The Ontario Court of Appeal heard an appeal brought by Intact Insurance to set aside a ruling on summary judgment that Intact must indemnify the respondent, Champion, for recoverable depreciation (replacement cost) for a commercial building destroyed by fire.
In February 2011 Champion’s commercial property was destroyed by fire. Under their policy of insurance, Champion was entitled to replace the destroyed building at the same or a different site and be indemnified for the replacement cost value provided that it effected replacement with “due diligence and dispatch” and with a building of “like kind and quality.” Nearly two years after the loss, Champion had not replaced the building and instead commenced litigation against intact seeking indemnity under its policy.
In May 2013, the parties entered into a Settlement Agreement wherein the actual cash value of the building and replacement cost of the building was agreed upon. The Settlement Agreement also dealt with the due diligence clause of the policy and Champion’s failure to replace by agreeing that Champion would have two years to proceed with replacement of the destroyed building, failing which it would be “Deemed to have forever waived and forfeited” any claim for recoverable depreciation.
Champion entered into an agreement to purchase a Scarborough property to replace their building in February 2015. Intact confirmed that this building met the “like kind and quality” requirement, but there were disputes over the value of recoverable depreciation and the scope of what could be claimed by Champion. To address those disputes the parties entered into another Settlement Agreement in May 2015 and confirmed that they had reached settlement of the outstanding issues regarding the building loss claim. Intact provided Champion with a payment of $3,000,000.00 as the amount agreed upon to indemnify Champion for the recoverable depreciation. This agreement was subject to various conditions, including that Champion close the February 2015 agreement to purchase the Scarborough property.
In November 2015 without advising Intact, Champion entered into an agreement to purchase a different property (the Pickering property) and terminated its agreement to purchase the Scarborough property. Champion then requested Intact’s permission to substitute the purchase of the Pickering property for the Scarborough property and use the $3 million for that purpose.
After completing its due diligence on this request Intact advised Champion that as a result of failing to close the purchase of the Scarborough property, it had forfeited its entitlement to recoverable depreciation under the policy and the Settlement Agreement. Intact demanded return of the money advanced to close the Scarborough property.
Champion moved for summary judgment on the basis that the Settlement Agreements did not obligate it to complete replacement within two years. Alternatively, that Intact had waived its right to require Champion to replace within two years. In the further alternative, that Champion should be given relief from forfeiture for any obligation to close the Scarborough property or otherwise replace within two years.
The motion’s judge held that the terms of the Settlement Agreement required Champion to replace within two years, but had extended that obligation in the second Settlement Agreement to allow replacement by completing the purchase of the Scarborough property. Failing that replacement Champion forfeited the right to recoverable depreciation.
The motion’s judge then held that Intact waived its right to require Champion to replace by not giving timely notice of forfeiture. Having decided the case on waiver, the motion’s judge did not deal with the alternative claim of Champion for relief from forfeiture.
Intact submitted to the Court of Appeal that the motion judge’s waiver findings were premised on an incorrect conclusion that it was required to provide Champion notice that it had forfeited its entitlement to recoverable depreciation under the policy of insurance and subsequent Settlement Agreements.
The Court of Appeal found that none of the Settlement Agreements or correspondence between the parties required notice of forfeiture. In effect, closing the Scarborough purchase was a condition precedent to receiving the recoverable depreciation.
The Court of Appeal found that, at best, Intact’s actions amounted to giving consideration to Champion’s request for relief from forfeiture. Seen through that lense there was no clear and unequivocal intention by Intact to waive Champion’s non-compliance with the Settlement Agreement.
Having found no waiver the Court of Appeal had to deal with Champion’s claim for relief from forfeiture. Champion had not effected any replacement, but argued they should not be required to do so. They argued they should be entitled to the $3 million recoverable depreciation to effect replacement if they chose. It was argued that because of rapidly changing real estate values Champion should not now be required to replace as a condition of the receiving the $3 million.
In dismissing Champion’s claim for relief from forfeiture the Court of Appeal found there was no contractual obligation on the insurer to provide recoverable depreciation prior to the conditions of the policy or settlement being met. In this case, Champion received the actual cash value of the destroyed building, but were required to replace the building with another of like kind and quality with due diligence and dispatch before recoverable depreciation would be payable. The Court found no requirement on Intact to fund anything beyond providing actual cash value prior to the conditions of the policy being met.
- An insurer is not contractually obliged to fund the cost of replacement until the conditions of the policy regarding replacement are met. Failure by the policyholder to replace may disqualify the policyholder from receiving recoverable depreciation under a replacement cost policy.
- Where compliance with contractual terms is a condition precedent to receiving a benefit on an insurance policy an insurer does not waive the policyholder’s compliance with the policy terms by failing to give a forfeiture notice. Waiver will only occur if there is an expressed unequivocal intention by the insurer to waive the policyholder’s non-compliance. Giving consideration to a policyholder’s request for relief from forfeiture does not meet the waiver test.