Superior Court of Justice - Ontario
COURT FILE NO.: CV-13-00481960-0000
DATE: 20141118
RE: THE EQUITABLE TRUST COMPANY, Plaintiff
AND:
THE PORTAGE LA PRAIRIE MUTUAL INSURANCE CO., Defendant
BEFORE: STEWART J.
COUNSEL: Martin Banach and Bryan Whealen, for the Plaintiff
Pasquale Santini, for the Defendant
HEARD: June 26, 2014
ENDORSEMENT
[1] The Plaintiff Equitable Trust Company (“Equitable”) brings this motion pursuant to Rule 20 of the Rules of Civil Procedure. Equitable seeks summary judgment against the Defendant The Portage La Prairie Mutual Insurance Co. (“PLP”).
[2] Equitable demands payment from PLP of the outstanding balance owing on its mortgage placed on residential property located in Rockland, Ontario. The residential property was insured by PLP for loss due to fire under a policy issued by PLP to John William Bell (“Bell”), the property owner.
[3] PLP denies any obligation to Equitable.
[4] The parties agree that the issue raised in these proceedings is one that may be determined by means of a motion for summary judgment on the record before the court. The underlying facts are not in dispute.
Facts
[5] On July 8, 2012, the property was damaged as a result of a fire. The insurance policy issued by PLP was in effect when the damage occurred.
[6] On August 7, 2012, Bell defaulted in payment of principal and interest owing under Equitable’s mortgage. No further payments were made by him.
[7] On September 25, 2012, Equitable issued a Notice of Sale under Mortgage.
[8] All of the persons entitled to notice of the Power of Sale proceedings were served as required by the Mortgages Act, R.S.O. 1990, c. M.40.
[9] The mortgage was not redeemed prior to the redemption date of October 31, 2012.
[10] Equitable then took steps to sell the property as empowered to do so under its mortgage and the Mortgages Act. On March 12, 2013, Equitable obtained an appraisal of the property which valued the property on an “as is” basis at between $130,000.00 and $140,000.00.
[11] On September 12, 2013, Equitable entered into an Agreement of Purchase and Sale for $166,300.00.
[12] The sale of the property was completed on September 18, 2013. From the balance due on closing of $164,375.54, and following payment of real estate commission and legal fees and disbursements, only $150,706.71 remained to be applied to the amount then owing on Equitable’s mortgage.
[13] As a result, the amount required to fully discharge Equitable’s mortgage as of September 18, 2013, exclusive of legal fees and disbursements and after application of the sale proceeds to the outstanding mortgage balance, is $98,682.88. This amount claimed by Equitable from PLP is well within the amount of approximately $500,000.00 for which the property was insured.
[14] On September 7, 2012, Bell provided a Proof of Loss to PLP. Bell did not take any steps to repair the damage to the property nor has he received any proceeds of insurance under the policy. PLP has taken the position that the fire was caused by arson and that Bell had misrepresented the value of the contents of the premises on his Proof of Loss. PLP demanded further information and documentation from Bell which it has not received.
[15] Because PLP insisted that Equitable also provide a Proof of Loss, Equitable filed its own Proof of Loss on May 31, 2013.
[16] After having raised and abandoned a number of technical objections to Equitable’s claim, PLP now denies Equitable’s entitlement to payment under the policy because Equitable did not itself take steps to repair the premises. PLP argues that Equitable is entitled only to the “Actual Cash Value” of the cost to repair the damage caused by the fire. PLP argues that, because the Actual Cash Value of the damage caused by the fire ($148,541.26 less the applicable deductible of $500.00) is less than the amount received by Equitable on the sale of the property, Equitable is not entitled to any payment under the policy whatsoever.
[17] PLP further claims that Equitable failed to file a Proof of Loss at least 60 days before starting its action. PLP also asserts that the appraisal provisions of the policy apply in these circumstances and that this Court therefore should not deal with this action until an appraisal has been done.
Issue
[18] Should PLP be required to reimburse Equitable for the $98,682.88 shortfall owing on its mortgage?
Law and Discussion
[19] The insurance policy applicable to this case contains a Standard Mortgage Clause.
[20] The Standard Mortgage Clause provides as follows:
MORTGAGE CLAUSE
It has hereby provided and agreed that:
- Breach of Conditions by Mortgagor, Owner or Occupant – This insurance and every documented renewal therof – AS TO THE INTEREST OF THE MORTGAGEE ONLY THEREIN – is and shall be in force notwithstanding any act, neglect, omission or misrepresentation attributable to the Mortgagor, owner or occupant of the property insured, including transfer of interest, any vacancy or non-occupancy, or the occupation of the property for purposes more hazardous than specified in the description of the risk;
PROVIDED ALWAYS that the Mortgagee shall notify forthwith the insurer (if known) of any vacancy or non-occupancy extending beyond thirty (30) consecutive days, or of any transfer of interest or increased hazard THAT SHALL COME TO HIS KNOWLEDGE; and that every increase of hazard (not permitted by the policy) shall be paid for by the Mortgagee – on reasonable demand – from the date such hazard existed, according to the established scale of rates for the acceptance of such increased hazard, during the continuance of this insurance.
