As published by Risk Management Counsel of Canada on September 25, 2025.Click here to view the originally published article.
When a residential property is destroyed due to negligence, assessing damages is a critical factor for insurers in evaluating litigation risks. This can be particularly important when an insurer has provided coverage to replace a destroyed residential property and is contemplating the extent they could recover damages from the wrongdoer.
The plaintiff will commonly seek damages to replace the property. In contrast, the defendant typically argues the plaintiff should only be entitled to the decrease in value of the property (diminution in value), or that the damages awarded should be reduced to account for improvements to the property resulting from replacement (betterment).
This article will discuss how courts assess damages for residential property loss due to negligence.
Replacement Costs
Damages are intended to put the plaintiff in the same position as they would have been had the wrongdoing not occurred, and the damages must be reasonable to both the plaintiff and defendant. In the often-cited decision ofNan v. Black Pine Manufacturing Ltd.,1991 CanLII 1144 (BC CA), it was held that in most cases involving loss or damage to residential property, these principles will result in replacement costs being the starting point for assessing damages. Depending on what is reasonable in the circumstances of each case, damages may be adjusted for pre-loss depreciation or betterment. Betterment refers to an improvement made to the property beyond its original condition, which often occurs when an older house is replaced with new materials.
In cases involving loss of a residential property, damages will not necessarily be reduced just because the plaintiff has the benefit of something old being replaced with something new. When a plaintiff's family home has been destroyed due to another party's negligence, the plaintiff is typically entitled to damages for replacement of the residential property without reductions for betterment. If the plaintiff has a reasonable desire to replace their home, which is often the case, fair compensation requires they be given back what they had by awarding the sum necessary to restore their property to the condition it was before it was destroyed. In most cases it will not be reasonable to apply a reduction for betterment which would require the plaintiff to finance improvements they were forced to make to their family home due to the defendant's wrongdoing.
InGendron v. Doug C. Thompson Ltd. (Thompson Fuels),2019 ONCA 293 (CanLII), the plaintiff's home had to be demolished as part of an effort to remove contaminated soil caused by an oil leak. The defendant argued the rebuilding costs for the plaintiff's home were unreasonable and resulted in betterment because his original home was not compliant with building codes, but his new home was. The court found that the plaintiff had provided detailed evidence regarding the estimated cost to rebuild the home as close to possible to its condition prior to the leak, whereas the defendant did not adduce evidence regarding whether it was more expensive to build a home that met the building code requirements. The plaintiff was entitled to an assessment of damages based on the full replacement cost of the home.
Awarding Damages Less than Replacement Costs
Where the defendant seeks for the damages to be reduced for betterment, the onus is on the defendant to establish betterment. The court will consider various factors and will determine whether a reduction for betterment should be made depending on what is reasonable in the specific circumstances of each case. In some instances, courts will also prefer to award damages on the basis of diminution of value, rather than replacement.
Properties without Special Value to the Plaintiff
InScaffidi-Argentina v Tega Homes Developments Inc. [Scaffidi-Argentina],2016 ONSC 5448 (CanLII), a five-unit residential rental property was rendered uninhabitable. When assessing damages the court noted that in cases where the plaintiffs are entitled to demand their property be rebuilt, the property itself usually has a special or unique value to the plaintiff such as a family home or unique development property. InScaffidi-Argentina, the property destroyed was an income property which did not hold any special importance to the plaintiffs other than its ability to generate income. The cost to replace the property was more than double the estimated fair market value of the property if it were rebuilt and there were comparable rental properties available that the plaintiff could purchase instead of rebuilding. The plaintiff could be made whole if provided with a damage award that would permit them to purchase a comparable property, so it was not reasonable to award them replacement costs in these circumstances.
InTaylor v. King,1993 CanLII 6859 (BC CA), the plaintiffs owned a property with both a main cottage and a guest cottage. The guest cottage was lost in a fire caused by negligence. The trial judge awarded the plaintiffs damages to replace the guest cottage. However, on appeal the British Columbia Court of Appeal accepted the defendants' argument that the plaintiffs were only entitled to the diminution in value of the guest cottage, not replacement. The guest cottage was neither the plaintiffs' main residence, nor their main cottage.
Lack of Intention to Rebuild
Although the building inScaffidi-Argentina, cited above, was irreparable, the plaintiffs did not show any real intention to rebuild. The court observed that in cases where the plaintiffs are awarded damages based on the cost of replacement, the plaintiffs had actually rebuilt or were virtually certain to do so. The court inScaffidi-Argentinawas not satisfied the plaintiffs would rebuild, and in the context of there being comparable properties available to purchase that were approximately half the cost of replacement, the court concluded that any damages recovered would be more profitable if invested into a comparable property instead of rebuilding. Awarding replacement value to the plaintiffs was not reasonable in the circumstances and would have resulted in a windfall to the plaintiffs.
Debt on Original Home
InGendron v. Doug C. Thompson Ltd. (Thompson Fuels), cited above, the trial judge had erred in awarding damages for the plaintiff to pay out a line of credit secured against his original home. The Alberta Court of Appeal held that this was incorrect as it placed the plaintiff in a better position. Prior to the damage, the plaintiff owned a home that was encumbered with a line of credit. As a result of the trial judge's decision, he owned a home of essentially the same value that was not encumbered by the line of credit. The damages needed to be reduced to deduct the payment of the line of credit.
Conclusion
When a residential property has been lost due to negligence, replacement costs are usually the starting point for assessing damages. If the property has a special or unique value to the plaintiff, such as a family home or unique development property, there often will not be a reduction for betterment even if the plaintiff will benefit from improvements for rebuilding the property. Courts will, however, consider what is reasonable to both the plaintiff and defendant in each particular case. Factors such as the property not being a main residence, market value making it unreasonable to rebuild, or the plaintiff not having a real intention to rebuild, may result in a reduction of the damages.
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.
