Shelter Canadian Properties Limited v Aviva Insurance Company of Canada, 2021 ABQB 217

Court of Queen’s Bench of Alberta Citation: Shelter Canadian Properties Limited v Aviva Insurance Company of Canada, 2021 ABQB 217 Date: 20210323 Docket: 1901 15607 Registry: Calgary Between: Shelter Canadian Properties Limited, Lanesborough Real Estate Investment Trust, Lanesborough Real Estate Investment Trust by its Trustees Charles K. Loewen, Arni C. Thorsteinson, Earl S.

Coleman, Gino Romagnoli, and Gary Benjaminson, LREIT Holdings 13 Corporation, LREIT Holdings 28 Corporation, LREIT Holdings 29 Corporation, LREIT Holdings 33 Corporation, LREIT Holdings 34 Corporation, LREIT Holdings 37 Corporation, LREIT Holdings 38 Corporation, LREIT Holdings 40 Corporation, LREIT Holdings 41 Corporation, LREIT Holdings 42 Corporation, LREIT Holdings 43 Corporation, LREIT Holdings 44 Corporation and LREIT Holdings 45 Corporation Plaintiffs - and - Aviva Insurance Company of Canada, Allianz Global Risks US Insurance Company, Royal & Sun Alliance Insurance Company of Canada, Lloyds Underwriters Under Agreement B6006QBECAN2016B5 as arranged by: QBE Services Inc., Starr Insurance & Reinsurance Limited, Syndicates 2003 at Lloyds Per Catlin Canada, Arch Insurance Canada Ltd., and Temple Insurance Company Defendants _______________________________________________________ Reasons for Judgment of the

Honourable Madam Justice J.C. Price _______________________________________________________ I. Introduction [ 1 ] On May 3, 2016 a wildfire broke out in the Regional Municipality of Wood Buffalo, forcing the mandatory evacuation of the residents of Fort McMurray, Alberta. Amongst those forced to evacuate were the tenants of several properties owned and managed by the Plaintiffs.

Tenants of these affected properties were able to move back into their residences at staggered periods in June and July 2016, at which time the Plaintiffs were then able to resume their business operations. [ 2 ] The subject properties were insured by an insurance policy issued by the Defendant Insurers. The policy included coverage for property damage, rental loss and professional fees required to quantify the loss. The Defendants paid out the Plaintiffs’ claim for the property damage sustained as a result of the wildfire.

However, the Defendants have denied the Plaintiffs’ insurance claim of $4,430,475.00 for rental loss, as well as their insurance claim to recover the professional fees incurred to quantify their rental loss in the amount of $94,482.16 . [ 3 ] This matter involves issues of contractual

interpretation. The parties have drastically different positions on the

interpretation of the relevant clauses in the insurance policy. The parties seek by way of

summary trial a determination as to whether the insurance policy covers the insurance claims for rental loss and professional fees advanced by the Plaintiffs. II. Background The Parties [ 4 ] Shelter Canadian Properties Limited (hereinafter “ Shelter ”) is a real estate property management company.

They provide a broad range of property management services to multi-unit residential complexes, condominiums and commercial properties located throughout Alberta, Saskatchewan, Ontario and the Northwest Territories. [ 5 ] Shelter acts as the asset manager to, Lanesborough Real Estate Investment Trust (hereinafter “ LREIT ”). LREIT is a publicly traded real estate investment trust governed by its officers and board of trustees, Gino Romagnoli and Gary Benjaminson, Charles K. Lowen, Arni C. Thorsteinson, and Earl S.

Coleman. [ 6 ] Shelter is also the property manager and acting landlord for the following corporate entities that own the subject properties in Fort McMurray: LREIT Holdings 13 Corporation, LREIT Holdings 28 Corporation, LREIT Holdings 29 Corporation, LREIT Holdings 33 Corporation, LREIT Holdings 34 Corporation, LREIT Holdings 37 Corporation, LREIT Holdings 38 Corporation, LREIT Holdings 40 Corporation, LREIT Holdings 41 Corporation, LREIT Holdings 42 Corporation, LREIT Holdings 43 Corporation, LREIT Holdings 44 Corporation, and LREIT Holdings 45 Corporation (collectively hereinafter referred to as “ LREIT Holding Companies ”).

There are a total of 13 properties in issue (the “ Properties ”). Shelter manages the Properties, renting out individual units and acting as the landlord for each rented unit. Every rented unit is governed by a residential tenancy agreement between each of the tenants and Shelter (the “ Tenancy Agreements ”).

For most of the Properties, Shelter uses one or two units as office space, on-site maintenance and storage (“ Shelter Units ”). [ 7 ] Shelter, LREIT, LREIT by its officers and board of trustees, and the LREIT Holding Companies are the named Plaintiffs in this Action (hereinafter, collectively referred to as the “ Plaintiffs ” or the “ Insured ”). [ 8 ] In 2016, Shelter, on behalf of the Plaintiffs, sought and obtained a policy of commercial insurance for the Properties bearing policy number MP/S-RW 7906 for the period of April 1, 2016 to April 1, 2017 (the “ Policy ”).

The subscribing Insurers were Aviva Insurance Company of Canada, Allianz Global Risks US Insurance Company, Royal & Sun Alliance Insurance Company of Canada, Lloyds Underwriters Under Agreement B6006QBECAN2016B5 As Arranged By: QBE Services Inc., Starr Insurance & Reinsurance Limited, Syndicates 2003 at Lloyds Per Catlin Canada, Arch Insurance Canada Ltd., and Temple Insurance Company (collectively hereinafter the “ Defendants ” or the “ Insurers ”). The Policy was issued to the Insured by the brokerage company, Aon Reed Stenhouse Inc. (“ Aon ”), who is not party to this litigation.

The Policy [ 9 ] At the time the Policy was entered into, the evidence shows that Shelter advised the Insurers, through Aon, that it was a priority for Shelter to obtain insurance for rental loss to protect Shelter and the Properties against loss of revenue, to ensure cash flow to meet financial obligations in the event of an insured peril, as well as to cover additional costs incurred as a result of loss in such a case. Moreover, in evidence are the commitment letters for each of the Properties’ lenders.

These letters specifically required the Properties to have insurance for business interruption loss, and specifically, rental loss that covered 100% of the total rents for each of the Properties for a period no less than that stipulated by each lender (either 12, 18 or 24 months). [ 10 ] The Insurers agreed to insure each of the Properties and issued the Policy with extended insurance coverage against loss of rental income. Shelter agreed to and paid additional premiums for this extension of insurance. [ 11 ] It is undisputed by the parties that the relevant sections of the Policy are as follows:

SCHEDULE OF COVERAGE

POLICY

SECTION II – GROSS RENTS INSURANCE Premises Insured: Sum Insured 1. Any of the Insureds locations INCLUDED IN POLICY

SECTION 1 PROPERTY INSURANCE (ALL RISKS) 7. Extensions of Insurance [...]

g) PROFESSIONAL FEES: Sublimit $250,000.00 In addition to the cover provided for professional fees and other charges incurred in the settlement of this loss, this policy covers other fees and charges incurred by the Insured in the preparing or substantiating of any claim hereunder (except fees of any adjusters hired by the Insured and/or any costs incurred in bringing an action against the Insurer(s)) and/or the method of repair or replacement and/or for producing and certifying particulars or details of the Insured’s business required by the Insurer(

s) in order to arrive at the amount of loss payable in the event of claim. GROSS RENTALS INSURANCE 1. Insuring Agreement Subject to the conditions, provisions and limitations hereinafter stated, the Insurer(

s) hereby agrees with the Insured that if any part or all of the property at the Insured’s premises as cited in the Declarations of this Policy shall be destroyed or damaged by the perils insured under this Policy at any time during the period of insurance payment shall be made to the Insured for the Loss of Gross Rentals on the following basis: 2. Perils Insured Perils insured are defined in the PERILS INSURED form included in this Policy. 3. Sums(

s) Insured: The Insurer(

s) shall not be liable hereunder for more than the sum(

s) insured cited in the Declarations of this Policy. This Insurance is limited to loss due to: (

a) REDUCTION IN GROSS RENTALS (

b) INCREASE IN COST OF WORKING and the amount payable as indemnity shall be: (

i) IN RESPECT OF REDUCTION OF GROSS RENTALS: The amount by which the Gross Rental s during the Indemnity Period shall, in consequence of the destruction of [sic] damage, fall short of the Standard Gross Rentals; (ii) IN RESPECT OF INCREASE IN COST OF WORKING: The additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Gross Rentals which but for the expenditure would have taken place during the Indemnity Period in consequence of the destruction or damage, but not exceeding the Loss of Gross Rentals thereby avoided, less any sums saved during the Indemnity Period in respect of Costs as may cease or be reduced in consequence of the damage, by the perils insured against, PROVIDED that if the Sum Insured on Gross Rentals be less than the amount of the Annual Gross Rentals the amount payable shall be proportionately reduced. [...] 5.

