Case Citation: Lalani Properties International Inc v Intact Insurance Company
Lalani Properties International Inc v Intact Insurance Company, 2024 ONCA 583 highlights critical issues in insurance coverage policy and amendments, emphasizing the importance of clear communication and documented consent.
Background
The Empress Hotel, historic building in Toronto, stood for over a century until its demise. In April 2010, part of its northern wall collapsed, forcing commercial tenants to vacate. The building, owned by Lalani Properties International Inc. and insured by Intact, faced further misfortune when it was destroyed by an arsonist in January 2011.
At the time of the wall collapse, the building was covered under an "all perils" insurance policy, which excluded coverage for vacant properties beyond 30 days. Despite knowing the building's vacancy status, Intact renewed the insurance policy in June 2010. In November 2010, Intact attempted to amend the policy by including a Vacancy Permit and eliminating coverage for arson. Following the arson, Intact denied coverage for both the wall collapse and the fire, and cancelled the policy, leading Lalani Properties to sue Intact.
Trial
The trial judge's decision was split, ruling in favour of Intact regarding the wall collapse but in favour of the owner concerning the fire damage.
Rejecting Lalani's theory that vibrations from nearby construction projects were responsible for the wall collapse, the judge instead accepted Intact's expert evidence. This evidence pointed to a more gradual process: water seepage leading to freeze-thaw cycles that, over time, weakened the wall structure. This conclusion led the judge to determine the collapse was not a fortuitous event covered by the "all perils" policy. However, the judge went a step further, stating that even if the collapse were considered fortuitous, it would still fall under an excluded peril, specifically damage caused by freeze-thaw cycles.
The judge's ruling on the fire damage hinged on several key points related to policy modifications and exclusions. First, the judge found Intact's attempt to modify the policy in Autumn 2010 to exclude arson invalid, as it lacked Lalani's written agreement, a requirement under Ontario's Insurance Act. Consequently, the judge ruled that the June 2010 renewed policy, which did not exclude arson, was the policy in effect at the time of the fire.
Second, the judge determined that Intact was estopped by representation from relying on the vacancy exclusion clause in the renewed policy. This decision was based on two crucial factors: (1) Intact's knowledge that the building was vacant when issuing the renewal, and (2) its awareness that the building would remain vacant for the foreseeable future. The judge also rejected Intact's arguments that the November 2010 amendments, including the Vacancy Permit Endorsement, were valid, and that the vacancy exclusion in the June 2010 policy applied.
As a result, the trial judge awarded Lalani nearly $6 million in damages for the fire loss but nothing for the wall collapse.
Appeal
The appellate court's decision was comprehensive, dismissing both main appeals and all cross-appeals, thereby upholding the trial judge's original decision in its entirety. This ruling addressed two primary issues: Lalani's appeal regarding the wall collapse and Intact's appeal concerning fire damages.
In the case of Lalani's appeal on the wall collapse, the company argued the trial judge had erred in concluding the incident was not a fortuitous event covered by the insurance policy. Lalani contended the trial judge had failed to adequately consider evidence suggesting renovations carried out in the 1970s had contributed to the collapse. However, the Court found no merit in this argument, upholding the trial judge's decision. The Court determined that there was no substantial support in the evidence to suggest these decades-old renovations were a proximate cause of the collapse.
Regarding Intact's appeal on fire damages, they put forth several arguments. First, Intact argued the trial judge had erred in invalidating the November 2010 amendments to the policy, which had been deemed non-compliant with the Insurance Act, as they enhanced Lalani's insurance coverage because it provided coverage even while the building was vacant. The appellate court, however, found these amendments indeed prejudiced Lalani and required written consent, which had not been properly obtained.
Second, Intact contested the trial judge's use of estoppel by representation to prevent reliance on the vacancy exclusion. While the appellate court noted that promissory estoppel was the more appropriate doctrine to apply in this case, they concluded it still effectively barred Intact from enforcing the vacancy exclusion. This was because Intact had promised not to do so when issuing the June 2010 renewal policy. Consequently, the appeal court upheld the substantial award of nearly $6 million in damages to Lalani for the fire loss, affirming the trial judge's decision in full.
Take-Away
A key takeaway for the insurance industry from this case is the importance of ensuring clear and documented consent when proposing amendments to insurance policies. Any amendments to an insurance policy that prejudice the insured must comply with statutory requirements, including obtaining written consent from the insured.
Additionally, insurers must be cautious about relying on policy exclusions if they have previously indicated that such exclusions could not be enforced. This emphasizes the need for thorough communication and documentation to avoid estoppel claims and to ensure policy amendments are legally enforceable.
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