Insurance Law Blog
Knowledge Centre

Alberta Court of Appeal finds that the words “the Mortgagee” in standard mortgage clause in homeowner’s policy, while ambiguous, do not mean the actual mortgagee in circumstances where the insurer was misled about the actual lender and had no knowledge of same

September 13, 2022

Insurance law – Homeowner’s insurance – Material misrepresentations – void Ab Initio – Mortgages – Standard mortgage clause – Practice – Appeals

Builders Capital (2014) Ltd. v. Aviva Insurance Co. of Canada, [2022] A.J. No. 437, 2022 ABCA 120, Alberta Court of Appeal, April 1, 2022, B.L. Veldhuis, E.A. Hughes and A. Kirker JJ.A.

Thttps://canlii.ca/t/jr96qhe appellants were mortgage lenders (the “mortgagees”). The residential property against which their mortgage was secured was damaged by fire. At the time of the loss the property was insured by Aviva Insurance Co. of Canada (“Aviva”). The mortgagees thought the property was insured by a different insurer, having never been told by the mortgagor that it had cancelled the original policy and purchased a new policy from Aviva. Prior to securing the Aviva policy, the homeowner had provided Aviva with a Certificate of Property Insurance identifying the 1st Mortgagee as Royal Bank of Canada. This information was incorrect. Although the homeowner had advised the mortgagees of an intention to refinance the property with the Royal Bank of Canada, that had not occurred. The insurer voided the policy ab initio as a result of material misrepresentations in the application for insurance. The mortgagees sought to recover their losses under the terms of the standard mortgage clause which preserved coverage for “the Mortgagee” notwithstanding “any act, neglect, omission or misrepresentation attributable to the mortgagor, owner or occupant of the property of the insured.” Aviva denied the mortgagees’ claim on the basis that they were not parties to the policy.

The mortgagees sued Aviva alleging that Aviva was contractually bound to pay the mortgagees’ claim by virtue of the language in the standard mortgage clause. The trial judge, however, agreed with Aviva and found that there was no insurance contract between Aviva and the mortgagees. The mortgagees appealed. The appeal hinged on the interpretation of the words “the Mortgagee” in the standard mortgage clause.

The mortgagees argued that the trial judge erred by interpreting the words “the Mortgagee” too narrowly, and that the words “the Mortgagee” must include them as the actual mortgagees. The Alberta Court of Appeal, guided by the general principles of interpretation with respect to insurance policies, examined the meaning of “the Mortgagee” and found that it was ambiguous because the policy did not define “Mortgagee” the way it defined “Insured” as “the person(s) named as Insured on the Certificate of Property insurance”, and further that, the qualifying language of the standard mortgage clause suggests that “the Mortgagee” could include a mortgagee who is not named in the policy by virtue of an “act, neglect, omission or misrepresentation attributable to the mortgagor.”

To resolve the ambiguity, the Court examined the reasonable expectation of the parties as gleaned from the purpose of the standard mortgage clause and the ordinary commercial circumstances surrounding its use and held that “to accept the appellant’s interpretation of “the Mortgagee” … “requires that we read the … Policy as revealing a contract between parties who reasonably expected to be unknown to one another” and that “this was not a conclusion that could be drawn from the purpose of the standard mortgage clause…or from the commercial circumstances surrounding its use.”

The Court further held that the appellants’ interpretation of the standard mortgage clause would have rendered several of its terms unworkable and that, in resolving the ambiguity in the meaning of “the Mortgagee” the Court must avoid an interpretation that would bring about unrealistic results or results that the parties would not have contemplated in the commercial atmosphere in which they sold or purchased the policy. The Court held that “the Mortgagee” cannot mean the appellants as that interpretation leads to an unrealistic interpretation the parties would not reasonably have contemplated and “…does not make commercial sense.” The Court concluded that the trial judge was correct in concluding that the appellants were not entitled to coverage under the policy.

This case was digested by Tricia M. Milne, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Tricia M. Milne at [email protected].

To stay current with the new case law and emerging legal issues in this area, subscribe here.

