Guaranteed replacement cost (GRC) coverage for rebuilding a flooded home in an area regulated by a conservation authority includes the increased regulatory compliance costs required for the rebuild, Ontario’s Superior Court has ruled in Emond v. Trillium Mutual Insurance Company.
In reaching its decision, the court rejected the insurer’s policy exclusion for any additional rebuilding costs “due to the operation of any law.” The ruling suggests that GRC policy exclusions must explicitly refer to repair or replacement costs due to “rules, regulations, by-laws, or ordinances.”
In Emond, Stephen and Claudette Emond owned a home located on the Ottawa River, in the catchment area of the Mississippi Valley Conservation Authority (MCVA). Their home was destroyed by a flood in April 2019 and deemed a total loss.
The Emonds purchased a home insurance policy from Trillium that included:
a policy exclusion for the increased costs of repair or replacement “due to the operation of any law,” and
an exception to the policy exclusion that provides additional building by-law and code compliance (BBCC) coverage up to $10,000.
The Emonds argued the GRC coverage in their policy allowed them to rebuild their home without limitation, notwithstanding the exclusion for compliance costs related to “any law.” They also argued the policy exclusion defeated the purpose of the GRC policy, which they argued should include any additional compliance costs to rebuild according to revised MCVA building codes.
Trillium disputed the Emonds’ interpretation. The insurer noted a $10,000 policy cap on “qualifying compliance costs” in the BBCC coverage. The GRC endorsement did not override this limit of liability, the insurer argued, nor did it extend coverage to all compliance matters.
The court sided with the Emonds. In a decision released last week, the Superior Court suggests that if an insurer issuing a GRC policy wishes to limit costs for a rebuild so that they do not cover increased compliance costs, it needs to “list a monetary limit for the GRC coverage provided in the GRC endorsement.”
It also found Trillium was conflating two distinct stages for determining whether: 1) a policy exclusion applied, and 2) if there was an exception to the exclusion.
In this case, the court found the policy exclusion did not apply. And essentially, the BBCC’s $10,000 limit on additional costs related to compliance — which was an exception to the exclusion — didn’t apply either.
Trillium’s GRC policy wording specifically excludes “the increased costs of repair or replacement due to operation of any law regulating the zoning, demolition, repair or construction of buildings and their related services; except as provided under Additional Coverages of Section 1 [the BBCC coverage limit of $10,000].”
The court noted the language in the policy exclusion merely refers to “any law,” whereas in the BBCC section of the policy, the language explicitly references laws, rules, regulations, by-laws, or ordinances.
Since the MCVA’s compliance requirements were not “due to the operation of any law [i.e. an act of Parliament],” but were rather building code requirements under MVCA’s “regulation policies,” the insurance policy exclusion for compliance costs didn’t apply to the Emonds’ rebuild, the court ruled.
“The BBCC coverage uses the terms ‘law,’ ‘by-law,” “regulation,” and ‘ordinance,’” the court decision states. “The language of the policy must be read to give effect to each word of the policy and the policy should not be interpreted in a manner which would render any words superfluous.
“Had Trillium wanted the term ‘law’ to include subordinate authority for the purpose of the [policy] exclusion, it could have drafted the policy accordingly. It did not.”