Court refuses to dismiss action for coverage brought by mortgagees not named in homeowners’ policy.

The insured owned a property in Ontario that was subject to a mortgage which required that the mortgagees be named as insureds under the insured’s homeowners’ policy.  The insured named a different lender as an insured under the Policy.  A fire destroyed the property and the insurer rescinded the policy and denied coverage to the insured and the mortgagees under the mortgage.  The mortgagees sued the insurer for coverage.  The insurer brought a motion to dismiss the mortgagees’ action on the ground that there was no reasonable basis for success.  The court dismissed the insurer’s motion holding that the mortgagees had properly pled rectification and thus both the mortgagees’ contractual claims and the claim for rectification survived the dismissal motion.  Further, the court refused to dismiss the mortgagees’ claim for unjust enrichment at the motion stage given that the contractual and rectification claims had not yet been determined.

Insurance law – Homeowner’s insurance – Named insured, definition – Rectification – Unjust enrichment.

RSSJ Investments Inc. v. Sonnet Insurance Co., [2026] O.J. No. 540, Ontario Superior Court of Justice, February 13, 2026, W.M. LeMay J.

The insured held a homeowners’ policy with respect to a property in Ontario (the “Policy”).  There was a mortgage on the property that required the mortgagor (the insured) to name the mortagee(s) as insured(s) under the Policy.  The insured named a different lender as an insured under the Policy, rather than the true mortgagees (the “Mortgagees”).

A fire destroyed the Property and the insurer rescinded the Policy and denied coverage to the insured and also to the Mortgagees – the latter on the basis that they were not named insureds in the Policy and therefore not covered.

The Mortgagees brought an action against the insurer seeking coverage that the named mortgagee would have been entitled to under the Policy.  The action was framed in contract, or in the alternative, rectification, or in the further alternative, unjust enrichment.

The insurer brought a motion to have the action dismissed on the basis that there was no reasonable basis for success.  The insurer advanced the position that since the Mortgagees were not named in the Policy they were not a party to the contract and could not advance a claim in contract; the Mortgagees had not pled sufficient facts to establish a claim for rectification; and the claim for unjust enrichment should fail on the basis of the juristic reason part of the test or because the Mortgagees had already made the same claim against the insured in the Mortgagees’ status as intervenor in a related action brought by the insured for coverage.

The Mortgagees argued that the law in Ontario is not clear on the question of whether it is essential for the precise mortgagee to be named in the policy of insurance.  In addition, the Mortgagees argued that their contractual claim should survive on the basis that they had asked for rectification and had properly pled the necessary facts to support that claim.

The court held that whether the contractual claim could survive was dependent on the rectification claim.  With respect to the rectification claim, the court held that, contrary to the insurer’s position, the Mortgagees had properly pled rectification; therefore, the motion to dismiss the rectification claim was dismissed and so too was the motion to dismiss the contractual claim.  The court held that, the lack of Ontario case law on point; the fact that rectification was not addressed in the case law relied on by the insurer for the position that there was no privity of contract between the Mortgagees and the insurer; and the fact that there was at least some suggestion that the language in the standard mortgage clause which refers to “the Mortgagee” being entitled to coverage was ambiguous, were all additional reasons not to dismiss the claim at the pleadings stage.

The court held that, as the contractual and rectification claims remained to be determined, the unjust enrichment claim should not be struck at a preliminary application.  The court stated that the fact that the unjust enrichment claim had already been pled in the related action could be managed by having the two actions tried together or one after the other.

This case was digested by Tricia M. Milne and edited by Steven W. Abramson.  If you would like to discuss this case further, please feel free to contact them directly at [email protected] or [email protected].