Definitions: GROSS RENTALS – the money paid or payable to the Insured by tenants in respect of rental of the premises, the estimated rental value of the unoccupied portion(

s) of the buildings and a fair rental value of the portion(

s) of the Buildings occupied by the Insured. INDEMNITY PERIOD - the period beginning with the occurrence of the destruction or damage and ending not later than TWELVE (12) months thereafter during which Gross Rentals shall be affected in consequence of the destruction or damage.

ANNUAL GROSS RENTALS – The gross Rentals during the twelve month period immediately before the date of destruction or damage by a peril insured against STANDARD GROSS RENTALS – The Gross Rentals during that period in the twelve months immediately before the date of the destruction or damage by a peril insured against or which corresponds with the Indemnity Period ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) to which such adjustment shall be made as may be necessary to provide for the trends of, variations in or special circumstances affecting Gross Rentals either before or after the destruction or damage not occurred, so that the figures thus adjusted shall represent as nearly as may be reasonably practicable as results which but for the destruction or damage would have been obtained during the relative period after the destruction or damage. 6.

Provisions If during the Indemnity Period services shall be rendered elsewhere than at the premises for the benefit of the business either by the Insured or by others on his behalf the money paid or payable in respect of such services shall be brought into account in arriving at the Gross Rentals during the Indemnity Period. The Insurer(

s) shall not be liable for any loss due to fines or damages for breach of contract, or for any penalties of whatever nature. On the happening or any destruction or damage by a peril insured against in consequence of which a claim is or may be made under this Policy, the Insured shall with due diligence do and concur in doing and permit to be done all things which may be reasonably practicable to minimize or check any interruption of or interference with Gross Rentals or to avoid or diminish the loss. The Insurer(

s) shall be liable for actual loss as covered hereunder during the period of time, not exceeding two weeks, while access to the described premises is prohibited by order of civil authority, but only when such order is given as a direct result of damage to neighboring premises by a peril insured against. [ 12 ] The Insurers are not contesting that the Policy was valid and subsisting at all material times and constituted a binding contract of insurance between the Insured and the Insurers, or that the Properties were covered by the Policy.

Rather, they resist the Plaintiffs’ claim for rental loss on the basis that there was no loss suffered by the Plaintiffs. [ 13 ] In addition, the Defendants deny any further amounts claimed by the Plaintiffs to be owing in relation to professional fees that the Plaintiffs incurred to quantify their loss. The Defendants deny the claim on the basis that the Plaintiffs have not proven their rental loss claim.

The Peril [ 14 ] On May 3, 2016, 80,000 residents of Fort McMurray were subject to a mandatory evacuation order (the “ Evacuation Order ”) issued by the civil authority due to the out of control wildfire that spread across 590,000 hectares of land in the Regional Municipality of Wood Buffalo and was encompassing the population centre of Fort McMurray (the “ Wildfire ”). The Evacuation Order was in effect from May 3, 2016 until June 1, 2016 (the “ Evacuation Period ”).

Once the Evacuation Order was lifted, a staged re-entry process began, with those living in the least-damaged areas allowed to return first. [ 15 ] The following facts are not in dispute: a. Beginning May 3, 2016, all of the tenants were forced to evacuate their units in the Properties due to the Evacuation Order. b. All of the Properties sustained heavy smoke damage, rendering each of the individual units in the Properties inhabitable for varying periods of time. c.

The tenants were unable to return to the Properties and Shelter was unable to resume their normal operations until Shelter was able to complete its investigations into the extent of the damage caused by the Wildfire. This included having indoor air quality testing done for the Properties to ensure that the air quality met the required safety limits. d. The tenants were allowed to return to the Properties on the dates listed in the following table (the “ Occupancy Date ”): Ownership Entity Property Name Occupancy Date LREIT 33 Gannet Place June 20, 2016

LREIT 40 Parkland Apartments June 22, 2016 LREIT 43 Whimbrel Terrace June 22, 2016 LREIT 28 Lakewood Apartments June 23, 2016 LREIT 29 Lakewood Townhomes June 23, 2016 LREIT 38 Lunar Apartments June 23, 2016 LREIT 13 Nelson Ridge Estates July 7, 2016 LREIT 34 Woodland Park July 7, 2016 LREIT 37 Parsons Landing July 7, 2016 LREIT 41 Skyview Apartments July 7, 2016 LREIT 42 Snowbird Manor July 7, 2016 LREIT 45 Millennium Village July 7, 2016 LREIT 44 Laird’s Landing July 28, 2016 e. To date, the Insurers have paid approximately $6.5 million to the Plaintiffs for property damage covered by the Policy.

Chronology [ 16 ] Shelter, on behalf of the Plaintiffs, advised the Insurers of the Wildfire on the day the Evacuation Order was issued – May 3, 2016. A formal insurance claim was submitted on May 5, 2016.

The Insurers appointed Crawford & Company (Canada) Inc. (“ Crawford ”) as adjuster for the claim. [ 17 ] On May 6, 2016, Aon advised Shelter by email that coverage under the property damage portion of the Policy would be triggered by direct loss or damage to the Properties, and that this in turn would trigger the business interruption coverage under the Policy, including the provisions with respect to rental loss. [ 18 ] On May 16, 2016, Shelter had an in-person meeting with a representative from Crawford who advised them that the Insurers needed Shelter to start calculating its rental loss so that the Insurers could make an interim payment for the rental loss. [ 19 ] On May 25, 2016, Aon advised Shelter by email that smoke damage to the Properties would trigger the gross rentals coverage, and that “the authorities actions or decisions won’t come into play as far as triggering coverage”. [ 20 ] After receiving prior approval from the municipality to enter Fort McMurray, several inspections of the Properties were conducted between May 27-30, 2016, to inspect the damage caused by the Wildfire.

These inspections were conducted by representatives from Shelter, Crawford, Aon and other professional consultants. [ 21 ] On June 1, 2016, Crawford confirmed by email that damage to the buildings had been established. This determination triggered coverage under the rental loss provision of the Policy. Crawford represented that rental loss for at least the month of June should be covered and undertook to review with the insurers their position regarding May 2016 rents. [ 22 ] Crawford requested information from Shelter regarding calculation of any potential rental loss.

On June 2, 2016, Shelter provided Crawford by email their initial calculations in respect of rental loss, as well as all other supporting documentation that had been provided to MNP, their auditor, for the purpose of preparing a report (the “ MNP Report ”). On July 28, 2016, Crawford was provided the MNP Report. [ 23 ] On August 4, 2016, Crawford sent a letter advising Shelter, that the Insurers’ forwarded the MNP Report to their consultant, Jarvie & Company (“ Jarvie ”) for review and comment.

In this letter, Crawford also confirmed again that there was professional fee coverage available under the Policy and that consideration for the MNP invoice would fall under that coverage.

Crawford advised that Shelter pay the MNP invoice directly and then “add the value of a paid MNP invoice to the first requested indemnity payment”. [ 24 ] On December 20, 2016, Crawford sent a letter to Shelter advising them that the Insurers were not accepting MNP’s Report, as the MNP Report only calculated “potential losses” as opposed to “actual losses”. [ 25 ] On February 1, 2017, Shelter met with representatives from Aon, Aviva and Allianz.

They discussed the appropriate methodology for calculating the rental loss. [ 26 ] On March 13, 2017, Aon advised the Insurers by email of Shelter’s intention to retain a forensic accountant, Matson, Driscoll & Damico Ltd. (“ MDD ”), to quantify the rental loss and to invoke the professional fees clause of the Policy to cover MDD’s invoice. [ 27 ] On May 31, 2017, in response to a request from the Insurers, Aon provided a budget estimate for hiring MDD to provide a report.

The Insurers requested copies of any reports produced by MDD. [ 28 ] On June 6, 2017, upon the advice of Aon, the Plaintiffs retained forensic accountants MDD, to quantify the rental loss and provide a report (the “ MDD Report ”). [ 29 ] On December 5, 2017, a representative of the Insurers emailed Aon indicating that they were expecting to have received the MDD Report by then and wanted to know when they could expect to receive it by.

