Ontario’s Court of Appeal ruled that an insurer was not obligated to pay for a replacement building constructed very differently from its original form, which was damaged by fire.
The Court concluded that Intact Insurance’s only obligation was to pay for the actual value of the burned buildings, not the costs of the rebuilding, The Chronicle Herald
According to court records, the case occurred in March 2011 when a fire erupted in an income property in Ottawa, affecting one-, two- and three-storey buildings with 15 residential units and 13 commercial units. Owners Helene Carter, Edmond Blais and Donald Givogue chose to demolish the buildings ruined by the fire and build an 8-1/2 storey condominium, which took three times the total area of the original buildings and featured a total of 129 residential units.
The three owners then made a claim against their insurance company for $5.7 million, with another $511,000 for the cost of the new building and building code upgrades, under terms of their policy which provided for reimbursement for the repair, construction or reconstruction of a new property provided it was of “like kind and quality” as the original buildings.
Their insurer, Intact, declined to pay for the replacement building and associated costs, reasoning that the proposed condominium was nothing like the insured property. The company, however, paid the owners the cash value of the damaged buildings, at $3.9 million.
Subsequently, the building owners sued Intact for the difference, at $2.3 million. In July last year, however, Superior Court Justice Kevin Phillips ruled in favor of the insurer, finding the new condo building completely different from the previous one.
The building owners then brought the case to the Appeal Court, arguing that Phillips was mistaken in his ruling. The three insisted that they had the right under their policy to replace the damaged property with a completely different building and still be entitled to replacement costs.
The higher court pointed out that replacement-cost clauses usually indicate that a policyholder must actually repair or replace a destroyed property. The aim of such clauses is to prevent unscrupulous individuals from profiting from the destruction at the expense of the insurer. The court also made clear that it found the policy 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 affected, must be of like kind and quality,” Justice John Laskin said. “To give effect to the appellants’ interpretation would either be illogical or would render the phrase ‘of like kind and quality’ meaningless.”
The court ordered the owners to pay their insurer $15,000 for the failed appeal. The owners’ claim for the cost of upgrades was also dismissed.
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