That is what happened here. After a fire in November 2018 partly damaged two-thirds of the insured, Mr. Laporte’s commercial building on 6 acres of remote property near his largest customer (the Department of National Defence), he filed proof of loss in May of 2019. The business is “Warrior Gear” a custom sewing and embroidery business for military and police outdoor gear. Intact demanded an appraisal when the parties could not agree on the Actual Cash Value (ACV). On February 6, 2020, the Umpire, Z.S. Pete Voltaric, and the appraisers (Bedard and Leblanc) met by teleconference to discuss procedure. An initial amount of $275,000 was released to Mr. Laporte to effect repairs to continue with the business.

The appraisers and the Umpire conducted a site visit on March 11, 2020. Mr. Laporte was present for the visit. Following the viewing, each appraiser prepared a brief with valuations and material in support of their positions. Neither brief raised any issue with the process, nor requested additional information.

The parties agreed that the replacement value of the building was $2,500,000. They also agreed that the market value of the lands and building was $265,000.

On May 12, 2020, the Umpire and the insured’s appraiser agreed on an Actual Cash Value (ACV) of the building as $1,084,000. In the appraisal document, the Umpire noted that the ACV

was based on factors that included “replacement cost, less depreciation and market value, with consideration being given to the condition of the property immediately before the damage, the resale value, the normal life expectancy of the property and obsolescence.”

Intact’s appraiser disagreed. The decision of the Umpire and the insured’s appraiser was therefore an ACV of $1,084,000.

On judicial review, Intact submits that the result flouted the law and the assessment failed to justify an amount that is four times higher than the property’s resale value. Intact submits, and the majority agrees, that the assessed amount was unreasonable and offended the indemnity principle which underlies insurance claims for ACV.

I disagree. Instead, I find that the ACV determined by the Umpire and one appraiser was arrived at in accordance with the procedures set out within the Insurance Act, the plain wording of the policy, the agreed-upon financial benchmarks and the written submissions provided during the appraisal. The decision aligns with the indemnity principle because it seeks to indemnify the insured for his loss to his business premises, within the terms of the insurance policy.

My colleague D.L. Edwards, J. concludes that the decision to appraise the damage at four times market value was unreasonable and cannot stand: it offends the indemnity principle of insurance because it could permit the insured to profit from his loss. In the absence of reasons, my colleague has focused on the outcome and in particular, the scale of the ACV as compared to the market value of the property. The decision for the majority finds there was an absence of evidence as to the value of the property to the insured in excess of market value.

I do not agree for these reasons.

First, the ACV assessment did not require giving priority to market value. This was a fact- specific analysis requiring the application of the factors in the policy to those facts.

Second, the majority position discounts the detailed record including the unique nature of the business and the building. Intact’s consultants described Warrior Gear as a profitable business. There were detailed repair bids. As required by the policy, depreciation figures were considered during the appraisal. Intact did not challenge the quality of the information provided by the insured nor did it identify gaps in the record.

To support its position, Intact relies on the reasoning employed in Groupone Insurance Services v Li, 2019 ONSC 3428 (Div. Ct) in which an assessed value exceeded the recommendations from the appraisers so significantly that it was unclear that the principles of indemnity had been considered or that market value of the property had been considered by the Umpire. In my view, the Groupone decision does not support the majority's position. It stands on its own facts and is distinguishable from the circumstances in the case before us.

What Intact has done with reference to Groupone is to attempt to apply a specific outcome flowing from a different set of facts and a different insured to a different factual context. On the contrary, as I discuss below, the process did not ignore the principle of indemnity. This brings me to my next point of disagreement with the majority analysis.

The policy prescribed the factors to be applied to the calculation of ACV. These factors were not ambiguous. Those provisions did not prescribe weighting, thus importing significant exercise of discretion into the process.

