COURT FILE NO.: CV-21-87637
DATE: 2022/09/29
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Stephen Emond and Claudette Emond
Applicants
– and –
Trillium Mutual Insurance Company
Respondents
Joseph Y. Obagi, for the Applicants
Pat C. Peloso and Jaime Wilson, for the Respondents
HEARD: March 29, 2022
REASONS FOR judgment
RYAN BELL j.
Overview
[1] At issue on this application is the interpretation of a homeowners’ insurance policy that includes guaranteed rebuilding cost (“GRC”) coverage, an exclusion for the increased costs of repair or replacement “due to the operation of any law”, and additional building by-law and code compliance (“BBCC”) coverage up to $10,000.
[2] In April 2019, the Emonds’ home, located on the Ottawa River and in the catchment area of the Mississippi Valley Conservation Authority (the “MVCA”), was destroyed by a flood and deemed a total loss. Their homeowners’ policy with Trillium included a GRC endorsement. The Emonds’ position is that the GRC coverage in their policy provides them with guaranteed rebuilding costs to rebuild their home without limitation. In the alternative, the Emonds rely on the nullification of coverage doctrine to assert that the exclusion clause should not be applied because it is inconsistent with the main purpose of the GRC coverage and to apply it would be contrary to the reasonable expectations of the ordinary purchaser of the coverage.
[3] Trillium disputes the Emonds’ interpretation of their policy. Trillium says there is a $10,000 cap on “qualifying compliance costs” pursuant to the BBCC coverage and the GRC endorsement does not override this limit of liability, nor does it extend coverage to all compliance matters. Trillium argues that the Emonds’ interpretation of the policy runs contrary to the principle of indemnity and would lead to a situation where the Emonds stand to profit from their loss.
[4] For the following reasons, I find that rebuilding costs resulting from compliance with applicable MVCA regulatory policies are covered under the GRC endorsement. The exclusion for the increased costs of repair or replacement due to operation of any law regulating the zoning, demolition, repair or construction of buildings is restricted to laws; it does not apply to exclude the increased costs of repair or replacement that are the result of any rules, regulations, by-laws, or ordinances.
The Facts
[5] The essential facts are not in dispute.
[6] On April 29, 2019, the Emonds’ home was severely damaged by a flood. As a result of the damage, the home was deemed a total loss.
[7] At the time of the loss, the Emonds’ home was insured by Trillium, pursuant to an insurance policy bearing policy number 116052P01 (the “Policy”). The Policy had an effective coverage date of September 27, 2018 to September 27, 2019. When selecting the Policy, the Emonds purchased the “Homeowners Package Comprehensive Form”, which included the GRC endorsement. The GRC endorsement was important to the Emonds because their home was located along the waterfront. Mr. Emond’s expectation was that if his home was ever destroyed by an insured peril, Trillium would pay for the full costs associated with rebuilding or replacing his home in accordance with the requirements of the GRC endorsement.
[8] On cross-examination, the Trillium representative agreed that the Policy was the “top of the line” policy:
Correct, it is all-perils coverage. It has guaranteed rebuilding cost coverage. It has got the Coverage S which brings in a whole lot of water coverage. Those are the key hits if I asked an insurance broker to sell me the best coverage they possibly could.
[9] Trillium has acknowledged GRC coverage for the loss under the Policy; accordingly, coverage for the loss is not an issue on this application.
[10] The Emonds and Trillium have been unable to agree on the total costs to rebuild the home. Following the loss, Trillium retained two contractors to prepare rebuild estimates. The Emonds rejected Trillium’s initial estimates, claiming that Trillium’s contractors failed to take into account the actual costs associated with rebuilding on the property in compliance with the rules, regulations, laws, and by-laws applicable to a rebuild at the time of loss.
[11] Trillium then provided updated estimates on a without prejudice basis. According to Trillium, the updated estimates included the costs to comply with the applicable rules, regulations, laws, and by-laws which govern any reconstruction on the Emonds’ property.
[12] The Emonds were not satisfied with the estimates obtained by Trillium and sought out their own estimates for the rebuilding of their home. The estimates obtained by the Emonds – which include compliance costs – greatly exceed those obtained by Trillium.