Aon advised the Insurers representative that they were hoping to receive the report in the next two weeks and asked for confirmation that the Insurers were going to be paying MDD’s fee. In response, the Insurers’ representative stated that: “Payment for [professional] fee will be based on the professional fees coverage of the policy”.

[ 30 ] Shelter provided the MDD Report to Crawford to provide to the Insurers between March 13, 2018 and April 30, 2018, and submitted MDD’s invoices to Crawford who forwarded them to the Insurers for reimbursement on April 24, 2018, May 3, 2018, and September 10-11, 2018. [ 31 ] On May 2, 2018, the Plaintiffs filed a Statement of Claim against the Insurers to preserve the limitation period. The Plaintiffs sought the following relief in the Statement of Claim: a. A declaration that the Policy was valid and subsisting; b.

A declaration that the Insurers owe a duty to indemnify the Plaintiffs for all elements of the claim, plus further losses and costs incurred as a result of the Insurers’ failure to pay; c. Judgment against the Insurers in the amount of $4,682,579.00 for rental loss and property damage; and d. Punitive and exemplary damages for bad faith in the amount of $250,000.00; and e. Interest and costs. [ 32 ] On October 31, 2018, the Insurers sent a letter to Shelter denying their claim for rental loss.

Furthermore, the letter indicated that the Insurers accepted MDD’s calculations of the rental loss, but disagreed with MDD’s assumption on coverage. The Insurers’ position was that Shelter suffered no actual loss. [ 33 ] On January 22, 2019, the Insurers filed a Statement of Defence acknowledging the existence of the Policy but denied the Plaintiffs’ insurance claim on the basis that it did not fall within the scope of the “Gross Rentals Coverage” in the Policy. [ 34 ] On January 30, 2019, Crawford advised Shelter by email that the Insurers were taking the position that there was no coverage for rental loss.

Crawford further advised that the Insurers would not be providing coverage for the cost of the MDD Report “in these circumstances”. [ 35 ] On November 27, 2019, the Plaintiffs brought an Application for

Summary Judgment. The Plaintiffs, later on December 18, 2019, filed an Application for

Summary Trial. [ 36 ] On January 28, 2020, by consent of the parties, an order was granted setting the procedure for the Plaintiffs’ Application for

Summary Trial. On the same date, the Plaintiffs’ also filed an Amended Statement of Claim. [ 37 ] In addition to the allegations made in the Statement of Claim, the Amended Statement of Claim alleged that the Insurers had expressly or impliedly represented to the Plaintiffs that there would be coverage, and in particular, coverage for rental loss and professional fees. The amendments to the Statement of Claim also removed allegations of bad faith and the claim for punitive and exemplary damages. [ 38 ] The evidence that was before me in this

summary trial, all of which has been reviewed and considered, includes: Affidavit of Cathy Goodman-White sworn September 4, 2019; Affidavits 1 through 13 of Cameron McQuaid, all sworn July 29, 2019; transcript of oral questioning of Cathy Goodman-White on March 4, 2020; excerpts of answer to undertakings from cross-examination on March 4, 2020 of Cathy Goodman-White; supplemental

schedule of answers to undertakings #4, 5, 6, 9, 16, 18, 20 cross-examination on March 4, 2020 of Cathy Goodman-White; Affidavit of John Edward Farmer affirmed June 22, 2020; Affidavit of Glenn Jarvie sworn July 6, 2020; Affidavit of Stan Bodal sworn July 7, 2020; transcripts and undertaking response from the questioning of John Farmer on August 24, 2020; transcripts and undertaking responses from the questioning of Glenn Jarvie on August 24, 2020; and transcripts and undertaking responses from the questioning of Stan Bodal on August 24, 2020. III.

Issues [ 39 ] The primary issue in this case is whether the amounts claimed by the Plaintiffs fall within the terms of the Policy. That primary issue engages the following sub issues: 1. How is rental loss calculated under the terms of the Policy? 2. Do the amounts claimed by the Plaintiffs fall within the definition of Gross Rentals under the Policy? 3. Are the Insurers/Defendants obligated to pay the cost of the MDD report? 4. Are the Insurers estopped from denying coverage for professional fees and Gross Rentals loss as a result of their conduct or the conduct of their agent Crawford? IV.

Law and Analysis Sub Issue 1: How is Rental Loss Calculated Under the Terms of the Policy? [ 40 ] While the Plaintiffs and Defendants agree on the governing law for

interpretation of contract policies, it is of assistance to provide a review of the general guiding principles for contract

interpretation. [ 41 ] The Plaintiffs bear the onus of proving on a balance of probabilities that a claim pled falls within coverage of the policy,

triggering the duty to indemnify. However, if this is demonstrated, the onus shifts then to the Defendants to show that the coverage is precluded by an exclusion clause: Progressive Homes Ltd. v Lombard General Insurance Co. Of Canada , 2010 SCC 33 at para 51 [ Progressive Homes ]. In this case, the Defendants agree that no exclusion clause applies. Therefore, it is solely a matter of determining the proper

interpretation of the Policy and what, if any, of the Plaintiffs claims fall within the scope of coverage under the Policy. [ 42 ] In Progressive Homes , the Court reviewed the general principles of insurance policy

interpretation and provided a three-prong approach for

interpretation: [22] The primary interpretive principle is that when the language of the policy is unambiguous , the court should give effect to clear language, reading the contract as a whole ( Scalera , at para. 71). [23] Where the language of the insurance policy is ambiguous, the courts rely on general rules of contract construction ( Consolidated- Bathurst , at pp. 900-902). For example, courts should prefer

interpretations that are consistent with the reasonable expectations of the parties ( Gibbens , at para. 26; Scalera , at para. 71; Consolidated-Bathurst , at p. 901), so long as such an

interpretation can be supported by the text of the policy. Courts should avoid

interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was concluded ( Scalera , at para. 71; Consolidated-Bathurst , at p. 901). Courts should also strive to ensure that similar insurance policies are construed consistently ( Gibbens , at para. 27). These rules of construction are applied to resolve ambiguity.

They do not operate to create ambiguity where there is none in the first place. [24] When these rules of construction fail to resolve the ambiguity, courts will construe the policy contra proferentem — against the insurer ( Gibbens , at para. 25; Scalera , at para. 70 ; Consolidated-Bathurst , at pp. 899-901). One corollary of the contra proferentem rule is that coverage provisions are interpreted broadly, and exclusion clauses narrowly ( Jesuit Fathers , at para. 28): paras 22-24. [ 43 ] When courts have to go to the second prong of

interpretation – that is, turning to general rules of contract construction to interpret ambiguous policy language – considering the reasonable expectations of the parties is critical. The factual matrix may provide insight into the reasonable expectations of the parties when they entered into the contract, but often, when dealing with standard form policies, the information on the record is insufficient: Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co. , 2016 SCC 37 [ Ledcor ] at para 65 .

In those circumstances, the Court in Ledcor suggests using the purpose of the policy to help determine the reasonable expectations of the parties, keeping in mind that coverage clauses should be interpreted broadly and exclusion clauses narrowly: para 66. [ 44 ] Further, the commercial reality should guide the

interpretation of the policy, providing context as to what the reasonable expectations of the parties should have been. Recent authority from our Court of Appeal in Condominium Corporation No. 9312374 v Aviva Insurance Company of Canada , 2020 ABCA 166 [ Condo Corps ] re-iterated at para 42 that: ...the

interpretation of an insurance policy should not bring about unrealistic results or results inconsistent with the commercial context existing between the parties. The

interpretation should promote a sensible commercial result. Courts should avoid an

interpretation that “would either enable the insurer to pocket the premium without risk or the insured to achieve a recovery which could neither be sensibly sought nor anticipated at the time of the contract”: Consolidated-Bathurst at 901-902. [ 45 ] As a general rule, language, especially in coverage clauses, should be construed in a manner favourable to the insured because the insurer should use language that clearly expresses the extent and scope of exceptions and limitations: Cabell v The Personal Insurance Company , 2011 ONCA 105 at para 14 [ Cabell ].

Courts are especially concerned about nullification of coverage. In Cabell , the Ontario Court of Appeal held that if the court is able to determine on an objective basis that the insurer’s

interpretation would render nugatory coverage for the most obvious risk for which the policy covers, a tactical burden shifts to the insurer. The insurer must then show that “the effect of its

interpretation would not virtually nullify the coverage and would not be contrary to the reasonable expectations of the ordinary person as to the coverage purchased”: para 28. [ 46 ] In this case, the position of the Plaintiffs with respect to their claim for rental loss is as follows: a. Rental loss is defined by the Policy, and is not limited to “actual loss”; and b. The amounts claimed by the Plaintiffs falls within the Policy

definitions of rental loss. [ 47 ] The Defendants have acknowledged that the conditions of the contract are satisfied for the Plaintiffs to make a rental loss claim. However, their position is that the amounts owing to the Plaintiffs should be limited to the Plaintiffs’ “actual loss”, which they say is $0. To support their position, the Defendants rely solely on the report of their expert Jarvie (the “ Jarvie Report ”).

