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Spike in Steel Prices Renews Interest in Escalator Clauses

The word on the street is that steel producers did not wait for Donald Trump to apply the steel tariffs to Canada before they increased the price of steel.  Contractors and subcontractors are worried about committing to fixed prices without knowing where steel prices are headed. 

 

A material price escalator clause is a potential solution to the problem.  However, such clauses are like pet rocks and polyester pants:  They have been out of fashion for so long that it is a challenge to find the genuine article.  I have combed through the archives and found three examples. 

  

The first is from Bethlehem Steel Co. v. Turner Constr. Co., 2 N.Y.2d 456:

"The price or prices herein stated are based on prices for component materials, labor rates applicable to the fabrication and erection thereof and freight rates, in effect as of the date of this proposal. If, at any time prior to completion of performance of the work to be performed hereunder, any of said material prices, labor rates and/or freight rates shall be increased or decreased, then in respect of any of said work performed thereafter there shall be a corresponding increase or decrease in the prices herein stated."

 

The second is from Einhorn v. Ceran Corp., 177 N.J. Super. 442 involving a contract for the sale of a residential condominium: 

"This agreement is conditioned upon the ability of Seller to complete the unit at present prices for materials and labor. If Seller is at any time or for any reason, unable to complete the unit at the present prices for materials and labor, Seller shall have the option to cancel this contract upon written notice to Buyer, in which event the full deposit shall be returned to Buyer without interest and this agreement cancelled. However, the Buyer shall have the option of paying any increased costs of labor and material, and if Buyer, within ten (10) calendar days after notice of any increase in cost, agrees in writing to pay such increased costs at closing, this agreement shall continue in full force and effect."

And finally, an example from a Canadian case, H.T. Drywall Ltd. v. Carriage Holdings Ltd., 1979 CarswellAlta 452:  

"These prices to take effect as of now, May 13, 1976, and will remain until Sept. 30, 1976, or as such time as further increase in cost of materials. At such time, the price increase shall be passed on to the General Contractor, immediately (sic)."

 

In my view you should consider these clauses as a good starting point rather than the finished product that you can put directly into a contract.  Of course, the hard part is likely to be convincing your client to accept an escalator clause in the first place. 

 

Ted Dreyer is a construction and insurance lawyer at Madorin, Snyder LLP. Madorin, Snyder LLP is a full service law firm serving Kitchener, Waterloo, Cambridge, Guelph and the surrounding area.  Please visit our construction law page.

 

The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Readers are advised to seek specific legal advice in relation to any decision or course of action contemplated.

 

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Introduction to Bill 142 - The Construction Lien Amendment Act

 

Watch a video by Ted Dreyer about Bill 142 and the new Construction Act.

 

 

Ted Dreyer is a construction and insurance lawyer at Madorin, Snyder LLP. Madorin, Snyder LLP is a full service law firm serving Kitchener, Waterloo, Cambridge, Guelph and the surrounding area.  

 

The information contained in this video is provided for general information purposes only and does not constitute legal or other professional advice. Viewers are advised to seek specific legal advice in relation to any decision or course of action contemplated.

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Making Payment With Joint Cheques

It is not uncommon in the construction industry for a subcontractor to reach out to the owner where the general contractor is in default of its payment obligations to the subcontractor.  If keeping the subcontractor working is vital to maintaining the project schedule, the owner may have a strong interest in seeing that the subcontractor get paid.  Often there is an underlying concern that the general contractor is using the funds it has received from the owner for something other than paying the trades.  While there is more than one way to solve this problem, issuing a joint cheque is one method of ensuring that money paid to a general contractor reaches a particular subcontractor. 

 

How to joint cheques work?  A cheque is one example of a 'bill of exchange' and they are regulated by the federal Bills of Exchange Act.  Section 62(2) of the Act provides that both parties named in a joint cheque must endorse the cheque before it can be cashed: 

 

Two or more payees

62(2) Where a bill is payable to the order of two or more payees or endorsees who are not partners, all must endorse, unless the one endorsing has authority to endorse for the others.