[13] The Emonds’ intention is to rebuild their home in the same location with materials of similar quality using current building techniques. While they have received some insurance monies towards the rebuilding costs, they have not rebuilt their home because they “require, however, that our insurer honour the terms of the GRC coverage which we purchased and paid for before we can financially commit to begin reconstruction of the home.”[^1]
[14] Under Ontario Regulation 153/06 enacted under the Conservation Authorities Act,[^2] the MVCA is empowered to regulate development and activities in or adjacent to rivers, lakes, shorelines, hazardous lands, and wetlands. The MVCA has implemented “regulation policies” to regulate development activities within its catchment area, which includes the Emonds’ property.
[15] It is not disputed that for the Emonds to rebuild their home on the same location with materials of similar quality, the Emonds are required to comply with the MVCA’s regulation policies, current building code regulations, and municipal by-laws governing construction on their property. The extent to which Trillium is liable for these compliance costs is the sole issue on this application.
The Relevant Policy Provisions
[16] The “Homeowners Package Comprehensive Form” purchased by the Emonds included the GRC endorsement as listed on the Declaration Page.
[17] In the Policy, the “Basis of Claim Payment – Section 1” reads in part:
When coverage applies, “we” will pay for insured loss or damage up to “your” financial interest in the property but not exceeding the applicable amount(s) of insurance for any loss or damage arising out of one occurrence.
Any loss or damage shall not reduce the amounts of insurance provided by this policy.
Dwelling Building and Detached Private Structures: If “you” repair or replace the damaged or destroyed building on the same location with materials of similar quality within a reasonable amount of time after the damage, “you” may choose as the basis of loss settlement either (A) or (B) below; otherwise, settlement will be as in (B).
A. The cost of repairs or replacement (whichever is less) without deduction for depreciation, in which case “we” will pay in the proportion that the applicable amount of insurance bears to 80% of the replacement cost of the damage building at the date of damage, but not exceeding the actual cost incurred.
B. The Actual Cost Value of the damage at the date of the occurrence.
[18] “Coverage GRC – Guaranteed Rebuilding Cost Coverage” is included in section 4, the “Miscellaneous Coverages Section.” The GRC Endorsement provides:
COVERAGE GRC – GUARANTEED REBUILDING COST COVERAGE
If the “Declaration Page” shows that the Guaranteed Rebuilding Cost Endorsement applies, the Basis of Claim Payment for the “Dwelling” Building is amended as follows:
When coverage applies “we” will pay for insured loss or damage if “you” repair or replace the damaged or destroyed “dwelling” building on the same location with materials of similar quality using current building techniques within a reasonable amount of time after the damage.
“You” may choose as the basis of loss settlement either (A) or (B) below; otherwise settlement will be as in (B).
(A) The cost of repairs or replacement (whichever is less) without deduction for depreciation even if it is more than the amount of insurance shown on the “Declaration Page” for the “dwelling” building provided:
The amount of insurance shown on the “Declaration Page” for the “dwelling” building represents 100% of the cost to rebuild the insured “dwelling” on the same site with materials of similar quality as determined by a building valuation guide acceptable to “us”;
“You” agree to accept each annual adjustment in the amount of insurance as recommended by “us” and pay the additional premium; and
“You” notify “us” within 30 days of the start of any additions or other physical changes to the building(s), which may increase the rebuilding cost of the structure by 5% or more, and pay any resulting additional premium.
(B) The “Actual Cash Value” of the damage at the date of the occurrence.
‘Actual Cash Value’ will take into account such things as the cost of replacement/rebuilding less any depreciation. In determining depreciation “we” will consider the condition immediately before the damage, type of construction material and techniques and their normal life expectancy.
In all other respects, the policy provisions and limits of liability remain unchanged.
This coverage is void if “you” fail to comply with its provisions.
[19] The list of “Perils Excluded” for “Residential Property – Comprehensive Form” includes:
“We do not insure against loss or damage resulting from, contributed to or caused directly or indirectly by:
- the increased costs of repair or replacement due to operation of any law regulating the zoning, demolition, repair or construction of buildings and their related services; except as provided under Additional Coverages of Section 1.
[20] The “Additional Coverages – Section 1” include, at para. 11:
The following Additional Coverages shall not increase the Amounts of Insurance – Section 1 in this policy, unless otherwise stated, and are subject to the exclusions, limitations and conditions of this policy.