Finally, the standard of review of insurance appraisals is reasonableness. A reviewing court must avoid substituting its view for a reasonable outcome. Insurance claims decisions attract substantial deference: Barrett v. Elite Insurance 1987 4160; SGI v. Marostica 2022 MBQB 35; Seed v. ING Halifax Insurance, 2005 41990, Birmingham Business Centre v. Intact Insurance Company 2018 ONSC 6174, Madhani v. Wawanesa Mutual Insurance Company, 2018 ONSC 4282 at para. 15; Campbell v. Desjardins 2020 ONSC 6630. This deference arises from the various features unique to the insurance appraisal process, including the sharing of expertise among industry experts and a structure that encourages collaboration: Desjardins General Insurance Group v. Campbell, 2022 ONCA 128 at para. 36.

Accordingly, I would not interfere with the decision on judicial review.

Background

The majority reasons summarize much of the relevant background. Here, I add the following additional background facts from the insurance policy and the record available during the appraisal process.

The Policy

The property comprised of the land and the commercial building, was insured to a value of

$2,970,000 and the annual premium component for the building was $4,300 out of a total insurance annual premium of $7600. The policy provided for either replacement or repair of the damaged property, or for the ACV if the insured did not wish to replace the damaged portions with that of “like, kind and quality.”

Under the policy, the ACV was to be calculated as follows:

Actual Cash Value: various factors shall be considered in the determination of actual cash value. The factors to be considered shall include, but not be limited to, replacement cost less any depreciation and market value. In determining depreciation, consideration shall be given to the condition of the property immediately before the damage, the resale value, the normal life expectancy of the property and obsolescence.

The Appraisal Process

The site visit confirmed that the commercial building is a single story, converted rural school, damaged by fire. One third of the building was occupied by a gymnasium which was damaged by smoke. This part of the building was salvageable.

Appraisal briefs and a case law brief were filed with the Umpire prior to the appraisal discussion on May 12, 2020. In that discussion, the appraisers debated and pinpointed their point

of dispute: that is the application of the “the indemnity principle and the requirement to present quantifiable evidence” that would support an ACV in excess of the market value of the property.

The Umpire commented on the positions taken by the appraisers, which led to a private meeting between the appraisers. They were not able to agree. The Umpire proposed a value of

$886,000 and again neither appraiser agreed. The Umpire asked each to return with a new number. Intact’s appraiser increased his figure to $390,000. Mr. Laporte’s appraiser returned with a figure of $1,084,000. The Umpire agreed with the revised amount and confirmed the ACV as at

$1,084,000.

The Record

The brief from Intact contained the following material:

a. Market Value Report, June 2019: A report prepared by Usher, Capordelis, Seguin and Associates concluded that the land and buildings were valued as of the date prior to the fire, at $265,000. Usher Capordelis valued the land component at $35,000 and the buildings at $230,000.

The Report included exterior photographs of the re-purposed school building, estimated to occupy 16, 525 square feet, in rural Renfrew County, in an area zoned General Industrial. Zoning restrictions permit the owner, if employed by the industrial use, to live on the subject property. Usher Capordelis did not enter the building but received floor plans and photographs from Mr. Laporte. These documents were included in the report from Usher Capordelis.

Mr. Laporte purchased the property in 2011 for $230,000. Its prior use had been a helicopter repair facility. The building was originally built in 1954 and served as a rural school.

The report considered the “highest and best use” of the property and found that it had provided “utility (profitability”) for this owner. If the site was vacant, it could be put to other uses, subject to market demand. However, the property is in a rural area with limited access to retail or commercial service amenities.

The Report briefly discussed three approaches to valuing the land and buildings. It rejected both the net income and cost to replace approaches.

Instead, the Report used a “Direct Comparison” Approach by which similar properties, which were described in the Addenda to the report, bought and sold on the open market are compared to the subject property.

b. Supplemental Market Value Report, July 31, 2019: Usher Capordelis prepared a supplemental report using the Income approach, at the request of Intact.

Usher Capordelis described this report as a “hypothetical” market value indication, by assuming a market for an “owner-occupied” space rather than a property purchased for development purposes. Using this approach, Usher Capordelis concluded that the value would be $390,000, although it also concluded and noted that its estimate of market value, despite these results, remains as found in the June 2019 report, that is $265,000.

