Appealing Briefs – Episode 27: Emond – Interpreting Insurance Contracts (Podcast)

When does a “guaranteed rebuilding cost” endorsement actually cover the added costs of rebuilding after a loss? In Emond v. Trillium Mutual Insurance Co., the Supreme Court of Canada considered how standard form insurance policies should be interpreted when coverage extensions appear to conflict with policy exclusions. Adam Goldenberg speaks with McCarthy Tétrault litigator Akiva Stern about the Court’s decision, how it applies the framework from Ledcor, and what it means for insurers and policyholders across Canada.

Transcript

Adam Goldenberg  00:00

Welcome to Appealing Briefs, a podcast with brief updates on cases from Canada's Courts of Appeal. I'm Adam Goldenberg. This episode briefs you on the Supreme Court of Canada's January 2026 judgment in Emond v. Trillium Mutual Insurance Company.

We'll talk about the implications of that decision for the whole of Canada's insurance industry. Before we begin, a brief disclaimer. This podcast contains legal information, not legal advice.

Adam Goldenberg  00:34

Now, let's start with a brief summary. In September 2018, the Emonds had their home insured by Trillium Mutual Insurance Company. In addition to a base policy, they paid for an additional endorsement or supplement for guaranteed rebuilding cost coverage.

Both the base policy and the endorsement had several important clauses. The base policy had a list of exclusions, which made it clear that the policy didn't cover any extra repair or replacement costs caused by the need to comply with a legal requirement. The endorsement said that Trillium would pay to repair or replace the Emonds' house using current building techniques.

Adam Goldenberg 1:19

The endorsement was accompanied by a second list of exclusions, which were mostly the same as those in the base policy, but which didn't mention costs due to legal requirements. The Emonds' house was on the banks of the Ottawa River, which flooded just seven months after the house was insured. The house was deemed a total loss.

Any rebuilding had to follow the development regulations of the Mississippi Valley Conservation Authority, which would make the rebuild more expensive. Trillium argued that the cost of following those regulations was a cost caused by a legal requirement and so the policy didn't cover it. The Emonds argued that the cost of using current building techniques included the cost of following the regulations.

The endorsement they paid for had its own list of exclusions, and that wasn't one of them. Now, the interpretation of insurance contracts has its own body of case law, which partly overlaps with but is not entirely the same as Canadian contract law in general. Insurance contracts are interpreted as set out in the Supreme Court of Canada's decision in a case called Ledcor from about a decade ago.

Adam Goldenberg 2:29

First, the insurer has to show that the damage or loss falls within the initial coverage. Second, the insurer has to show that an exclusion in the applies. And third, the insured has to show that there is an applicable exception to the exclusion.

Courts also approach ambiguities differently. If a term in an insurance policy has multiple reasonable but differing interpretations when read in the context of the policy as a whole, courts consider factors such as the party's reasonable expectations and, “the commercial atmosphere”, in which the agreement was formed. If that doesn't solve the ambiguity, the court applies the contra proferentem rule, choosing the interpretation more favourable to the insured.

This is because most property policies are standard form contracts drafted by the insurer.

The Emonds ultimately lost at the Supreme Court of Canada. A majority of the Court held that it was unambiguous that the endorsement, which covered the cost of using current building techniques, did not modify the base policy in any way, except by extending coverage beyond the amount of the Emonds’ insurance; therefore, the cost of complying with legal requirements was still excluded.  The Court held that the phrase “current building techniques” meant only modern construction methods, not legal requirements. Moreover, although the endorsement appeared next to a second list of exclusions, that was only because some of the possible endorsements covered additional types of property; when it came to the basic cost of repairing or replacing a house, the main list applied.

Adam Goldenberg 4:15

Although the Court had decided that the policy was unambiguous, they also held that the decision would have to be the same even if it were ambiguous. Although the standard principles of insurance contract interpretation dictated that ambiguous phrases had to be resolved in favour of the insured, the Court held that it would be unworkable to ask insurers to ascertain the compliance of every insured property with every applicable legal regime. 

Two judges, however, disagreed. Justice Karakatsanis held that it was ambiguous whether the exclusion covered the costs of complying with legal requirements up to the time the insurance was purchased; Justice Côté, on the other hand, held that it was ambiguous whether the phrase “current building techniques” in the endorsement included the cost of complying with legal requirements. Both judges would have resolved these ambiguities in favour of the Emonds based on standard interpretation principles, and both dissenting judges additionally held that there was nothing unreasonable about asking insurers to assess and cover the additional costs. 

