Executive Summary: Key Legal and Evidentiary Issues

• Dispute over whether a mortgagee not named in a homeowner’s insurance policy can claim under the standard mortgage clause where another lender was mistakenly listed.
• Contested application of rectification to substitute the true mortgagee (the plaintiffs) for Community Trust Company as the policy mortgagee based on alleged common intention.
• Challenge to an unjust enrichment claim against the insurer, including whether it duplicates a similar claim in a companion action brought by the mortgagor.
• Interpretation of the Insurance Bureau of Canada standard mortgage clause and whether its reference to “the Mortgagee” is limited strictly to the named entity.
• Procedural question under Rule 21 of the Rules of Civil Procedure as to whether the plaintiffs’ claims in contract, rectification and unjust enrichment disclose no reasonable cause of action.
• Evidentiary sufficiency of the pleadings: whether the facts alleged, taken as true and read generously, properly support claims for rectification and unjust enrichment at the motion-to-strike stage.

Factual background and the mortgage relationship
The plaintiffs, RSSJ Investments Inc. and individual lenders Kewal and Karshan Minhas, held a mortgage over a residential property at 4 Ivorwood Crescent in Palgrave, Ontario. The mortgagor, Yogeshire Sewdarsan, owned the property and was obliged under the mortgage to maintain insurance and to include the standard Insurance Bureau of Canada (IBC) mortgage clause for the benefit of the mortgagee. Despite this requirement, the borrower did not name the plaintiffs as mortgagee on the homeowner’s insurance policy. Instead, Community Trust Company was listed, even though Community Trust had never held a registered mortgage on the property. The evidence in the pleadings indicates that Community Trust’s involvement was limited to financing discussions while the borrower was attempting to refinance to cure the plaintiffs’ defaulted mortgage. By 2022, the mortgage in favour of the plaintiffs was in default, and the plaintiffs had commenced power of sale proceedings. Judgment in the power of sale action was obtained against the borrower on January 5, 2023, confirming the seriousness and persistence of the default.

The fire, insurance claim and policy rescission
The defendant Sonnet Insurance Company issued a homeowner’s policy effective November 14, 2022, insuring the Ivorwood Crescent property. The policy incorporated the IBC standard mortgage clause, designed to protect a mortgagee’s interest even where the insured homeowner breaches policy conditions. The clause provided that, as to the mortgagee’s interest, coverage would remain in force notwithstanding “any act, neglect, omission or misrepresentation attributable to the mortgagor” and similar conduct, subject to certain notification and additional premium obligations on increased hazard and vacancy. In the Schedule, however, Community Trust Company was listed as the party entitled to recover under the standard mortgage clause, not the plaintiffs. On November 23, 2022, a fire broke out at the property, causing substantial damage. The borrower submitted a claim under the Sonnet policy. Sonnet initially acknowledged coverage and made advance payments to the borrower, but later rescinded the policy, alleging material misrepresentations, including misstatements about the mortgage status and the identity of the mortgagee. Sonnet also alleged that the borrower had deliberately set the fire in an attempt to defraud the insurer. After the fire, the plaintiffs asked Sonnet to confirm that they would be co-payees of any insurance proceeds, asserting their interest as the actual mortgagee. Sonnet refused, taking the position that the plaintiffs had no insured interest at the time of the loss because they were not the mortgagee named in the policy. Ultimately, the damaged building was demolished and the property was sold pursuant to an agreement of purchase and sale dated July 5, 2023, with closing on October 27, 2023. The sale proceeds were insufficient to satisfy the plaintiffs’ mortgage, leaving a shortfall and prompting them to pursue recovery from the insurer.

Parallel litigation involving the mortgagor
In a separate but related action (Court File No. CV-23-273), the borrower sued Sonnet after the insurer denied her claim. Sonnet defended by relying on alleged material misrepresentations by the borrower and on alleged arson, asserting that the fire was intentionally set to obtain insurance funds. In that second action, the plaintiffs in this case were granted intervener status in June 2024 with extensive rights, including advancing a claim for unjust enrichment. The companion proceeding is relevant because many factual and legal questions overlap, including the validity of the policy, the impact of any misrepresentation, and whether Sonnet would be unjustly enriched if it avoided paying any party while retaining premiums.

