Scott Bradley is a comic book aficionado.  The owner of a comic book shop in Brandon, Manitoba, he had a large personal and business-related collection in his home basement.  In September 2019, several days of significant rainfall culminated in a substantial flood in his basement leading to extensive damage to his collection (and other property).

Mr. Bradley had purchased an enhanced water damage endorsement to his home-owners’ policy.  Under the terms of the endorsement, he had coverages of $50,000 for overland flooding and $50,000 for sewer backup, with a separate deductible for each.

The September flood included both overland flooding and sewage backup with the cumulative damage exceeding $100,000.  Naturally, Mr. Bradley hoped to recover under both limits.

The Endorsement contained a ‘168 hour’ clause which provided that “all causes or events which occur within 168 consecutive hours of the first cause or event causing loss or damage, shall be considered as one occurrence.”  Unfortunately for Mr. Bradley, the flood and backup occurred at basically the same time, and certainly within a single 168-hour period.

As a result, his insurer paid $50,000 under the Endorsement, viewing such payment as properly satisfying its obligations to Mr. Bradley: while there was both flooding and backup, they were to be treated as a single occurrence.  Mr. Bradley disagreed, and commenced action both against his insurer and broker.  As against the insurer, a key question was whether it was obliged to pay the second $50,000, or whether it had satisfied its obligations under the Endorsement by payment of the first $50,000.

On April 30, 2025, Justice Leven of the Manitoba Court of Kings’ Bench released a decision on the insurer’s motion for summary judgement where he dismissed the claim for the second $50,000: the insurer had paid what it agreed to pay.  The terms of the Endorsement and the 168 hour clause were clear and mandated that result.  In so finding, the court considered and rejected what appears to have been the primary argument put forward by Mr. Bradley, ‘nullification of coverage’ (the decision alludes to other arguments, but suggests those were not fully pressed or developed by the insured).

Simply put, Mr. Bradley argued that he purchased an endorsement which granted two distinct coverages, and losses within the scope of each occurred.  He should receive $50,000 for overland flooding, and $50,000 for sewer backup.  Mr. Bradley did not argue that the 168 hour clause did not read as the insurer argued, or even that the clause was ambiguous and could be read narrowly in a fashion as to allow the court to find that both limits applied; rather, he argued the clause should be ignored altogether and effectively eliminated from the policy.  As Leven J. Summarized, “they are asking the court to eliminate the [clause] completely, and treat the Policy as if the [clause] did not exist.”

This argument relied on a number of decisions which discuss the concept or doctrine of “nullification” of coverage.  In a 2011 decision called Cabell v. Personal, the Ontario Court of Appeal described the doctrine as developing progressively starting with a 1954 Supreme Court of Canada decision called Excel Cleaning, where Justice Estey wrote,

Such a construction would largely, if not completely, nullify the purpose for which the insurance was sold — a circumstance to be avoided, so far as the language used will permit. Cornish v. The Accident Insurance Co. [(1889) 23 Q.B.D. 453.], where at p. 456 Lindley L.J. stated:

The object of the contract is to insure against accidental death and injuries, and the contract must not be construed so as to defeat that object, nor so as to render it practically illusory.

The court in Cabell viewed Excel Cleaning as simply the application of existing rules of interpretation: ambiguity is construed against the insurer and in favour of coverage, and interpretations which render the coverage illusory should be avoided. But, the basic concept of avoiding an interpretation which ‘nullifies the purpose’, was subsequently taken further, said the court.

A 1980 decision called Consolidated Bathurst, warned against the application of the “literal meaning” … “where to do so would bring about an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted… The courts should be loath to support a construction which would either enable the insurer to pocket the premium without risk or the insured to achieve a recovery which could neither be sensibly sought nor anticipated at the time of the contract”, while a 1995 decision called Amos said that “the construction given to a policy of insurance must not nullify the purpose for which the insurance was sold”.