 

Going back to the our example, if an owner issues a joint cheque to a subcontractor and a general contractor, the bank will not cash the cheque unless it is endorsed by both the subcontractor and general contractor.  Assuming the general contractor agrees that the subcontractor should be paid, a general contractor who receives a joint cheque should endorse the back of the cheque and give it to the subcontractor.  The subcontractor can then endorse the cheque and deposit it in the subcontractor's bank account. 

 

Ted Dreyer is a construction and insurance lawyer at Madorin, Snyder LLP. Madorin, Snyder LLP is a full service law firm serving Kitchener, Waterloo, Cambridge, Guelph and the surrounding area.  

 

The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Readers are advised to seek specific legal advice in relation to any decision or course of action contemplated.

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Update on Tarion Warranty Claims

Do builders face double jeopardy on the Tarion Warranty? 

 

The Ontario New Home Warranties Plan Act  ("ONHWPA") is consumer protection legislation for new home buyers.  ONHWPA deems certain warranties with respect to the quality of materials and workmanship (the "Tarion Warranty") to be terms of any contract between a builder and a new home buyer.

 

Tarion is a non-profit corporation that is designated by the government to adjudicate claims by new home buyers regarding alleged breaches of the Tarion Warranty.  At the risk of oversimplifying, there are two stages to the Tarion claims process.  The first stage is the conciliation process.  If the parties cannot resolve their dispute amongst themselves, then the conciliation process ends when Tarion issues a ruling on the new home buyer's warranty claim.  The second stage of the Tarion claims process is the new home buyer's right of appeal to the Licence Appeal Tribunal.

 

Tarion does not have exclusive jurisdiction to enforce the Tarion Warranty.  The Tarion Warranty forms part of a contract between the builder and the new home buyer, and the Court system has concurrent jurisdiction to enforce the terms of a contract.  Therefore, a new home buyer can elect to make a claim to Tarion or it can start a lawsuit against the builder.  

 

Can a new home buyer do both?  Yes and no.     

 

Metropolitan Toronto Condominium Corporation No. 1352 v. Newport Beach Development Inc. is a 2012 decision of the Ontario Court of Appeal.  A condominium corporation made a claim to Tarion.  The condominium corporation lost at the conciliation stage, and it started an appeal before the Licence Appeal Tribunal.  Significantly, the condominium corporation abandoned its appeal to the Licence Appeal Tribunal before a ruling was made.  The condominium corporation then brought a lawsuit against the builder.  The builder brought a motion to have the condominium corporation's lawsuit struck out on the basis that the condominium corporation was bound by the outcome the Tarion claims process.  The Court of Appeal dismissed the builder's motion.  The Court of Appeal decided that a ruling by Tarion against a new home buyer at the conciliation stage did not bind the new home buyer or the Court in a lawsuit regarding a breach of the Tarion Warranty. 

 

Therefore, in the Metropolitan case the new home buyer was permitted to re-litigate a warranty claim that it had lost in the conciliation stage of the Tarion claims process.   

 

The outcome was different in the Gorscak case, summarized below.  

 

Gorscak v. 1138319 Ontario Inc. is a 2003 decision of the Ontario Superior Court of Justice.  The new home buyer made a Tarion claim regarding allegedly deficient brickwork.  The new home buyer lost at the conciliation stage and lost again on appeal to the License Appeal Tribunal. The new home buyer then brought a lawsuit against the builder seeking the replacement of all the brick.  The builder brought a motion for a stay of the lawsuit.  The Court granted the builder's motion and stayed the new home buyer's lawsuit.  The Court would not permit the new home buyer to re-litigate a warranty claim that had been already been ruled upon by the License Appeal Tribunal.  

 

The bottom line is that the Court of Appeal has permitted new home buyers two kicks at the can provided they abandon the Tarion claims process before the end of the second stage of the process.

