The Ontario Court of Appeal released a brief decision on February 3, 2025, that underscores an important principle of insurance law: plain and undefined words are to be understood by their ordinary meanings. That applies even if seemingly unintended consequences may result.
The decision
The central issue in 904950 Ontario Limited v Dominion of Canada General Insurance Company, 2025 ONCA 83, was the meaning of the word "wall". The insurance policy had an exclusion for damage caused by watermain discharge if the water enters the property through basement walls. The insured suffered damage when a watermain burst, but the water entered through an out-of-use open pipe that pierced a basement wall. Both the motion judge and the Court of Appeal held the exclusion did not apply.
Both courts accepted that walls and pipes serve different purposes based on their ordinary meanings. Walls serve as protective barriers, whereas pipes enable flow in and out. If the pipe had been sealed so that it could be understood as part of the property's protective enclosure, the result might have been different. But that had not been done. Therefore, both courts held the water did not enter through the wall based on its plain meaning.
The Court of Appeal also rejected the insurer's subsidiary arguments on policy interpretation. First, the result is not contrary to the reasonable expectations of the parties: "Pipes sometimes do transect walls. It is reasonable and realistic to expect insurers to turn their minds to this possibility when drafting policies." Second, even if an ambiguity remained after consideration of the text's plain meaning and the rules of contractual interpretation, the language would be interpreted against the insurer under the principle of contra proferentem.
Conclusion
The Supreme Court of Canada has instructed that ordinary words should be construed "as they would be understood by the average person applying for insurance".1 The decision of the Court of Appeal in 904950 Ontario reinforces that instruction, because it was decided so quickly and in circumstances where some readers may expect a pragmatic approach would lead to an opposite outcome. However, the Court of Appeal noted the onus was on the insurer to make its desired limitations clear. It must live with the consequences of a failure to do so.
Footnote
1 Cooperators Life Insurance Co v Gibbens, 2009 SCC 59 at ¶21.
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