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Now Is A Good Time To Understand Fire Insurance!

There is a sense among many that after a disaster, like the Fort McMurray fire, they are at the mercy of their insurance company. There is often tremendous financial pressure on those who purchased insurance for just such an occasion but the adjusters appointed by the insurance companies appear to simply dictate how the process will work with a take or leave it approach. In this Blog we will discuss a few key legal principles developed by the Courts that provide assistance to those who have purchased insurance. These principles alone will not solve a claim, but they are important tools an insured has when a claim cannot be resolved. The landscape is not as one sided as an insurance company or an adjuster might like to believe. Every insurance contract is unique and you should get legal advice on the specific terms of your contract.

  1.  GOOD FAITH AND FAIR DEALING

The Courts have recognized the insured’s vulnerability and have imposed upon the insurer duties of good faith and fair dealing. The decision in 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s London, England (1) noted the nature of the duty of good faith an insurer owes to an insured and what this means in practical terms:

The relationship between an insurer and an insured is contractual in nature. The contract is one of utmost good faith. In addition to the express provisions in the policy and the statutorily mandated conditions, there is an implied obligation in every insurance contract that the insurer will deal with claims from its insured in good faith: Whiten v. Pilot Insurance Co. (1999), 42 O.R. (3d) 641 (Ont. C.A.). The duty of good faith requires an insurer to act both promptly and fairly when investigating, assessing and attempting to resolve claims made by its insureds.

The first part of this duty speaks to the timeliness in which a claim is processed by the insurer. Although an insurer may be responsible to pay interest on a claim paid after delay, delay in payment may nevertheless operate to the disadvantage of an insured. The insured, having suffered a loss, will frequently be under financial pressure to settle the claim as soon as possible in order to redress the situation that underlies the claim. The duty of good faith obliges the insurer to act with reasonable promptness during each step of the claims process. Included in this duty is the obligation to pay a claim in a timely manner when there is no reasonable basis to contest coverage or to withhold payment…

The duty of good faith also requires an insurer to deal with its insured’s claim fairly. The duty to act fairly applies both to the manner in which the insurer investigates and assesses the claim and to the decision whether or not to pay the claim. In making a decision whether to refuse payment of a claim from its insured, an insurer must assess the merits of the claim in a balanced and reasonable manner. It must not deny coverage or delay payment in order to take advantage of the insured’s economic vulnerability or to gain bargaining leverage in negotiating a settlement. A decision by an insurer to refuse payment should be based on a reasonable interpretation of its obligations under the policy. This duty of fairness, however, does not require that an insurer necessarily be correct in making a decision to dispute its obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith

What constitutes bad faith will depend on the circumstances in each case. A court considering whether the duty has been breached will look at the conduct of the insurer throughout the claims process to determine whether in light of the circumstances, as they then existed, the insurer acted fairly and promptly in responding to the claim…

The insurer has a responsibility throughout the process. The idea that an insurance company or an adjuster can simply dictate the result has no foundation in law.

II THE INTERPRETATION OF INSURANCE CONTRACTS

Courts are very alert to the unequal bargaining power at work in insurance contracts, and interpret such policies accordingly. Courts have developed several helpful rules for the insured which govern the interpretation of an insurance contract. The first is described as “Contra Proferentem” which means the standard practice of the Courts is to construe ambiguities against the insurance company. Where there is ambiguity, this Court has noted “the desirability of giving effect to the reasonable expectations of the parties. This point was explained in a Supreme Court case (2):

Where words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of the policy which promotes a sensible commercial result. … Said another way, the courts should be loath to support a construction which would either enable the insurer to pocket the premium without risk or the insured to achieve a recovery which could neither be sensibly sought nor anticipated at the time of the contract

Insurance contracts can be complex; using technical words, phrases and definitions that are difficult to understand and unclear.  The insurance company controls the drafting of the policy. If they leave terms unclear then they should not benefit from the failure to provide clarity. Courts have also stated that coverage provisions should be construed broadly and exclusion clauses narrowly.  These principles provide the insured with a significant advantage when unclear language or terms have been used.  The Courts will tend to favour the insured’s position in such cases.


