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Insurance - Nullification. Emond v. Trillium Mutual Insurance Co.
In Emond v. Trillium Mutual Insurance Co. (SCC, 2026) the Supreme Court of Canada dismissed an appeal, here brought against an order in the Ontario Court of Appeal that "ordered that the cost of replacement payable under the insurance contract does not include the compliance costs" with building requirements imposed by the local conservation authority.
Here the court considers 'nullification' of insurance coverage:B. Nullification of Coverage
[51] Courts in Ontario have long refused to apply exclusion clauses in insurance contracts where the effect of the clause would be to virtually nullify the coverage provided by the policy (see Ontario v. St. Paul Fire and Marine Insurance Company, 2023 ONCA 173, 480 D.L.R. (4th) 30, at para. 31; Cabell v. Personal Insurance Co., 2011 ONCA 105, 104 O.R. (3d) 709, at paras. 14-17; see also Zurich Insurance Co. v. 686234 Ontario Ltd. (2002), 2002 CanLII 33365 (ON CA), 62 O.R. (3d) 447 (C.A.), at para. 28; Weston Ornamental Iron Works Ltd. v. Continental Insurance Co., [1981] I.L.R. ¶1-1430 (Ont. C.A.); Amos v. Insurance Corp. of British Columbia, 1995 CanLII 66 (SCC), [1995] 3 S.C.R. 405, at paras. 16-17; Consolidated-Bathurst, at pp. 901-3; Indemnity Insurance Co. of North America v. Excel Cleaning Service, 1954 CanLII 9 (SCC), [1954] S.C.R. 169, at pp. 179-80, per Estey J.). This rule is referred to as the nullification of coverage doctrine.
[52] The decision in Cabell is instructive. In that case, the insureds had purchased an endorsement to their home insurance contract that provided additional coverage for damage to the swimming pool. The endorsement explicitly stated that “[a]ll other terms conditions and exclusions of this policy remain unchanged” (para. 6). The base policy excluded coverage for “settling, expansion, contraction, moving, bulging, buckling or cracking of any insured property, except resulting damage to building glass” (para. 29 (emphasis deleted)). The court had difficulty “conceiv[ing] of any damage or loss to an in-ground swimming pool that would not come within that exclusion, especially the word ‘cracking’” (ibid.). The court concluded that application of the exclusion would virtually nullify the swimming pool endorsement and declined to apply it to the damage suffered by the insureds’ swimming pool (paras. 31-32).
[53] In the most recent case discussing nullification, the Court of Appeal for Ontario describes nullification as preventing “insurance contracts from being construed so as to defeat the coverage the policy provides, thereby defeating the very objective of the insurance contract and rendering it nugatory” (Ontario v. St. Paul Fire and Marine Insurance Company, at para. 31). Importantly this rule is said to apply even if the language of the policy is unambiguous (see Cabell, at para. 17; see also Sam’s Auto Wrecking Co. Ltd. v. Lombard General Insurance Co. of Canada, 2013 ONCA 186, 114 O.R. (3d) 730, at para. 37), and is considered only after the insurance contract has been properly interpreted (see Cabell, at para. 18).
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[60] The rationale for the nullification of coverage doctrine is linked not just to the search for the shared intention of the parties, which is the object of interpretation, but to fundamental fairness considerations specific to the insurance context. As Estey J. put it in Consolidated-Bathurst, courts should be reluctant to “enable the insurer to pocket the premium without risk” (pp. 901-2; see also Boivin, at para. 8-84). Commentators have suggested that untangling such fairness considerations from the interpretive exercise results in a more conceptually sound approach, because doing so allows the interpretation of insurance contracts to remain focused on what the parties agreed to as is reflected in the contract’s text (see, e.g., Billingsley (2020), at pp. 148-50).
[61] To the extent some appellate courts appear to have taken a different approach regarding how the nullification doctrine relates to the Ledcor framework, the differences appear to be formalistic rather than substantive. In Turpin and Optimum West, the Court of Appeal for British Columbia was clear that there was no nullification of coverage in the specific insurance contracts they were interpreting in those cases. As such, the existence of the doctrine had no bearing on the cases (Turpin, at paras. 45 and 47; Optimum West, at para. 53).
[62] Further, as I have said, an ambiguity can arise where two seemingly clear terms of a contract conflict in such a way that it raises multiple reasonable possibilities as to their meaning. Arguably, a provision conferring special coverage for an additional premium that is rendered valueless by an exclusion elsewhere in the policy could raise such an ambiguity. Indeed, in Snow, this is how the Nova Scotia Court of Appeal read the Ontario case law: “Cabell was essentially looking at an ambiguity in the policy when it was read as a whole. An exclusion purported to deny coverage while an endorsement, which was requested and paid for, provided coverage” (para. 71). Even if nullification is conceived of as giving rise to an ambiguity in the language of the contract, rather than existing outside the interpretive framework, the practical result is the same.
[63] Further, I do not accept Trillium’s argument that the nullification of coverage doctrine somehow represents an expansion of the principles of unconscionability.