 

The foregoing is for information purposes only and is not legal advice.  If you are interested in receiving more information, feel free to contact us.

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Proposed Amendments to the Building Code Act Much Narrower than Recommended By The Elliot Lake Inquiry

On June 23, 2012, a steel beam at the Algo Mall in Elliot Lake, Ontario, gave way.  Tonnes of concrete, steel and glass fell into the Mall below.  Two people were killed and 19 others were injured.  The collapse of the Algo Mall set in motion a process that is leading towards amendments to the Building Code Act

 

Six days after the collapse, Premier McGinty announced a government inquiry.  Justice Paul R. Belanger released his report on October 14, 2014.  In his report, Justice Belanger recommended the government enact mandatory province wide minimum maintenance standards for "large mercantile"  buildings in Ontario.  Furthermore, he recommended that all such buildings be inspected by properly qualified structural engineers whenever the building is sold and, at a minimum, "at a frequency that is commensurate with the risk of harm from a failure to meet the standard".  Although Mr. Belanger recommended these standards apply to all buildings with "mercantile occupancies", as defined in the Building Code, he urged the government to extend the minimum standards to all publically accessible buildings and multi-residential occupancies.  Mr. Belanger wrote the following: 

 

 

"The Building Code provides that buildings exceeding 600 square metres or three storeys in height used for major occupancies classified as mercantile occupancy must comply with Division B of Part 4 of the Code, which sets out structural design requirements common to a wide variety of large structures in Ontario. 

 

Since the Algo Mall would come within this definition, which is already recognized by the law of Ontario relating to standards designed to ensure safe construction of buildings, it is appropriate that I draft my recommendations to apply to all such buildings.  …  I believe, however, that these recommendations ought to apply to all publically accessible buildings in Ontario, including workplaces and multi-unit residential condominium and tenant-occupied buildings."

 

Therefore, Justice Belanger recommended that the province enact standards for the maintenance and inspection of all publically accessible and multi-residential buildings in Ontario. 

 

The day the Belanger Report was released, the provincial government announced the appointment of the Building Safety and Technical Advisory Panel (the "BSTAP") to make further recommendations regarding the screening and inspection of buildings.  The BSTAP released its report on January 27, 2016.  The BSTAP recommended that buildings with rooftop parking structures constructed before 1988 be subject to a Risk Screening Evaluation within 3 years.  Furthermore, it recommended that a Risk Screening Evaluation be performed on all other buildings constructed before 1976 within 6 years and all other buildings within 10 years.  

 

On November 14, 2017, the provincial government issued a consultation paper regarding proposed amendments to the Building Code Act arising out of the recommendations of Justice Belanger and the BSTAP.  The paper describes a Building Condition Evaluation that will apply to "prescribed structures".  Significantly, the class of "prescribed structures" that will require Building Condition Evaluation is limited to buildings with rooftop parking structures.  The consultation paper describes the buildings to which the new legislation will apply: 

 

 

All buildings, regardless of the date of construction, that contain parking on the roof or part of the roof of the structure and that also have levels beneath the parking occupied with non-parking uses. This would include retail/commercial uses (e.g., shopping malls), industrial and residential uses, and also parking structures with car rental kiosks or car wash/auto detailing stands.

 

So, whereas Justice Belanger and the BSTAP recommended a process of risk evaluation that applies to all major occupancies, the proposed changes to the Building Code Act only apply to the buildings with rooftop parking.

 

Presumably, the underlying premise of the proposed amendments is that Justice Belanger and the BSTAP overreached in their recommendations.  An important link in the chain of events that led to the collapse of the Algo Mall was that the water that leaked through the roof of the Algo Mall was full of dissolved salts that had been spread on the rooftop parking structure and which accelerated the corrosion of the steel structure that eventually collapsed.  It is not apparent to a layman that the risk factors that led to the collapse of the Algo Mall are present in all other building types.  The risk that other types of buildings may collapse may not justify the cost of periodic risk evaluation. 