Building By-Law & Code Compliance Coverage: “We” will pay an additional amount up to $10,000 or the amount shown on the “Declaration Page” [...], for the increased cost of demolition, construction, or repair to comply with any law regulating the zoning, demolition, repair or construction of any insured buildings insured under Section 1, Coverages A and B. This endorsement responds only as a result of direct damage caused by an insured peril. This endorsement is extended to pay for:
loss resulting from the demolition of any undamaged portion of the insured building(s); or
the cost of demolishing, and clearing the site of, and undamaged portion of the insured building(s); or
any increase in the cost of repairing, replacing, construction or reconstructing the insured building(s) on the same site or on an adjacent site, of like height, floor area and style, and for like occupancy; arising from the enforcement of the minimum requirements of any by-law, regulation, ordinance or law which:
a) regulates zoning or the demolition, repair or construction of damaged buildings or structures; and
b) is in force at the time of such loss or damage.
Limitation
“We” will pay the lesser of:
the amount of insurance provided under this Coverage; or
the minimum amount required to comply with any by-law, regulation, ordinance or law.
“We” will not pay:
the additional cost caused by the enforcement of any by-law, regulation, ordinance or law which prohibits “you” from rebuilding or repairing on the same site or an adjacent site or prohibits continuance of like occupancy;
more than the minimum amount required to comply with an enforceable by-law, regulation, ordinance or law.
This endorsement does not override any provision in the Basis of Claim Payment of the policy to which this endorsement is attached.
Principles of Insurance Contract Interpretation
[21] The general principles for interpreting insurance policies are well-established. In Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co.,[^3] the Supreme Court of Canada set out the applicable principles as follows:
The primary interpretive principle is that where the language of the insurance policy is unambiguous, effect should be given to that clear language, reading the contract as a whole. ... Where, however, the policy’s language is ambiguous, the general rules of contract construction must be employed to resolve that ambiguity. These rules include that the interpretation should be consistent with the reasonable expectations of the parties, as long as that interpretation is supported by the language of the policy; it should not give rise to results that are unrealistic or that the parties would not have contemplated in the commercial atmosphere in which the insurance policy was contracted, and it should be consistent with the interpretations of similar insurance policies. … Only if ambiguity still remains after the above principles are applied can the contra proferentem rule be employed to construe the policy against the insurer.[^4]
[22] Insurance policies must be interpreted as they would be understood by the average consumer and not as they might be perceived by persons versed in insurance law: National Bank of Greece (Canada) v. Katsikonouris, at p. 1043.[^5]
[23] In interpreting insurance polices, the policy should be interpreted to promote a reasonable commercial result. Provisions granting coverage ought to be construed broadly, provisions excluding coverage ought to be construed narrowly, and in the case of ambiguity, the interpretation most favourable to the insured should be adopted. Even a clear and unambiguous clause should not be given effect if to do so would nullify the coverage provided by the policy: Sam’s Auto Wrecking Co. Ltd. v. Lombard General Insurance Company of Canada, at para. 37.[^6]
[24] When interpreting an endorsement to an insurance policy, the endorsement and the policy must be read together. This is because “an endorsement is generally not understood to be a self-contained policy”: Pilot Insurance Co. v. Sutherland, at para. 21.[^7] As the Court of Appeal for Ontario stated in Pilot,
An endorsement changes or varies or amends the underlying policy. While it may be comprehensive on the subject of the particular coverage provided in the endorsement, it is built on the foundation of the policy and does not have an independent existence.[^8]
[25] In Ledcor, the Supreme Court reaffirmed its guidance on the “generally advisable” order in which to interpret insurance policies: the insured has the onus of first establishing that the damage or loss claimed falls within the initial grant of coverage. The onus then shifts to the insurer to establish that one of the exclusions to coverage applies. If the insurer is successful at this stage, the onus then shifts back to the insured to prove that an exception to the exclusion applies: Ledcor, at para. 52.
[26] I therefore begin with the GRC coverage, as set out in the GRC endorsement.
