Clear Policy Language Matters: Insights From Busato V. Gore Mutual Insurance Company

In Busato v Gore Mutual Insurance Company, 2025 BCCA 79, the Court of Appeal for British Columbia overturned a Supreme Court of British Columbia summary trial decision denying insurance coverage to Mr. Busato, who lost his home in Peachland, BC in April 2017. The insurer, Gore Mutual Insurance Company, rejected Mr. Busato's claim, applying a policy exclusion for properties involved in marijuana cultivation.

Mr. Busato was in chronic pain due to five surgeries between 2006 and 2013 and Health Canada had granted him a license to grow and possess up to 73 medicinal marijuana plants.

In June 2014, Mr. Busato purchased a homeowner's insurance policy from Gore Mutual, which included fire coverage, which he renewed annually. In April 2017, a kitchen fire destroyed his home. As a result of claiming for his loss, the insurer discovered Mr. Busato was growing 25 marijuana plants and denied coverage based on the following policy exclusion:

We do not insure direct or indirect loss or damage, in whole or in part: [. . .]

32 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;

Mr. Busato sued Gore Mutual for coverage. Following a summary trial in the Supreme Court of British Columbia, the trial judge held that the exclusion was unambiguous, and the insurer was entitled to rely on it to deny coverage.

The trial judge followed the analysis of the Ontario Court of Appeal in Pietrangelo v. Gore Mutual Insurance Company, 2011 ONCA 162. Pietrangelo involved a nearly identical policy with the same exclusion. The trial judge parsed the exclusion into three distinct, disjunctive (the meaning of one is not modified or altered by another), subcategories excluding coverage: (1) dwellings or detached private structures ... used for the cultivation, harvesting, processing, manufacture, distribution, or sale of marijuana; (2) any product derived from or containing marijuana; and, (3) any other substance falling within Schedule (Section 2) of the Controlled Drugs and Substances Act Narcotic Control Regulations.

The judge found the first subcategory was "clear and unambiguous", the second subcategory inapplicable in the circumstances, and the third "less clearly worded". Ultimately, the judge adopted the conclusion in Pietrangelo, finding that the exclusion was unambiguous, and any ambiguity arising from the less clearly worded third subcategory could not override the clarity of the first two subcategories. Mr. Busato appealed.

The Court of Appeal allowed the appeal. The Court of Appeal agreed with the trial judge that the "third category" was not clear because the applicable regulations, enabling legislation and schedules were incorrectly cited. However, the trial judge erred interpreting the exclusion by artificially dividing the clause into subcategories. In essence, by creating the third (unclear) excluded situation, the trial judge rewrote the exclusion to the "disadvantage of the insured."

In this regard, the Court of Appeal was critical of the trial judge for relying on Pietrangelo which involved illegal activity; a tenant caused an explosion while making cannabis resin. The trial judge cited, but seemed to ignore Gore Mutual's evidence in Pietrangelo, that the insurer the purpose of exclusion was to limit exposure from illegal substances and prohibited activities. Mr. Busato was legally cultivating marijuana plants for medicinal purposes under a valid Health Canada license.

In addition, the Court of Appeal reaffirmed that insurance contracts are to be construed according to the reasonable expectations of an average person applying for insurance, rather than through persons versed in the intricacies of insurance law.¹ The trial judge's reasoning offended this interpretive principle: the average person would not understand either the legislation problem or reading the exclusion as containing three distinct subcategories of excluded coverage, each separated by the trial judge's disjunctive "or". The exclusion was ambiguous and must be interpreted narrowly, against the insurer, in accordance with the principle of contra preferendum.

Finally, the Court of Appeal held that it would have granted relief for forfeiture under section 32 of the Insurance Act. The summary trial judge had applied a narrow interpretation that did not align with the provision's overarching remedial purpose; to protect the public from unjust or unreasonable insurance conditions.² In Mr. Busato's circumstances (he was engaged in legal activity), enforcing the exclusion would be unjust and unreasonable.

Key Takeaway

For insurers to exclude coverage for losses involving legal marijuana cultivation, the exclusion must be clear and unambiguous. The Court of Appeal emphasized that insurance policies should be interpreted as they would be understood by the average person applying for coverage, not through the lens of legal technicalities or specialized insurance knowledge.

Footnotes

1. National Bank of Greece (Canada) v. Katsikonouris, [1990] 2 S.C.R. 1029 at 1045, 1990 CanLII 92.

2. Marche v. Halifax Insurance Co., 2005 SCC 6 at para. 34.

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.