Loading articles...

Replacement cost insurance no carte blanche for new building, court rules

Last Updated Dec 6, 2016 at 12:40 pm MST

TORONTO – An insurance company is under no obligation to pay for a replacement building that bears no resemblance to an insured property damaged by fire, Ontario’s top court ruled Tuesday.

The only obligation, the Court of Appeal found, was to pay the owners the actual value of the burned buildings.

The case arose in March 2011, court records show, when fire damaged an income property in Ottawa comprising one-, two- and three-storey buildings with 15 residential units and 13 commercial units. The owners, Helene Carter, Edmond Blais and Donald Givogue, opted to demolish the site and build an 8-1/2 storey condominium, with triple the total area and 129 residential units.

The trio then made a claim against their insurance company for $5.7 million plus another $511,000 — the cost of the new building and building code upgrades — under terms of their policy that provided for reimbursement for the repair, construction or reconstruction of a new property of “like kind and quality” as the damaged one.

Intact Insurance, however, refused to pay the replacement and associated costs on the grounds that the proposed condominium was nothing like the insured property. It did pay the owners the cash value of the damaged buildings — $3.9 million.

The owners sued Intact for the difference, $2.3 million, but in July last year, Superior Court Justice Kevin Phillips sided with the insurance company. He found the new condo was far different from what it was replacing.

In turning to the Appeal Court, the owners argued Phillips was wrong in finding the condo was not a replacement that would allow them to make their insurance claim. They essentially maintained they had the right under their policy to replace the damaged property with a totally different building and still be entitled to replacement costs.

In rejecting their arguments, the higher court noted that replacement-cost clauses typically specify that a policy holder must actually repair or replace a destroyed property. The aim is to prevent someone from unfairly profiting from the destruction at the expense of the insurance company.

The court also found the policy to be clear and straightforward in terms of what was covered.

“I am satisfied that the definition of ‘replacement’ in the appellants’ policy is unambiguous (and) the replacement, no matter how it is effected, must be of like kind and quality,” Justice John Laskin wrote for the court. “To give effect to the appellants’ interpretation would either be illogical or would render the phrase ‘of like kind and quality’ meaningless.”

The Appeal Court also dismissed the owners’ claim for the cost of bylaw upgrades given its finding on replacement costs.

The court ordered the owners to pay Intact $15,000 for their failed appeal.