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Insurance - Nullification. Trillium Mutual Insurance Company v. Emond
In Trillium Mutual Insurance Company v. Emond (Ont CA, 2023) the Court of Appeal considered (and allowed) an insurer's appeal on the interpretation of a home owners insurance policy, here involving flood damage. The policy essentially insured the 'replacement cost' of the destroyed home as it stood at the time of destruction [see para 56], and a main issue was the interpretation and application of a limiting provision that excluded "increased costs of repair or replacement due to the operation of any law regulating the zoning, demolition, repair, or construction of buildings” (the 'para. 8 Exclusion')" (ie. new, legally-required work).
These quotes consider the insurance principle of 'nullification':Does this Interpretation Nullify the Coverage in the GRC?
[87] Nullification occurs when a policy defeats the purpose of the coverage the policy provides: Cabell v. Personal Insurance Company, 2011 ONCA 105, 104 O.R. 3(d) 709, at para. 14; Indemnity Insurance Co. of North America v. Excel Cleaning Service, 1954 CanLII 9 (SCC), [1954] S.C.R. 169, at pp. 177-78; see also Foodpro National Inc. v. General Accident Assurance Co. of Canada (1988), 1988 CanLII 4739 (ON CA), 63 O.R. (2d) 288 (C.A.), at p. 288, leave to appeal refused, [1988] S.C.C.A. No. 707.
[88] The GRC provides the Emonds with enhanced coverage to rebuild their home the way it was, using materials of similar quality and current building techniques, (i) without deduction for depreciation and (ii) even if the cost of replacement exceeds the policy limit on the Declaration Page (i.e., inflation protection). The application of the para. 8 Exclusion does not deny the Emonds these benefits; it only applies to increased costs required by “any law”.
[89] While the operation of the para. 8 Exclusion may deny the insured some funds, this does not “render nugatory coverage for the most obvious risks for which the endorsement [was] issued”: Foodpro, at p. 288. It is clear that the “most obvious risks” for which the GRC was issued are depreciation and inflation, not [bylaw] compliance costs: see e.g. Carter, at paras. 20-24.
[90] I therefore reject the Emonds’ submission that the application of the para. 8 Exclusion to the GRC would result in nullification of coverage. . Ontario v. St. Paul Fire and Marine Insurance Company
In Ontario v. St. Paul Fire and Marine Insurance Company (Ont CA, 2023) the Court of Appeal considered the insurance 'nullification doctrine':[31] The “nullification doctrine” prevents insurance contracts from being construed so as to defeat the coverage the policy provides, thereby defeating the very objective of the insurance contract and rendering it nugatory: Cabell v. The Personal Insurance Company, 2011 ONCA 105, (2011), 104 O.R. (3d) 709, at para. 15, citing Estey J. in Consolidated-Bathurst v. Mutual Boiler, 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at pp. 901-2. Ontario argues that the nullification doctrine is contravened by the application judge’s finding that the term “neither expected nor intended from the standpoint of the Insured” prevents coverage for damages that Ontario knew the class would suffer. It is Ontario’s position that this finding nullifies the Personal Injury coverage for intentional torts, which is expressly provided for in both policies.
[32] At first blush, this submission is alluring but it fails to recognize the important distinction between “the intention to cause injury itself … and the intention to commit the act that causes the injury”: Liberty Mutual Insurance Co. v. Hollinger Inc., 2004 CanLII 10995 (ON CA), 236 D.L.R. (4th) 635 (Ont. C.A.), at para. 18, citing Craig Brown et al., Insurance Law in Canada, loose-leaf (Toronto: Thomson Reuters Canada Ltd., 2002), at 18:178 to 18:179. Put simply, if the words “neither expected nor intended from the standpoint of the Insured” purported to prevent coverage that the policy provides for intentional acts, the nullification doctrine would likely apply, but in my view the nullification doctrine does not apply where, as here, the policy can be construed as providing coverage for the unintended or unexpected consequences of covered intentional acts.
[33] In my view, Hollinger Inc. drives this conclusion. In that case Sharpe J.A. recognized, at paras. 17-18, that a policy can extend coverage for the fortuitous or unintended or unexpected consequences of intentional acts, without providing coverage for the intended or expected consequences of those intentional acts. That is how Sharpe J.A. construed the policy before him. Not unlike the First Policy, the Hollinger Inc. policy defined “occurrence” as “an event or a continuous or repeated exposure during the policy period to conditions which, from the standpoint of Insured, unexpectedly causes injury.” Sharpe J.A. held, in large measure because of this clause[3], that the coverage for “intentional discrimination” that the policy provided was limited to unexpected loss. Since the claim against the insured alleged that the insured “intended to inflict the very wrong of which [the plaintiff] complains,” the loss was not unexpected therefore the insurer was not under a duty to defend: Hollinger Inc., at para. 19. To be sure, Hollinger Inc. did not address the nullification doctrine, but given the interpretation that Sharpe J.A. gave to the insurance policy that was before him, it cannot be said that a clause that prevents coverage for expected loss nullifies coverage for intentional wrongdoing where the policy will still cover unexpected loss. I would therefore reject this ground of appeal. . Demme v. Healthcare Insurance Reciprocal of Canada
In Demme v. Healthcare Insurance Reciprocal of Canada (Ont CA, 2022) the Court of Appeal considered case law that prevents policy interpretation that renders coverage nugatory:[71] Finally, Ms. Demme submits that by concluding the claims against her for intrusion upon seclusion did not give rise to a mere possibility of coverage and, therefore, attract a duty to defend, the motion judge erroneously adopted an interpretation of the Policy that nullified coverage for liability for bodily injury arising out of “invasion or violation of the right of privacy.” Such an interpretation would offend the principle that courts should avoid an interpretation of a policy that would render the insurance protection obtained nugatory and would enable the insurer to pocket the premium without risk: see Consolidated-Bathurst v. Mutual Boiler, 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at p. 901. . Family and Children’s Services of Lanark, Leeds and Grenville v. Co-operators General Insurance Company
In Family and Children’s Services of Lanark, Leeds and Grenville v. Co-operators General Insurance Company (Ont CA, 2021) the Court of Appeal considered the interpretive principle of nullification:[96] In Zurich Insurance Co. v. 686234 Ontario Ltd. (2002), 2002 CanLII 33365 (ON CA), 62 O.R. (3d) 447 (Ont. C.A.), leave to appeal to S.C.C. refused, [2003] S.C.C.A. No. 33, Borins J.A. explained, at para. 28, that even a clear and unambiguous exclusion clause will not be applied where:a) it is inconsistent with the main purpose of the insurance coverage;
b) the result would be to effectively nullify the coverage provided by the policy; and,
c) to apply the exclusion clause would be contrary to the reasonable expectations of the ordinary purchaser of the coverage. ....
[101] In G & P Procleaners and General Contractors Inc. v. Gore Mutual Insurance Co., 2017 ONCA 298, 335 O.A.C. 172, at paras. 24-25, this court considered and rejected a similar nullification argument. This court observed that commercial general liability policies:… are not “all-risk” policies. They do not insure the manner in which the insured conducts its business. They do not generally cover the cost of repairing the insured’s own defective or faulty work product. That is what the parties in the present case bargained for. To hold them to that bargain is entirely reasonable and does not render the coverage under the policy meaningless. [Citations omitted.]
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