Adam Goldenberg 4:55

So, what does the Emond case mean for how Canadian courts interpret the standard-form contracts that are common to insurers across Canada?

I asked my McCarthy Tétrault colleague Akiva Stern. Akiva is an associate in our litigation group based in Toronto. He represented three intervenors in this appeal in the Supreme Court of Canada. Akiva, thank you very much for joining me.

Akiva Stern 5:20

Thanks for having me, Adam.

Adam Goldenberg 5:22

So, Emond is going to be the new leading case on interpreting ambiguities in insurance contracts. How is this going to affect the way that insurance underwriters, in particular, draft insurance policies going forward?

Akiva Stern 5:36

One of the things that this case brings to the table in terms of enhancing Ledcor is that it speaks to this generally advisable order, which we know from Ledcor back in 2016, the proper way to read an insurance contract and the unique nature of how an insurance contract is built. It's kind of like BEDMAS. You have to do it in the right order, otherwise you get the wrong equation.

But since Ledcor, there's been a lot of commentary on, well, how do we use this generally advisable order in conjunction with reading general contract interpretation principles? So, ordinary and grammatical meaning, even in the context of an insurance contract, has been interpreted to have a consumer protection element to it.

So, you don't just read it like a very smart, complex insurance underwriter, but you look at what the average person applying for insurance might take away from the language of coverage. And so, what this case does is it reconciles all that. It reinforces this generally advisable order from Ledcor, but it says, importantly, that even when taking in mind consumer protection considerations, the general ordinary meeting shouldn't upend this general advisable order. For example, if the average person interpreting the contract would mean that a provision in an insurance contract is read in isolation. And so, what I think you can expect from insurance companies going forward is that they will be a little bit more cognizant about adding definitions to resolve ambiguities in certain sections of the contract, but then also making it a little bit clearer how the different components of the contract fit together, being a little bit more clear about whether exclusions apply if they're elsewhere in the policy, and tying things together to make sense.

Adam Goldenberg 7:25

So, how does that reflect the submissions that you and our colleagues made on behalf of the interveners whom you represented in the Supreme Court?

Akiva Stern 7:33

So, we had the pleasure of representing a consortium of interveners, including the Canadian and Ontario Mutual Insurance Associations and a reinsurer. And through their insight, we gave submissions on the importance of this generally advisable order. It is a unique way of interpreting a contract that is different from a commercial contract.

And it asked the court not only to consider how this plays a very important role, but then also takes into account the reasonable expectations of the drafters. After all, they're the ones putting this all together, and then maybe 10 years from now, a court is telling them how they intended the contract to be. So, I think it's very important to gain their perspective on how this all plays out.

Adam Goldenberg 8:21

What's the bottom line of the majority's decision, and how, if at all, do you see the dissents informing the way this area of the law will continue to develop, and the way in which underwriters will do their jobs in years ahead?

Akiva Stern 8:34

So, I think, ultimately, the majority got it right. They protected this important interpretation mechanism of the generally advisable order. They ultimately found no ambiguity in the contract. And that makes sense when you read the contract as a whole, keeping in mind the unique nature of exclusions and extensions in the context of an insurance contract.

The dissents, though, are important because they are a shot over the bow, in the sense, to future cases. The first dissent is important because it maintained this consumer protection lens, and it reminded us that where there are ambiguities, they should be held in favour of the policyholder, particularly where the insurance company is drafting a standard form policy that they get almost entire authorship over.

Akiva Stern 09:20

And then the second dissent is important because it tells us that a bad policy won't be saved by the generally advisable order. And so it's still important that insurance companies turn their mind to how all these components of insurance policy fit together so that they make sense and not just hide behind that just because of the majority decision.

Adam Goldenberg 09:43

Akiva, thank you so much for your time today.

Akiva Stern 09:46

Thanks, Adam.

Adam Goldenberg 09:48

Akiva Stern is an associate in McCarthy Tétrault Litigation group based in Toronto. Thanks to Jacob McNair, an articling student in our Toronto office, for his work on this episode.

We hope you found this brief appealing. Thanks for listening.

Hosted by partner Adam Goldenberg, Appealing Briefs keeps listeners updated on recent decisions from Canada’s courts of appeal. Each episode provides key takeaways and implications for businesses and industry, with insights from Canada’s leading lawyers and business advisors.

This podcast series qualifies for CPD credit under the mandatory education regimes in British Columbia and Ontario.

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