Supreme Court Clarifies Interplay Between Coverage Extending Endorsements and Policy Exclusions in Homeowners Policies

February 18, 2026

When disaster strikes, homeowners expect their insurance policies to provide a safety net. But what happens when rebuilding a house means facing not just the cost of construction, but also the price tag of complying with additional conservation regulations?

The Supreme Court of Canada’s recent decision in Emond v. Trillium Mutual Insurance Co.[1] clarified that policy exclusions for compliance costs mean what they say, even when a policy includes a guaranteed rebuilding cost endorsement.

The Emonds’ house was severely damaged by a flood and declared a total loss. Their property fell within a conservation authority’s jurisdiction, which imposed additional requirements for rebuilding in order to protect and manage the natural resources in the area. The Emonds’ insurer, Trillium Mutual, agreed to provide coverage for the loss, however an issue arose as to whether the policy covered the additional cost to comply with the conservation authority’s regulations.

The core of this issue was the interaction between two policy provisions:

The compliance costs exclusion, which excluded the extra costs associated with repair or replacement due to operation of any law regulating the zoning, demolition, repair or construction of buildings, with a limited exception providing up to $10,000 for such costs
The Guaranteed Rebuilding Cost (GRC) endorsement which allowed the insured to recover the full cost of rebuilding, even if it exceeded the policy’s stated coverage amount

The Emonds argued that the GRC endorsement should override the compliance cost exclusion, entitling them to full reimbursement for all rebuilding expenses, including those required by the conservation authority.

The Supreme Court disagreed with this argument. The Court held that the insurance contract, read as a whole, unambiguously applied the compliance cost exclusion to the increased costs of meeting the conservation authority’s requirements, even in the presence of the GRC endorsement. The GRC endorsement simply increased the amount payable for covered losses. It did not negate the policy’s exclusions.

The Court further clarified that the $10,000 exception for compliance costs was the only additional coverage available for such expenses. The doctrine of “nullification of coverage” did not apply, as the GRC endorsement’s main benefit (covering rebuilding costs above the policy limit) remained intact.

Emond v. Trillium Mutual Insurance Co. is a cautionary tale for both policyholders and insurers. For homeowners, it’s a reminder to scrutinize policy exclusions and understand the limits of coverage, especially when rebuilding in regulated areas. For insurers, it underscores the importance of clear, consistent policy drafting. In the end, when it comes to insurance, what’s written in black and white is what counts.

[1] 2026 SCC 3