Insurer was obligated to pay a loss of rental income claim under a property insurance policy following a fire because the tenant was under no obligation to pay rent after the fire.
Insurance law – Property insurance – Landlord and tenant – Business interruption insurance – Loss of income – Leases
224981 Ontario Inc. v. Intact Insurance Co.,  O.J. No. 1416, 2016 ONSC 642, Ontario Superior Court of Justice, March 15, 2016, M.D. Faieta J.
A fire destroyed a building owned by a numbered company (the “Owner”) and leased by another numbered company (“Eco‑Lux”). About four months later, Eco‑Lux went out of business.
Intact provided a property and business interruption insurance policy to Eco‑Lux. Zurich provided a property insurance policy to the Owner. The Owner and Eco-Lux submitted claims under these policies. Most of the claims were accepted and paid but Zurich denied coverage for the Owner’s claim for loss of rental income on the basis that Eco‑Lux should have continued to pay rent after the fire. The Owner and Eco-Lux commenced an action against their respective insurers.
The issue was referred to the court as a form of special case.
The court found that Zurich was not entitled to deny coverage on the basis of Eco‑Lux’s obligation to pay rent to the Owner following the fire loss.
Eco‑Lux had an oral lease with the Owner and had the right to occupy the building in exchange for rent that was equal to the total amount of the building’s monthly operating expenses. There was no other evidence regarding the lease including the term of the lease. The court therefore concluded that Eco‑Lux had a month-to-month lease and was under no obligation under its monthly lease to pay rent to the Owner after the fire when its manufacturing operation stopped due to the fire. The court concluded that the Owner’s loss of rent was caused by the fire.
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