Windfall from wildfire reduced covered loss

Insurance law – Commercial general liability insurance – Property damage – Rental loss – Indemnity contract – Interpretation of policy – Practice – Summary judgments – Appeals

Shelter Canadian Properties Ltd. v. Aviva Insurance Co. of Canada, [2023] A.J. No. 216, 2023 ABCA 74, Alberta Court of Appeal, March 3, 2023, P.A. Rowbotham, D. Pentelechuk and K.P. Feehan JJ.A.

The insured landlords sought coverage under a commercial insurance policy for loss of rental income from properties damaged in the Fort McMurray wildfire. The policy provided for indemnity in the amount by which the gross rentals fell short of the standard gross rentals, and that adjustment shall be made to standard gross rentals to provide for the trends of, variations in or special circumstances affecting gross rentals. The insurer took the position that the insured received a net windfall rather than a loss, because the wildfire led to increased demand for rental housing which the insured successfully rented out. Occupancy before the fire was only around 50% and increased after the fire. The trial judge determined that coverage was available for the loss of rent from tenants whose units were deemed uninhabitable, and for vacant units that could have been rented out while the premises were uninhabitable, calculating total compensation at $1,254,000.

The insurer appealed, which was allowed in part. The Court of Appeal found that there should be an offset for the amount of rent collected from new tenants and to account for security deposits retained by the insured. The principle of indemnity required that the insured receive no more from the insurer than the financial loss suffered. The appeal was allowed with respect to loss of rent for vacant units, and the parties were directed to recalculate the loss with respect to loss of rent for occupied units.

This case was digested by Joe Antifaev, 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 Joe Antifaev at [email protected].

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