This estimate assumed rental of the space based on comparator rents in the area and a $3.00 per square foot rent based on the remote location of the building, reduced numbers of potential tenants and condition of the property. It took data from several other commercial properties listed for sale in the greater area around the insured property and reported revenue and expense levels.

c. Cost Estimate of Repair Bids: An undated chart set out the bids for repairs/replacements to the structure that was damaged by the fire. The quotes were as follows: LA Group: $2,745,260; Bassi Construction: $2,772,010 and BGC Construction and Restoration: $2,944,667, inclusive of HST, profit and overhead. The bids are broken into categories.

d. Depreciation Analysis for Each Repair Bid: Each bid was subject to a factor for depreciation which reduced each bid to $1,542,690, $1,627,015, and $1,592,824, respectively.

Intact’s brief described the dispute as the appropriate weight to give to the market value of the property in determining the ACV. Intact’s argued it would be an error in principle for the ACV to exceed the market value of the land and buildings. In Intact’s submission, to do so would undermine the indemnity principle which underlies policies for insurance, except in cases of replacement cost insurance. Intact relied on several cases including Brkich & Brkich Enterprises Ltd. v. American Home Assurance Co. 1995 1809 (B.C.C.A.); Carter v. Intact Insurance Company 2016 ONCA 917.

Intact argued for a “deemed disposition” concept, that is to ask what would the market value of this property have been on the day before the fire? Intact submitted that if the ACV exceeds that value, the outcome offends the indemnity principle and creates a “moral hazard” that a property owner could profit from the damage to the property. Intact argued that to appraise at a higher value than the land and buildings would yield a result that would be a “commercial absurdity.”

Intact also argued the Groupone decision as an application of the indemnity principle and a limitation on the discretion of the Umpire. Intact submitted although market value and ACV are not “synonymous” market value should serve as a benchmark and “inform the methodology for

calculating actual cash value.” Intact submitted that this accorded with the policy wording, and that the Umpire had to consider market value as part of the appraisal calculation. Intact then submitted that market value is the “best measure” of what is required to indemnify a property owner prior to the loss “if they had elected not to continue utilization of the property.” There was no evidence that the insured was planning to discontinue using the property.

Intact’s brief acknowledged that in some cases, “clear quantifiable evidence” could support an ACV that exceeds market value. It discussed three methods for determining ACV: the cost approach, the market value approach and the income approach.

Intact’s submissions did not allege any collusion or impropriety in the process relative to the estimates for repairs to the building included in the comparative charts or of the submission on behalf of the insured.

Intact argued that a market value approach should be adopted in favour of either a cost Approach or an income approach.

The insured’s brief contained the following:

a) Written submissions: The submissions asserted that “Warrior Gear” is located minutes from the Petawa Defence Base, where the largest customer, the Department of National Defense is located. Mr. Laporte went into the business of custom embroidery of military, police apparel, crests, bags, vests and other items, after serving in the armed forces for approximately 20 years. He has multi-year contracts and serves individual soldiers on a walk-in basis.

The submission document described why the former school building was useful for this type of business as follows: the gymnasium functioned shipping and receiving, the classrooms could be designated for different types of processes and one end of the building was set up to receive walk-in customers.

After the fire, Mr. Laporte submitted that he worked with the insurer to create a list of repairs for the bids. He submitted that the Bourrett Appraisal ($3,218,392 depreciated to an ACV of $2,119,362) should be preferred to the three bidders. Mr. Laporte submitted that those bids failed to account for the upgrades to the building pre-loss to reduce the factor for depreciation.