Tags

Expertise

Important Notice: The information contained in this Article is intended for general information purposes only and does not create a lawyer-client relationship. It is not intended as legal advice from Harper Grey LLP or the individual author(s), nor intended as a substitute for legal advice on any specific subject matter. Detailed legal counsel should be sought prior to undertaking any legal matter. The information contained in this Article is current to the last update and may change. Last Update: September 13, 2022.

Related

Jonathan Meadows recognized as a Litigation Star by Benchmark Canada ® 2024 in three areas of expertise
Jonathan Meadows recognized as a Litigation Star by Benchmark Canada ® 2024 in three areas of expertise Jonathan Meadows recognized as a Litigation Star by Benchmark Canada ® 2024 in three areas of expertise
Six Harper Grey lawyers selected by Benchmark Canada® 2024 as Litigation Stars in the area of Insurance Law
Six Harper Grey lawyers selected by Benchmark Canada® 2024 as Litigation Stars in the area of Insurance Law
ParaTough Cup raises over $510,000 for Para Sport in Canada
ParaTough Cup raises over $510,000 for Para Sport in Canada
24 Harper Grey lawyers recognized as leaders in their field by Benchmark Canada 2024
24 Harper Grey lawyers recognized as leaders in their field by Benchmark Canada 2024
Adam Way participates in panel at Axis Insurance & AXA XL Loss Prevention virtual event
Adam Way participates in panel at Axis Insurance & AXA XL Loss Prevention virtual event Adam Way participates in panel at Axis Insurance & AXA XL Loss Prevention virtual event
Richard Bereti shares environmental law expertise in Halsbury’s Laws of Canada – Environmental
Richard Bereti shares environmental law expertise in Halsbury’s Laws of Canada – Environmental Richard Bereti shares environmental law expertise in Halsbury’s Laws of Canada – Environmental
Retail Case Update: Slip and Fall in the Mall – Dismissal for Inexcusable Delay
Retail Case Update: Slip and Fall in the Mall – Dismissal for Inexcusable Delay Retail Case Update: Slip and Fall in the Mall – Dismissal for Inexcusable Delay Retail Case Update: Slip and Fall in the Mall – Dismissal for Inexcusable Delay
Rachel Wood presents at CBA Criminal Justice Conference
Rachel Wood presents at CBA Criminal Justice Conference Rachel Wood presents at CBA Criminal Justice Conference
Harper Grey Hosts Ask Us Anything Employer Webinar: Exit Strategies – How to Plan For and Conduct a Termination  
Harper Grey Hosts Ask Us Anything Employer Webinar: Exit Strategies – How to Plan For and Conduct a Termination  
Norm Streu co-authors article titled “What B.C. construction firms need to know about Forced Labour Act”
Norm Streu co-authors article titled “What B.C. construction firms need to know about Forced Labour Act” Norm Streu co-authors article titled “What B.C. construction firms need to know about Forced Labour Act”
Join Harper Grey and Vancouver Tech Journal for morning coffee and donuts with founders and entrepreneurs
Join Harper Grey and Vancouver Tech Journal for morning coffee and donuts with founders and entrepreneurs Join Harper Grey and Vancouver Tech Journal for morning coffee and donuts with founders and entrepreneurs Join Harper Grey and Vancouver Tech Journal for morning coffee and donuts with founders and entrepreneurs
Nigel Trevethan shortlisted as Canadian Insurance Litigator of the Year by Benchmark Canada 2024
Nigel Trevethan shortlisted as Canadian Insurance Litigator of the Year by Benchmark Canada 2024 Nigel Trevethan shortlisted as Canadian Insurance Litigator of the Year by Benchmark Canada 2024
Prentice Durbin, Rose Keith, KC, and W. Sean Taylor to attend TAG Alliances Spring 2024 International Conference
Prentice Durbin, Rose Keith, KC, and W. Sean Taylor to attend TAG Alliances Spring 2024 International Conference
Lesley Russell presents to group of investment planners on wills and estates
Lesley Russell presents to group of investment planners on wills and estates Lesley Russell presents to group of investment planners on wills and estates
The Consequences of Sexual Harassment in the Workplace
The Consequences of Sexual Harassment in the Workplace The Consequences of Sexual Harassment in the Workplace
arrow icon

Subscribe