Compliance costs excluded under residential homeowners policy

Ontario Court of Appeal allows appeal and finds costs incurred to comply with “any law” in repair or replacement of dwelling were excluded from recovery under policy.

Insurance law – Homeowner’s insurance – Exclusions – Interpretation of policy – Doctrine of reasonable expectation – Practice – Appeals

Edmond v. Trillium Mutual Insurance Co., [2023] O.J. No. 4979, 2023 ONCA 729, Ontario Court of Appeal, November 3, 2023, P.D. Lauwers, B. Zarnett and J.A. Thorburn JJ.A.

The insureds’ home was severely damaged by a flood and was deemed a total loss. The home was located in the catchment area of the Mississippi Valley Conservation Authority (the “MVCA”) which regulated development and activities in the area. The insureds claimed that the Guaranteed Rebuilding Cost Coverage (“GRC”) endorsement in their residential homeowners policy fully guaranteed their rebuilding costs, including costs associated with compliance with MVCA regulations and policies. The insurer acknowledged coverage for the loss under the policy, but argued coverage for the “increased costs” of demolition and replacement due to compliance with “any law” were excluded by the policy. The Superior Court held that the GRC entitled the insureds to recover all costs of rebuilding their home, with no limitation of coverage for compliance costs. The Superior Court found that the meaning of “any law” in the exclusion did not include the MVCA’s regulations and policies.

The insurer appealed the Superior Court’s decision arguing it erred in concluding that the insureds were entitled to recover 100% of the costs of rebuilding their home without limiting coverage resulting from compliance with the MVCA’s regulations and policies. The insureds argued on appeal that the Superior Court correctly interpreted the GRC and there should be no cap on the costs to be reimbursed by the insurer to rebuild. The insureds argued that the term “any law” in the exclusion only referred to statutes. The Court of Appeal allowed the appeal and held that coverage for increased costs to comply with “any law” were excluded under the policy. The Court of Appeal found that increased costs are costs that exceed the amount payable by the insurer to replace the dwelling as it was, either because existing deficiencies have to be fixed, or a law enacted after the original construction required enhancements or rebuilding. Further, the Court of Appeal found that the meaning of “any law” included the MVCA’s regulations and policies.

This case was digested by Alicia Catalano, 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 Alicia Catalano at [email protected].

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