III INTERPRETATION OF THE PHRASE “LIKE KIND AND QUALITY”

Most insurance policies use the term, “like kind and quality” when outlining an insurer’s obligation to replace damaged or destroyed property.   The 2015 case of Carter v. Intact Insurance Co. (3), discusses what “like kind and quality” in an insurance contract means:

A helpful guide for what is meant by the phrase “of like kind and quality” is found in the obiter dicta of Justice Coultas in the Chemainus decision when he considers whether the proposed replacement in that case was of property “like kind and quality”. In this regard, he stated:

Like kind and quality does not imply that every truss, or siding, or finish, or style of the building, for example must be identical. That would be absurd considering that 20 years separates the dates of their construction, and construction methods and aesthetic tastes change.

He then went on to adopt comments from Justice Johnson in Berenbaum v. Halifax Insurance Co. (1966), 57 W.W.R. 148 (Sask. Q.B.), to inform him of what the phrase “of like kind and quality” entailed, specifically:

The cost of erecting a building which would be similar to the destroyed building and the following characteristics. It would have the same amount of usable area; It would have substantially the same utility; Its heating, lighting, plumbing and electrical or other facilities would be equivalent; Its style, if lending any intrinsic value, would be followed and to assure the foregoing its construction and finish would be comparable in the context of today’s building practices.


IV SPECIFIC REIMBURSEMENT RELATED ISSUES

An insured’s right to be reimbursed for damage caused by smoke or other causes related to a fire – but not directly by the fire itself, has been addressed in several cases.  An example is Glen Falls Insurance Co. v. Spencer (1956 (4).  In this case, the plaintiff’s car was insured against fire but not collision.  In attempting to put out a fire in the car radio, the plaintiff damaged the car by driving off the road and hitting a tree.  The court found the fire as the primary cause of damage to car so the insurance had to pay.

In the Fort McMurray fire situation, the fire was plainly not a controlled fire and was in actual fact a “hostile fire”. In addition, the fire was the initial cause of all that followed after – such as electricity blackouts and the burning of property. In these circumstances, provided there is a fire policy in place covering the actual items of property in question, or an “all risks” policy, these should be covered as part of the “fire coverage”.

V RECOVERY OF RELATED COSTS, SUCH AS COST OF LIVING ELSEWHERE, OR ADDITIONAL TRAVEL EXPENSES

The specific terms of a policy will be important in determining what additional expenses will be recoverable.  This issue was discussed in the case of Voloudakis v. Allstate Insurance Co. of Canada (5) where the court found that increased costs post-fire may be recoverable for a substantial period of time:

It is not clear to me from the Canada Trust mortgage statement (Exhibit 9) which amounts represent mortgage interest paid by the plaintiffs on 139 Whitney. Emmanuel Voloudakis testified that the total interest paid between December 9, 1993, and October 31, 1996, when the property was sold, was $8,249.80. Those dates represent an interval of about 35 months. The plaintiffs claim to be entitled to reimbursement in the amount of $6,857.54 representing interest paid between the date of the fire loss and October 31, 1996. This evidence was not challenged nor did the defendant make any submissions on this issue.

Although I would ordinarily allow a claim for only a reasonable period after the fire, in the absence of any suggestion to the contrary I accept the period of about 29 months involved here as reasonable in the circumstances. I assess this aspect of the claim in the amount of $6,857.54.”

It also appears that any and all costs associated with or related to replacing the damaged premises, within limits, can be recovered, including accommodation costs for as long as the owner needs to leave the premises to allow it to be replaced.  In Voloudakis v. Allstate Insurance Co. of Canada (6), the court discusses different kinds of costs and how they should be dealt with:

The plaintiffs attached a one-page estimate by Leedsdale Construction to the sworn proof of loss of October 3, 1994 (Exhibit 12). No oral evidence was called by the plaintiffs to substantiate this estimate, nor to permit cross-examination on it. It includes an estimate of the cost of replacing items, in the “Materials Only” section, which were either not in the house at the time of the fire or not damaged by the fire. The furnace, for example, which was in the basement, was untouched by the fire. Subject to accepting the estimate of about $9,000.00 as representing the reasonable cost of replacing the dwelling’s foundation, a matter which I will address momentarily, I place no weight on the Leedsdale estimate.

