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While property insurance coverage applies to a specific property, it may cover several insured parties. For example, depending on the policy, home insurance might cover multiple members of a single-family, several roommates, and/or tenants who rent a room or a basement unit. This is helpful in that the coverage will extend to each person noted in the policy; however, it also means that the actions of each insured can impact the ability of the other co-insureds to collect on a claim for damages.

Many home insurance policies contain exclusions or limitations for damage caused by the insured party. In cases where there are multiple insureds, each co-insured person may therefore negatively impact the others through their actions or failure to act. This could be a significant concern if, say, a teenager was to throw a house party while their parents are away, or an elderly parent was to leave a gas stove burning, resulting in extensive fire damage to the home. It could end up in coverage for the damage being denied outright, with the homeowner left helpless, even though they were not responsible for the damage themselves.

To address situations of “innocent insureds” being denied coverage, the Insurance Act was amended in 2018 to enable innocent parties to collect on damages claims, in whole or in part, even if a co-insured was directly responsible. In a recent Ontario case, the Court was required to consider whether this new amendment could be applied to a claim which was filed prior to the change in the law.

Background of the “Innocent Insured” Amendment

The concept of the innocent insured attracted a lot of attention in Ontario in the wake of a CBC investigation into insurance issues tied to domestic violence, in 2017. The investigation found that there had been several instances where a spurned spouse or domestic partner had caused damage to a home, such as arson or smashing walls, leaving their spouse unprotected. In one woman’s case, her husband set fire to their bed when she asked him to leave the home, resulting in $160,000 in damages. Her insurer paid her $10,000 but otherwise informed her that they were not obliged to resolve the matter, since the woman’s husband, a co-insured on the property, had caused the damage deliberately.

Following this investigation, Ontario MPP Mike Colle introduced the Innocent Persons Insurance Recovery Act, 2017, aimed at ensuring innocent parties would not be denied coverage for actions committed deliberately by their co-insureds. The Bill proposed amending the Insurance Act by adding a clause which would limit the coverage exclusion for criminal or willful acts or omissions by an insured person to claims by the insured who caused the damage.

The new section of the Insurance Act, s. 129.1, came into force on April 30, 2018, as follows:

Recovery by innocent persons

129.1 (1) if a contract contains a term or condition excluding coverage for loss or damage to property caused by a criminal or intentional act or omission of an insured or any other person, the exclusion applies only to the claim of a person,

(a) whose act or omission caused the loss or damage;

(b) who abetted or colluded in the act or omission;

(c) who,

(i) consented to the act or omission, and

(ii) who knew or ought to have known that the act or omission would cause the loss or damage; or

(d) who is in a class prescribed by the regulations.

While the impetus behind the addition of the “innocent insured” clause was to prevent domestic violence victims from begin denied insurance coverage due to the actions of their spouse or partner, the final clause is broader in its application. It could also apply to acts committed by a homeowner’s child, other members of the household, or even renters if covered by the policy. This was the situation in a recent Ontario Court of Appeal case in which a homeowner attempted to invoke the new clause to obtain coverage for damages caused by renters.

Home Burnt to the Ground by Renters

In Lin v. Weng, the appellant homeowner, Jian Lin, had rented out a bedroom in his home to two renters who were named as co-defendants in this action. Lin had a home insurance policy with the RBC General Insurance Company, which was later assumed by Aviva. Less than a year after the co-defendants had moved in, they defaulted on their rent, prompting Lin to ask them to vacate the property.

On their last day in the home, the co-defendants used the basement to try to extract marijuana resin using a butane lighter, a stove, and propane gas. The attempt created an explosion and extensive fire, which destroyed the home. The co-defendants were charged criminally, and Lin was found to have had no knowledge of, or involvement in their actions.

Homeowner’s Insurance Claim is Denied

Lin filed a claim to cover the damage to his home, which was denied based on two coverage exclusions in his policy:

  1. The damage was the result of criminal or willful acts committed by one or more insured person on the policy; and
  2. The damage was caused, in whole or in part, due to the growing, cultivating, harvesting, processing, storage, or sale of marijuana.

The “Innocent Insured” Amendment is enacted One Month Later

Lin brought a claim against Aviva, and one month later, s. 129.1 came into force. Lin amended his Statement of Claim to address coverage under the “innocent insured” clause. His claim was dismissed on the basis that the clause could not be applied “retrospectively”, since it came into force after the damage had occurred and even after Lin had brought his claim against Aviva in court.

Lin appealed the decision.

The lower court had said the clause could not be applied “retrospectively”, given the presumption that new legislation only applies to future events unless otherwise stated. In looking at the applicability of s. 129.1 to Lin’s situation, the Court of Appeal first distinguished the terms “retrospectively” and “retroactively” as they apply to statutory interpretation and application.

The Distinction Between Retrospective and Retroactive Application of s. 129.1

Retrospective Application of New Law

Retrospective” application means that the law would “have effect for the future on a set of facts that occurred in the past”. In the case of an insurance claim, it would mean that the law could be applied to future claims under a policy that existed before the law came into force.

Retroactive Application of New Law

Retroactive” application means that the new law would apply to “an event that happened in the past and to which the old law applied before the new law was enacted”. Going back to the case at hand, this would be the appropriate term, because both the policy and the damage occurred before s. 129.1 was enacted.

Is an Insurance Claim an Ongoing Status or a Fixed Point in Time?

Lin argued that since the new clause came into force while his insurance claim remained outstanding, in that it had not been paid or definitively determined by a court, it should apply. However, the Court held that the term “claim” did not refer to an ongoing status but rather a fixed point in time:

“Entitlement” and “loss” are synonymous with “claim” in the context of s. 129.1…The relevant point in time for the application of s. 129.1 is the date when the insured became entitled to indemnity from the insurer or had a claim for loss – that is, the date of the loss. When considering the temporal application of s. 129.1, a “claim” is an event, rather than a status.

Lin also argued that the presumption against retroactive application does not apply to statutory amendments that confer a benefit, under the Supreme Court decision Brosseau v. Alberta Securities Commission. However, the Court distinguished this decision on the basis that the benefit conferred by the statute in Brosseau was to the public in general. In the case at hand, the benefit of the new legislation was to one party to a contract, and a detriment to the other (Aviva). The Court dismissed Lin’s appeal.

Contact the Litigation Lawyers at Milosevic Fiske LLP in Toronto for Exceptional Legal Representation in Insurance Related Matters 

The highly experienced Toronto insurance lawyers at Milosevic Fiske LLP represent clients with insurance-related legal issues, including denial of coverage.  We understand the importance of swift, resourceful action where insurance matters are involved. We can act quickly to protect our clients and help ensure that they receive maximum compensation for their injuries or harm suffered. To learn more about how we can help you call us at 416-916-1387 or contact us online.