Mr. Laporte submitted that market value is not a proxy for repairs to a building: the appraisers should consider the cost of repairs, less depreciation to arrive at a fair ACV, which responds to the partial loss of this claim. He referred the Umpire to case law that acknowledges that buildings that might not have the same value in their original use, such as the barn used to store speciality rafting equipment in Ottawa River Whitewater Rafting (Pembroke) Ltd. v. Travelers Indemnity Co. of Can 1986 Carswell Ont. 802, [1987] I.L.R. I-2166), He cited that case with reference to this observation by the court at p.310:

It is clear from the authorities that the actual cash value of property at the time of its loss is the real or intrinsic value of the property to the insured at that time. However, beyond

that basic concept, there is wide discretion as to how the intrinsic value is to be determined. Courts have considered various approaches to value including market value, investment value and replacement or reinstatement cost less depreciation. Further, consideration has been given to other relevant conditions and circumstances including not only the age and condition of a structure but also the use to which the structure has been put and whether it has satisfactorily met the needs of its owner.

Mr. Laporte compared his speciality use of the former school on his property to the use of the barn in that case. He submitted that a market value approach would not capture the value of the building to his business. Other case law filed in support of his position included Laurentide Motels Ltd. v. Beauport (City) 1989 81, [1989] 1 SCR 705. The Laurentide decision discussed the hearing judge’s choice to prefer evidence of a valuation of a motel damaged by fire, using a calculation of cost to repair, less depreciation and recovery of what was not damaged by the fire. Other proposed methods included market value, municipal valuation and replacement costs (to rebuild the motel entirely anew).

Mr. Laporte highlighted this portion of the reasons in Laurentide in the submission:

Second, one particular method is not a priori more appropriate than another for assessing the loss of immovable property. Of all the methods presented to him, a judge will first reject those which he does not feel are appropriate to the circumstances, that is, those which are not likely to make full compensation for the loss or which are based on considerations completely unrelated to the loss suffered. Second, the judge will decide which of the suggested methods is the most appropriate, taking into consideration the relative weight of the expert opinions and the circumstances of each case.

He also referred the Umpire to the portion of the Supreme Court’s observations in Laurentide Motels of when market value might be appropriate: for example if the motel had been for sale just before the fire, or if its operations had been speculative.

b) Policy Documents: Mr. Laporte’s brief discussed the policy and its coverage of the property insured for coverage of $2,970,250. He submitted that the determination of ACV is worded broadly, and given that this is the insured’s contract, contra preoferentum would apply to interpreting its provisions. He submitted that because the building is repairable, the best approach to valuation is by scoping the value of the repairs, taking the value of replacement and reducing by depreciation. Mr. Laporte submitted that he was continuing to operate post-loss with limited capital and was using part of the structure. To commence proper repairs, he submitted, he required an adequate ACV payment.

c) Proof of Loss: This form set out initial costing for repairs/replacement of the damaged property and the particulars of the policy under which the claim for loss was being made.

d) Cost Estimate of Repair Bids: This document prepared by Bourrett Consulting and Appraisal, also found in the Intact brief lists and compares bids from three contractors for the repairs to the building.

e) Depreciation Analysis for Each Repair Bid: This document also appears in the Intact brief, as described above.

f) Replacement Cost Appraisal: Bourrett Consulting provided a replacement cost appraisal for the building which came in at a replacement cost of $3,218,392. The ACV calculated by Bourrett was $2,119,362.

Discussion

As stated in the overview, I dissent for three reasons. The policy did not require market value to be a cap or a benchmark for determining ACV. It was one of several factors. The appraisal required consideration of the factors specified by the policy in determining the ACV and on the available evidence. That is what happened. The record supported the outcome. Given the standard of review and deference owed to appraisal decisions under the Insurance Act, there is no basis to interfere in this case.

I will discuss each in turn.

(1) The policy did not require market value to be the sole benchmark for ACV

In several places in its brief to the Umpire, Intact argued that market value could not be exceeded, and to do so would be an error in principle, giving rise to a commercial absurdity. Intact submitted on review that the ACV determined here was so much higher than market value that it cannot stand.

I disagree. First, Intact’s argument fails to consider the plain wording of the policy which describes all relevant factors to be considered in determining the ACV, including (but not limited to) “replacement cost less any depreciation and market value.” In calculating depreciation, the policy directs that consideration be given to “the condition of the property immediately before the damage, the resale value, the normal life expectancy of the property and obsolescence.”