The GRC Coverage
[27] The GRC endorsement appears, separately listed, on the Declaration Page of the Policy. The GRC endorsement amends the Basis of Claim Payment to provide that when GRC coverage applies, Trillium will pay for insured loss or damage if the insureds repair or replace the damaged home on the same location with “materials of similar quality using current building techniques” within a reasonable amount of time after the loss or damage. Trillium will pay for “the cost of repairs or replacement (whichever is less) without deduction for depreciation even if it is more than the amount of insurance shown on the “Declaration Page.” The limit of the insurance shown on the Declaration Page for the Emonds’ home was $585,092.
[28] The Emonds’ position is, in essence, that the GRC coverage means what is says: it was intended to guarantee the cost to rebuild, without limiting the cost of rebuilding to the standards as they existed in the year the home was originally built.
[29] Trillium argues that the GRC endorsement only varies the Basis of Claim Payment and does not create or extend coverage to include compliance matters. Trillium reads the GRC endorsement as only increasing the limits of the Policy so a replacement home can be built notwithstanding the increased costs of construction due to inflation; compliance costs, according to Trillium, remain excluded except as provided under the BBCC coverage and qualifying compliance costs over the $10,000 limit of liability are not covered. In support of its position, Trillium relies on the decision in TGA General Contracting and Restoration Inc. v. Cirillo.[^9] The court in TGA General Contracting, at para. 118, referred to the testimony of the insurer’s claims supervisor that “the real purpose of GRC coverage is to deal with unforeseen fluctuations of costs and repairs.”
[30] I disagree with Trillium’s interpretation of the GRC coverage purchased by the Emonds. The language of the GRC endorsement is clear and unequivocal: it provides “guaranteed rebuilding cost” coverage. “Limitations on the apparent coverage in the endorsement that are ambiguous in the sense that they are not clearly apparent, should be set out in the endorsement itself”: Wigle v. Allstate Insurance Co. of Canada, at p. 120.[^10] Subject to the conditions being met, there is no limitation on the coverage in the GRC endorsement itself. Although the GRC endorsement specifically references the cost of repairs or replacement “without deduction for depreciation” this does not amount to a limit on coverage in relation to compliance costs. Consistent with this reading, the Declaration Page does not list a monetary limit for the GRC coverage provided in the GRC endorsement.
[31] Trillium asserts that a “without limitation” interpretation of the GRC endorsement would render the GRC endorsement a warranty for rebuilding costs and Trillium the guarantor for such costs. According to Trillium, such an interpretation would be inconsistent with the commercial context and the principle of indemnity underlying the Policy and would permit the Emonds to profit from their loss.
[32] The Court of Appeal for Ontario disposed of this argument in Carter v. Intact Insurance.[^11] In that case, the Court of Appeal distinguished between actual cash value coverage – which recognizes that the insurer is entitled to deduct reasonable depreciation from the value of the loss – and replacement cost coverage – under which the insured is entitled to the full cost of repair or replacement without any deduction for depreciation: Carter, at para. 20. The Court of Appeal went on to explain, at paras. 21-25, why, although it violates the principle of indemnity, replacement cost insurance is justifiable:
A main objective of property insurance is indemnity, and a policy providing for actual cash value coverage is a pure indemnity contract. Actual cash value recovery puts insureds in the position they were in before the loss. Since most property depreciates over time, actual cash value is equivalent to replacement cost less depreciation. So actual cash value recovery prevents insureds from profiting or benefiting from their loss.
But actual cash value recovery poses a problem for insureds who want to build a similar structure to replace the insured property that was damaged or destroyed. Because of depreciation, these insureds will incur a cash shortfall, which they may not be able to afford, and which will thus prevent them from reconstructing their damaged structure.
Replacement cost insurance solves this problem. It goes beyond the notion of indemnity. It recognizes that depreciation, or the deterioration of a property over time, is an insurable risk. Replacement cost insurance, in effect, insures depreciation: the difference between replacement cost and actual cash value. So, under replacement cost insurance, if insureds do indeed repair or replace their damaged property, they are entitled to recover from their insurer the full cost of the repairs or the replacement. They can replace “old” with “new”. In that sense, even though replacement cost insurance makes insureds better off and violates the indemnity principle, it is justifiable, because without it, many property owners would be unable to cover the shortfall caused by the depreciation of their damaged or destroyed property.
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 insureds 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. Insurers also limit replacement cost coverage to an amount defined in the insurance policy. These two conditions – insistence on actual repair or replacement and limiting replacement cost to a defined amount – are found in the appellants’ policy with Intact.
