Introduction
Legal arguments over the meaning of a single term may seem like little more than semantic squabbles to those unfamiliar with insurance law. However, small interpretative disputes are often at the center of high-value insurance claims. The analysis of these disputes frequently determines whether the case ends in a big payout, or with a justifiably denied claim. In Trillium Mutual Insurance Company v. Emond, 1 the Ontario Court of Appeal considered whether bylaws and regulations were encompassed within the term “law,” as it was used in a homeowner’s insurance policy.
Underlying facts
The Emonds lived in a home near the Ottawa River, in the catchment of the Mississippi Valley Conservation Authority (the “MVCA”). Their property was subject to the MVCA Regulation Policies that regulate development adjacent to rivers, lakes, shorelines, hazardous lands, and wetlands. A flood severely damaged the Emonds’ home, which was deemed a total loss. 2
The policy
The Emonds wanted to make a claim for the loss of their house under their homeowner’s policy, which they had purchased from Trillium Mutual Insurance Company (“Trillium”).
The policy contained a “Guaranteed Rebuilding Cost Coverage” endorsement, which stated that Trillium would pay their policyholder to replace a dwelling that had been destroyed using materials of similar quality and current building techniques.
The policy also contained an exclusion that stated that Trillium would not cover any “increased costs of repair or replacement due to the operation of any law regulating the zoning, demolition, repair, or construction of buildings.” This means that if the construction of a replacement home incurred additional costs to comply with any “law” related to zoning, demolition or construction, Trillium would not pay for these additional costs.
Despite this, the policy contained a “Building By-Law and Code Compliance Coverage” endorsement that functioned as an exception to the exclusion clause. This stated that notwithstanding the exclusion, Trillium would cover up to $10,000 in additional costs to comply with “any ‘law’ related to zoning, demolition or construction.” In other words, there was a $10,000 cap on coverage pertaining to compliance expenses.
When the Emonds were constructing their replacement house, they had to adhere to the MVCA Regulation Policies, which incurred additional costs. Trillium agreed that it had to cover the cost of the replacement home as per the “Guaranteed Rebuilding Cost Coverage” endorsement. It also agreed to pay $10,000 for compliance costs pursuant to the exception.
However, there was a dispute as to whether it had to pay for any additional expenses incurred to ensure compliance with the MVCA Regulation Policies beyond the $10,000 that Trillium already agreed to pay.
The application
The parties went before an application judge to determine whether Trillium had to pay for additional compliance costs beyond the $10,000. The Emonds argued that Trillium had to cover these expenses because coverage was only excluded if the additional costs were related to compliance with any “law,” and the MVCA Regulation Policies were not “laws,” but were instead regulations or policies.
Trillium argued that rules, regulations, by-laws, and ordinances all fell within the meaning of the term “law,” as used in the exclusion clause. Accordingly, Trillium believed the exclusion clause operated to deny coverage for the additional compliance costs beyond the agreed upon $10,000.
The application judge agreed with the Emonds, and held that the term “law” was restricted to statutes and did not include rules, regulations, by-laws, or ordinances. 3 She therefore concluded that the Emonds could recover both for the replacement of their house and for any additional costs incurred to ensure compliance with the MVCA Regulation Policies beyond the $10,000 granted by the exception. 4
Trillium’s appeal
At the Ontario Court of Appeal, Trillium argued that the application judge erred in holding that it had to pay for compliance costs beyond the $10,000. It argued that without this cap, they would have to pay an unlimited amount of compliance costs, which was commercially unreasonable, and which disregarded the exclusion clause. 5
The Court agreed with Trillium and held that the application judge was wrong to construe the term “law” to exclude regulations, ordinances, and by-laws. The Court cited both dictionary definitions and caselaw to conclude that “the plain meaning of the word ‘law’ therefore includes both legislation and rules of subordinate authority such as by-laws and regulations.” 6
Furthermore the Court stated the exclusion in Trillium’s policy referred not just to “law” but to “any law,” which would also suggest that Trillium intended regulations, ordinances, and by-laws to be included. 7
The Court also pointed out the glaring fact that “if the exclusion did not apply to cost increases relating to by-laws, regulations, or ordinances, the exception could not purport to provide ‘additional coverage’” in the amount of $10,000. 8
As a result, the Court held that the exclusion operated to deny coverage for additional costs to ensure compliance with the MVCA Regulation Policies beyond the $10,000 listed in the exception. 9
Takeaways
The clearest lesson from this case is that generally, when insurance policies refer to a “law,” the term will be interpreted to include bylaws, regulations, and ordinances in addition to statutes. Thus, any arguments that suggest that it is not all encompassing will likely be unsuccessful, at least in the realm of policy interpretation.
This case also highlights the consequences that attach to the interpretation of a single word. As Trillium pointed out, if the term “law” did not include by-laws, regulations, or ordinances, there would have been no limit to the amount of money it would have had to pay to the Emonds so they could ensure compliance with the MVCA Regulation Policies. 10
Michael A. Valdez, Stieber Berlach LLP.
End Notes
10 Ibid at para 32. Also see para 31 of the application decision: Emond v. Trillium Mutual Insurance Company, 2022 ONSC 5519