Canadian Underwriter

New innocent co-insured law does not apply retroactively: Appeal Court

May 18, 2022   by David Gambrill

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Ontario’s new innocent co-insured law does not apply retroactively to claims events that happened before the legislation was passed, the Ontario Appeal Court has ruled.

The co-insured rule restricts application of insurers’ policy exclusions for criminal acts only to those who committed the intentionally criminal acts, not to innocent co-insureds who suffered the damage.

In Lin v. Weng, Jian Lin, a homeowner, rented the basement to his tenants, Qi An and Xiuqin Weng, in mid-2015. The Wengs defaulted on their rent by December 2015, and Lin asked the Wengs in February 2016 to move out. They were scheduled to move out on Mar. 15, 2016.

On Mar. 15, while Lin was at work, the Wengs caused an explosion by attempting to extract resin from marijuana using a butane lighter, a stove, and propane gas in the basement. The explosion and fire destroyed the house.

Police laid charges against the Wengs and Lin. The Wengs pleaded guilty, but the charges against Lin were withdrawn, since he had no knowledge of the Wengs’ activity. On Mar. 9, 2018, Lin made a damage claim under his property policy, but his insurer, Aviva Canada, denied the claim on the basis of two policy exclusions.

One exclusion was for “your criminal acts, your intentional acts, your wilful acts, your failure to act, or the criminal acts, intentional acts, wilful acts or failure to act by any person under your direction. This exclusion applies to all persons insured under this policy even though the criminal act, or intentional act, or wilful act, or failure to act is by only one or more of the other persons insured under this policy.”

The second exclusion was for “growing, cultivation, harvesting, processing, manufacturing, distribution, storage or sale of marijuana or any product derived from or containing marijuana or any other drug, narcotic or illegal substance falling within the schedules of the Controlled Drugs and Substances Act.”

After his claim was denied, Lin sued Aviva on Mar. 9, 2018. About two months later, before the court resolved the issue, the Ontario government passed its new innocent co-insured law on Apr. 30, 2018.

The wording of the new law states: “if a contract contains a term or condition excluding coverage for loss or damage to property caused by a criminal or intentional act or omission of an insured or any other person, the exclusion applies only to the claim of a person, (a) whose act or omission caused the loss or damage; (b) who abetted or colluded in the act or omission; and (c) who consented to the act or omission, and who knew or ought to have known that the act or omission would cause the loss or damage.”

Lin amended his claim, arguing the new law should apply retrospectively to his claim. Aviva’s policy exclusion should apply only to the Wengs, he argued, since their criminal actions caused the explosion and Lin was an innocent co-insured who had no idea what the Wengs were up to.

The court dismissed Lin’s appeal without even referring to the second of Aviva’s policy exclusions for processing marijuana on the premises.

In a 3-0 decision, the Appeal Court found Lin was asking the court to apply the new innocent co-insured law retroactively to a claim event that had happened before the legislation was passed.

The court noted that while a ‘claim’ is not defined in Ontario’s Insurance Act, it refers to an event that caused the damage, and not to the status of the claim. In other words, it did not apply retroactively to a claim just because the outcome of the claim had yet to be determined.

“If the legislature had intended the amendment to apply to entitlements or claims for losses that had already occurred, but for which the insurer had not yet paid the indemnity, i.e., outstanding entitlements or claims, it would have used clear language to so state,” the Court of Appeal ruled. “It did not do so and therefore the presumption against retroactivity is not rebutted.”

Having found the new innocent co-insured law did not apply, the court allowed the first of Aviva’s exclusion clauses, the one related to criminal activity, to stand. The court therefore did not need to resolve whether the policy exclusion for marijuana processing applied.


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