At our weekly meeting, Taya Rosenberg discussed the recent judicial review decision of the Divisional Court in Intact Insurance Company v. Laporte et al., 2023 ONSC 1828.
In November 2018, the Respondent Mr. Laporte’s commercial property was significantly damaged by fire. The Applicant, Intact Insurance Company, had issued an insurance policy which provided payment for either the (1) replacement cost of the property or (2) the Actual Cash Value (“ACV”) of the damaged property. In determining the ACV of the damaged property, the Policy stated that various factors were to be considered, including the “replacement cost less any depreciation and market value.”
The parties agreed that the replacement cost amount was $2.5 million and that the market value of the property was $265,000 but disagreed as to the calculation of the ACV. The Applicant argued that the ACV was the market value, whereas the Respondent calculated the ACV as $2.5 million less depreciation.
The Policy included a condition which provided for an appraisal process. Where such a condition exists within a contract, section 128 of the Insurance Act, which governs appraisals,automatically applies.
Sections 128(2) and (3) state that:
(2) The insured and the insurer shall each appoint an appraiser, and the two appraisers so appointed shall appoint an umpire.
(3) The appraisers shall determine the matters in disagreement and, if they fail to agree, they shall submit their differences to the umpire, and the finding in writing of any two determines the matters.
The parties decided to trigger the appraisal process. The appraisers maintained the parties’ initial ACV valuations of the market value and replacement cost less depreciation. The appraisers were unable to agree and rejected the Umpire’s suggestion of valuing the ACV at $886k. The Umpire requested final valuations from which he would choose one. The Applicant’s appraiser submitted an ACV valuation of $390k, but the Umpire ultimately concurred with the Respondent’s appraiser’s ACV assessment of approximately $1.1 million.
The Applicant sought judicial review of this assessment, submitting that the Respondent’s ACV valuation was unreasonable as it violated the principle of indemnity and was not consistent with the evidence on the record.
The Applicant noted that the ACV was almost four times the property’s market value, which resulted in a windfall to the Respondent. Regarding the second issue, the Applicant submitted that there was no evidence to support an ACV valuation of $1.1 million.
In response, the Respondent submitted that the Umpire was acting within their right to conclude that the indemnity principle required a higher ACV valuation and had been provided with sufficient evidence from the Respondent to support the decision reached.
Does the ACV violate the principle of indemnity?
In determining this question, the Court reviewed the general principles of insurance contract interpretation:
- effect should be given to clear and unambiguous language;
- ambiguous language should be interpreted using general rules of contract construction; and
- courts should avoid interpretations that would give rise to an unrealistic result or one that would not have been in the contemplation of the parties at the time that the Policy was entered.
The Court also relied upon the principles that:
- a main objective of property insurance is indemnity, and a policy providing for actual cash value coverage is a pure indemnity contract; and
- an interpretation which will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided.
Regarding “Actual Cash Value,” the Court noted that ACV has frequently been interpreted as “the actual value of the damaged property to the insured at the time of the loss” and that ACV is “not necessarily the replacement value nor the market value.”
In applying the above principles and definitions, the Court found that the principle of indemnity applied to the ACV option provided for in the Policy and therefore a windfall to the insured must be avoided.
The Respondent and their appraiser had asserted that the $1.1 million ACV did not amount to a windfall as the funds would be used to conduct repairs. However, the Court found that this argument conflated the two payment options provided by the Policy. The Respondent had rejected the replacement cost option and could therefore not use repair costs to justify a higher ACV.
The Court found that unless the Respondent could establish that the property had a particular value to the Respondent to the amount of $ 1.1 million, the appraisal violated the indemnity principle.
Was the evidence on the record the support a finding that the higher ACV was justified?
The Court held that “it is for the insured to establish that the Property had a particular pecuniary value to him, provided this value is quantifiable and capable of being proven.”
The Respondent appraiser had made several statements about how the property’s value was “beyond that which can be captured in a market value appraisal.” However, in reviewing the written record of the Respondent’s appraiser, the Court found that no quantifiable evidence had been presented and therefore the $1.1 million ACV was unjustified.
A “reasonable decision” made by a decision maker must be justified in light of the evidentiary record. Due to the lack of supporting evidence, the Court found that the decision to assess the ACV at $1.1 million was unreasonable. The Court granted the applicant and quashed the assessment.
 Insurance Act, R.S.O. 1990, c. I.8, section 4(1), Section 128(1).
 Insurance Act, section 128(2) and (3).
 Laporte, para 73.