The recent decision by the Ontario Supreme Court in Equitable Trust v. Portage, 2014 ONSC
4767 (CanLII) deals with a lender's entitlement to
loss proceeds under the Standard Mortgage Clause (SMC) provisions
after a property sale where the actual cash value (ACV) exceeded
the amount remaining on the mortgage after application of property
In Equitable Trust v. Portage, Equitable Trust Company
("Equitable") sought summary judgment against the Portage
La Prairie Mutual Insurance Co. ("PLP"). The matter arose
as a result of a fire which destroyed PLP's insured's
property. PLP denied the insured's claim on the basis of
a misrepresentation in the proof of loss. The actual cash
value (ACV) of the home was $148,541.26 and, although the
replacement cost was not discussed, the policy had a limit of
liability of $500,000.
The insured defaulted on his mortgage payments. Equitable
ultimately sold the property, resulting in net proceeds of
$150,706.71, which it applied to the mortgage loan. This resulted
in a $98,682.88 shortfall remaining on the mortgage.
Equitable sought the amount remaining from PLP pursuant to the
terms of the SMC.
PLP denied the claim, arguing that it was entitled to deduct the
sale proceeds from the ACV. Thus, no payment was required since the
proceeds exceeded ACV.
The court did not agree, finding that PLP was responsible for
paying the amount remaining under the mortgage. The court
reiterated that the SMC is a separate agreement between the
mortgagee and the insurer, which protects the interests of the
mortgagee to recover the proceeds of the policy notwithstanding any
fault, default, action or inaction on the part of the
The court set out that:
a mortgagee's right to recover is limited by the amount of
the remaining secured debt;
the mortgagee only insures its security
interest on the property, in contrast to the mortgagor who
is insuring the property itself;
the mortgagee, despite acquisition of the property, is not
obligated to repair the property, nor is it required to deliver a
proof of loss if the insured has already done so;
the loss is properly calculated as the amount of the shortfall
on the mortgage following the exercise of Power of Sale.
Therefore, PLP was able to recover the shortfall. However,
insurers should be clear that payment to a lender of the
"amount remaining under the mortgage" only applies to
instances where the mortgage amount is less than
the ACV of the home. The case does not specifically address the
other common situation: where the mortgage amount
exceeds both the ACV and replacement cost. In such
cases, the bank may try and claim entitlement to the replacement
cost, as opposed to ACV. However, by confirming that the
bank's interest is limited to its "security
interest", the decision supports the position that even where
the mortgage exceeds ACV, the bank's claim is limited to ACV
since that is the extent of its security (in addition to the land)
that it took at first instance.
For prior posts on the Standard Mortgage Clause, please click
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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