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Summary

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A fire of undetermined cause destroyed a home near London, Ontario, on April 16, 2000. The house had been purchased in March 1997 and held in the name of Julaine Deeks, who had lived there with her husband Todd. The Royal Bank of Canada (the "Royal Bank") registered a first mortgage on the property and Michael Alexander registered a second mortgage (collectively, the "Mortgagees"). The home was insured against fire under a policy issued by the Respondent, and the Mortgagees were named as mortgagees under the policy.

The Deeks defaulted under both mortgages. Julaine Deeks moved out of the house in September 1999, and Todd Deeks not until November 19, 1999. After that date the house became vacant. Michael Alexander commenced power of sale proceedings in August 1999, and the Royal Bank commenced foreclosure proceedings in October 1999. It retained a company to inspect the property on a weekly basis. On about November 20th, the Royal Bank gave instructions to change the locks on the doors and preserve the property while it was vacant. In November 1999, Michael Alexander brought the Royal Bank mortgage into good standing thereby taking control of the sale proceedings and the Royal Bank had no further involvement with the property. Mr. Alexander retained real estate agents to list and sell the property. At no time was the Respondent notified that the property was vacant, that the Mortgagees had taken control of the property or that power of sale proceedings had been commenced.

Mr. Alexander's lawyer advised the Respondent of the fire on April 18, 2000, and both the Royal Bank and Mr. Alexander made claims under the policy. In March 2001, the Respondent advised the Mortgagees that no payment would be made, as in its view the policy had been voided effective January 7, 2000. It argued that material changes in the insured risk had occurred and that it had not received notice of those changes. Statutory Condition 4 is part of every fire insurance policy. The vacancy exclusion and the mortgage clause are written into the policy by the insurer and are standard provisions in residential fire insurance policies.

The Mortgagees brought separate actions against the Respondent. All parties moved for summary judgment, and the motions were heard together. The Superior Court of Justice found that the change material to the risk caused by the vacancy of the property had not been in control of the Mortgagees, and that the insurance policy had not been voided. It gave judgment to the Mortgagees, and ordered the payment by the Respondent of $81,757.26 and $92,176.60 to Mr. Alexander and the Royal Bank, respectively. The Court of Appeal allowed the Respondent's appeal and dismissed the Mortgagees' actions.

Lower Court Rulings