 

The consultation period regarding the proposed changes to the Building Code Act ends on January 4, 2018.  If you have any comments on the proposed changes you can send them to the Minister of Municipal Affairs at buildingcodeconsultation@ontario.ca

 

Ted Dreyer is a construction and insurance lawyer at Madorin, Snyder LLP.  Madorin, Snyder LLP is a full service law firm serving Kitchener, Waterloo, Cambridge, Guelph and the surrounding area.  

   

The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Readers are advised to seek specific legal advice in relation to any decision or course of action contemplated.

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Hiring a Contractor? Do you need to obtain a WSIB Clearance Certificate?

Do you need to obtain a WSIB Clearance Certificate from your construction contractor?  The short answer is "yes" unless the contractor is performing "exempt home renovation work."

 

Section 141.1 of the Ontario Workplace Safety and Insurance Act, 1997 requires anyone who hires a contractor to perform construction work to ensure that the contactor has registered with the WSIB and paid its premiums. An owner who obtains a WSIB Clearance Certificate has complied with its obligations pursuant to section 141.1 of the Act.  A "Clearance Certificate" is issued free of charge to owners, contractors, and subcontractors by the Workplace Safety Insurance Board (the "WSIB").  The Clearance Certificate shows that the contractor or subcontractor is in good standing with the WSIB.  An owner who fails to obtain a Clearance Certificate may be liable for the contractor's payment obligations to the WSIB, including outstanding WSIB premiums. 

 

However, contractors performing "exempt home renovation work" are exempt from section 141.1 of the Act.   An owner for whom a contractor is performing "exempt home renovation work" does not need to obtain a Clearance Certificate and has no potential liability for the contractor's payment obligations to the WSIB. 

 

The definition of "exempt home renovation work" is set out at section 12.2 (10) of the Act as follows: 

“exempt home renovation work” means construction work that is performed,

 

  1. by an independent operator, a sole proprietor, a partner in a partnership or an executive officer of a corporation, and
  2. on an existing private residence that is occupied or to be occupied by the person who directly retains the independent operator, sole proprietor, partnership or corporation, or by a member of the person’s family;

“member of the person’s family” means,

  1. the person’s spouse,
  2. the person’s child or grandchild,
  3. the person’s parent, grandparent, father-in-law or mother-in-law,
  4. the person’s sibling, or
  5. anyone whose relationship to the person is a “step” relationship corresponding to one mentioned in clause (b), (c) or (d); (“membre de sa famille”)

“private residence” includes,

  1. a private residence that is used seasonally or for recreational purposes, and
  2. structures that are,

            (i)normally incidental or subordinate to the private residence,
            (ii)situated on the same site, and
            (iii)used exclusively for non-commercial purposes.

 

The bottom line is that an owner who hires a contractor to perform construction work should obtain a WSIB Clearance Certificate unless the contractor is performing "exempt home renovation work".  If you have questions about what qualifies as "exempt home renovation work" you can contact the Workplace Safety Insurance Board at 1-800-387-0750.

 

The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Readers are advised to seek specific legal advice in relation to any decision or course of action contemplated.

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Bill 125, Innocent Persons Insurance Recovery Act, 2017

Policies of home insurance typically include an 'Intentional Act Exclusion' which provides that an insured person may not recover for any loss arising from their own intentional or criminal act. Here is an example of an Intentional Act Exclusion from a home insurance policy:

 

This Policy does not insure:

 

(d) loss or damage caused by a criminal or wilful act or omission of the Insured or of any person whose property is insured hereunder;

 

The Intentional Act Exclusion in a policy of home insurance gives effect to the common sense notion that a person should not recover from their insurer for a loss which they intentionally caused.

