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My House Burned Down, Now I Can Buy Two

Featured Case Study: Groupone Insurance and Lloyd's - and - Wenhao (Melissa) Li and Darko Strukan

Howard Borlack
Howard Borlack,

June 2019

Howard Borlack

Acting for the Applicants, Howard Borlack, Partner at McCague Borlack LLP had a favourable decision from the Ontario Divisional Court when they recently quashed an award by an Umpire arising from an appraisal pursuant to a homeowners policy and the Insurance Act. The insured's house sustained a fire and was beyond repair. The insured and insurer could not agree on the Actual Cash Value which the insured was entitled to under its Policy. The appraisals on behalf of both the insured and the insurer were approximately the same based to a great extent on comparable houses in the area.

The insured had purchased the home 9 months before the fire and the Umpire's award was approximately double what the insured had paid for the house.  With the value of the land that was not part of the appraisal, it was pointed out that the insured could purchase a similar house in the same neighbourhood and have enough money remaining from the award to purchase a second house. The award issued by the Umpire only provided an amount with no reasons to explain the award.

Following the release of the appraisal, the insurer applied for judicial review asking the court to quash the award and order a new appraisal with a different Umpire. The insurer submitted that the appraisal was unreasonable, the Umpire exceeded his jurisdiction in the matters he considered and the award was a windfall and not indemnity.

In quashing the award the Divisional Court relied on Supreme Court of Canada decisions that stated that in judicial review "reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process.

a contract of insurance is meant to provide indemnity... not a windfall.

The Court agreed that pursuant to the policy in determining Actual Cash Value, market value must be taken into account. In this case, the award far exceeded the market value of both appraisals including the insured's own appraisal. The Court also stated that it was unable to determine if the Umpire violated the fundamental principle of insurance law where a contract of insurance is meant to provide indemnity. It is not meant to provide a windfall.

As there were no reasons attached to the award, the Court was unable to find the amount awarded to be reasonable and in accordance with the Policy.

Although the law requires that great deference must be given to arbitration decisions in general and even more so for appraisal awards, the Divisional Court was willing to quash an award which was unreasonable and did not provide indemnity for a fire loss but a windfall for the insured.

Read the full decision.


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