Top court sides with insurer in GRC debate

Canada’s top court has ruled a Guaranteed Replacement Coverage (GRC) policy endorsement issued by Trillium Mutual does not cover the increased costs of complying with an Ottawa conservation authority’s by-law requirements.

In a 7-2 majority, the Supreme Court of Canada found that in this particular case, the policy’s GRC endorsement covered the costs of inflation, for example, but it did not override a “compliance costs exclusion” contained in Trillium’s base home insurance policy. 

That exclusion includes “increased costs of repair or replacement due to operation of any law regulating the zoning, demolition, repair or construction of buildings and their related services; except as provided under Additional Coverages.”

Under “Additional Coverages,” Trillium offered $10,000 for “the increased cost of demolition, construction, or repair to comply with any law regulating the zoning, demolition, repair or construction of any insured buildings.”

The homeowners thought GRC should cover beyond that $10,000 limit, arguing the limit defeated the purpose of the GRC endorsement. But the Supreme Court found otherwise.

“Reading the contract as a whole, it is unambiguous that the compliance cost exclusion applies despite the GRC endorsement,” the Supreme Court ruled in a decision released Jan. 30. “…[T]he exclusions in the policy continue to apply to the amended [GRC] provision as they did to the original [base policy] provision.

“This is further confirmed by language in the GRC endorsement, which states that in all other respects, the policy provisions and limits of liability [in the base policy] remain unchanged.”

End of the line

The decision represents the end of the line for an appeal launched by Ottawa-area home owners Stephen and Claudette Emond and their home insurer, Trillium Mutual.

In April 2019, the Emonds’ house, located on the Ottawa River, was destroyed by a flood. At the time of the flooding, the Emonds’ house was insured by Trillium.

Trillium acknowledged coverage for the loss under the insurance contract, but a dispute arose regarding rebuilding costs. In particular, the parties disagree on whether costs of compliance with the conservation authority’s requirements are excluded.

The Emonds’ house is located within the jurisdiction of the Mississippi Valley Conservation Authority. The conservation authority has the authority to regulate development activities in or adjacent to rivers such as the Ottawa River. In order to rebuild their home, the Emonds must carry out additional work to comply with the by-law requirements of the conservation authority.

The Emonds want to rebuild their house. They believe the policy’s exclusions for increased compliance costs for “any law” – including the conservation authority’s bylaws, the Supreme Court confirmed – does not apply to the GRC endorsement they purchased on their policy.

CAIB New Edition 1.0 – a New Standard for Broker Education Image

Insights Paid Content

CAIB New Edition 1.0 – a New Standard for Broker Education

Preparing brokers to navigate an increasingly complex insurance landscape.

By 

Sponsor Image

A lower court agreed with the Emonds. But the Ontario Court for Appeal reversed that ruling and instead found in favour with the insurer, saying the exclusions in Trillium’s base policy applied to the GRC endorsement as well.

Of note is the fact that two Supreme Court judges dissented in the ruling.

Supreme Court of Canada Justice Andromache Karakatsanis thought the insurer should have been “ordered to pay the costs of complying with any laws existing at the time the insurance contract was last renewed, but not increased costs for laws that came into force after that date.”

The other, Supreme Court of Canada Justice Suzanne Côté, disagreed “with the majority’s finding that the compliance cost exclusion applies to limit the GRC endorsement.” She found the GRC endorsement was ambiguously worded, meaning the ambiguity should have been resolved in favour of the insured.

David Gambrill

David has twice served as Canadian Underwriter’s senior editor, both from 2005 to 2012, and again from 2017 to the present.