The plaintiffs’ claims against the insurer
In the present action (Court File No. CV-24-00000299-0000), the plaintiffs sued Sonnet directly. Their pleaded causes of action were structured in layers. First, they advanced a contractual claim seeking to enforce the standard mortgage clause as if they had been properly named as mortgagee, arguing that the clause created a separate contract between the insurer and the mortgagee that survived any rescission as between insurer and mortgagor. Second, in the alternative, they sought the equitable remedy of rectification. They alleged that the common and continuing intention of the borrower and Sonnet was to protect the first mortgage actually registered on title—held by the plaintiffs—under the standard mortgage clause, and not to protect Community Trust Company, which held no mortgage or security interest. Rectification was sought to substitute the plaintiffs’ names for Community Trust’s in the policy. Third, the plaintiffs pleaded unjust enrichment. They argued that allowing Sonnet to retain premiums and avoid paying for a loss that impaired the value of the plaintiffs’ secured interest, while simultaneously denying coverage to both the homeowner and the mortgagee, would confer a benefit on Sonnet, impose a corresponding deprivation on the plaintiffs, and lack any juristic reason. Finally, they alleged bad faith in the handling and adjudication of their claim.

Key policy terms and the standard mortgage clause
Central to the dispute is the IBC standard mortgage clause embedded in Sonnet’s policy. This clause effectively creates a distinct contractual relationship between the insurer and the mortgagee, insulating the mortgagee’s coverage from certain breaches by the insured homeowner. Courts have long recognized that under such clauses, even where the mortgagor’s policy is voided or rescinded for misrepresentation, the mortgagee can still recover if properly within the scope of the clause. The controversy in this case is not about the existence of this protection in principle, but about who counts as “the Mortgagee” when the entity named in the policy (Community Trust) never actually held the mortgage, and the true mortgagee (the plaintiffs) was omitted despite the mortgage requiring that they be named and protected. Sonnet relied on authorities such as Farmers Mutual Insurance Co. (Lindsay) v. Pinder and Builders Capital (2014) Ltd. v. Aviva Insurance Company of Canada, arguing that only the specifically named mortgagee can benefit under the standard mortgage clause and that, therefore, no contract existed between Sonnet and the plaintiffs. The plaintiffs responded that those cases were factually distinguishable, did not involve rectification claims, and, in the Alberta case, turned on a full evidentiary record where the insurer had expressly refused to cover the alternate mortgagee.

The Rule 21 motion and legal issues before the court
Sonnet brought a motion under Rule 21 of the Ontario Rules of Civil Procedure seeking to dismiss or strike the plaintiffs’ action on several legal grounds. Under Rule 21.01(1)(b), Sonnet argued that the Statement of Claim disclosed no reasonable cause of action in contract, rectification, or unjust enrichment. It also invoked Rule 21.01(1)(a) to raise discrete questions of law, including whether any contract could exist in favour of a non-named mortgagee as a matter of interpretation of the standard mortgage clause. Finally, under Rule 21.01(1)(c), Sonnet argued that the unjust enrichment claim should be struck because it was already being advanced in the borrower’s companion action and was therefore duplicative. The applicable test under Rule 21 required the court to assume that the plaintiffs’ pleaded facts are provable and to read the claim generously. A claim could only be struck where it was “plain and obvious” that it had no reasonable prospect of success. Evidence is not admissible on such a motion, although documents specifically incorporated by reference into the pleadings (such as the insurance policy) can be considered as part of the pleaded facts.

