In Windsor v Portage La Prairie Mutual Insurance Company (2017 ABPC 316), the plaintiff claimed indemnification under a residential insurance policy issued by the defendant when unknown persons broke into her garage and stole items, including prop guns.
Mr Wendland, who was not named in the action, signed a promissory note on 19 June 2014, pursuant to which he agreed to pay the plaintiff C$25,000 and interest at an unspecified rate to secure a repayment of funds, which were later loaned to Wendland in an amount totalling C$24,175.81. Wendland had given the prop guns to the plaintiff as a security for the loan. The plaintiff and Wendland were not related and although the plaintiff had alleged that Wendland was her roommate, there were inconsistencies in the evidence before the court. The plaintiff did not register any security interest at the Personal Property Registry relating to the prop guns. Before 30 June 2016 Wendland had made an unspecified number of irregular payments to the plaintiff totalling between C$2,500 and C$3,000 and the plaintiff had taken no steps to:
- attempt or force the regular payment as required under the promissory note; or
- enforce the terms of the promissory note.
After the prop guns were stolen during the break-in, Wendland had stopped making payments.
Among other things, the plaintiff claimed that the replacement value of the stolen prop guns was C$32,765.22. The defendant insurance company denied liability.
Insurable interest of property owned by third party to insurance policy
The court found that the plaintiff had an insurable interest in the prop guns since they were described in the promissory note and the plaintiff benefited from the continued existence of the prop guns. The plaintiff would suffer from the destruction of the prop guns as they had operated as a security for the loan described in the promissory note. The loss of the prop guns also meant the loss of the option of taking those items in default of payment or the debt described in the promissory note.
One of the main issues to be determined was whether the plaintiff's interest in the prop guns was actually insured under the subject policy. The court interpreted the exclusionary clause strictly.
The defendant argued that the prop guns fell within the scope of property, which had not been insured under the policy as "any property illegally acquired, kept, imported, stored or transported". First, the defendant argued that the prop guns were 'replica firearms' governed by the licensing scheme under the Firearms Act.(1) Under that scheme, the plaintiff and Wendland had failed to get the authorisation to possess, transfer and transport the prop guns and therefore they had contravened the Criminal Code. The court found that the only evidence to suggest that the prop guns resemble handguns and rifles came from Wendland. The prop guns were made of plastic and an orange or red plug had been affixed to the barrel of each gun to clearly distinguish them from real firearms. In that respect, they were similar to toy firearms which are available to purchase in Canada without any permit or authorisation and the court found that the prop guns were not 'firearms' or 'replica firearms' as defined by the Criminal Code.(2)
Alternatively, the defendant insurance company argued that the damages were limited to C$2,000 pursuant to the special limits provision of the policy which insured:
books, tools and instruments pertaining to a business, profession or occupation for an amount of $2,000 in all, only while on your premises. This applies to all items whether used in whole or in part for business, professional or occupational purposes.
The court found that the prop guns were not items that fall within the description "books, tools and instruments pertaining to a business, profession or occupation". As such, the plaintiff's recovery was not limited to C$2,000.
Third, the defendant relied on the exclusionary clause which insured only "the contents of your dwelling or unit and other personal property you own wear or use, while on your premises, which is usual to the ownership or maintenance of a dwelling". The court found that the prop guns could not be characterised as usually, habitually or commonly related to the use of the plaintiff's residence as a residential building.
As a final prong of its defence, the defendant relied on the exclusionary clause which stated that it did not insure the property of roomers or boarders who are unrelated to the insured. Although the policy did not define 'roomer' or 'boarder', the court applied the plain, ordinary and popular meaning of the words and found that the plaintiff had not provided Wendland with any meals, therefore he was not a boarder. Since Wendland did not pay regular rent as agreed, and since he had lived there sporadically for extended periods from June 2014 to 30 June 2016, the defendant was entitled to rely on the clause to deny the plaintiff coverage for loss of the prop guns.
Although the court found that the plaintiff had an insurable interest in the prop guns, it found that the plaintiff was not entitled to be indemnified for loss of the prop guns because the property belonged to Wendland who had not been a roomer or a boarder. The court dismissed the claim for damages for the value of the stolen prop guns.
Insurers should define all of the relevant terms in their policies – even where they are commonly used. In this instance, the lack of definition for 'roomer' and 'boarder' had not been fatal to the exclusion. In other instances, the court had to avoid defeating the purpose of a coverage by, among other things:
- giving the words their plain, ordinary and popular meaning;
- finding a conclusion that makes commercial sense (Weston Ornamental Iron Works Ltd v Continental Insurance Co (1981 CarswellOnt 1324)); and
- resorting to extrinsic evidence, including evidence as to the history of the policy's wording (Zurich Insurance Co v 686234 Ontario Ltd (2002 CarswellOnt 4019)).
The onus is always on the insurer to make the policy clear to avoid going down the aforementioned paths, which may provide unwanted results.
Endnotes
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
