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THE INSURANCE CONTRACT - Coverage provisions and exclusion clauses

Tuesday, May 22, 2018 @ 8:53 AM  


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Appeal by the insurer from a decision of an application judge finding that the respondent’s loss was covered by the mortgage insurance policy issued by the appellant. The respondent, a private mortgage lender, was the victim of a mortgage fraud. The appellant refused coverage relying on a coverage exception in the policy that applied if mortgage proceeds were paid to any person other than the registered title holder. Since the respondent’s lawyer had paid the mortgage proceeds to the borrower’s lawyer, in trust, rather than directly to the borrower, the appellant alleged that the exception applied. The application judge found that the exception did not apply because the registered title holder was paid when the borrower’s lawyer received the mortgage proceeds in trust. She thus found that the respondent’s loss was covered by the mortgage insurance policy.

HELD: Appeal dismissed. Properly interpreted, the exception enabling the respondent to deny coverage applied if the proceeds of the mortgage were transferred beneficially to a person or entity other than the borrower in the Insured Mortgage transaction. This did not happen here where the payment was made in trust to the borrower’s lawyer for the benefit of the borrower. It was, in law, a payment to the borrower. Even if the ordinary meaning of the exception clause purported to require transmission into the hands of the registered title holder before there would be insurance coverage, the clause could not be given this interpretation since no mortgage fraud occurred where money was transmitted into the hands of the registered title holder. If the clause were to require transmission into the hands of the registered title holder for coverage to apply, the policy would provide no actual mortgage fraud insurance. The clause was ambiguous because the ordinary language of it did not offer a clear or settled meaning. Because the clause contemplated payments that did not satisfy obligations, the ordinary meaning of “paid”, disbursed in such a way as to amount at law to a payment that satisfied an obligation, could not apply. The clause could not be relied upon by the respondent to exclude coverage in this case. Either the clause was invalid as an improper attempt to nullify coverage under the policy, or the clause was to be interpreted as including payment to the borrower’s lawyer in trust as money “paid to the registered title holder”.

Nodel v. Stewart Title Guaranty Co., [2018] O.J. No. 1872, Ontario Court of Appeal, G.J. Epstein, D. Paciocco and I.V.B. Nordheimer JJ.A., April 9, 2018. Digest No. TLD-May212018002