An insurer generally cannot rectify or change an insurance contract to the detriment of their insured.
The insured owned an abattoir and meat processing plant which was destroyed by fire. It was insured for full replacement value. The plant could not be rebuilt due to a change in city zoning. The insurer sought to change the wording of the contract to provide the insured with the actual value of the plant as opposed to the replacement cost. The court found that section 513(1) of the Insurance Act prohibited the insured from rectifying the insurance contract to the detriment of their insured.
Bouvry Exports Calgary Ltd. v. ING Insurance Company of Canada, 2008 ABQB 61, Alberta Court of Queen’s Bench, M.E. Erb J., January 24, 2008
The insured operated an abattoir and meat processing plant which was completely lost in a fire. The insured filed a proof of loss with its insurer claiming replacement value. The insurer argued that the insured was not entitled to replacement value; rather it was only entitled to net-asset value or actual-cash value, an amount which the insured paid. The difference was substantial.
The insurer asked the court to grant it leave to file an Amended Statement of Defence allowing it to advance the plea of “rectification of contract” on the basis that at all material times the parties understood entitlement to indemnification was on a replacement-cost basis but required the insureds to first replace the lost property. The insured had not rebuilt the processing plant because the City would not permit it to do so since a residential area had closed in around the site and from the City’s perspective the area was no longer suitable for a meat processing plant and abattoir. The insured submitted that the application to amend should be denied because the argument of rectification was hopeless in the face of s. 513 of the Insurance Act, R.S.A. 2000, c. I-3 which provides:
“513(1) All the terms and conditions of a contract of insurance must be set out in full in the policy whereby securely attached to it when issued, and unless so set out no term of the contract or condition, stipulation, warranty or proviso modifying or impairing its effect is valid or admissible in evidence to the prejudice of the insured or any beneficiary.”
The insurer argued that s. 513(1) does not displace the doctrine of rectification.
The court found that the policy was clear and unambiguous. It found that the insurer was not relying on some uncertainty arising out of the interpretation of the policy itself. Instead, the insurer contended that a very significant condition, that the insured was required to actually rebuild in order to be entitled to replacement cost, was simply left out. The court found that to allow the insurer to rectify the insurance policy in a manner that would add a condition imposing this limitation on the insured would be to fall wholly afoul of s. 513(1) of the Act.
This case was originally summarized by Cameron B. Elder and edited by David W. Pilley.
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