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From the Bench: Clear and Unambiguous Language can lead to Denial of Coverage Under 30-Day Vacancy Exclusion

A big win on policy interpretation for Shawn Sipma and CBM Lawyers on behalf of Co-operators General Insurance Company.

Taylor v Co-operators General Insurance Company, 2017 ABQB 705

Case Facts

This matter arose from a fire that occurred on August 22, 2015. The property was a rental home and was occupied from August 2011, until July 13, 2015 (the “House”). After the tenants moved out, the Respondent began renovating the House. On July 22, 2015, the Respondent brought a holiday trailer (the “Trailer”) adjacent to the House with the intention of staying in the Trailer occasionally during the renovations. The Respondents would store tools and use the washroom in the House; however, there was no food, clothing or other personal items in the House.

Co-operators denied coverage for the fire damage pursuant to the 30-day vacancy exclusion as no one had moved into the House within 30 days after the previous tenants had left. The Respondent argued the vacancy exclusion should not apply as he and his wife were staying in the Trailer on the property and were performing renovations during the material time. At issue was whether the House was vacant pursuant to the insurance policy allowing Co-operators to deny coverage under the policy.

Was the Property Vacant?

Where the insurance policy is clear and unambiguous, the Court shall interpret the insurance policy based on its clear language:

[12] In Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 (CanLII) at para 49, the Court reiterated that the primary interpretative principle of insurance policies “is that where the language of the insurance policy is unambiguous, effect should be given to that clear language…”.

‘Vacant’ was clearly defined within the insurance policy. Pursuant to the policy an old dwelling is vacant after all residents moved out and no new residents had moved in. There would be no coverage if the House was vacant for more than 30 consecutive days as defined by the policy unless the insured specifically requested such coverage:

… regardless of the presence of personal property or furnishings in a new or old dwelling, a new dwelling is vacant after it is completed and before a resident moves in and an old dwelling is vacant when all residents have moved out and another resident has not yet moved in.

All remaining coverage will also cease if your dwelling is vacant for more than 30 consecutive days unless we give specific coverage. See the definition of vacant earlier in this policy.

The Court must not substitute a judicial definition for one agreed upon by the contracted parties where the term is clearly defined. The Court must apply the term as defined in the policy:

[17] In Coburn v. Zorkin Insurance Brokers Inc., 2014 BCCA 73 (CanLII) at para 32, it was observed that when a policy defines a term, care must be taken not to substitute a judicial definition for one chosen by the parties.

It was clear the previous long-term tenants had permanently moved out of the House and no new tenants had yet moved in. The Court had to consider whether the Respondent and his wife could be considered as residents who had moved in to the House during the renovations. ‘Resident’, ‘moved in’, and ‘moved out’, however, were not defined in the policy. As they were not defined, Justice Belzil applied their ordinary meaning:

[27] In the context of a dwelling, ‘resident’ must refer to one who carries on normal functions of occupancy of a dwelling, including food storage, cooking and eating, storage of personal items including clothing, sleeping and using the dwelling for leisure purposes. All of these are indicia of a place of abode.

[28] ‘Moved in’ in this context must mean taking up residency for the purposes outlined above.

[29] ‘Moved out’ in this context must mean permanently leaving the premises and discontinuing the purposes outlined above.

Based on the foregoing definitions the Court found the Respondent and his wife had not moved into the House as residents while renovating. There was no evidence the House was used as a temporary residence. The Respondent was not sleeping, cooking, or eating in the House and the only items stored within the home were the renovation tools. It was clear the House’s only purpose was for rental income and not as a residence for the Respondent and his wife:

[31] There is no evidence that the Respondent was sleeping, cooking or eating in the dwelling and no evidence of storage of personal items other than tools being used for the renovation. There is no evidence he ever intended to reside in the dwelling or use it for any purpose other than to rent it out for income. It was not his habitual place of abode or even a temporary place of abode.

After the long-term tenants had moved out, the dwelling had been vacant for more than 30 consecutive days as the Respondent and his wife were not residents. The Respondent did not request coverage for this vacancy and Co-operators was not obligated to indemnify the Respondent for the fire loss.

In Conclusion

This decision is notable as it provides insurers a strong precedent to deny coverage under a 30-day vacancy exclusion. Although each claim will have different factual circumstances, it is clear the Court will apply a strict definition of ‘vacant’ if clearly and unambiguously defined in the insurance policy.

Consequently from this decision, it is important insurers provide a clear and unambiguous definition of vacant in their insurance policies in order to rely on its exclusion. This decision sets the precedent that the Court will apply the strict definition of vacant, notwithstanding the difficult decision to deny coverage where a property has been vacant for more than 30 days.