[64] As Trillium rightly acknowledges, the doctrine of unconscionability already provides that insurance contract terms, properly interpreted, can be displaced for fairness reasons external to the interpretive exercise (R.F., at para. 139, citing Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69; see also Uber Technologies Inc. v. Heller, 2020 SCC 16, [2020] 2 S.C.R. 118). Relief on the basis of unconscionability “requires both some kind of unfairness and a substantively unfair transaction” (A. Swan, J. Adamski and A.Y. Na, Canadian Contract Law (4th ed. 2018), at §9.171 (emphasis in original)). As the Court noted in Uber, at para. 77:Where the weaker party did not understand or appreciate the meaning and significance of important contractual terms, the focus is on whether they have been unduly disadvantaged by the terms they did not understand or appreciate. These terms are unfair when, given the context, they flout the “reasonable expectation” of the weaker party or cause an “unfair surprise”. [Citations omitted.] [65] The nullification of coverage doctrine does not represent an undesirable expansion of these principles. If anything, it is more restrained. Unlike unconscionability, which applies to all contracts, nullification of coverage applies exclusively in the insurance context. Here, courts must be especially alert to the inequality of bargaining power that favours the insurer (see Scalera, at para. 70). Further, nullification of coverage applies in the extreme and specific scenario where coverage is nullified, such that the insurer is pocketing a higher premium without any material risk (see Cabell, at para. 17, citing Zurich Insurance, at para. 28).
[66] For these reasons, I prefer not to disturb the settled law in Ontario. A provision should not be applied to the extent it would completely defeat the very objective of having purchased the relevant coverage and render it nugatory. This is true even when the language of the provision is unambiguous at the first stage of the Ledcor analysis (para. 49). . 2689686 Ontario Inc. v. Lloyd's Underwriters
In 2689686 Ontario Inc. v. Lloyd's Underwriters (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, this brought against an order where the "motion judge granted summary judgment", here in an insurance dispute.
Here the court considers the 'doctrine of nullification':[9] The doctrine of nullification was clearly described by this court in Weston Ornamental Iron Works Ltd. v. Continental Insurance Co., 1981 CarswellOnt 1324 (Ont. C.A.), at para. 16, referred to by the motion judge:The exclusion clause should not be interpreted in a way which is repugnant to or inconsistent with the main purpose of the insurance coverage but so as to give effect to it. Thus, even if the exemption clause were found to be clear and unambiguous it should not be enforced by the courts when the result would be to defeat the main object of the contract or virtually nullify the coverage sought for protection from anticipated risks. [10] This was a Builder’s Risk Policy that covered direct physical loss or damage, subject to certain specified risks set out in the policy. Enforcing the exclusion for frost and freezing does not negate the coverage under the policy. Damage arising from fire, vandalism, wind and other perils was covered under this policy; damage arising from “frost or freezing” was not. This was not a case of illusory coverage to which the doctrine of nullification would apply. The motion judge was correct to find that it was not applicable. . Trillium Mutual Insurance Company v. Emond
In Trillium Mutual Insurance Company v. Emond (Ont CA, 2023) the Court of Appeal considered (and allowed) an insurer's appeal on the interpretation of a home owners insurance policy, here involving flood damage. The policy essentially insured the 'replacement cost' of the destroyed home as it stood at the time of destruction [see para 56], and a main issue was the interpretation and application of a limiting provision that excluded "increased costs of repair or replacement due to the operation of any law regulating the zoning, demolition, repair, or construction of buildings” (the 'para. 8 Exclusion')" (ie. new, legally-required work).
These quotes consider the insurance principle of 'nullification':Does this Interpretation Nullify the Coverage in the GRC?
[87] Nullification occurs when a policy defeats the purpose of the coverage the policy provides: Cabell v. Personal Insurance Company, 2011 ONCA 105, 104 O.R. 3(d) 709, at para. 14; Indemnity Insurance Co. of North America v. Excel Cleaning Service, 1954 CanLII 9 (SCC), [1954] S.C.R. 169, at pp. 177-78; see also Foodpro National Inc. v. General Accident Assurance Co. of Canada (1988), 1988 CanLII 4739 (ON CA), 63 O.R. (2d) 288 (C.A.), at p. 288, leave to appeal refused, [1988] S.C.C.A. No. 707.
[88] The GRC provides the Emonds with enhanced coverage to rebuild their home the way it was, using materials of similar quality and current building techniques, (i) without deduction for depreciation and (ii) even if the cost of replacement exceeds the policy limit on the Declaration Page (i.e., inflation protection). The application of the para. 8 Exclusion does not deny the Emonds these benefits; it only applies to increased costs required by “any law”.
[89] While the operation of the para. 8 Exclusion may deny the insured some funds, this does not “render nugatory coverage for the most obvious risks for which the endorsement [was] issued”: Foodpro, at p. 288. It is clear that the “most obvious risks” for which the GRC was issued are depreciation and inflation, not [bylaw] compliance costs: see e.g. Carter, at paras. 20-24.
