Insureds who Chose to Move After House Fire not Entitled to Replacement Cost on Buildings

In Willoughby v. Pilot Insurance Co., the insurer provided home insurance on the insureds’ home, which was destroyed by fire. The insurance policy included a Guaranteed Replacement Cost on Buildings (“GRC”) endorsement. After the fire, the insureds decided not to rebuild or repair the fire-damaged home. Instead, they purchased a home in another location and moved there. In light of the insureds’ decision to relocate instead of rebuilding, the insurer took the position that they were not entitled to payment under the GRC endorsement but only basic fire loss coverage. The insureds commenced an action against the insurer and sought summary judgment.

Willoughby v. Pilot Insurance Co., a Division of Aviva Canada Inc., [2014] O.J. No. 45, January 7, 2014, Ontario Superior Court of Justice, D.G. Stinson J.

In Willoughby v. Pilot Insurance Co., the insurer provided home insurance on the insureds’ home, which was destroyed by fire. The insurance policy included a Guaranteed Replacement Cost on Buildings (“GRC”) endorsement. After the fire, the insureds decided not to rebuild or repair the fire-damaged home. Instead, they purchased a home in another location and moved there. In light of the insureds’ decision to relocate instead of rebuilding, the insurer took the position that they were not entitled to payment under the GRC endorsement but only basic fire loss coverage. The insureds commenced an action against the insurer and sought summary judgment.

The Court addressed two issues:

1.         Can the language contained in the GRC be interpreted as extending that coverage to a circumstance where the insured acquires a house at a different location in substitution for the damaged house; and

2.         Does the GRC override the provision in the basic coverage that limits the insurer’s liability to actual cash value in the event that the repair or replacement is not carried out at the same location?

The Court found that, viewed in isolation, the GRC could be read in favour of the insureds and provide coverage in circumstances where they relocate rather than rebuild. However, when the policy was read as a whole, the Court concluded that the insureds’ loss did not attract coverage under the GRC because they had opted to purchase a replacement property instead of rebuilding.

This case was originally summarized by Cameron B.P. Elder and originally edited by David W. Pilley of Harper Grey LLP.

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