THE INSURANCE CONTRACT - Interpretation - Reasonable expectation doctrine

Law360 Canada (August 29, 2022, 9:11 AM EDT) -- Appeal by the plaintiffs Builders Capital (2014) Ltd. and 1053011 Alberta Ltd. from a trial decision dismissing their claim against the respondent/defendant Aviva Insurance Co. of Canada. The appellants were mortgage lenders. On May 30, 2014, the mortgagors obtained a loan from the appellants for the construction of a home on a residential property (the property). On March 8, 2016, an Aviva Ovation Homeowner’s Policy was issued. The Aviva Policy made no mention of the appellants. Instead, the Certificate of Property Insurance identified the first mortgagee as the Royal Bank of Canada. That was the information provided to the respondent before the Aviva Policy was issued. That information was incorrect. In May 2016, the property was damaged by fire. The respondent explained that because several misrepresentations of material fact had been made in the application for insurance, the respondent was treating the Aviva Policy as void ab initio and of no force and effect. Among other misrepresentations, the respondent noted that the insureds had misrepresented the identity of their mortgage company. While that left the individual insureds with no right to indemnity, the appellants sought to recover their losses under the terms of a standard mortgage clause which preserved coverage for “the mortgagee” notwithstanding any act, neglect, omission, or misrepresentation attributable to the mortgagor, owner, or occupant of the property insured. The respondent denied the appellants’ claim on the basis that they were not mortgagees covered by the clause. Rather, the Royal Bank of Canada was the mortgagee the respondent was asked to insure. The trial judge agreed and found that there was no insurance contract between the respondent and appellants. The appellants took the position that the trial judge erred in interpreting too narrowly the words “the mortgagee” in the standard mortgage clause that formed part of the policy. The appellants took the position that “the mortgagee” must include them as the actual mortgagees....
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