Prepared by chartered accountants, the Jarvie Report reviewed and commented on the MDD Report which calculated the loss of gross rentals arising from the Wildfire and provided a framework to allow for alternate calculations to be prepared should different findings of fact and factual assumptions be made. The Jarvie Report offered no opinion on coverage or the legal

interpretation of the insurance policy. [ 48 ] Since the parties have differing

interpretations of the rental loss provision, the starting point for this court is to determine the correct

interpretation of the provisions under “Gross Rentals Insurance” in the Policy. [ 49 ] Gross Rentals is defined in the Policy as: GROSS RENTALS – the money paid or payable to the Insured by tenants in respect of rental of the premises, the estimated rental value of the unoccupied portion(

s) of the buildings and a fair rental value of the portion(

s) of the Buildings occupied by the Insured. [ 50 ] In my opinion, the wording of this provision is unambiguous and I can give effect to clear language, reading the Policy as a whole: Progressive Homes at para 22 . [ 51 ] The definition for Gross Rentals includes losses that can be broken down into three categories:

a. First category: the money paid or payable to the Insured by tenants in respect of rental of the premises; b. Second category: the estimated rental value of the unoccupied portion(

s) of the buildings; and c. Third category: a fair rental value of the portion(

s) of the buildings occupied by the Insured. First Category: Money Paid or Payable to the Insured [ 52 ] I will begin by interpreting the first category of “the money paid or payable to the Insured by tenants in respect of rental of the premises”. This category clearly deals with units that are currently occupied and generating rental income. As identified by both parties, it deals with two separate categories of rental income: (1) money paid, and (2) money payable. [ 53 ] Both parties agree that “money payable” refers to money owing and not yet paid.

The Plaintiffs elaborate that in context, this category covers: Rental losses relating to Tenants who refused to pay their May, June, or July 2016 rents, Tenants who withheld payment of rents up until the date they moved out, and Tenants who ceased renting permanently as a result of the peril incurred up until November 2017 (12 months after the Wild Fire), or until the unit was re-rented, whichever came first... [ 54 ] Contrarily, the Defendants maintain the position that the Plaintiffs suffered no “actual loss”. However, they do not provide their own

interpretation of this category of loss. [ 55 ] Regarding the category of “money paid”, neither party provides a clear

interpretation of what this covers but acknowledges that this is distinct from “money payable”. In their written submissions, the Plaintiffs refer to “gross rental losses not yet occurred” in reference to rental refunds, but seem to discuss this as a separate category of loss.

They do, however, submit that since the Policy expressly contemplates the inclusion of all amounts “paid or payable” as part of the Gross Rentals definition, there is no basis for the Defendants to deny their claim. [ 56 ] I find that “money payable” covers the rental money owing to the insured but never paid as a result of the insurance peril.

I agree with the Plaintiffs that based on the context of the situation, this includes: 1) tenants who refused to pay their May, June and/or July rents, 2) tenants who withheld rent payments until the date they moved out, and 3) tenants who the Plaintiffs can prove ceased renting permanently for the 12 months following the insurance peril. [ 57 ] I find that “money paid” covers rental money that was paid to the Insured but as a result of the insurance peril, may be refundable to the tenant(

s) and/or may be recoverable by the tenant(

s) who paid the rent in the months of May, June and/or July 2016 while their unit(

s) were deemed uninhabitable. [ 58 ] Based on a plain reading of the provision, in my opinion, the clearest Gross Rentals loss an insured could suffer is rental money owing but not paid to them as a result of the insurance peril. To find otherwise would be contrary to party expectations and would have the effect of nullifying the provision: Algonquin Power (Long Sault) Partnership v. Chubb Insurance Co. of Canada , 2003 CarswellOnt 1941, [2003] OJ No. 2019 (Ont SC) at para 130 . As such, I find that a reasonable

interpretation of “money paid or payable” would be money owed to the Plaintiffs but not received and money that was received but may be refundable to/recoverable by the tenant(s). Second Category: Estimated Rental Value of Unoccupied Portions of the Buildings [ 59 ] The second category under the Gross Rentals definition is the “estimated rental value of the unoccupied portion(

s) of the buildings”. The Plaintiffs use the phrase “opportunity loss” to describe this category of rental loss, describing it as the lost opportunity to generate rental income by renting out vacant units for the period of time that the units are uninhabitable due to an insured peril. [ 60 ] The Defendants take issue with the Plaintiffs’

interpretation primarily because the concept of “opportunity” is not mentioned anywhere in the Policy. Therefore, they argue that this type of loss is not within the scope of the Policy. They go on to assert that there is no way that the Policy would cover the loss of rental income for unrented units, and that essentially, the Plaintiffs are asking this court to have the Defendants compensate them for “the downturn in the Fort McMurray economy”. The Defendants offer no alternative

interpretation of what this second category under Gross Rentals covers. [ 61 ] I find that the meaning of this second category of loss is unambiguous. In the context of the entire Gross Rentals provision, where the first category of rental loss clearly refers to units rented out and the third category clearly refers to the portions of the building occupied by the insured, the “unoccupied portions of the buildings” must refer to the units in the buildings that are vacant.

This also makes the most sense considering that the phrasing used – “estimated rental value” – indicates that the total loss would be dependent on which units are vacant and available to rent at any given time. [ 62 ] This second category must also be considered in context of the commercial reality: Condo Corps at para 42 . Clearly, the provision is not intended to compensate the Plaintiffs for 100% rental value of the vacant units at the time of the insurance peril.

Rather, this category, considered in the context of the entire Policy, is intended to compensate the Plaintiffs for the vacant units that they could have reasonably expected to have rented out over the period of time that the Properties were uninhabitable. [ 63 ] The Policy itself stipulates that the Gross Rentals loss be considered in light of the “Annual Gross Rentals” and the “Standard Gross Rentals”, which are defined terms in the Policy. These

definitions require the loss calculation be adjusted for “trends of, variations in or special circumstances affecting Gross Rentals either before or after the destruction or damage or which would have affected Gross Rentals had the destruction or damage not occurred”.

[64] The case law supports such an

interpretation. The cases of Pentagon Investments Ltd v The Canadian Surety Company, (NS SC) [Pentagon Investments] and Evangeline Savings and Mortgage Co v General Accident Assurance Co of Canada,[1984] NSJ No 65 (NS SC) [Evangeline Savings] dealt with gross rentals loss insurance that included coverage for “the estimated rentalvalue of the unoccupied portions of the building”. In both cases, it was accepted that the insureds were entitled to compensation for thevacant units that they could have reasonably expected to rent out for the period of time the premises were unavailable.

The total grossrentals loss was reduced by the vacancy rate, which was adjusted to account for the vacancy rate of each property in the 12 monthspreceding the insurance peril. [65] In consideration of the foregoing, I find that a reasonable

interpretation of the “estimated rental value of the unoccupiedportion(

s) of the buildings” would provide coverage for the vacant units that could have reasonably been rented out during the period oftime that the premises were uninhabitable, adjusting for the trends of, variations in or special circumstances affecting Gross Rentals. Third Category: Fair Market Value for the Portions of the Buildings Occupied by the Insured [66] The third and final category under the Gross Rentals definition covers “a fair market value for the portion(

s) of the buildingoccupied by the insured”. The Plaintiffs argue that this provides coverage for the units that they use as offices and for storage in each ofthe buildings. The Defendants disagree but provide no alternative

interpretation for this category. [67] I find the meaning of this third category is straightforward and unambiguous. The provision provides an insured compensationcalculated at a fair market value for the portions of the building that they own and occupy themselves. There is no other reasonableinterpretation of this provision that would result in coverage being provided to the insured.

I also note that in both Pentagon Investmentsand Evangeline Savings, the insurance policies in those cases included a similar provision providing coverage for parts of the building,if any, occupied by the insured, calculated at a fair market / rental value. As such, I find in this case, this category covers the unitsoccupied by the Insureds in each of the Properties, calculated at a fair market value. What is Meant by “Actual Loss”? [68] The Defendants argue that only “actual loss” is covered under the Policy.

