A recent decision of the B.C. Supreme Court determined that
despite an insurer's wrongful denial of coverage, an
insured's failure to replace fire damaged buildings and
contents with due diligence and dispatch restricted the
insured's recovery to actual cash value ("ACV").
In Bahniwal v. The Mutual Fire Insurance Company of British
Columbia 2016 BCSC 422 the Plaintiff was the owner of a
property on which several structures were located. These
included a residential house, commercial greenhouses and a storage
facility with attached living suite. The house and attached
suite were rented. The Plaintiff and her husband operated a
garden supply business on the remainder of the property. A
fire completely destroyed two of the structures and their
contents. While attending the fire, members of the fire
department observed some signs of a marijuana grow operation in the
rental suite (plastic sheeting on the walls, venting and grow
lights), although marijuana plants were not present. The
cause of the fire was never determined.
The property was insured under a policy which provided for
coverage on a replacement cost basis subject to various conditions
including the usual: "Replacement shall be effected by the
Insured with due diligence and dispatch".
The insurer took the position that the policy was void because
of the insured's failure to disclose the existence of a
marijuana grow‑op. The Plaintiff denied any knowledge
of the grow‑op and sued seeking a declaration of coverage
under the policy on a replacement cost basis.
At trial the Court ultimately determined the Plaintiff did not
have knowledge of the renters' marijuana grow operation and
concluded the Plaintiff was entitled to recover under the
The insurer then took the position that the Plaintiff was
restricted to recovery only of the ACV of the buildings and
contents because no replacement had yet taken place. The
Plaintiff said that she did not effect replacement because, as the
insurer had denied coverage, she did not have the money to do
so. The Court rejected this argument stating that the
Plaintiff had the ability to borrow the money necessary to replace
the burned building and contents, but made the decision to await
the result of the lawsuit before doing so. Having failed to
replace with due diligence and dispatch, the Court decided this
constituted a breach of a condition fundamental to the application
of the replacement cost extension. As such, the Court
restricted the Plaintiff to recovery of the ACV of the building and
In reaching its decision the Court looked to some earlier cases
of the BC Court of Appeal in which it was confirmed that while
replacement cost endorsement wording required an insurer to pay the
cost of replacement after replacement is complete, it did not
require the insurer to advance funds to enable replacement.
Those early cases focussed on whether an insurer was obliged to
advance the cost of replacement prior to replacement having been
completed. This is different from the situation where the
insurer has denied coverage and the insured delays replacement
until clarifying if it will be fully indemnified. Previously,
the case law suggested that in such circumstances the insured's
election to either accept ACV or to replace the property would be
"suspended" until the insurer's liability was
determined. This recent decision of the BC Supreme Court goes
against that approach and strictly applies the requirement to
replace "with due diligence and dispatch".
It is not known at this time if this decision will be
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