[33] In contrast to the homeowners’ policy at issue in Carter, in this case, on the express wording of the GRC endorsement, Trillium sold “guaranteed” rebuilding cost coverage, without limiting the replacement cost to a defined amount.
[34] To be clear, there are conditions that must be met before coverage is triggered: construction must be “on the same location” and “with materials of similar quality using current building techniques within a reasonable amount of time after the damage.” Trillium acknowledges that by-laws and Building Code[^12] changes made since the original date of construction may require a homeowner to enhance some features of their home when they renovate or rebuild after a loss; Trillium distinguishes these requirements from “current building techniques” – the phrase used in the GRC endorsement – which Trillium says refers to building technologies and modes or methods of construction. However, the difference in language does not overcome the fact that the regulatory compliance limitation urged upon me by Trillium does not appear in the GRC coverage endorsement itself.
[35] Trillium also submits that an expansive interpretation of the GRC coverage would result in the potential for betterment arising from pre-existing deficiencies. Trillium relies on the following passage from the Alberta Court of Appeal’s decision in Roth v. Economical Mutual Insurance Company, at para. 23[^13]:
It cannot reasonably be suggested that either the insurer or insured would have anticipated recovery for pre-existing deficiencies in a building where the peril insured against...did not actually create the bylaw issue. Extending coverage in such cases would require that the insurer determine in each case whether the property complied with all relevant bylaws, as it would be responsible for the costs of remedying any and all deficiencies unearthed as part of subsequent damage insured against. Quite apart from the fact that this would be practically impossible in most cases, it would also effectively turn an insurer into a guarantor of construction defects and building code violations. Insurance indemnifies against risk whereas requiring an insurer to be responsible for hidden damage pre-existing the fortuitous event in question is more in the nature of a warranty...This cannot be reasonably expected of an insurer.
[36] There are two responses to Trillium’s argument. First, on the clear wording of the Basis of Claim Payment (as amended by the GRC endorsement), the amount of insurance paid is for “any loss or damage arising out of one occurrence.” Deficiencies discovered as a result of a peril insured against are not deficiencies arising out of the occurrence.
[37] Second, in this case, with one exception, there is no evidence of any “pre-existing deficiencies” in the sense described by the court in Roth. The exception relates to the Emonds’ septic system: a compliance issue was discovered post-flood but the system itself was not damaged by the flood. I agree with the Emonds that this is a specific coverage issue. It does not affect my interpretation of the GRC endorsement.
[38] Trillium has acknowledged that coverage for the loss (as opposed to quantum) is not in issue. I find that the Emonds have established that their loss claimed falls within the initial grant of coverage. The onus therefore shifts to Trillium to establish that an exclusion to coverage applies.
The Excluded Perils
[39] The “Perils Excluded” include:
- the increased costs of repair or replacement due to operation of any law regulating the zoning, demolition, repair or construction of buildings and their related services; except as provided under Additional Coverages of Section 1 (the “para. 8 Exclusion”).
[40] Trillium characterizes the para. 8 Exclusion as a “qualified exclusion” or “qualified coverage” because the Additional Coverages carve out “some” coverage for compliance matters. Para. 11 of the Additional Coverages, entitled “Building By-Law & Code Compliance Coverage”, provides that Trillium will pay “an additional amount up to $10,000” for the increased cost of “demolition, construction, or repair to comply with any law regulating the zoning, demotion, repair or construction of any insured buildings.”
[41] In my view, characterizing the para. 8 Exclusion in the manner suggested by Trillium conflates the second and third steps of the generally advisable order in which to interpret insurance policies. At the second stage of the analysis, the onus rests on the insurer to establish the exclusion to coverage. If the insurer is successful at the second stage, then at the third stage, the insured must prove that an exception to the exclusion applies. The provision for some coverage for compliance matters in the BBCC is more properly characterized as an exception to the exclusion.
[42] The para. 8 Exclusion excludes the increased costs of repair or replacement due to the operation of “any law” regulating the zoning, demolition, repair or construction of buildings. The issue raised on the evidence before me is whether the para. 8 Exclusion encompasses, and therefore excludes, the increased costs of repair or replacement as a result of compliance with Building Code requirements and the MVCA’s “regulation policies” applicable to development activities within its catchment area, including the Emonds’ rebuild of their home.
