What happens when an insurance exclusion is clear to the insurer—but not to the court?
In a recent ruling affecting both insurers and policyholders alike, the British Columbia Court of Appeal (the "BCCA" or the "Court") overturned a denial of coverage in Busato v Gore Mutual Insurance Company, 2025 BCCA 79. The case concerned a fire that damaged a residential property used to grow cannabis—a use the insurer claimed clearly fell within a policy exclusion.
The lower court agreed with the insurer, holding that the exclusion clause applied to deny coverage. On appeal, however, the Court found the exclusion clause to be ambiguous and therefore unenforceable, emphasizing that unclear policy language cannot be used to deny coverage, even in high-risk contexts such as cannabis cultivation.
This case underscores the risks insurers face when relying on poorly drafted exclusions and serves as a reminder of the necessity for carefully drafted policy language to ensure enforceability.
Background
The plaintiff insured (the "Plaintiff") suffered from chronic, debilitating pain following multiple surgeries. In accordance with a license issued by Health Canada, the Plaintiff cultivated marijuana in his home in Peachland, BC, for personal medical use. In April 2017, after his home was damaged by an accidental kitchen fire (the "Fire"), the Plaintiff sought indemnity for the loss under his home insurance policy (the "Policy") with the defendant, Gore Mutual Insurance Company ("Gore"). Gore denied coverage for the loss, citing the following exclusion clause in the Policy:
We do not insure direct or indirect loss or damage, in whole in part...to dwellings or detached private structures or unscheduled personal property contained in them, used in whole or in part for the cultivation, harvesting, processing, manufacture, distribution or sale of marijuana or any product derived from or containing marijuana or any other substance falling within Schedule (Section 2) of the Controlled Drugs and Substances Act Narcotic Control Regulations; regardless of any other cause or event that contributes or in any sequence to the loss or damage (the "Exclusion").
How the Trial Court saw it—and why the Appeal Court disagreed
The trial judge rejected the Plaintiff's argument that the Exclusion was lengthy, poorly drafted, inherently confusing, and ambiguous. Relying on a prior decision by the Ontario Court of Appeal concerning the same exclusion clause in another policy issued by Gore, the trial judge interpreted the Exclusion as creating three distinct subcategories of excluded coverage. The first subcategory – property used for the cultivation, processing, or sale of marijuana – applied directly to the Plaintiff's circumstances. In the judge's view, this portion of the Exclusion was clearly and unambiguously drafted.
The Plaintiff also contended that the Exclusion was intended to capture only illegal marijuana grow operations and did not extend to licensed marijuana cultivation. He pointed to the reference to "controlled substances" in the third subcategory as evidence that the entire Exclusion was focused solely on illegal marijuana. The trial judge disagreed, finding that the Exclusion was worded broadly and excluded all marijuana-related activities, both legal and illegal.
The court also dismissed the Plaintiff's submission that the Exclusion was invalid pursuant to section 33 of the Insurance Act (the "Act"), which prohibits exclusions based on the cause of a fire. According to the trial judge, the Exclusion did not require marijuana cultivation to be the cause of the loss and, therefore, did not contravene the Act.
Finally, the trial judge rejected the Plaintiff's argument that the Exclusion was unjust and unreasonable under section 32 of the Act. The Plaintiff argued that the Exclusion discriminated against individuals cultivating marijuana for medicinal purposes. While the judge acknowledged that Gore's reliance on the Exclusion produced a "harsh result" for the Plaintiff, he concluded that the result was not unjust or unreasonable.
As a result, Gore succeeded at trial and was entitled to rely on the Exclusion to deny coverage to the Plaintiff.
From denial to coverage: the BCCA decision
The BCCA unanimously allowed the Plaintiff's appeal.
The central issue was whether the Exclusion applied to licensed marijuana-related activity. The BCCA took issue with the trial judge's reliance on the Ontario Court of Appeal decision, which did not address the distinction between legal and illegal grow operations. In the BCCA's view, the evidence in that case had limited application to the Plaintiff's situation. For this reason, the BCCA declined to adopt the reasoning from that decision.
Instead, the BCCA conducted its own independent analysis of whether the Exclusion was clear and unambiguous. It found that it was not. The Exclusion improperly referred to two pieces of legislation as if they formed a single enactment, which created ambiguity. Further ambiguity arose from the vague wording regarding which substances triggered the Exclusion.
Having found the clause to be ambiguous, the BCCA applied general principles of contractual interpretation in an attempt to resolve the uncertainty. The Court emphasized that insurance contracts must be interpreted as they would be understood by the average person applying for insurance, not as they might be perceived by those versed in the niceties of insurance law. However, in this case, the Court was unable to determine how a reasonable person would interpret the Exclusion.
Faced with this unresolved ambiguity, the BCCA applied the doctrine of contra proferentem, which holds that ambiguous language in a contract should be interpreted against the party that drafted it – in this case, Gore. When construed contra proferentum, the Exclusion did not apply to remove coverage for the Plaintiff's loss.
The Court also noted that, following the Ontario Court of Appeal's earlier decision identifying ambiguity in the Exclusion, Gore could have reworded the Exclusion to resolved the ambiguity but declined to do so. Indeed, the Court confirmed that insurers are free to narrow coverage as they wish, provided they do so clearly, explicitly, and in a manner that does not unfairly leave the insured uncertain or unaware of the extent of the coverage.
Takeaways for insurers
The Busato decision underscores the critical importance of clear and precise drafting in insurance policies—particularly in relation to exclusion clauses. Ambiguities, whether arising from vague wording or obscure statutory references, are likely to be interpreted against the insurer under the doctrine of contra proferentem. Courts will continue to assess policy language from the perspective of the average insured, not legal experts or underwriting professionals.
Insurers should proactively revise policy language when courts identify ambiguity, especially if prior decisions have already flagged problematic wording. While insurers are entitled to limit coverage, they must do so in terms that are explicit, unambiguous, and easily understood by the average policyholder. Failure to do so risks the exclusion clause being found unenforceable and coverage being upheld.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