 

The effect of the Intentional Act Exclusion can be controversial where a policy covers multiple insureds. Where a policy of insurance covers multiple insureds, the effect of Intentional Act Exclusion is to prevent all insureds from recovering for a loss intentionally caused by any one insured. On the one hand, this prevents one insured from committing insurance fraud for the benefit of another. On the other hand, denying coverage to all insureds can result in an injustice where one insured is victimized by another.

 

The 1989 decision of the Supreme Court of Canada in Scott v Wawanesa Mutual Insurance Co illustrates the problem of the 'Innocent Co-Insured'. Mr. and Mrs. Scott took out a policy of home insurance with Wawanesa Mutual Insurance. Their 15 year old son deliberately set fire to their home without their knowledge or complicity. Wawanesa Mutual Insurance denied their claim for compensation. The Supreme Court of Canada agreed that the Scotts were not entitled to compensation. Since the son was an 'insured' for the purpose of the policy, the effect of the Intentional Act Exclusion was to deny coverage to his mother and father for damage caused by the fire that he deliberately set.

 

Recent incidences of domestic violence have raised the profile of the Innocent Co-Insured problem.

 

On April 26, 2017, the Liberal MPP for Lawrence-Eglington Mike Colle introduced the Bill 125, Innocent Persons Insurance Recovery Act, 2017, in the Ontario Legislature. If it is enacted, Bill 125 will amend Ontario's Insurance Act to add an additional section 118.1. The proposed section 118.1 will allow an Innocent Co-Insured to recover from their insurer to the extent of their interest in the insured property. The proposed section 118.1 provides as follows:

 

Recovery by innocent persons

 

118.1 (1) If a contract contains a term or condition excluding coverage for loss or damage to property caused by a criminal or intentional act or omission of an insured or any other person, the exclusion applies only to the claim of a person,

 

(a) whose act or omission caused the loss or damage;

(b) who abetted or colluded in the act or omission;

(c) who,

(i) consented to the act or omission, and

(ii) knew or ought to have known that the act or omission would cause the loss or damage; or

(d) who is in a prescribed class.

 

Recovery limited to proportionate interest

 

(2) Nothing in subsection (1) allows a person whose property is insured under the contract to recover more than the person's proportionate interest in the lost or damaged property.

 

If Bill 125 was the law at the time that Mr. and Mrs. Scott lost their home, then they would have recovered from their insurer for the losses caused by their son.

 

It remains to be seen whether Bill 125 will be enacted as law in Onario. However, the Liberal government has indicated that it will support Bill 125.

 

The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Readers are advised to seek specific legal advice in relation to any decision or course of action contemplated.

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Is a Contractor Bound By An Estimate?

An estimate may give rise to a fixed price contract, which is binding upon a contractor subject to variations in the contract price. But the case of 413784 Ontario Inc. v. Adams[1] illustrates that an estimate may also have a limiting effect on the amount charged by a contractor where the contract price is either time and material or cost plus.

 

In 413784 Ontario Inc. v. Adams a contractor gave the owner of a vacant lot an estimate of $57,000 to build a custom house. Relying on the estimate, the owner entered into a contract with the contractor to build a custom home for cost plus 10% for overhead and 5% profit. Things did not go as planned. The contractor billed the owner $89,000 before the house was completed. The owner realized that he could not afford to complete the home. He sold the home and took a loss of $68,000. The contractor brought a claim against the owner for a further $11,500. The court found that the actual price for the construction of a custom home should not exceed an estimate by more than 10 or 20 per cent. The Court wrote:

 

17. I consider that the difference between the estimated cost and the actual cost to finish the house is far too much and the Defendants are entitled to expect that the house would have been built for something within reasonable range of the estimated cost and certainly no more than 10% or 20%.

 

The Court concluded that the estimate given by the contractor to the owner was negligent because the actual cost of construction exceeded the estimate by 100%. The Court dismissed the contractor’s claim against the owner.

