The Manitoba Court of Queen’s Bench considered whether, based on the terms of a standard mortgage insurance clause, the Plaintiff Mortgagee was entitled to indemnification from the Insurer. The loss was clearly excluded under the policy. However, the court held that because the insurer failed to notify the Plaintiff Mortgagee of an alteration to the policy, as required by statute and the standard mortgage insurance clause, the Insurer was obligated to indemnify the Plaintiff Mortgagee for the loss sustained.

Assiniboine Credit Union Ltd. v. Aviva Insurance Co. of Canada, [2005] M.J. No. 61, Manitoba Court of Queen’s Bench

The loss, which occurred sometime during the winter of 2001 to 2002, was caused by water freezing in the plumbing system of the property. The Mortgagor of the property purchased a policy of insurance which was subject to a standard mortgage insurance clause in favour of the Plaintiff Mortgagee.

In January 2001, the Insurer, at the request of the Mortgagor, added a vacancy permit to the policy without notifying the Plaintiff Mortgagee. The Plaintiff Mortgagee took possession of the property after the mortgagor failed to keep up with its mortgage payments. The Plaintiff Mortgagee also then discovered that during the winter of 2001 to 2002, the electricity to the property had been disconnected for non-payment, resulting in no heat in the property during that period.

The policy clearly excluded coverage for loss or damage caused by (a) continuous or repeated seepage or leakage of water, (b) loss or damage occurring while the building was under construction or vacant even if the Insurer had given permission for construction or vacancy, and (c) loss or damage caused by freezing of any part of a plumbing system unless within a portion of the dwelling heated during the usual heating season.

The court found that the policy clearly excluded coverage for the subject loss. However, the court found that the Insurer, in issuing the vacancy permit, had “altered” the policy to the prejudice of the Plaintiff Mortgagee within the meaning of section 141(1) of the New Brunswick Insurance Act. Had the Plaintiff Mortgagee been aware of the alteration, it could have taken steps to protect its investment by arranging to make the property ready for the winter. On that basis, the Court held that the Insurer was obligated to indemnify the Plaintiff Mortgagee for the loss sustained.

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