The appraised values were in line with the presentations of the bid estimates less depreciation. There was a basis on the record for finding the cost of replacing the damage, less depreciation amounted to $1,084,000. The principle of indemnity was respected because the cost to repair put the insured in the position he would have been had the fire not occurred. Given the bids for repairs, the nature of the damage and the market value, which was significantly less than those bids, to limit the ACV to market value would impair the indemnity principle to the detriment of the insured.

Further, none of the cases relied on by Intact require that market value be given priority. Indemnity can be achieved in more than one way, and there is discretion in each case as to how this may be determined: Canadian National Fire Insurance Co v. Colonsay Hotel Co [1923] 3

D.L.R. 1001, 1923 49 (SCC), [1923] S.C.R. 688, at p. 1007 D.L.R., p. 694 S.C.R; 1007 DLR; Laurentide Motels

Ltd.; Barrett v. Elite Insurance 1987 4160; Ottawa River Whitewater Rafting (Pembroke) Ltd.at para. 26. The Court of Appeal stated plainly in Barrett that “The actual cash value is not or is not necessarily the replacement value nor the market value.” (at p. 191, O.R.)

(2) The record was sufficiently quantified to support the resulting ACV

Intact submits that the record before the Umpire was insufficiently quantified and could not support an ACV based on replacement value less depreciation, based on the principle that replacement cost is an inappropriate measure of ACV “if no reasonable person would replace the damaged property in the circumstances.”

I disagree. The evidence was that this was a unique, profitable business, with multi-year contracts and was in a setting closest to its largest institutional customer. It was housed in a remote, old-school building, making it a unique use for this location. This was not a speculative, brand new or losing enterprise. The insurance policy covered up to $2.5 million and the premiums were assessed accordingly to that value. The insured obtained multiple bids for repair which were broken out by the necessary repairs. Intact released $275,000 which were employed to partial repairs to have the business operations continue. In these circumstances and on this record, the reasonable commercial step to take is to repair, restore the building to its former function and continue in business. The limitation on using full replacement value is in the policy: “like kind and quality.” There may be several practical reasons on these facts to incent a property owner to take the lesser amount represented by ACV, which requires depreciation be factored into the costs of replacement or repair.

Mr. Bedard, who acted both as appraiser and as counsel for Intact on review suggested in oral argument that there were gaps in the record that renders the decision unreasonable. However, he made no such complaint at the time of the decision-making process. Intact was required to put its best foot forward in support of its position. It seems unfair to an insured to raise this issue for the first time on judicial review where no objection was taken to the process at the time. It could not have been a surprise to Intact that the Umpire might assess the ACV as the cost to repair less depreciation given the content of the competing submissions. Intact included the bids, the depreciation numbers and was provided with Mr. Laporte’s rationale and caselaw that supported his proposed value. method. Intact could have asked to call witnesses or conduct examinations, but it chose not to: Campbell v. Desjardins, 2020 ONSC 6630 at para. 84.

I conclude that the record set out the competing approaches and the facts related to the use of this property. It included detailed repair bids, comparisons, and appraisals by independent third- party experts. The relevant case law was included in the appraisal briefs. Intact has focused on the result and seeks to re-argue its position on judicial review. I would not give effect to that submission.

(3) The interpretation of the policy provisions does not undermine the result

The majority concludes that the ACV provisions were ambiguous and did not provide direction as to the weighting or the impact of the factors required by the policy.

I agree with the observation of the majority that the ACV provisions in this insurance policy do not direct the weighting or preference for any one factor. However, the wording of the ACV clause is not ambiguous because it describes the factors to be considered in plain language. Simply because the result leads to an amount greater than market value does not render that outcome unrealistic or unreasonable. An aggrieved insured might likewise apply that logic to the difference between the factor of full replacement value and the appraised value: in this case the difference between $2,500,000 and $1,084,000 means that the final appraised value for significant damage to a specialized facility is less than half of the replacement value. Or, on the highest replacement value tendered here, at $3.2 million, one third of the actual replacement value.