 

The outcome in 413784 Ontario Inc. v. Adams may have been different if the owner had asked the contractor to perform expensive extras, if the contractor was confronted with unforeseen site conditions, if the owner was more sophisticated, if the estimate was qualified, or if the type of work involved was more difficult to estimate accurately. Nevertheless, 413784 Ontario Inc. v. Adams illustrates that a contractor needs to exercise care if it gives an estimate even if it does not intend to commit to a fixed price.

 

Ted Dreyer is a construction and insurance lawyer at Madorin, Snyder LLP. Madorin, Snyder LLP is a full service law firm serving Kitchener, Waterloo, Cambridge, Guelph and the surrounding area. Please visit our construction law page.

 

 

[1] 413784 Ontario Inc. v. Adams, 1983 CarswellOnt 2939

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A Simple Example of How the Basic Holdback Works

One of the foibles of Ontario's Construction Lien Act (“Act") is that it does not take project scale into account:  The same rules apply to a bathroom renovation as they do to a multi-million dollar infrastructure project.  In particular, the obligation to retain a holdback applies to all construction contracts regardless of their size or complexity.  While not exactly rocket science, most homeowners and small contractors do not administer the basic holdback properly.  Here is a simple example of how the basic holdback works. 

 

Our example involves an addition to an existing home.  The contract price is $200,000 plus HST.   The contract requires the Owner to pay 30% of the contract price upon the completion of the foundation, 30% when the addition is closed-in, and pay the balance upon completion.  The contract further provides that all invoices are due and payable within 30 days.  

 

Section 22 of the Act requires each "payor" on a construction contract to hold back 10% of the price of the services or materials as they are actually supplied under the contract until all liens that may be claimed against the holdback have expired.  The obligation to maintain the basic holdback applies despite any wording in the contract to the contrary. 

 

When the foundation is complete, the value of the services and materials supplied by the Contractor is 30% of the contract price, or $60,000.  The Contractor should deduct 10% for the basic holdback (i.e. $6,000), apply HST to the balance of $54,000 (i.e. $7,020), and invoice the Owner for a total of $61,020.  The Owner should pay the invoice within 30 days. 

 

When the addition is closed in, the value of the services and materials supplied by the Contractor since its last invoice is $60,000.  Again, the Contractor should deduct the 10% basic holdback (i.e. $6,000), apply HST to the balance of $54,000, and invoice the Owner for a further $61,020.  The Owner should pay the invoice within 30 days. 

When the addition is complete, the value of the services and materials supplied by the Contractor since its last invoice is $80,000.  The Contractor should again deduct the basic holdback of 10% (i.e. $8,000), apply HST to the balance of $72,000 ($9,360), and invoice the Owner for $81,360.  The Owner should pay the invoice within 30 days. 

 

Finally, the Contractor should issue a separate invoice to the Owner for the holdback.  The amount of the holdback is 10% of the contract price, or $20,000.  The Contractor should apply HST to the value of the holdback (i.e. $2,600), and invoice the Owner for $22,600. 

 

Unlike the other invoices, and despite the contract language that invoices are due and payable 30 days after they are rendered, the holdback invoice is payable by the Owner after any construction lien that may be claimed against the project has expired.  All construction liens will have expired 45 days after the contract is complete unless a claim for lien is preserved by registering a claim against title.  Therefore, the Owner should have their lawyer review title to the property on the 46th day after the contract is complete.  If no claims for lien have been registered against title on or before the 46th day after the contract is complete, then the Owner should pay the basic holdback to the Contractor.  If a claim for lien is made before the 46th day, then the Owner should not pay anything further to the Contractor and seek further advice from their lawyer.  

 

Ted Dreyer is a construction lawyer at Madorin, Snyder LLP. Madorin, Snyder LLP is a full service law firm serving Kitchener, Waterloo, Cambridge, Guelph and the surrounding area.  Please visit our construction law page.

 

The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Readers are advised to seek specific legal advice in relation to any decision or course of action contemplated.

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Is My Ganja Insured?