As mentioned previously, there is no definition of“actual loss” in the Policy and no definition is provided by the Defendants. The words “actual loss” is used in the Policy in clause 6,under the heading “Provisions”. Clause 6 was earlier set out herein but the relevant provision states: The Insurer(

s) shall be liable for actual loss as covered hereunder during the period of time, not exceeding two weeks, while access to thedescribed premises is prohibited by order of civil authority, but only when such order is given as a direct result of damage to neighboringpremises by a peril insured against. [69] I find that this is a limiting provision that provides coverage only in situations where a premise is evacuated due to the civilauthority, but the premise itself suffers no damage.

As such, the provision does not apply in this case because the Wildfire that gave riseto the evacuation issued by the civil authority resulted in damage to the Properties. [70] Furthermore, I find that the indemnity date for coverage began May 2, 2016, and extended for 12 months until May 2, 2017.This

interpretation was supported by Aon, the brokerage company, who said in an email to Shelter dated June 5, 2016: The thing to remember that coverage under your Property policy is triggered by direct physical loss or damage to the Property Insured.That in turn will trigger the Business Interruption coverage. Under the BI Form (in this case Gross Rents and Extra Expenses), there is an extension that will trigger cover for the short terminterruption created by “Interruption by Civil Authority”.

It is designed to be a bridge in situations where your property is not directlydamaged but you had to close for reasons beyond your control. [71] Therefore, I find that the distinction drawn by the Defendants regarding “actual loss” is not relevant because the provision thatreferences “actual loss” does not apply in these circumstances. Instead, I find that the Plaintiffs are entitled to coverage based on theinterpretation provided for “Gross Rentals”, for a 12 month indemnity period beginning May 2, 2016. [72] Having interpreted the Gross Rentals definition under the first stage of

interpretation provided in Progressive Homes, there isno need to move onto the next stage of

interpretation. However, I would note that the Plaintiffs explicitly purchased additional coveragefor Gross Rentals loss, suggesting that there would be a reasonable expectation of both parties to provide coverage for this type of loss,and since this is a coverage provision, it should be interpreted broadly: Cabell at para 14. [73] Furthermore, while I recognize that the Defendants disagreed with the Plaintiffs’

interpretation of Gross Rentals, I note thatthey never actually provided their own

interpretation of Gross Rentals and moreover, one that would actually result in coverage. Thisraises concern for nullity of contract, which the jurisprudence has clearly warned against. [74] Having now interpreted the Gross Rentals provision, I turn to looking at what of the Plaintiffs’ amounts claimed fall withinthe scope of coverage. Sub Issue 2: Do the Amounts Claimed by the Plaintiffs Fall Within the Definition ofGross Rentals under the Policy? Coverage Under the First Category of Loss: Money Paid or Payable to the Insured Tenants Who Did Not Pay Rent in May, June and/or July, 2016

[ 75 ] This is the most straight forward loss to be calculated. The Plaintiffs are entitled to recover the loss of rental money not paid by their tenants for any point of time beginning from the date of the Evacuation Order up until the Occupancy Date. [ 76 ] The Defendants argued that the Plaintiffs did not take steps to ensure collection of these rental payments. They argued that the Plaintiffs should have collected these rental payments since the Tenancy Agreements did not have any abatement of rent clause. In the result, the Defendants argue that the Plaintiffs should be denied coverage.

In response, the Plaintiffs relied on the case of 2224981 Ontario Inc. v. Intact Insurance Co . , 2016 ONCA 870 [ 2224981 Ontario Inc. ], which they say provides support in rejecting the Defendants argument. [ 77 ] In 2224981 Ontario Inc. , the owner of a commercial real estate was denied coverage for loss of rental income after a fire damaged their property. The insurer denied coverage on the basis that the tenant did not continue to pay rent after the fire.

They argued that any loss of rental income was due to the owner’s decision not to pursue collection of the tenants rent which they were obligated to do in the absence of an abatement of rent clause in the tenancy agreement. [ 78 ] The Ontario Court of Appeal in 2224981 Ontario Inc. rejected the defendant’s position solely based on the

interpretation of the Business Income Loss policy. The court found that the owner anticipated receiving rental income from their tenant which they did not receive after the fire, and this alone was sufficient to trigger coverage under the policy: para 16. Therefore, it was unnecessary to determine whether or not the lease was frustrated: para 10. [ 79 ] Likewise, I find that in this case, the Wildfire and subsequent damage was an insured peril that triggered Gross Rentals Insurance coverage.

Therefore, I find the fact that Shelter was expecting to, but never received, rental payment from some of the tenants throughout the Evacuation Period is sufficient to trigger that coverage. The non-payment of rent clearly falls within the scope of the Gross Rentals definition of “money payable” to the Insured, and so the Plaintiffs are entitled to recover this loss.

As the Court of Appeal said in 2224981 Ontario Inc. , and I agree with, there is no need to even consider frustration of the tenancy agreement and abatement of rent for this particular loss. [ 80 ] MDD prepared reports for each of the Properties, that showed the status of every rental unit, rent paid and unpaid rent for the months of May, June and July of 2016. Based on these calculations, I find that the Plaintiffs have substantiated their loss under this category.

Tenants Who Withheld Rent Payments until the Date They Moved Out and Tenants Who Stopped Renting Permanently as a Result of the Wildfire [ 81 ] The Plaintiffs argue that they are entitled to recovery for this second component of rental loss because they had tenants who ceased renting as a direct result of the Wildfire, which falls squarely within money “paid or payable” to the Plaintiffs.

Therefore, the Plaintiffs say that these losses arose as a direct result of the insured peril that was beyond their control and was unforeseen or unexpected. [ 82 ] The Plaintiffs also argue that the reason why this first category was calculated this way was because the Defendants rejected the original MNP Report which approximated the potential rental loss based on prior occupancy rates.

Rather, the Defendants requested that the Plaintiffs substantiate their actual loss “through presentation of the monthly rent rolls showing those Tenants who paid and did not pay”. [ 83 ] MDD prepared their reports to comply with the Defendants request, showing explicitly, for each Property, the tenants who did not pay their May, June and July rents and then ceased renting as a result of the Wildfire, up until the unit was filled with a new tenant. In several cases, it was long-term tenants who broke their lease as a result of the Wildfire.

The Plaintiffs further argue that the Defendants should be estopped from denying payment for this loss. [ 84 ] As previously said, I find that this loss falls within the meaning of the monies “paid or payable to the Insured by tenants in respect of the rental of the premises”. I find that tenants who broke their leases and moved as a result of the Wildfire, requiring the Plaintiffs to try to re-fill previously secured units, is an unforeseen or unexpected loss and recovery is reasonable.

There is no need to address the argument of estoppel at this point. [ 85 ] I accept, for the most part, the calculations provided by MDD to substantiate this loss of tenants who ceased renting after the Wildfire. However, I have limited the loss recovery to the date of when the unit was filled or to a maximum of the 12 month indemnity period, whichever was first. Any loss calculated after and including May, 2017 was excluded from the final rentals loss calculation.

Total Loss of Rental Money Payable to the Plaintiffs [ 86 ] Overall, based on the evidence in the record before me, I find that the Plaintiffs have substantiated their rental loss incurred to date.

Accordingly, I find that $569,443 [1] is a reasonable estimate of the damage amount that the Plaintiffs are entitled to recover for the tenants who did not pay their May, June or July rents to the Plaintiffs, and the tenants who stopped renting as a result of the Wildfire up until a new tenant moved in or the expiration of the 12 month indemnity period, less any saved operating expenses that will be deducted from the total Gross Rentals loss.

Rental Refunds/Abatement of Rent for Tenants Who Paid Their Rent in May, June and July of 2016 [ 87 ] In argument, the Plaintiffs raised the issue that tenants who paid rent for when they were unable to access their respective units were entitled to an abatement of rent under the Residential Tenancies Act , 2004, c R-17.1 [ RTA ]. Both parties submitted case law that takes opposing positions on the issue of abatement of rent. [ 88 ] The Defendants pled the case of Seward v MacRae , 2016 ABPC 257 [ Seward ].

Here, a tenant applied for an abatement of rent as a result of the mandatory evacuation order due to the flooding in Calgary during the summer of 2013. The tenant applied on the basis that he was deprived of the benefit of the residential tenancy agreement for a 17 day period, pursuant to section 37(1) (

b) of the RTA . In

deciding that the tenant was not entitled to an abatement of rent, the Court pointed to

section 16 (

b) of the RTA , which provides that “neither the landlord or a person under the landlord will disturb the tenant’s possession or peaceful enjoyment of the premises”. They went on to say at para 20: In the case before me, it is clear that the mandatory evacuation order due to the flooding was neither

an act of commission or omission of the landlord or of any person under the landlord. The extent and the duration of the evacuation order was determined by the Minister of the Executive Council and the Local Authorities.