Right of Subrogation –Whenever the Insurer pay the Mortgagee any loss awarded under this policy and claims that – as to the Mortgagor or Owner – no liability therefor existed, it shall be legally subrogated to all rights of the Mortgagee against the Insured, but any subrogation shall be limited to the amount of such loss payment and shall be subordinate and subject to the basic right of the Mortgagee to recover the full amount of its mortgage equity in priority to the Insurer, or the Insurer may at its option pay the Mortgagee all amounts due or to become due under the mortgage or on the security thereof and shall thereupon receive a full assignment and transfer of the mortgage together with all securities held as collateral to the mortgage debt.
Other Insurance – if there be other valid and collectible insurance upon the property with loss payable to the Mortgagee – at law or in equity – then any amount payable thereunder shall be taken into account in determining the amount payable to the Mortgagee.
Who may Give Proof Of Loss – in the absence of the Insured, or the inability, refusal or neglect of the Insured to give notice of loss or to deliver the Proof of Loss under the policy, then the Mortgagee may give the notice upon becoming aware of the loss and deliver as soon as practicable the Proof of Loss.
Termination – The term of this Mortgage Clause coincides with the term of the policy;
PROVIDED ALWAYS that the Insured reserves the right to cancel the policy as provided by Statutory provision but agrees that the Insurer will neither terminate nor alter the policy to the prejudice of the Mortgagee without the notice stipulated in such Statutory provision.
- Foreclosure – Should title or ownership to said property become vested in the Mortgagee and/or assigns as owner or purchaser under foreclosure or otherwise, this insurance shall continue until expiry or cancellation for the benefit of the said Mortgagee and/or assigns.
SUBJECT TO THE TERMS OF THIS MORTGAGE CLAUSE (and these shall supersede any policy provisions in conflict therewith BUT ONLY AS TO THE INTEREST OF THE MORTGAGEE), loss under this policy is made payable to the Mortgagee.
[21] PLP admits that the Standard Mortgage Clause in its policy is a separate agreement between the mortgagee and the insurer which protects the interests of the mortgagee to recover the proceeds of the policy notwithstanding any fault, default, action or inaction on the part of the mortgagor.
[22] The parties also agree that the basic rights and obligations of a mortgagee under insurance policies with a Standard Mortgage Clause have been accurately summarized in an overview by Charles R. Franklin, an American attorney, in his article reproduced in the PLP’s Brief of Authorities. Although Franklin is dealing with the law of the United States and Illinois law in his overview, the parties agree that the same interpretation and effect are now recognized as applying to the Standard Mortgage Clause in Canadian policies of insurance.
[23] In his overview, Franklin states:
Right to Recover
A standard mortgage clause provides the mortgagee with the right to recover from a loss on a property regardless of the actions of the mortgagor. The mortgagee is normally subject to all of the conditions and exclusions of the policy except those invalidating coverage in reason of acts on neglect of the insured. To be able to recover, the mortgagee must be in possession of a mortgage on the insured property in question.
Mortgagee’s right to recover is limited by the amount of the remaining secured debt. A seller is entitled to insurance proceeds to the extent of his or her interest in the insured property.
The mortgagee is only insuring its security interest on the property in question, in contrast to the mortgagor who is insuring the property itself.
[24] Franklin further states:
Effect of Foreclosure
The general thought behind the standard mortgage clause is that it creates a separate contract of insurance between the insurer and the mortgagee, thus the acquisition of the property by the mortgagee actually increases the mortgagee’s interest.
[25] This “two contract” theory developed in the United States is now well anchored in Canadian jurisprudence (see: National Bank of Greece (Canada) v. Katsikonouris, [1993] 2 S.C.R. 1029).
[26] As a result, any arguments that PLP may have against Bell cannot be raised against Equitable which has a separate contract of insurance with PLP which covers its loss.
[27] Equitable is therefore not obliged to repair the damage before being entitled to recover its loss. Its loss is properly calculated as being the amount of the shortfall on its mortgage following the exercise of Power of Sale.
[28] Because Bell filed a Proof of Loss, it was actually unnecessary for Equitable to do so. Further, throughout this relevant time, Equitable and PLP were communicating with each other through agents and/or counsel. Given the sequence of facts, I consider that the Proof of Loss was filed by Equitable as soon as was practicable and in accordance with any obligation it may have had. In my view, the circumstances of this case would justify granting to Equitable relief from forfeiture in any event.
[29] The amount of the mortgage loss and expenses claimed by Equitable is not challenged by PLP. The appraisal provision has no practical or legal application to these circumstances and should not operate to delay Equitable’s claim.
Conclusion
[30] As a result of the above, Equitable is entitled to recovery from PLP the shortfall on its mortgage in the amount of $98,682.88.
[31] Interest on this amount shall run at the mortgage interest rate from September 18, 2013 until date of payment. If there is any dispute as to the precise calculation of the final amount of judgment, I may be spoken to.
Costs
[32] At the hearing of this motion, the parties provided costs outlines detailing the costs each would seek if successful. If the subject of costs cannot be agreed upon by the parties, written submissions may be delivered by Equitable within 20 days of today’s date, and by PLP within 15 days thereafter.
STEWART J.
Date: November 18, 2014