Whether for one’s own residential use or as a source of rental income or investment, owning a house certainly has its advantages. But there is no such thing as a trouble-free home. Work needs to be done on the home at one time or another. It pays to be handy in case of minor plumbing or electrical issues, but unforeseen perils abound for which even the handiest of homeowners do not have all the answers, at least not without substantial cost to be incurred, if and when they do occur. For these contingencies, taking out insurance may be the only sensible thing to do.
The homeowner’s insurance policy, like most (if not all) insurance policies, are prepared unilaterally by the insurance company. The homeowner, who has no say in crafting the terms, is given two choices: take it or leave it. The insurance policy is best described as a contract of adhesion, that is, a contract that the insured merely adheres to if he or she desires to have the benefits of the policy, foremost of which is protection from insured risks.
The law attempts to level the playing field by adopting a rule of interpretation that resolves any ambiguity in the policy against the insurer and in favour of the insured. It goes without saying that if there is no ambiguity, the terms of the insurance policy prevail. In this sense, the insurance policy is really no different from any other contract: its terms bind the parties to it. Homeowners need only to look within the four corners of the policy to find out what risks are covered and whether they are entitled to the insurance proceeds in case a covered risk takes place.
Homeowners would do well to pay particular attention to exclusionary clauses in the insurance policy. If any exclusion provided for in the policy applies, the insurer would likely claim to be under no obligation to pay the proceeds despite the happening of the insured peril.
The case of Maracle Estate v. Bay of Quinte Mutual Insurance Co., 2010 ONSC 5217, provides a good illustration. The exclusion in that case relates to vacancy of the insured premises. The insurance company involved did not insure any loss or damage occurring if the premises were vacant for a specified period.
The insured homeowner in that case, Lillian, lived with her husband in the insured premises. At the frail age of 83, Lillian was compelled to leave the comforts of home and move into a nursing facility where her medical needs could be attended to more closely and around the clock. Though occasional visits were made by the couple, the home was left vacant for the most part. It was likely that Lillian and her husband always had the desire of returning home when her condition improves. With her health failing, it was not meant to be.
While the couple was away, the unexpected happened. Broken water pipes caused the basement to be flooded, causing substantial damage to the house. A claim on the homeowner’s policy was made as a result of the water damage to the premises. Invoking the vacancy exclusion in the policy, the insurance company denied recovery.
When the matter reached the courts, the judge had no trouble finding that the damage resulted from an insured peril. The question was whether the vacancy exclusion in the policy was applicable to justify the insurance company in denying the claim. The judge ruled that it was.
According to the judge:
“The first step in the process involves a review of the contract as a whole. If the contract terms are clear and unambiguous the terms of contract are applied. Even though the contract is adhesionary in nature if its terms are straightforward that is the deal the parties made and they are bound by its terms. . .”
In holding that the premises were vacant at the time the insured risk occurred, the judge took note of the surrounding circumstances, particularly the actions and intentions of the insured. “The circumstances of this case are such that a finding of having moved out (ceased to live) without intent to return are irresistible”, the judge concluded.
The fact that furnishings remained and that power and other utilities continued to be available in the premises did not, in the circumstances of the case, evidence an intention to return on the part of the homeowner. The judge was convinced that once Lillian had left, the premises ceased to be her customary place of abode and were to be regarded as vacant within the meaning of the policy. The vacancy exclusion in the policy was held to be applicable and the claim against the insurance company dismissed.
While complicated insurance policies are not a thing of the past, more and more insurance companies adopt common parlance in their wording so that policies would be more understandable to the insured. The well-advised insured takes time to go over the policy to ascertain his or her entitlements as well as the exclusions that would bar recovery despite the happening of the insured risk.
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