[90] I therefore reject the Emonds’ submission that the application of the para. 8 Exclusion to the GRC would result in nullification of coverage. . Ontario v. St. Paul Fire and Marine Insurance Company
In Ontario v. St. Paul Fire and Marine Insurance Company (Ont CA, 2023) the Court of Appeal considered the insurance 'nullification doctrine':[31] The “nullification doctrine” prevents insurance contracts from being construed so as to defeat the coverage the policy provides, thereby defeating the very objective of the insurance contract and rendering it nugatory: Cabell v. The Personal Insurance Company, 2011 ONCA 105, (2011), 104 O.R. (3d) 709, at para. 15, citing Estey J. in Consolidated-Bathurst v. Mutual Boiler, 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at pp. 901-2. Ontario argues that the nullification doctrine is contravened by the application judge’s finding that the term “neither expected nor intended from the standpoint of the Insured” prevents coverage for damages that Ontario knew the class would suffer. It is Ontario’s position that this finding nullifies the Personal Injury coverage for intentional torts, which is expressly provided for in both policies.
[32] At first blush, this submission is alluring but it fails to recognize the important distinction between “the intention to cause injury itself … and the intention to commit the act that causes the injury”: Liberty Mutual Insurance Co. v. Hollinger Inc., 2004 CanLII 10995 (ON CA), 236 D.L.R. (4th) 635 (Ont. C.A.), at para. 18, citing Craig Brown et al., Insurance Law in Canada, loose-leaf (Toronto: Thomson Reuters Canada Ltd., 2002), at 18:178 to 18:179. Put simply, if the words “neither expected nor intended from the standpoint of the Insured” purported to prevent coverage that the policy provides for intentional acts, the nullification doctrine would likely apply, but in my view the nullification doctrine does not apply where, as here, the policy can be construed as providing coverage for the unintended or unexpected consequences of covered intentional acts.
[33] In my view, Hollinger Inc. drives this conclusion. In that case Sharpe J.A. recognized, at paras. 17-18, that a policy can extend coverage for the fortuitous or unintended or unexpected consequences of intentional acts, without providing coverage for the intended or expected consequences of those intentional acts. That is how Sharpe J.A. construed the policy before him. Not unlike the First Policy, the Hollinger Inc. policy defined “occurrence” as “an event or a continuous or repeated exposure during the policy period to conditions which, from the standpoint of Insured, unexpectedly causes injury.” Sharpe J.A. held, in large measure because of this clause[3], that the coverage for “intentional discrimination” that the policy provided was limited to unexpected loss. Since the claim against the insured alleged that the insured “intended to inflict the very wrong of which [the plaintiff] complains,” the loss was not unexpected therefore the insurer was not under a duty to defend: Hollinger Inc., at para. 19. To be sure, Hollinger Inc. did not address the nullification doctrine, but given the interpretation that Sharpe J.A. gave to the insurance policy that was before him, it cannot be said that a clause that prevents coverage for expected loss nullifies coverage for intentional wrongdoing where the policy will still cover unexpected loss. I would therefore reject this ground of appeal. . Demme v. Healthcare Insurance Reciprocal of Canada
In Demme v. Healthcare Insurance Reciprocal of Canada (Ont CA, 2022) the Court of Appeal considered case law that prevents policy interpretation that renders coverage nugatory:[71] Finally, Ms. Demme submits that by concluding the claims against her for intrusion upon seclusion did not give rise to a mere possibility of coverage and, therefore, attract a duty to defend, the motion judge erroneously adopted an interpretation of the Policy that nullified coverage for liability for bodily injury arising out of “invasion or violation of the right of privacy.” Such an interpretation would offend the principle that courts should avoid an interpretation of a policy that would render the insurance protection obtained nugatory and would enable the insurer to pocket the premium without risk: see Consolidated-Bathurst v. Mutual Boiler, 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at p. 901. . Family and Children’s Services of Lanark, Leeds and Grenville v. Co-operators General Insurance Company
In Family and Children’s Services of Lanark, Leeds and Grenville v. Co-operators General Insurance Company (Ont CA, 2021) the Court of Appeal considered the interpretive principle of nullification:[96] In Zurich Insurance Co. v. 686234 Ontario Ltd. (2002), 2002 CanLII 33365 (ON CA), 62 O.R. (3d) 447 (Ont. C.A.), leave to appeal to S.C.C. refused, [2003] S.C.C.A. No. 33, Borins J.A. explained, at para. 28, that even a clear and unambiguous exclusion clause will not be applied where:a) it is inconsistent with the main purpose of the insurance coverage;
b) the result would be to effectively nullify the coverage provided by the policy; and,
c) to apply the exclusion clause would be contrary to the reasonable expectations of the ordinary purchaser of the coverage. ....
[101] In G & P Procleaners and General Contractors Inc. v. Gore Mutual Insurance Co., 2017 ONCA 298, 335 O.A.C. 172, at paras. 24-25, this court considered and rejected a similar nullification argument. This court observed that commercial general liability policies:… are not “all-risk” policies. They do not insure the manner in which the insured conducts its business. They do not generally cover the cost of repairing the insured’s own defective or faulty work product. That is what the parties in the present case bargained for. To hold them to that bargain is entirely reasonable and does not render the coverage under the policy meaningless. [Citations omitted.]
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