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Statutory Interpretation - "Mortgage Funds". 2069586 Ontario Inc. v. Sovereign General Insurance Company
In 2069586 Ontario Inc. v. Sovereign General Insurance Company (Ont CA, 2026) the Ontario Court of Appeal allowed a plaintiff's appeal, this brought against the dismissal of a summary judgment action against the professional liability insurer of a mortgage broker - and grounded in misappropriation of trust funds.
Here the court considers the contractual and statutory interpretation meanings of 'mortgage funds':[83] “Mortgage funds”, in the context of this endorsement, describes the connection between the money and the regulated mortgage-related activity to which the endorsement applies. The regulatory context makes that clear. The insurance requirement is part of a broader package of rules managing brokerages’ regulated mortgage-related activity: Regulation, ss. 40-48. The endorsement reflects that context. It links “mortgage funds” to the brokerage’s “business as a licensed mortgage broker”.
[84] This interpretation of “mortgage funds” also matches the average person’s understanding: Emond, at para. 38. The endorsement is meant to benefit brokerage clients. Those clients would understand the funds they provide to their brokerages to obtain mortgages to be mortgage funds.
[85] The motion judge erred by instead adopting a more restrictive definition of a related term from a different statute. That narrower Mortgages Act definition of “mortgage money” – “money or money’s worth secured by a mortgage” – matches that statute’s focus on mortgages already made. But that “specialized” meaning does not apply here because the interpretive context is different: Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, [2017] 1 S.C.R. 121, at paras. 4, 34. The meaning of “mortgage funds” in this endorsement must instead match the Mortgage Brokerages Act’s broader reach. That statute captures mortgage-making activity not just existing mortgages. Read in that context, the ordinary meaning of “mortgage funds” does too.
[86] That flexible definition of “mortgage funds” captures “trust funds” related to brokerages’ regulated mortgage-related activity. The two concepts are not mutually exclusive as the motion judge assumed. Instead, they overlap because they answer different questions. The former, as I explained, describes funds connected with regulated mortgage-related activity. The latter describes the legal manner in which money is held. A sum of money does not cease to be connected with regulated mortgage-related activity – in this case, obtaining or securing mortgage financing – merely because the brokerage is legally required to hold it in trust while the transaction is pending.
[87] The regulatory treatment of client money demonstrates why this distinction matters. Section 49 of the Regulation requires brokerages to hold funds received in the course of regulated mortgage-related activity as trust money. That obligation is structurally significant. It demonstrates that money received in connection with mortgage business may acquire the legal character of trust money while it remains in the brokerage’s possession.
[88] That test is met here. The trust funds Aztec misappropriated were mortgage funds. The appellants did not approach Aztec to establish an independent trust arrangement. They approached Aztec for mortgage financing. They entrusted the $459,975 to Aztec because the mortgage transaction required it, not for investment, safekeeping unrelated to financing, or some separate commercial purpose. Had there been no proposed mortgage financing, there would have been no trust payment and no trust arrangement.
[89] By ruling otherwise, the motion judge’s analysis effectively elevated the legal form in which the money was held over the commercial and regulatory transaction that explained why it was held at all. That was an error.
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