[43] I find that the para. 8 Exclusion does not apply to exclude compliance costs attributable to the operation of rules, regulations, by-laws, or ordinances. The para. 8 Exclusion is clear and unequivocal: it excludes only the costs of repair or replacement due to the operation of “any law.”
[44] That the term “law” in the para. 8 Exclusion does not include, and was not intended to include, rules, regulations, by-laws, or ordinances is evident from the wording of the Policy itself: the BBCC coverage uses the terms “law”, “by-law”, “regulation”, and “ordinance.” The language of the Policy must be read to give effect to each word of the Policy and the Policy should not be interpreted in a manner which would render any words superfluous. Had Trillium wanted the term “law” to include subordinate authority for the purpose of the para. 8 Exclusion, it could have drafted the Policy accordingly. It did not.
[45] In Choukair v. Allstate Insurance,[^14] the court was required to address an interpretive issue similar to that before me. In Choukair, there were additional costs associated with upgrades required because of the Building Code. The insurer claimed the additional costs were excluded by the Policy. The exclusion clause relied upon by the insurer in Choukair provided “[w]e do not insure...(5) losses or increased costs of repair or cost of improving or upgrading dwellings or structures due to the operation of any by-law regulating the zoning, demolition, repair or construction of building and their related services.”
[46] In concluding that the exclusion clause did not apply to limit coverage in the manner contended by the insurer, the court in Choukair determined that the Building Code is a regulation under the Building Code Act, 1992 and not a by-law: Choukair, at paras. 30-31. The fact that the City of Ottawa had adopted the Building Code in its by-law was immaterial to the interpretation of the exclusion clause. As the court noted: “if the insurer had wanted to exclude more than increased costs of repair due to the operation of a by-law, it could have done so”: Choukair, at para. 32.
[47] Trillium argues that the Emonds’ reliance on Choukair is misplaced because, unlike the Policy, the compliance exclusion at issue in Choukair was a “blanket one” and “coverage was not brought back elsewhere in the policy as it is here.” I disagree. Again, Trillium’s approach conflates the second step and, if reached, the third step in the advisable order in which to interpret insurance policies. The language of the para. 8 Exclusion clause is clear and unambiguous and, on its face, the exclusion applies only to increased costs associated with the operation of a law, as distinct from a rule, regulation, by-law, or ordinance. Courts will normally be reluctant to depart from judicial precedent interpreting a similarly framed policy in a particular way; certainty and predictability are in the interest of both the insurance industry and their customers: Co-operators Life Insurance Company v. Gibbens, at para. 27.[^15] I agree with the court’s reasoning in Choukair: it fully answers the interpretive issue before me. If Trillium had wanted to exclude more than the increased costs of repair or replacement due to the operation of any law, it could have done so. It did not.
[48] An insurer wishing to limit the comprehensive nature of a policy bears the onus of proving that an exclusion clearly applies. Trillium has not identified any specific costs directly attributable to any law so as to trigger the operation of the para. 8 Exclusion clause. Accordingly, I find that the para. 8 Exclusion clause does not exclude the coverage provided to the Emonds under the GRC endorsement.
Nullification of Coverage Doctrine
[49] In my view, Trillium’s interpretation of the Policy would also contravene the nullification of coverage doctrine.
[50] The nullification of coverage doctrine is an independent doctrine that applies even in the absence of an ambiguity: Cabell v. Personal Insurance Co., at para. 17.[^16] The doctrine provides that even though an exclusion clause may be clear and unambiguous, it will not be applied where (i) it is inconsistent with the main purpose of the insurance coverage and the result would be to virtually nullify the coverage provided by the policy; and (ii) to apply it would be contrary to the reasonable expectations of the ordinary person as to the coverage purchased: Cabell, at para. 17, citing Zurich Insurance Co. v. 686234 Ontario Ltd., at para. 28.[^17]
[51] If the court is able to determine on an objective basis that the insurer’s interpretation would “render nugatory coverage for the most obvious risks for which the endorsement is issued, a tactical burden shifts to the insurer; it will then be for the insurer to show that the effect of its interpretation would not virtually nullify the coverage and would not be contrary to the reasonable expectations of the ordinary person as to the coverage purchased”: Cabell, at para. 28.