The Liberal government is poised to introduce legislation that will legalize marijuana for recreational use in Canada.  One hopes that the Liberals will have the good sense to regulate the cultivation of marijuana, but it is within the realm of possibilities that legal home grow operations proliferate under the new law.  If the black market prices for marijuana are sustained in the open market, then home grow crops could be among the most valuable assets in some households.  That begs the question of whether home growers will be compensated by their home insurers if their crops are stolen or damaged in a fire.

 

Maybe not.  The cultivation of marijuana for medical use is already legal in Canada, and at least one insurance claim arising from the loss of a marijuana crop has come before the Court.

 

Stewart v. TD General Insurance Company is a 2014 decision of the Ontario Divisional Court that involved a claim for compensation for the loss of a marijuana crop.  Mr. Stewart was licensed to possess and cultivate medical marijuana for his own consumption.  He had an outdoor grow operation at his home.  Just when his crop was ready to be harvested, thieves ripped the plants out of the ground and made off with them.  Mr. Stewart estimated the cost of replacing the plants and the crop was just under $50,000.  He asked his home insurer to compensate him for the cost of replacing the plants and the value of the lost crop.  However, the Insurer only approved the claim pursuant to a limited extension of coverage that applied to trees, shrubs and plants.   The wording of the extension provided as follows: 

 

"15. Trees, shrubs and plants

Trees, shrubs and plants being part of your landscaping on your premises. We will pay up to 5% of the limit of insurance applicable to your dwelling, subject to a maximum of $1,000 for any one tree, shrub or plant including debris removal. You are insured against loss cause (sic) by fire, lightning, explosion, impact by aircraft or land vehicle, riot, vandalism or malicious acts, theft or attempted theft."

                                                      

As set out in the extension, the policy limit for coverage for trees, shrubs, and plants was $1,000 per plant.  The Insurer paid Mr. Stewart a total of $11,000.  Mr. Stewart sued his Insurer to recover the balance of his loss.  He alleged that the loss of the marijuana fell within the coverage for ‘personal property’ to which much higher policy limits applied.  The policy wording for ‘personal property’ coverage is set out below:    

 

"COVERAGE

Coverage B – Personal Property (contents)

1. We insure the contents of your dwelling and other personal property you own, wear or use while on your premises which is usual to the ownership or maintenance of a dwelling." 

                                                            

The Divisional Court dismissed Mr. Stewart’s claim.  While all personal property inside Mr. Stewart’s home was covered, personal property outside of his home was only covered if it was “usual to the ownership or maintenance of a dwelling.”   The Court heard evidence that only one third of one per cent of Canadians cultivated marijuana in their homes.  The Court found that the plants were not “usual to the ownership or maintenance” of a dwelling and ruled that the loss of the plants did not fall within the personal property coverage in the policy.  The Court agreed with the Insurer that the only coverage for the marijuana in the policy was the extension pertaining to trees, shrubs and plants.  Therefore, Mr. Stewart had already been paid everything he was entitled to.  

 

The lesson to be drawn from the Stewart case is not that loss or damage to a marijuana crop will never be fully covered by a home insurer.  The outcome in the Stewart case might have been different if Mr. Stewart’s crop had been grown indoors or if the loss had occurred in the future when home grow operations are more widespread.   Furthermore, policy wording does vary from insurer to insurer, and Mr. Stewart may have had a different outcome if he had been insured by another insurer.  

 

The moral of the Stewart case is simply that home growers cannot take it for granted that their ganja is insured, and they should talk to their agent or broker to ensure that they have coverage for their crops.

 

Ted Dreyer is a construction and insurance lawyer at Madorin, Snyder LLP. Madorin, Snyder LLP is a full service law firm serving Kitchener, Waterloo, Cambridge, Guelph and the surrounding area.  Please visit our construction law page.

 

The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Readers are advised to seek specific legal advice in relation to any decision or course of action contemplated.

 

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