Section 16 (

b) provides that the landlord will not disturb the tenant’s possession or peaceful enjoyment. Therefore, there must be some act of commission or omission of the landlord. Clearly, this was not the case here. Further, there was no evidence that the landlord had any control to remedy the situation, that is, the landlord had no control over lifting the mandatory evacuation order.

In obiter , the Court also noted the evidence from the landlord that indicated the tenant did receive $1250 pursuant to an Alberta Government flood assistance program. [ 89 ] In turn, the Plaintiffs argue the case of Boardwalk Rental Communities v Ravine , 2009 ABQB 534 [ Boardwalk ], an appeal of the Tenancy Dispute Officer’s decision granting a tenant abatement of a month’s rent and damages for the cost of alternative accommodation due to a bedbug infestation.

In upholding the decision, the Court found that even though the landlord was not negligent or unreasonable in dealing with the bedbug infestation, it still had an obligation to provide the tenant with premises that could be occupied: para 20.

The Court said at para 21: Case law may establish that where a landlord is making reasonable attempts to deal with the problem, although a tenant will be entitled to an abatement of rent and perhaps damages to compensate for the breach of the obligation of quiet possession, a tenant will not be able to terminate the tenancy [...]. [ 90 ] If the absence of an abatement of rent clause in the Tenancy Agreements cause me concern, the Plaintiff’s argue that the Tenancy Agreements were frustrated as a result of the Wildfire and the tenants are therefore owed a rental refund on this basis.

In support of their frustration argument, the Plaintiffs pointed to the case of Crown Point Hotel

(1981) Ltd. v. British Columbia (Public Safety and Solicitor General) , 2007 BCSC 1048 [ Crown Hotel ]. In Crown Hotel , the Court dealt with an order from a fire commissioner that prohibited the owner of a building from using and allowing occupancy of portions of the building until the owner made necessary upgrades to the premises.

The Court found that the order frustrated the residential tenancy agreements that the owner had with its tenants. [ 91 ] In relation to the rental refunds and abatement of rent raised by the Plaintiffs, the Defendants argued that the Plaintiffs were required to mitigate their damages under the Policy.

The Defendants assert that an abatement of rent would be contrary to a mitigation of damages, and would actually be an aggravation of damages because providing the Plaintiffs an abatement of rent would result in them receiving a windfall of recovery. [ 92 ] The Defendants further take the position that when calculating the overall Gross Rentals loss, the proper approach is to deduct the operating expenses that were saved or reduced, as well as the security deposits that the Plaintiffs retained, and the increase in occupancy that occurred after the fire.

This results in the Plaintiffs suffering no loss. [ 93 ] The Plaintiffs agree that they were required to mitigate their damages, but argue that the Defendants

interpretation of mitigation is incorrect. In terms of the abatement of rent, they say that in order to comply with the terms of the Policy to mitigate their losses, they had to attempt to collect rent from as many tenants as possible. However, this put them at odds with their obligations under the RTA , as well as their obligations to their tenants under their own tenancy agreements due to frustration of contract. [ 94 ] The Plaintiffs also argue that the Defendants have created a situation which makes recovery under the Policy impossible.

On the one hand, the Insurers have maintained that the Policy only covers “actual losses”. On the other hand, when presented with “actual losses” within the meaning of the Policy, the Defendants maintain that the Plaintiffs are entitled to no recovery.

This is because the Defendants deducted both the amount recovered by Plaintiffs through proper mitigation of damages and any increase in business after the Wildfire, from the Plaintiffs “actual losses” to result in a final loss of $0. [ 95 ] In considering the issue of rental refunds and abatement of rent, I find that the Plaintiffs have not substantiated this loss. I find that while coverage is available under the Policy, this part of the Plaintiffs’ claim is not recoverable because the Plaintiffs are unable to prove that they have suffered a loss in this regard.

As of the date of this decision, the Plaintiffs have not refunded any money back to tenants who paid rent in May, June and July, nor have they provided any proof or evidence that any of the tenants have commenced actions against them for abatement or recovery of rent which could result in them suffering a loss. [ 96 ] I find that neither the Seward case or the Boardwalk case are directly comparable to the situation at hand, because in both those cases, the tenants themselves sought an abatement of rent.

In this case, there is no evidence before me that any tenants sought, let alone received, an abatement of rent, and at this point in time, the tenants appear to be out of time to do so retroactively.

I would also note that many of the tenants of the Properties may have qualified for disaster relief benefits made available by the Government of Alberta to residents of Fort McMurray affected by the Wildfire, like the government benefit available to the tenants in the Seward case. [ 97 ] I also find that the Crown Hotel case is distinguishable on the facts, because in that case, it was the failure of the owner of the hotel to comply with the safety orders of the fire commissioner that resulted in the tenancy agreement being frustrated.

In this case, the reason why the tenants were unable to access their residences during the Evacuation Period was completely out of the control of the Plaintiffs and therefore, does not frustrate the tenancy agreements within the meaning of

section 40 of the RTA . Moreover, there is no evidence before me that any of the tenants attempted to have their tenancy agreement found frustrated so that they could recover some or all of the rent they paid for May, June and July. As a result, I am unable to find that the Plaintiffs have suffered a loss in regards to rental refunds and abatement of rent. [ 98 ] Furthermore, although not argued by the Defendants, I find that any Gross Rentals loss due to damages for breach of contract i.e. brought by a third party for breach of a tenancy agreement, is not covered under the Policy. The Policy explicitly states under clause

6 Provisions that: “The Insurer(

s) shall not be liable for any loss due to fines or damages for breach of contract, or for any penalties of whatever nature.” Accordingly, even if the Plaintiffs could prove their loss involving rental refunds or abatement of rents, that type of loss is arguably (although not argued by either party) not covered in the Policy.

Coverage Under the Second Category of Loss: Estimated Rental Value of the Unoccupied Portions of the Buildings [ 99 ] The Plaintiffs are entitled to a level of recovery for the vacant units that could have reasonably been expected to have been rented out during the evacuation period until the occupancy date of the Properties. The scope of recovery under this second category will be based on the vacancy rates and estimate rental value of the unoccupied units for the five month period preceding the Evacuation Order.

The monthly vacancy rates for each of the Properties are provided in the MDD Reports. [ 100 ] I note that while I would have preferred to calculate the average vacancy rates for the 12 month period preceding the Wildfires, only 2 of the 13 Properties provide this data.

The remaining 11 properties only provide the vacancy rates for the five months preceding the Wildfire, and so for consistency, a five month average vacancy rate was used to calculate the recovery on this head of loss. [ 101 ] Accordingly, I find that $731,291.07 [2] is a reasonable estimate of the damage amount that the Plaintiffs are entitled to recover for the unoccupied portions of the Properties that they could have reasonably expected to have rented, less any saved operating expenses that will be deducted from the total Gross Rentals loss.

Coverage Under the Third Category of Loss: Fair Market Value of the Owner Occupied Portions of the Buildings [ 102 ] In most of the Properties, Shelter owned one or more units for their own operations and for storage. Based on the

interpretation of this part of Gross Rentals, Shelter is entitled to recover fair market rental of these units beginning from the date of the Evacuation Order until the Occupancy Date for each of the respective Properties.

This coverage reflects the loss of use suffered by Shelter as a result of not being able to access the Properties. [ 103 ] Accordingly, I find that $61,759 [3] is a reasonable estimate of the damage amount that the Plaintiffs are entitled to recover for the value of the owner occupied portions of the Properties, less any saved operating expenses that will be deducted from the total Gross Rentals loss. Sub Issue 3: Are the Defendants Obligated to Pay the Cost of the MDD Report? [ 104 ] In Be In Christ Church of Canada O/A Welland Brethren in Christ Church v.

Intact Insurance Company , 2019 ONSC 7412 [ Christ Church ], the

interpretation of a professional fees provision was at issue. In that case, Intact had hired EllisDon to prepare a “scope” document assessing the range of damage caused by a fire to the Church. The Church was concerned that they lacked the expertise to critique EllisDon’s scope and hired professionals to assist them, which they believed was covered by a professional fees provision: para 5.

Intact argued that it was only those professionals that it required that are covered by the provision, whereas the Church asserted that so long as it retained a professional to obtain the particulars that Intact required, then the insurance policy provided coverage: para 12. [ 105 ] The court in Christ Church found that the disputed provision was ambiguous, and that general rules of contract construction should be applied to determine the correct

interpretation. The court agreed with the Church’s

interpretation of the policy, finding at para 21: The Church has been paying a premium for this coverage. It does not have the expertise to deal with a significant loss such as caused by the fire. It is reasonable that it expected that this provision provided it with coverage to retain experts to assist in such a situation.