[52] I have no difficulty in finding that Trillium’s interpretation of the para. 8 Exclusion would “render nugatory the coverage for the most obvious risks” for which the GRC endorsement was issued. The fact that the Emonds’ home was not a new home was known to Trillium at the time the Policy was purchased. That it was located on the waterfront within the catchment area of the MVCA was also known to Trillium. It is not disputed that the Emonds are required to comply with the MVCA’s regulation policies, current building code regulations, and municipal by-laws governing construction on their property.
[53] The Emonds purchased the Policy, including the GRC coverage, with the expectation that, if their home was destroyed by an insured peril (including an overland flood), Trillium would pay for the full costs associated with rebuilding or replacing their home. In order to rebuild in the same location, the Emonds are required to comply with the MVCA’s regulation policies, current building code requirements, and municipal by-laws. Subject to coverage issues relating to pre-existing deficiencies, it is difficult to conceive of any compliance costs that would not be excluded under Trillium’s expansive interpretation of the para. 8 Exclusion.
[54] I find that to interpret the para. 8 Exclusion and the Policy in the manner contended by Trillium would virtually nullify the GRC coverage and would be contrary to the reasonable expectations of the ordinary person as to the coverage purchased.
Conclusion
[55] The application is allowed. The Emonds are entitled to a declaration that “COVERAGE GRC – GUARANTEED REBUILDING COST COVERAGE”, as contained in policy number 116052P01, issued by Trillium, entitles them to recover the costs of rebuilding their home at 658 Bayview Drive, Woodlawn, Ontario, on the same location and with materials of similar quality using current building techniques, without any limitation of coverage resulting from the operation of any rule, regulation, by-law, or ordinance, arising from a total loss which occurred on April 29, 2019. The determination of quantum of such costs remains subject to the appraisal provisions as set out in the Insurance Act.[^18]
[56] In the event the parties are unable to agree on costs, they may provide their submissions in writing. Costs submissions are not to exceed three pages. The Emonds are to provide their submissions by October 13, 2022. Trillium is to provide its responding submissions by October 27, 2022. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.
[57] I thank counsel for their very able submissions.
Madam Justice Robyn M. Ryan Bell
Released: September 29, 2022
COURT FILE NO.: CV-21-87637
DATE: 2022/09/29
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Stephen Emond and Claudette Emond
Applicants
-and-
Trillium Mutual Insurance Company
Respondents
REASONS FOR JUDGMENT
Ryan Bell J.
Released: September 29, 2022
[^1]: Mr. Emond’s affidavit, at para. 12. [^2]: R.S.O. 1990, c. C.27. [^3]: 2016 SCC 37, [2016] 2 S.C.R. 23, at paras. 49-51. [^4]: See also RBC Travel Insurance Co. v. Aviva Canada Ltd. (2006), 2006 CanLII 32594 (ON CA), 82 O.R. (3d) 490 (C.A.), at paras. 10-11. [^5]: 1990 CanLII 92 (SCC), [1990] 2 S.C.R. 1029. [^6]: 2013 ONCA 186, 114 O.R. (3d) 730. [^7]: 2007 ONCA 492, 86 O.R. (3d) 789. [^8]: Pilot, at para. 21. [^9]: 2009 CanLII 57158 (Ont. S.C.). [^10]: (1984), 1984 CanLII 45 (ON CA), 49 O.R. (2d) 101 (C.A.). [^11]: 2016 ONCA 917, 133 O.R. (3d) 721. [^12]: O. Reg. 332/12. [^13]: 2016 ABCA 399, 46 Alta. L.R. (6th) 1. Cited in 852819 Alberta Ltd. v. Sovereign General Insurance Company, 2017 ABCA 76, 50 Alta. L.R. (6th) 254, at para. 8. [^14]: 2015 ONSC 4989. [^15]: 2009 SCC 59, [2009] 3 S.C.R. 605. [^16]: 2011 ONCA 105, 104 O.R. (3d) 709. [^17]: (2002), 2002 CanLII 33365 (ON CA), 62 O.R. (3d) 447 (C.A.), leave to appeal refused, [2003] S.C.C.A. No. 33. [^18]: R.S.O. 1990, c. I.8, s. 128.