The defendant relies upon estimates prepared by Mr. Gallant Cleaning and Restoration (Exhibit 35) and by Ultra Care Restoration Services (Exhibit 40). The Gallant estimate was slightly in excess of $24,000.00. The Ultra Care estimate totaled almost $31,000.00; it included items such as roofing and eaves-troughing which were not part of the structure at the time of the fire.

I would allow the sum of $26,000.00 to replace the fire-damaged structure. In addition, the plaintiffs claimed the cost of rebuilding the foundations. It appears that the municipality would not permit reconstruction on the existing foundation because it had deteriorated and no longer met current building code requirements. The defendant takes the position that the condition of the foundation is not a result of the fire; accordingly, the insurer is not liable for this aspect of the loss claimed. Counsel for the defendant did not address this matter in their written submissions.

In my view, the insurer is responsible for all losses suffered as a result of the fire. The plaintiffs possessed a valid building permit at the time of the fire and were proceeding with construction. It is only as a result of the fire that they were prevented from completing this work on the existing foundation. The house having been demolished as a result of the fire, the insured cost of rebuilding will include all costs necessary to accomplish this task. That would necessarily include the cost of removing the old foundation and constructing a new one.

This case suggests that additional costs directly related to damage caused by a fire – such as air quality testing, removing soot, ash and toxic substances,  or other activities necessary to then proceed with the restoration of the property, will be recoverable.

VI;  OTHER ISSUES YOU MAY BE DEALING WITH:

Our firm has now done hundreds of free consultations on insurance matters.  Some of the common themes are listed below.  If you find yourself with similar questions, call the Insurance Bureau of Canada, watch our website for more discussion on these topics or make an appointment with our office to discuss your specific situation.

  • The insurance adjuster does not communicate and won’t give me any answers
  • The insurance adjuster is refusing to cover the damage done to my home.
  • The work done by the remediation company is really bad and my house is still contaminated.
  • I am thinking about selling my house.  Will the fire affect my sale?
  • Members of my family have serious allergies or illnesses and the insurance company refuses to do the extra cleaning on my house necessary to make it safe for them.
  • I was supposed to sell my house in Abasand in May and the deal is still not closing.  What can I do?
  • My house is still standing in Beaconhill, I am allowed to access it from 8am – 8pm, but not allowed to sleep there.  I am sick of waiting to get back to my home, what can I do?
  • Before the fire, I gave my insurance company instructions to put contents insurance on my rental property, but they did not do it.  What should I do?
  • My house burned down and the insurance company will only give me 50% of the value of my contents.  Do I have to accept this?
  • The insurance company says they cancelled my policy before the fire but I never received a notice from them.
  • What do I do if I just want to take the cash for my burned home?  If I do this, do I still own the land?
  • The insurance company is treating me very differently than my neighbor, and we have the same insurance policy.
  • Our family of 5 evacuated with nothing but the clothes on our backs and we had lots of expenses.  Now the insurance company is saying they will only give us $5000 for living expenses.
  • …..and much, much more.

References:

(1)  2000 CarswellOnt 904, [2000] 1.L.R. 1-3826, [2000] O.J. No. 866, 107 O.T.C. 396, 130 O.A.C. 373, 184 D.L.R. (4th) 687, 95 A.C.W.S. (3d) 556 at paras 27-32

(2)

(3) 2015 CarswellOnt 11021, 2015 ONSC 4400, [2015] I.L.R. I-5764, 256 A.C.W.S. (3d) 418, 52 C.C.L.I. (5th) 263.

(4) 3 D.L.R. (2d) 745 (N.B. C.A.)

(5)  1998 Carswell/Ont 431, [1998] O.J. No;. 354, [1999] I.L.R. I-3639 at paragraphs 92 and 93

(6) supra, at paragraphs 82-87