Executive Summary: Key Legal and Evidentiary Issues

• Gore Mutual denied a fire loss claim citing an exclusion for marijuana cultivation, despite the appellant’s lawful medical license.

• The exclusion clause's reference to legislation was ambiguous and poorly drafted, leading to different possible interpretations.

• The trial court upheld the denial, finding the exclusion unambiguous and applicable to both legal and illegal marijuana activity.

• On appeal, the court held that the exclusion was ambiguous and must be interpreted narrowly in favour of the insured.

• The appeal court found the exclusion unjust and unreasonable under s. 32 of the Insurance Act due to the circumstances.

• Judgment was reversed; coverage was restored, and relief from forfeiture would have been granted if needed.

Facts and outcome of the case

The background circumstances of the claim

The appellant, Anthony Busato, suffered a total loss of his home due to an accidental kitchen fire on April 23, 2017. At the time, he held a valid homeowner’s insurance policy with Gore Mutual Insurance Company. During its investigation, the insurer discovered Busato was growing approximately 25 marijuana plants in the house. This cultivation was legally authorized under a Health Canada license for personal medicinal use.

Despite the fire being unrelated to the marijuana plants, Gore Mutual denied coverage. It relied on an exclusion clause in the policy that purportedly removed coverage for properties used in any way for marijuana cultivation, regardless of legality. The insurer continued to accept premium payments and did not void the policy.

The lower court’s decision

The trial court dismissed the appellant’s claim, finding the exclusion clause clear and unambiguous. It ruled that the exclusion applied broadly to all marijuana-related activities, licensed or otherwise. The court leaned heavily on an Ontario case, Pietrangelo, which involved illegal cannabis processing that caused a fire, even though the facts were significantly different. The court also rejected arguments under sections 32 and 33 of the Insurance Act, holding that the exclusion did not require a causal connection to the fire and was not unjust or unreasonable in its application.

Legal issues on appeal

On appeal, the key questions were whether the exclusion applied to legal, licensed marijuana activity and whether such application was unjust or unreasonable under section 32 of the Insurance Act.

The appellate court’s findings

The Court of Appeal disagreed with the trial court’s interpretation. It found that the policy exclusion clause was ambiguous, especially in its reference to legislation that did not clearly exist in the form cited. The exclusion clause improperly conflated the Controlled Drugs and Substances Act and the Narcotic Control Regulations, leading to drafting errors and confusion over which substances were actually excluded.

The court noted that an average insured person would not reasonably understand the clause to exclude lawful medicinal cultivation. Moreover, the insurer had failed to amend the clause to resolve its ambiguity, even after the issue was raised in Pietrangelo years earlier.

Applying the principle of contra proferentem (interpreting ambiguous insurance language against the insurer), the court held that the exclusion did not apply to Busato’s legal marijuana cultivation.

Consideration of fairness and section 32

Even if the clause had applied, the court found that it would have been unjust and unreasonable to enforce it under section 32 of the Insurance Act. The appellant had acted lawfully, made no misrepresentations, and the cause of the fire was unrelated to the marijuana plants. The court emphasized that the trial judge failed to assess whether the clause’s application produced an unfair result in the specific circumstances, contrary to the guidance in Marche.

Final decision

The Court of Appeal allowed the appeal, finding that the exclusion clause did not apply and that coverage for the fire loss should be restored. If necessary, the court stated it would also have granted relief from forfeiture under section 32 due to the unjust consequences of applying the exclusion.