The rules of construction for insurance polices, require that coverage is to be interpreted broadly and exclusions clauses narrowly: Progressive Homes v. Lombard General Insurance Co of Canada, 2010 SCC 33 at para. 24.

The reasoning of the majority that the policy is ambiguous as to the relative weighting of the factors, and that the ACV here is prima facie unreasonable because it exceeds the market value, assumes that market value ought to have been accorded primacy, over replacement value less depreciation. A judicial finding that fair market value had to be given priority over the other elements would fall afoul of the rule of construction that coverage is to be interpreted broadly and the contra preoferentum rule which provides that where there is ambiguity, it is to be resolved in favour of the insured: Progressive Homes at para. 24.

The information filed on this appraisal was responsive to the ACV factors. A review of those parameters included:

Policy Full Replacement Value:

$2,500,000

Fair Market Value (1):

$ 265,000

Fair Market Value (2):

$ 390,000

Replacement Cost (1):

$2,745,260

Replacement Cost (2):

$2,772,010

Replacement Cost (3):

$2,944,667

Bourret Replacement Cost:

$3,218,392

Depreciation Factor chart and net Replacement Costs (ranging from 61-66%)

Given these parameters, I cannot conclude that the final appraised amount of $1,084,000 was clearly unreasonable or made without reference to any ACV factor required by this policy.

(4) The decision was reasonable and should be given substantial deference

The reasonableness standard of review, while meaningful, ensures that courts will only intervene in administrative matters where it is truly necessary to safeguard the “legality, rationality and fairness of the administrative process”: Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 4 SCR 653 at para. 13.

Pre-Vavilov, the Court of Appeal for Ontario recognized that the specialized nature of the dispute resolution mechanism under the Insurance Act favours judicial restraint, by stating that the “court should not lightly interfere.” Barrett at p. 183 O.R.

Recently, the Manitoba Court of Queen’s Bench affirmed that significant deference is appropriate given “the input of the parties in choosing the appraisers, the expertise of those individuals and the Umpire, and the broad discretion afforded the decision makers under the process set out in the Act…” SGI v. Marostica 2022 MBQB 35 at para. 52 (emphasis added).

Vavilov reminds reviewing courts that they must consider the outcome of the administrative decision in the context of its underlying rationale. The question is whether the decision is “transparent, intelligible and justified.” Reasonableness does not involve searching for one correct or perfect outcome. A court should focus on what happened, whether it is justified, and should take care to avoid deciding what it would have done in the place of the administrative decision maker: Vavilov at para. 15.

As this court observed in Seed v. ING Halifax Insurance (2005) , 2005 41991 (ON SCDC), 78 OR (3d) 481, para. 23: “Courts have afforded substantial deference to an appraisal under the Insurance Act and the appraisal process, which is not subject to the Statutory Powers Procedure Act, RSO 1990, c.S.22. Unless there is proof of misconduct or that the appraisers or Umpire exceeded their jurisdiction, courts have been reluctant to interfere.”

Further, the Court of Appeal has described the content of procedural fairness in the appraisal process as “modest and flexible”. The decision makers enjoy considerable discretion and reasons are not required: Desjardins General Insurance Group v. Campbell, 2022 ONCA 128 at para. 47.

I would accord deference to this decision. It was reasonable in the context of the wording of the policy, the issues raised by the appraisers, the estimates and valuations in the record, the case law and the evidence of the unique use of the school building by the insured in the service of a profitable business.

Conclusion

I would dismiss this application.

Released: March 31, 2023

CITATION: Intact Insurance Company v. Laporte et al., 2023 ONSC 1828

DIVISIONAL COURT FILE NO.: 383/20

DATE: 2023/03/31

ONTARIO SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BETWEEN:

Intact Insurance Company

Applicant

– and –

John Laporte o/a Warrior Gear

Respondent

REASONS FOR JUDGMENT

D. L. Edwards, Ryan Bell and Leiper JJ.

Released: March 31, 2023