It is also reasonable that Intact would expect that the Church might require such assistance and for which it purchased insurance coverage and paid a premium to Intact. [ 106 ] The court went on to comment that “a review of the cases show that the language varies from insurance policy to policy, but the concept remains consistent. The fees covered are for professionals retained by the insured to assist in providing the insurer with details of the loss. Indeed, several cases make that assumption without even opining on that issue”: Christ Church at para 26 .

Overall, the court concluded that the professional fees need not be required by Intact for them to be covered by the Policy: para 28. [ 107 ] In this case, the parties agree that the professional fees provision in the Policy is a coverage provision and not an exclusion or condition. It is clearly coverage for which the Plaintiffs have been paying a premium. [ 108 ] The Plaintiffs argue that the professional fees provision in the Policy is unambiguous and that the cost of the MDD report is clearly covered by Policy.

The Defendants on the other hand argue that the professional fees provision only provides coverage when a loss is proved. They argue that if they calculate that there is no payable claim to the insured, then there is no coverage under the Policy for professional fees. [ 109 ] The primary question that needs to be answered in this case is whether this provision is ambiguous and if so, utilizing the general rules of contract construction, what is the correct

interpretation? If the provision is not ambiguous, then the sole question becomes whether the MDD Report falls within the scope of coverage? [ 110 ] Under the “Extensions of Insurance”

section of the Policy is a professional fees provision with a maximum sublimit of $250,000, that provides the following coverage:

g) PROFESSIONAL FEES: Sublimit $250,000.00

In addition to the cover provided for professional fees and other charges incurred in the settlement of this loss, this policy covers otherfees and charges incurred by the Insured in preparing or substantiating any claim hereunder (except fees of any adjusters hired by theInsured and/or any costs incurred in bringing an action against the Insurer(s)) and/or the method of repair or replacement and/or forproducing and certifying particulars or details of the Insured’s business required by the Insurer(

s) in order to arrive at the amount of losspayable in the event of claim. [111] This provision can be broken down as follows: The Policy provides coverage for professional fees and other charges incurred in the settlement of this loss. The Policy also covers anyfees and charges incurred by the Insured in: i. preparing or substantiating any claim hereunder (except fees of any adjuster hired by theInsured and/or any costs incurred in bringing an action against the insurer); and/or ii. the method of repair or replacement; and/or iii. producing and certifying particulars or details of the Insured’s business required by the Insurer(

s) in order to arrive at the amount of loss payable in the event of claim. [112] In my view, this provision is unambiguous. It clearly provides that the Policy will cover fees and charges incurred by theInsureds for the purposes of arriving at the amount of loss payable in the event of a claim, up to a maximum amount of $250,000.

Nowhere in the provision does it contemplate that a claim must be paid out by the Insurers in order for the Insureds’ fees and charges to becovered. [113] Furthermore, the evidence on the record demonstrates that the Defendants have: (1) acknowledged the professional feescoverage in the Policy in the amount of $250,000 applies to Gross Rentals Insurance claims; (2) paid out MNP’s fees for the MNPReport; (3) despite rejecting MNP’s calculations to substantiate the loss; and (4) without yet determining whether the Plaintiffs hadsuffered a loss that was payable under the Policy.

Additionally, the Defendants did not provide any explanation in either their written ororal submissions for why they paid for the MNP Report, if their ultimate argument is that professional fees are only covered if theInsureds claim is payable. Such action is contradictory to their overall position regarding this issue. [114] I find that the Defendants’

interpretation of the professional fees provision in the Policy is unreasonable and goes against a plainreading of the provision.

Furthermore, I take into consideration that the Plaintiffs were paying a premium for this coverage based on areasonable expectation that in the event of an insurance claim, they would be covered for any professional expertise required tosubstantiate their insurance claim. [115] As such, I find that the MDD Report is covered by the Policy under the professional fees provision since, like the MNP Report,its purpose was to help calculate what, if any, loss was payable. [116] As a result of the foregoing, I find that the conditions to trigger professional fees coverage have been met and the Defendantsare required to pay MDD’s fees for the MDD Report in the amount of $94,482.16.

Sub Issue 4: Are the Insurers Estopped From Denying Coverage for Professional Feesand Gross Rentals Loss as a Result of their Conduct or the Conduct of their AgentCrawford? [117] The doctrine of estoppel by representation is pleaded in the alternative by the Plaintiffs.

A person wishing to rely on estoppel byrepresentation must demonstrate that the representor made a representation of an existing fact to the representee with the intention(actual or presumptive), and with the result, of inducing the representee on the faith of the representation to alter his position to hisdetriment: Ryan v Moore, 2005 SCC 38 at paras 51 and 76. The representation may be written or oral, and may also be made by conducton the part of the representor, or by silence of inaction where the insurer has a duty to speak or act: Pannenbecker v.

Dominion of CanadaGeneral Insurance Co, 93 DLR (3d) 450, (Alta CA) at para 37. [118] Estoppel by representation based on the conduct of the insurer is “essentially the application of a rule by which justice is donewhere the circumstances of the conduct and behaviour of the party to an action are such that it would be wholly inequitable that heshould be entitled to succeed in the proceeding”: Vaid v. Insurance Corp. of British Columbia, [1999] BCJ No 2303 (BC SC) at para 25;see also LaPierre v.

General Accident Assurance Co. of Canada, 2007 NSSC 9 at para 67. [119] The insurers legal duty to speak or act is central to estoppel by representation based on an insurers silence or inaction: UltramarLtd. v. Rancur Petroleum Services Ltd., 2006 NLCA 55 at para 53 [Ultramar]. In discussing the duty to advise, the appellate court citedthe Supreme Court decision of Fletcher v Manitoba Public Insurance Corp, (SCC), [1990] 3 SCR 191 at 217: It is clear that within the insurance industry, as also within the courts, private insurance agents and brokers are viewed as more than meresalespeople.

The Continuing Legal Education Society of British Columbia's 1985 Seminar on Insurance Law focused on the servicesthey provide, (at p. 6.1.03): The services of a competent agent or broker will include, in addition to advice on insurance, and the brokering or placing of insurance onbehalf of the client, an active interest and involvement in loss prevention and a claims supervisory service to assist your client in thesatisfactory settlement of the claims. In my view, it is entirely appropriate to hold private insurance agents and brokers to a stringent duty to provide both information and

advice to their customers. They are, after all, licensed professionals who specialize in helping clients with risk assessment and in tailoring insurance policies to fit the particular needs of their customers. Their service is highly personalized, concentrating on the specific circumstances of each client. Subtle differences in the forms of coverage available are frequently difficult for the average person to understand. Agents and brokers are trained to understand these differences and to provide individualized insurance advice.

It is both reasonable and appropriate to impose upon them a duty not only to convey information but also to provide counsel and advice. [ 120 ] The Court in Ultramar went on to discuss at para 54 the insurer’s duty to advise the insured if the coverage is questionable, citing Rosenblood Estate v. Law Society of Upper Canada (1989), 37 CCLI 142 (Ont HC) , aff’d in (1992), 16 CCLI (2d) 226 (Ont Ca) at p 157 [ Rosenblood ] : When a claim is presented to an insurer the facts giving rise to the claim should be investigated.

If there is no coverage then the insured should be told at once and the insurer should have nothing further to do with the claim if it wishes to maintain its off-coverage position.

If coverage is questionable the insurer should advise the insured at once and in the absence of a non-waiver agreement or of an adequate reservation of rights letter defends the claim at its risk. ... [ 121 ] In finding that the insurer was estopped by representation from denying the insured’s claim, the Court in Ultramar said beginning at para 61 : Given the passage of time and the failure of Lombard Insurance to advise Crosbie Industrial either that the Corner Brook incident was not covered, or that the coverage was questionable, it was reasonable for Crosbie Industrial to assume coverage was, in fact, available should the owner of the tank issue a statement of claim.

Lombard Insurance knew, or should have known, that cleaning the inside of large petroleum storage tanks was an operation performed by Crosbie Industrial as part of its business. The filing of a notice of occurrence or loss should have alerted the insurer to the fact that Crosbie Industrial expected that this type of occurrence would be covered by its insurance policy. The insurer had the information necessary to assess the applicability of the exclusion clauses.

