A home that is being renovated is not necessarily “under construction”. That was the ruling handed down by Ontario Court of Appeal in Tataryn v. Axa Insurance Canada, 2021 ONCA 413, which upheld a motion judge’s fact-based interpretation of a home insurance policy that purported to exclude loss or damage occurring while a building is under construction, vacant or unoccupied. Homeowners and insurers alike are reminded that exclusion clauses in insurance policies are to be construed narrowly and the insurer bears the burden of proving the exclusion clause applies to limit coverage. In this case, the insurer failed to do so.
The property in question, located in Ottawa, served as the home and place of business for the plaintiff/respondent, Susan Tataryn. It was insured under a homeowner’s comprehensive policy as well as a business interruption endorsement. The defendant/appellant, Axa (now Intact), provided the homeowner policy of insurance.
Ms. Tataryn commenced renovations to the second and third floor of her property while she lived on the first floor. Following the commencement of these renovations, two incidents of water damage occurred for which Ms. Tataryn sought coverage under her home insurance policy.
While Axa made some payments for the first loss, it denied coverage for the loss arising out of the second incident of water damage relying of the following exclusion clause in the home insurance policy:
We do not insure loss or damages… caused by water unless loss or damage resulted from… the sudden and accidental escape of water or steam from within a plumbing, heating, sprinkler or air conditioning system or domestic water container, which is located inside your dwelling … but we do not insure loss or damage occurring while the building is under construction, vacant, or unoccupied, even if we have given permission. [Emphasis added.]
Ms. Tataryn commenced an action against Axa, her broker and the adjuster for damages arising out of the two occurrences of water damage. Mr. Tataryn and her broker both brought motions for a declaration that the “under construction” exclusion clause did not apply in these circumstances.
Decision of the Motion Judge
Roger J. of the Ontario Superior Court of Justice found that the home was not “under construction” and that the exclusion clause relied upon by Axa was not applicable. In doing so, he reaffirmed several important points of law as follows:
- The onus is on the insurer to prove the application of any exclusion clause.
- Coverage provisions are to be interpreted broadly, whereas exclusion clauses are to be interpreted narrowly.
- Courts should give effect to the clear language of the policy, reading it as a whole.
- If the policy is ambiguous, courts should rely on general rules of contract construction, including that it should prefer interpretations that are consistent with the reasonable expectations of the parties.
Pointing to a decision of the British Columbia Court of Appeal, Roger J. found that the exclusion clause that Axa relied upon was unambiguous:
The exclusion clause that AXA relies upon is unambiguous: “we do not insure loss or damage: … occurring while the building is under construction, … even if we have given permission”. The policy does not provide a definition of “construction”. However, the term “construction” is defined in Black’s Law Dictionary as the creation of something new, as opposed to the repair or improvement of something already existing (see Wilson v. INA Insurance Co. of Canada (1993), 1993 CanLII 1187 (BC CA), 80 B.C.L.R. (2d) 361 (C.A.), at paras. 10 – 17).
He also opined that the interpretation argued by Axa ran contrary to the reasonable expectations of the parties and that the facts of this case did not support the conclusion that the house was “under construction”. Consequently, the exclusion clause in question was found to not apply in such circumstances and therefore was not available as a defence by Axa.
Ontario Court of Appeal’s Decision
Axa appealed to the Ontario Court of Appeal. It argued that Roger J. erred in his interpretation of the policy’s terms because he failed to construe them in the entire context of the policy and the limited risk covered under a homeowner’s policy of insurance as opposed to the risks covered in a builders’ risk or other construction-oriented insurance policy. Axa also urged the Court to provide guidance on the meaning of “under construction”.
The appeal was dismissed.
The Court found that Roger J. properly instructed himself on the applicable rules of contractual interpretation and correctly concluded that the finding as to whether a property is “under construction” is a question of fact and that in this case, “the extent of the renovations [is] not sufficient to support a finding that the house was ‘under construction’”.
The Court declined Axa’s invitation to furnish a definition of “under construction” that Axa could have included in its standard form contract. It said it was not possible nor desirable for it to give a definition that would apply to all cases: “It is not this court’s function to rewrite the parties’ agreement, especially those terms that the motion judge found, and the parties agree, are unambiguous.”
This case reaffirms that exclusion clauses in insurance policies are to be construed narrowly and the insurer bears the burden of proving the exclusion clause applies to limit coverage. However, it is important to note that in this case the policy in question did not provide a definition of what was meant by a building “under construction”. Had that phrase been defined in the policy, the analysis and outcome of the case might have been much different.