The Court of Appeal dismissed the appeal of the insurer who was ordered to pay the replacement cost of a house damaged by fire. This was despite the insured’s failure to comply with the requirement of the policy to repair or replace damaged buildings within 180 days because the replacement cost was found not to have been settled between the parties within the time allotted.

Hua v. Optimum West Insurance Co., [2005] B.C.J. No. 412, British Columbia Court of Appeal

This was an appeal from a judgment awarding the insured the replacement cost of a house damaged by fire on December 9, 2000. At trial, the insurer argued that the insured was not entitled to the replacement cost since the insured had failed to comply with the requirement of his insurance policy that repair or replacement of damaged buildings be completed within 180 days of the date of loss. The trial judge rejected this argument and granted relief from forfeiture pursuant to s. 10 of the Insurance Act, R.S.B.C. 1996, c. 226 (the “Act”).

The first issue on appeal was whether the trial judge erred in accepting the evidence of the insurer’s adjuster that the replacement cost was not agreed upon until July 25, 2001 (which was more than 180 days after the damage had occurred). The insurer argued that the trial judge erred when she stated that it was reasonable for the insured to have delayed commencing repairs or replacement until he had the insurer’s agreement on the amount of the replacement cost and erred in finding that the insurer, by its conduct, endorsed the insured’s failure to comply with the replacement cost endorsement. The Court of Appeal held that the trial judge’s finding was not one with which the Court of Appeal could properly interfere because it was not unreasonable for the trial judge to have concluded that the May 1, 2001 value had not been the final settlement value agreed upon because the insured’s adjuster was willing to negotiate a higher value at a later date.

The second issue was whether the trial judge erred in finding that the respondent’s decision not to repair or replace the damaged property within 180 days came within the provisions of s. 10 of the Act. Section 10 of the Act allows courts to grant relief from forfeiture where the court deems it inequitable that the insurance should be forfeited or avoided as a result of imperfect compliance with a statutory condition as a matter or thing required to be done or omitted by the insured with respect to the loss. Whether the insured’s failure to make repairs or replacements before the expiry of the 180-day period constituted non-compliance, rather than imperfect compliance under s. 10 of the Act was critical to the insurer’s appeal.

The Court of Appeal cited authority which held that the case law has treated an insured’s failure to give notice of a claim in a timely fashion as imperfect compliance whereas failure to institute an action within the prescribed time period has been viewed as non-compliance. The Court of Appeal held that the 180-day clause was not related to the crystallization of the claim. Rather, it was merely a step in the process of obtaining the insurance proceeds. Failure to comply with the term therefore did not invalidate the claim, it merely stipulated that an alternative form or quantification of the insurance proceeds would apply. The Court of Appeal was therefore of the view that the first two requirements that must be satisfied in order for relief from forfeiture to be granted, were met.

While the trial judge did not explicitly address whether it would be inequitable for the insurance to be terminated or forfeited, she did make a determination as to the inequity of a reduction of the insurance proceeds in her analysis of whether to exercise her discretion to grant relief under s. 10. As a result, the Court of Appeal held that the trial judge did not err in finding that this was a case of imperfect compliance and that the other conditions for granting relief under s. 10 section of the Act were met.

The third issue was whether the trial judge erred in granting the insured relief from forfeiture under the provisions of s. 10. The Court of Appeal upheld the trial judge’s finding that the actions of the insured in breaching the 180-day term were reasonable because he held off from starting the repairs and replacement of the property until he had the insurer’s agreement as to how much of that cost the insurer would cover. As the factual findings underlying the trial judge’s decision could not be overturned, the Court of Appeal saw no basis for disturbing the trial judge’s determination to grant relief from forfeiture under the provisions of s.10 of the Act.

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