A recent Alberta decision provides a sobering reminder to landlords to comply with the vacancy provisions of their property insurance policies – or else risk losing their insurance coverage. It may also have been a missed opportunity by the insured to invoke a new provision in Alberta’s Insurance Act that allows the court to refrain from applying an “unjust or unreasonable” contractual provision.
In Taylor v. Co-operators General Insurance Co., 2017 ABQB 705, the plaintiff had purchased an income property in Westlock, Alberta with the intention of renting it out to tenants, and immediately after his purchase took out a policy of property insurance and proceeded to rent out the home to a married couple.
Several years later, the couple experienced marital problems and moved out one at a time, with the husband vacating the home by July 13, 2015. The landlord took the unexpected departure as an opportunity to renovate the home with a view to renting it to new tenants in September 2015. He then dropped off his camping trailer at the property, which he planned to stay in on occasion as he completed the renovations, and began the work.
On August 22, 2015, however, these plans went up in smoke when the home’s roof caught fire, causing severe property damage to the building. The owner received yet more bad news when his insurance company declined to pay for the fire damage, citing a provision in the policy that ceased coverage for events occurring after the property was “vacant” for more than 30 consecutive days.
The policy provided:
All remaining coverage will also cease if your dwelling is vacant for more than 30 consecutive days unless we give specific coverage.
The policy defined “vacant” in the same manner many property insurance policies in Canada’s common law provinces do:
...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.
The owner brought a proceeding against the insurer, arguing that the property had not actually been vacant, given that he was literally camped out on the property during the renovations. The court disagreed, however, and allowed the insurer’s application to dismiss the proceeding.
The application judge concluded that the policy’s definition of “vacant” was clear and unambiguous and rejected the argument that the landlord had taken up residence in the dwelling by virtue of having camped out on the lawn, used the washroom in the home periodically, stored tools in the home for the renovation, and connected the trailer to the home’s electrical supply. The insured had also argued that the trailer should be considered part of the dwelling given that it was connected to the home by an extension cord, meaning the dwelling was in fact occupied by virtue of the owner sleeping in the trailer. This submission too was rejected.
It does not appear that the insured argued that the vacancy provision in the policy was “unjust or unreasonable” and thus not binding on him by virtue of s. 545(1) of the Insurance Act. That provision took effect in 2012 as part of a suite of reforms intended to modernize the province’s property insurance laws and provides in relevant part:
Special stipulations
545(1) If a contract contains a …term... in respect of the use, condition, location or maintenance of the insured property, the … term … is not binding on the insured if it is held to be unjust or unreasonable by the Court before which a question relating to it is tried.
In the only reported decision that has considered this provision, a judge suggested that it allows the court to decline to enforce contractual or statutory terms that are unreasonable on their face or that are unjust in their application in the particular circumstances before the court (see Funk v. Wawanesa Mutual Insurance Co., 2017 ABQB 308).
Here, there was seemingly a strong argument that it would be unjust to allow the insurer to avoid payment under the policy on account of vacancy for several reasons, including:
- the very short duration of the vacancy (had the fire occurred ten days earlier it would have been covered);
- the fact that during the period of vacancy the landlord appears to have been periodically staying in a camper on the premises, renovating the property, and using its washroom; and
- the lack of any dishonest intent on the landlord’s part.
Given that section 545 has only been considered in a single reported decision to date (and in which the court’s holding was likely obiter), this case appears to have been a missed first opportunity to determine how the courts will treat this provision. Given the frequency with which disputes over property insurance exclusions are litigated, however, one doubts it will be the last.
About the author
Gord McGuire, Partner at Adair Barristers LLP