Foreclosure and ordered sale of a property does not extinguish insurable interest until title transfers in full

Insurance law – Property insurance – Insurable interest – Practice – Summary judgments

Angleland Holdings Inc. v. Lloyd’s Underwriters, [2021] B.C.J. No. 2234, 2021 BCSC 2019, British Columbia Supreme Court, October 15, 2021, D.W. Thompson J.

This was a summary trial on the sole issue of whether the insured had an insurable interest in a fire damaged property covered under the policy issued by the insurer.

The insured owned several properties in Tofino that were foreclosed. Following an order nisi, there was a vesting order approving sale of the properties for $16 million. The insured obtained leave to appeal the sale approval order and the order was stayed pending appeal. At the time of the stay, the order had not yet been filed at the Land Title Office and the insured was still the registered owner. A fire occurred a few days later, causing significant damage to one of the main buildings. The insured made a claim on its insurance policy. A few months later, the appeal of the sale approval order was dismissed and title of the property transferred to the purchaser. The insurer denied the insured’s claim on the basis that the insured had no insurable interest in the property.

The test for establishing an insurable interest requires the insured demonstrate some relation to, or concern in, the subject of the insurance, and a benefit from the subject matter remaining intact or prejudice by its damage.

The insurer argued that although the insured held title at the time of loss, there was no reasonable prospect of the insured benefitting from the continued existence of the property, which was borne out when the appeal was dismissed, and the property sold. However, the court determined that hindsight was not the test, and with a viable appeal proceeding at the time of the loss, the insured had an interest in the property remaining undamaged. Furthermore, the insured also had recently used the building prior to the fire loss and had planned to continue doing so. The court held that the insured had proven an insurable interest at the date of loss but noted that the decision did not determine entitlement to recovery under the policy.

This case was digested by Mark A. McPhee, 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 Mark A. McPhee at mmcphee@harpergrey.com.

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