Canada’s highest court is hearing arguments on Mar. 18 in a Guaranteed Replacement Costs (GRC) case that will clarify the scope of what insurers are guaranteeing under a GRC home insurance policy.
At issue is whether GRC policies can limit payouts for additional regulatory compliance costs required for a home to meet current building standards.
The Supreme Court of Canada has agreed to hear arguments from three intervenors in the case, the Insurance Bureau of Canada, a group representing Canadian mutual insurance companies, and the Ontario Trial Lawyers Association.
The case concerns a home on the Ottawa River that was deemed a total loss as a result of flooding in April 2019. The home was located in the catchment area of the Mississippi Valley Conservation Authority (MVCA).
Mutual Insurance Company, which covered the loss, acknowledged its GRC home insurance covered the costs to replace the insureds’ home. However, it said its policy excluded costs to be incurred to comply with the MVCA’s regulation policies and other by-laws and regulations enacted after the original building of the home.
The lower court in Ontario ruled in favour of the homeowners, but the Appeal Court for Ontario reversed that decision and agreed with the insurer that Mutual’s GRC policy specifically did not cover any additional costs arising from “any law,” which the court interpreted to include the MVCA’s updated regulations.
In one of several factums before the Supreme Court, the homeowners, Stephen and Claudette Emond, say this case stands for the principle of whether there should be any limits on GRC policies. They argue GRC policies ‘guarantee’ insurers will pay the complete costs of rebuilding a home, and that should include additional compliance costs required to conform to modern building standards.
“GRC coverage is peace of mind coverage that Canadians turn to in their darkest hour, when they have lost their home,” the Emonds’ factum at the Supreme Court reads. “To obtain this coverage, insureds must meet onerous requirements, including, [among other things], maintaining insurance representing 100% of the cost to rebuild their home, as deemed acceptable by the insurer.
“In exchange, insurers represent to their insureds that they will ‘guarantee’ the cost of rebuilding an insured dwelling, even if doing so exceeds policy limits. Fundamentally, this case is about determining the scope and extent of the ‘guarantee’ that insurers have sold Canadians to protect their most valuable asset, their home.”
Mutual Insurance essentially argues the Supreme Court of Canada shouldn’t be ruling on this matter because the Ontario Appeal Court’s decision is simply a straight-up contract interpretation of an insurance policy. It doesn’t deal with any legal issues of national importance, it doesn’t engage a novel point of law, and it doesn’t raise any conflicts with legal rulings about GRC cases in other jurisdictions, Mutual says in its factum before the Supreme Court.
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In the Trillium case, the policy wording contains an exclusion “for the increased costs of demolition and replacement due to the operation of any law.” This exclusion is subject to a paragraph in “additional coverages,” in which the insurer promises to pay up to a limit of $10,000 for “qualifying compliance costs in the [policy’s] Building and By-Law & Code Compliance Coverage (BBCC).”
Trillium argued that when Ontario’s Appeal Court interpreted the Emonds’ policy in its entirety — including recognition of the exclusion for “any law,” and the $10,000 limit defined in the BBCC clause — it was doing no more than correcting the lower court’s decision about the proper interpretation of the Emonds’ policy wording. As such, the Supreme Court really should not be hearing the case at all, since the case has no application beyond the particular contract provisions in the Edmonds’ specific GRC policy, the insurer says.
“The Emonds’ application does not raise an issue of national or public importance because they have purported to frame it that way,” Trillium says in its submission to the Supreme Court. “This is not a case about whether ‘[GRC] in a homeowners’ policy of insurance guarantees homeowners the cost of rebuilding their home…”
“It is about the interpretation of the Emonds’ specific policy – as a whole. It is not about GRC coverage in general, or any “similar” endorsements sold by other insurers. The issues articulated by the Emonds are a red herring.”
Insurers generally take the position that guaranteeing regulatory compliance costs for a rebuild effectively means they are guaranteeing costs required to pay for potential building code violations.
For example, if a home is built in the 1920s, and a fire burns it down in the 1990s, insurers would effectively be paying for any building code violations the homeowners may have committed by not keeping the building up to compliance standards (i.e., not replacing knob and tube wiring).
Feature image courtesy of iStock.com/jhorrocks
