Hogue, Beaupré, Kalichman

Appeals from a judgment of the Superior Court dismissing an application for insurance indemnity and a cross-application. Principal appeal allowed and incidental appeal dismissed, with dissenting reasons.

On February 20, 2017, the appellant granted the incidental respondent, Mireault, a hypothecary loan of $220,000 to purchase an immovable. The respondent insurance company issued a policy that covered the immovable and its contents. The insurance policy designated the appellant as hypothecary creditor and included a standard hypothecary guarantee clause. This clause provided that: [translation] "This insurance ... is and shall be in force notwithstanding any act, neglect, omission or misrepresentation attributable to the owner ... including ... any vacancy ... ."

Because the insured Mireault planned to renovate the immovable, the insurer authorized her to leave it vacant for one year. A rider was added to the policy for this purpose. In the night of May 16, 2017, the immovable was destroyed by fire. The insurer refused to indemnify both the insured and the appellant.

The trial judge concluded that the fire had been caused by an intentional and faulty act. He determined that it was an act of vandalism, which led to the application of an exclusion provided for this purpose in the insurance policy. He also determined that this vandalism exclusion could be set up against the appellant.

It is well established that the conditions in an insurance policy that are inconsistent with the hypothecary guarantee clause found therein, including stated exceptions, cannot be set up against the hypothecary creditor. A hypothecary guarantee clause is a separate contract tying an insurer to a hypothecary creditor, to whom it offers a broader coverage and, as the clause states, its provisions will have precedence over those found in the insurance policy, including riders.

In this case, there is no justification for distinguishing the exclusion relating to losses suffered during a vacancy of more than 30 days from those relating to vandalism during a vacancy. In both cases, the exception arises from the fact that the immovable is vacant. The decision of the immovable's owner to leave it vacant is necessarily an [translation] "act attributable to the owner, including vacancy". Because the sine qua non condition for the exclusion relating to vandalism to apply is for the insured to have left the immovable vacant, the insurer arguing this exclusion is therefore setting up the act of the insured relating to vacancy against the hypothecary creditor – the appellant in this case. Because the wording of the hypothecary guarantee clause takes precedence, the insurer in this case could not set up against the hypothecary creditor the fact that the vandalism occurred while the immovable was vacant to refuse the indemnity. The insurance indemnity to which the appellant is entitled is set at $156,800.

Kalichman J.A., dissident, would have dismissed the appeals. In his view, the fact that the vandalism occurred while the immovable was vacant is irrelevant. There is no conflict between the wording of the vandalism exclusion and that of the hypothecary guarantee clause. Accordingly, the judge did not err in accepting that the exception for vandalism could be set up against the appellant.

Text of the decision: http://citoyens.soquij.qc.ca