For most people, contracts aren’t frequently pursued forms of reading. When people sign insurance contracts, it can be easy to glance quickly at the documentation and assume that it speaks to one’s needs and expectations. However, with the law, the particular wording on a contract can have a significant impact on what happens if a claim is ever made. A recent decision from the Ontario Superior Court of Justice shows the lengths one couple had to go through in order to receive the compensation they believed they were owed by their insurer.
Insured is told construction around pool needs to be redone
The applicants involved in the decision purchased a home in July 2021. Shortly after the purchase, they received a notice from the town that informed them they were required to remediate the swimming pool as well as the deck and cabana near it. They were told all three projects had been completed without the necessary permits or by using appropriate construction methods.
The applicants had purchased a policy from the defendant insurer when they acquired the property. They made a claim under the policy and worked to obtain the permits needed to address the issues. Ultimately, the town determined the pool would not have to be rebuilt, but the cabana and deck would. The structures were very large and were built on a hill. The cost of demolishing the existing structures and rebuilding them to code was quoted between $290,000 and $350,000. The applicants were understandably upset when the insurer told them their “Actual Loss” was only valued at $85,000. The applicants responded by filing an action against the insurer, alleging the appraiser was misdirected by them and “failed to accurately calculate their actual loss as provided in the insurance policy.
What did the policy say?
There are a few relevant provisions in the policy. The first stated that the applicants were insured if they are forced by a Governmental Authority to remove or remedy an existing structure if they were built without obtaining a required permit. The policy also states that the physical structure itself is not covered, but the need to remove the structure is.
Finally, the policy states that if the cost of removing or remedying a portion of the structure built without a permit exceeds $50,000, the insurer may either pay for the removal or remediation or it can pay the insured the “Actual Loss resulting from the Covered Risk” as calculated by an appraiser.
The insurer’s counsel took the position that the second option available to the insurer must be meant for situations where the cost exceeds $50,000. However, the court pointed out that the policy defines “Actual Loss,” and it states,
“‘Actual Loss’: the difference between the value of the insured estate as insured and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy. The date used to assess Actual Loss will be the date the claim was made by You. unless otherwise stipulated in the Conditions of this policy.”
The insurer’s argument was that this section of the policy meant the appraiser was to calculate the value of the land as though it did not have an unpermitted pool, cabana, or deck. They arrived at $85,000.
Court does not agree with the insurer’s definition of “Actual Loss”
The court said it could not understand the insurer’s position, highlighting that “the value of the insured estate or interest subject to the defect…” could not possibly mean “the land without the illegal structures.” Instead, the court wrote that the value of the estate “subject to the defect…” could only be interpreted as the value of the land subject to the government order. The way to arrive at that value would be to understand what the value of the land would be to a buyer if they knew about the government order.
The court once again referenced the insurer’s position that the “escape route” clause must refer to a value of under $50,000, or else it would not serve its intended purpose. But the court said instead that it “may just be an option for a better calculation of the insured’s actual loss.” Perhaps the language was not meant to protect the insurer, but instead provide the policyholder with more accurate coverage. When one looks at housing prices in today’s market, it could be reasonable to conclude that even if the pool and associated structures had to be removed, a buyer may still wish to pay more than the applicants paid for the property.
The court added that if the insurer wanted to cap its payment at $50,000, it could have done so in a much clearer way, and simply stated that the cap for this type of loss was that amount. The court also concluded that the value of coverage as calculated by the appraiser could not stand.
While we won’t get into the details here, the court also ruled that the process of choosing an appraisal pursued by the insurer was inconsistent with the Insurance Act.
Campbell Litigation in Kitchener-Waterloo can assist you with insurance litigation
It’s common for policyholders to run into issues when they discover their coverage is inadequate or find that their claim has been denied. The litigation team at Campbell Litigation, led by Richard Campbell, regularly works with clients to advocate for their claims to be paid out in accordance with the coverage they’ve paid for. You can rest assured that your interests are our foremost concern. Please don’t hesitate to reach out to us online or by phone at 519-886-1204 to see how we can help you reach a resolution to your insurance issue today.