Analysis of the contract claim
On the contract point, Sonnet contended that, as a matter of law, only the mortgagee expressly named in the policy could benefit from the standard mortgage clause, because the clause repeatedly uses the term “the Mortgagee,” which Sonnet read as limited to Community Trust. As the plaintiffs were not named, Sonnet said there was no privity of contract between it and the plaintiffs and their contractual claim necessarily failed. The court declined to accept this as a basis to strike the claim at the pleadings stage. It noted that both Builders Capital and Roumiani (another non-binding case involving a misnamed mortgagee) were trial decisions based on full evidentiary records. In Builders Capital, for example, the insurer had considered the status of the alternate mortgagee and specifically refused to write the mortgagee into the policy, a factual nuance not yet established here. Moreover, neither of those cases addressed rectification, which is directly pleaded in this proceeding. The court emphasized that there is no binding Ontario authority squarely resolving whether a misnamed or unnamed true mortgagee can never claim under such a clause when rectification is sought, and that the law on this issue remains unsettled in the province. Given the Supreme Court of Canada’s guidance that novel or unsettled claims should not be struck simply because they face an uphill battle, the court held that it was not “plain and obvious” the contract claim could not succeed.

Rectification as a live equitable remedy
The judge then considered whether the plaintiffs had sufficiently pleaded the demanding elements of rectification. Relying on Supreme Court and Court of Appeal jurisprudence (including Performance Industries v. Sylvan Lake Golf and Tennis Club and Public Service Alliance of Canada v. Nav Canada), the court recited the four “high hurdles” for rectification: proof of a prior oral agreement or common intention; proof that the written instrument fails to reflect that intention and that exploiting the error would be akin to fraud; identification of the precise form the document should take to reflect the parties’ true agreement; and establishment of these elements on the civil standard of proof, supported by cogent evidence. Examining the Statement of Claim, the court concluded that the plaintiffs had indeed pleaded all necessary elements. They alleged a specific common and continuing intention between the borrower and Sonnet to protect the first mortgage actually registered on title (held by the plaintiffs), that naming Community Trust instead did not reflect that intention, and that rectification would simply require substituting the plaintiffs’ names for Community Trust’s in the standard mortgage clause. The question of whether there was convincing proof for rectification was characterized as an evidentiary issue to be resolved at trial, not on a motion to strike. Accordingly, the rectification claim was allowed to stand.

Unjust enrichment and overlap with the companion action
The court then addressed the unjust enrichment claim. Sonnet argued that the claim should be summarily eliminated either because the plaintiffs could not meet the three-part unjust enrichment test (enrichment, corresponding deprivation and absence of juristic reason) or because it duplicated an unjust enrichment claim already before the court in the mortgagor’s companion action. The judge declined to strike the unjust enrichment cause of action. Since the contractual and rectification claims were proceeding, it was premature to rule that unjust enrichment was doomed to fail; it remained a viable alternative theory should the contractual routes ultimately be found unavailable. Concerns about duplication and case management could, in the court’s view, be controlled by ensuring that the two actions were tried together or sequentially before the same trial judge, who could coordinate overlapping issues and remedies.

Outcome, successful party and monetary consequences
At the conclusion of its analysis, the court dismissed Sonnet Insurance Company’s Rule 21 motion in its entirety. The plaintiffs’ claims in contract, rectification and unjust enrichment all survived the preliminary challenge and will proceed to discovery and trial, likely in coordination with the mortgagor’s related action. In this motion decision, the successful party is therefore the plaintiffs, RSSJ Investments Inc. and Kewal and Karshan Minhas. However, the court did not fix any damages, indemnity amount or costs figure. Liability and quantum under the insurance policy, as well as any equitable or restitutionary relief, remain to be determined at trial. On costs of the motion, the judge simply directed the parties to attempt to agree; failing agreement, they were given a timetable to submit short written costs submissions, with a warning that no order as to costs would be made if submissions were not filed on time. As a result, in this decision, no specific monetary award or total amount of damages, indemnity or costs has yet been granted or ordered in favour of the successful party, and the exact amount cannot be determined from this judgment alone.