In the circumstances, Lombard Insurance's failure to alert Crosbie Industrial, after receiving a Notice of Loss in respect of the Corner Brook incident, that this type was damage was not, or may not be, covered by the insurance contract amounted to a representation by silence. [ 122 ] Estoppel by representation is a fact driven analysis based on considering the entirety of circumstances involving the insured and insurer. [ 123 ] In the event I found that the Plaintiffs were not covered for either the rental loss or for the MDD Report, the Plaintiffs argued that the Defendants were estopped from denying coverage. [ 124 ] Since I have already found that the Plaintiffs are entitled to coverage for the parts of their rental loss claim which have been substantiated, as well as for the cost of the MDD Report, there is no need to address this argument.

However, I offer some general comments, specifically in regards to estoppel as it relates to the Defendants denial of the professional fees. [ 125 ] I agree with the Plaintiffs that when looking at the history of the handling of this claim, the Defendants supported the Plaintiffs in hiring MDD because they did not agree with the analysis provided by MNP for the purpose of assessing the rental loss claim. The evidence reflects that through their agent Crawford, the Defendants discussed with the Plaintiffs having a second report prepared by MDD as well as the estimated costs of that report.

The Defendants essentially told the Plaintiffs to go ahead and hire MDD, confirming, when asked, that fees would fall under the Professional Fees provision in the Policy. The Defendants never raised the possibility that the second report would not be covered by the Policy. [ 126 ] Based on the course of conduct of the Defendants coupled with their silence regarding non-coverage, it was reasonable for the Plaintiffs to assume that like the MNP Report, the Policy would cover the cost of the MDD Report.

This is especially so considering that the combined total of both reports fell well within the maximum coverage limit under the Professional Fees coverage in the Policy and that the purpose of hiring MDD was no different than the purpose of hiring MNP – it was to help substantiate the rental loss claim as was required by the Defendants.

Shelter relied on the conduct and silence of the Defendants to their detriment when the Defendants refused, after-the-fact, to cover MDD’s bill of $94,486.16. [ 127 ] In such situations, insurers cannot remain silent when they believe there may be a coverage issue and then refuse to pay. As the review of the case law in Ultramar makes clear, insurers have a heightened duty to raise coverage issues to their insured when they become aware of them.

Here, the actions of the Defendants were even more problematic because they actively engaged in discussions with the Plaintiffs and were made aware of the cost of hiring MDD, but never once mentioned that unlike the MNP Report, the professional fees for this report may not be covered.

The Defendants were even directly asked by Aon if they would cover the cost of the MDD Report and responded that coverage would fall under the Professional Fees provision of the Policy. [ 128 ] If there is a doubt as to whether the policy will provide coverage, insurers should make their insured aware of it, particularly when discussions are going on concerning that exact coverage: Rosenblood at p 157. Failing to do so could result in the insurer being estopped from denying coverage. V.

Conclusion [ 129 ] In conclusion, I find that the Plaintiffs are entitled to judgment against the Defendants for the Gross Rentals Insurance loss they suffered as a result of the peril from the Wildfire in the following amounts: Rentals loss for occupied units: $569,443

Fair market value of unoccupied units: $731,291.07 Fair market value of owner occupied units: $61,759 LESS: Save expenses ( $108,252 ) TOTAL GROSS RENTALS LOSS: $1,254,241.07 [ 130 ] Furthermore, I find that the Plaintiffs are entitled to recover the cost of the MDD Report in the amount of $94,482.16. [ 131 ] The total amount of the damages awarded to the Plaintiffs against the Defendants is $1,348,723.23. [ 132 ] In addition, I award the Plaintiffs interest on the total damages amount awarded pursuant to the Judgment Interest Act , RSA 2000, c.

J-12. [ 133 ] As the successful party, the Plaintiffs are also entitled to costs. [ 134 ] If counsel cannot resolve the issue of costs, counsel for the Plaintiffs shall submit written costs submissions not to exceed 10 pages with a Bill of Costs and any Offer to Settle attached within 60 days. Counsel for the Defendants shall submit their written response not to exceed 10 pages with any Offer to Settle and a Bill of Costs, if desired, within 45 days of receipt of the Plaintiff’s costs submissions. All submissions to be filed and copies provided to me through my judicial assistant.

Heard on the 22 st day of October, 2020. D ated at the City of Calgary, Alberta this 23 rd day of March, 2021. Madam Justice J.C. Price J.C.Q.B.A. Appearances: Grant Stefanson and Mandi Deren-Dube for the Plaintiffs Donald Dear, Q.C. and Alexis Moulton for the Defendants

SCHEDULE I –

SUMMARY OF LOSSES Entity Property Description Rental Loss* FMV of Unoccupied Units** FMV of Owner Units LESS: Saved Expenses TOTAL LREIT 13 Nelson Ridge Estates $76,675 1,2 $160,776.70 4 $8,849 $23,245 $223,055.70 LREIT 28 Lakewood Apartments $5,050 $50,857.83 5 $6,615 $7,827 $54,695.82 LREIT 29 Lakewood Townhomes $22,500 $32,099.40 6 $4,274 $6,054 $52,819.40 LREIT 33 Gannet Place $16,778 $13,326.98 7 $6,299 $8,046 $28,357.98 LREIT 34 Woodland Park $109,250 $122,364.63 8 --- $7,072 $224,542.63

LREIT 37 Parsons Landing $55,810 $116,027.53 9 $3,862 $24,263 $151,436.53 LREIT 38 Lunar Apartments $13,400 $9,219.86 10 --- $2,499 $20,120.86 LREIT 40 Parkland Apartments --- $5,834.80 11 --- $181 $5,653.80 LREIT 41 Skyview Apartments $23,041 $12,063.06 12 --- $2,144 $32,960.06 LREIT 42 Snowbird Manor $28,292 $21,262.20 13 $2,783 $1,543 $50,794.20 LREIT 43 Whimbrel Terrace $31,715 3 $18,947.42 14 --- $1,095 $49,567.42 LREIT 44 Laird’s Landing $177,907 $139,815.59 15 $21,450 $20,917 $318,255.59 LREIT 45 Millennium Village $9,025 $28,695.07 16 $7,627 $3,366 $41,981.07 Totals: $569,443 $731,291.07 $61,759 $108,252 $1,254,241.07 *Gross Rentals loss includes unpaid rent for May, June and July 2016 and tenants who ended their lease as a result of the Wildfire.

In the MDD reports for each of the Properties, they include schedules that calculate the entire rental loss as well as specifically the length of time a unit of a tenant who left as a result of the Wildfire remained unoccupied. Calculations have been adjusted to only compensate rental loss for the indemnity period that extended from May 2, 2016 to May 2, 2017.

Since rent for May 2016 is included in the calculation, rent for May 2017 is excluded. **Coverage for the FMV of Unoccupied Units has been adjusted to account for the average vacancy rate of the five months prior to the Wildfire (December 2015-April 2016), as this was the only available data for each of the Properties. The value of 100% of unoccupied units provided in the MDD Reports was reduced to account for the average vacancy rate. Adjustments to Calculations in MDD Reports: 1 Note 1 of

Schedule 3 calculated rental loss until June 2017. Total rental loss for this tenant reduced from $20,050 to $16,650. 2 Note 2 of

Schedule 3 calculated rental loss until November 2017. Total rental loss for this tenant reduced from $25,200 to $15,400. 3 Note 2 of

Schedule 3 calculated rental loss until November 2017.

Total rental loss for this tenant reduced from $20,900 to $13,200. 4 Total value of unoccupied units ($292,215) reduced for a vacancy rate of 44.98%. 5 Total value of unoccupied units ($107,704) reduced for a vacancy rate of 52.78%. 6 Total value of unoccupied units ($71,332) reduced for a vacancy rate of 55.0%. 7 Total value of unoccupied units ($17,605) reduced for a vacancy rate of 24.3%. 8 Total value of unoccupied units ($246,902) reduced for a vacancy rate of 50.44%. 9 Total value of unoccupied units ($282,856) reduced for a vacancy rate of 58.98%. 10 Total value of unoccupied units ($13,655) reduced for a vacancy rate of 32.48%. 11 Total value of unoccupied units ($14,587) reduced for a vacancy rate of 60%. 12 Total value of unoccupied units ($22,339) reduced for a vacancy rate of 46%. 13 Total value of unoccupied units ($34,416) reduced for a vacancy rate of 38.22%. 14 Total value of unoccupied units ($31,558) reduced for a vacancy rate of 39.96%. 15 Total value of unoccupied units ($288,042) reduced for a vacancy rate of 51.46%. 16 Total value of unoccupied units ($71,239) reduced for a vacancy rate of 59.72%.