Broker ordered to pay replacement cost where insured could not replace because of coverage denial

Court of Appeal awarded damages equivalent to replacement cost of a dwelling where insureds showed they would have replaced the dwelling had they had effective coverage.

Insurance law – Property insurance – Landlord and tenant – Exclusions – Damages – Actual cost vs replacement cost – Agents and brokers – Duties and liabilities of agent – Failure to advise of exclusion clauses – Mistakes of agents – Practice – Appeals

Alvaro v. InsureBC (Lee & Porter) Insurance Services Inc., [2021] B.C.J. No. 385, 2021 BCCA 96, British Columbia Court of Appeal, March 3, 2021, P.M. Willcock, J.J.L. Hunter and G.B. Butler JJ.A.

The insureds purchased insurance for their rental building from their broker. After a fire damaged the building, the insurer denied the insureds’ claim on the basis of a vacancy exclusion. The insureds successfully argued at trial that the broker was negligent for failing to bring the vacancy exclusion to the insureds’ attention and failing to advise of the availability of coverage in the form of a vacancy endorsement. The trial judge awarded damages of $180,472.50, being the actual cash value of the destroyed building. The trial judge concluded that ACV was the proper award because the insureds had not replaced the damaged building. The trial judge dismissed the broker’s argument that the insureds were contributorily negligent for failing to read the policy and note the vacancy exclusion. The insureds appealed and the broker cross appealed.

On appeal, the insureds argued that the trial judge erred by awarding the actual cash value of the damaged building rather than its replacement costs. The broker alleged the trial judge erred in dismissing the argument that the insureds were contributorily negligent.

The Court of Appeal allowed the insureds’ appeal, set aside the damage award made by the trial judge, and substituted it with the amount the insurer would have paid if the building had been replaced. The court held that where “insureds do not have effective coverage, the simple fact that they have not replaced the property within a reasonable period does not disentitle them from seeking to be indemnified by the agent responsible for the loss of the right to opt for replacement cost”. The court was satisfied that the insureds would have opted to replace the building if they had effective coverage.

The court dismissed the broker’s cross appeal, confirming the trial judge’s finding that the broker’s negligence flowed primarily from the broker’s failure to advise the insureds how a gap in coverage might be avoided by a vacancy endorsement, and that the insureds did not contribute to that failure by failing to read the policy.

This case was digested by Alicia Catalano, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Alicia Catalano at

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