Citing subsequent decisions, the court in Cabell concluded that nullification of coverage had become “an independent doctrine that applies even in the absence of an ambiguity”, quoting its reasons in Zurich v. 686234 Ontario, as follows:

…even though an exclusion clause may be clear and unambiguous, it will not be applied where: (1) it is inconsistent with the main purpose of the insurance coverage and where the result would be to virtually nullify the coverage provided by the policy; and (2) where to apply it would be contrary to the reasonable expectations of the ordinary person as to the coverage purchased.

As to how the doctrine should be applied to a given dispute, the Cabell court expressed the following:

• Where “nullification” is raised, the insured need not necessarily provide expert or other objective evidence to establish that application of the exclusion would virtually nullify coverage, or run contrary to reasonable expectations: “in some cases evidence [of that kind] may be needed… [but] a court is in a good position to determine what are the most obvious risks for which … [the] policy is issued.”
• “If the court is able to determine on an objective basis that the insurer’s interpretation would render nugatory coverage for the most obvious risks for which the endorsement is issued, a tactical burden shifts to the insurer… to show that the effect of its interpretation would not virtually nullify the coverage and would not be contrary to the reasonable expectations of the ordinary person…”

In Cabell the court agreed that the exclusion at issue rendered coverage under the endorsement in question “nugatory”.  As to the ‘burden shift to the insurer’, the insurer simply could not identify a realistic scenario where the coverage ostensibly provided by the Endorsement would actually be payable: “when counsel for the … insurer was pressed for an example [of coverage under the Endorsement] that would not come within Common Exclusion 11, he was unable to do so.”  As such, application of the exclusion to the endorsement “would virtually nullify coverage”, and the insured was successful.

More recently, the doctrine was applied by the Ontario Court of Appeal in Le Treport v. Co-operators, a 2020 decision involving a flood endorsement and an “unparallel rain event” in the GTA in 2013 due to which the insured suffered water damage to its banquet hall facility.

The main policy excluded damage by flood, “including “Surface Water”, waves, tides, tidal waves, tsunamis, or the breaking out or overflow of any natural or artificial body of water”, with “Surface Water” defined as “water or natural precipitation temporarily diffused over the surface of the ground”.

As noted, the insured purchased a Flood Endorsement, where flood meant “the rising of, the breaking out or the overflow of any body of water, whether natural or man-made and includes waves, tides, tidal waves and tsunamis”, and excluded water by back up through sewer, etc.

In the lower court, no coverage was found.  The actual flooding event was due to surface water, which did not meet the definition of a covered ‘flood’ in the Endorsement, and which the main policy excluded.  In effect, the Endorsement required the flood be caused by the overflow of a body of water.

However, the Court of Appeal reversed, citing (among other things) nullification of coverage.  To apply the exclusion in the main policy to the flood endorsement, “would effectively nullify flood coverage, not only in this case but in almost all cases, because few buildings stand right on the edge of a body of water. The appellant’s facility is on land located some distance away from water. How could the Flood Endorsement ever be engaged if it excluded a flood via surface water?”

Just as in Cabell, the insurer was unable “to come up with a realistic application of the Flood Endorsement” to the subject risk under which a loss due to a ‘flood’ event would be covered: “counsel for the insurer struggled in oral argument to find a circumstance in which the Flood Endorsement would ever benefit the appellant”.  In effect, a premium was paid for extra coverage for ‘flood’, but there was no realistic scenario where the insured might benefit given that its facility was not proximate to a body of water from which a covered flood might arise.  What then was paid for?

We return to Mr. Bradley’s comic book collection and Justice Leven’s decision.

As noted, the insured argued that he paid for $50,000 in flood and $50,000 in sewer backup coverage, that both had occurred, and that the 168-hour clause should be ignored.

Justice Leven acknowledged that Mr. Bradley had provided examples of caselaw where the insured was successful but did not agree that the authorities supported the notion that the court could entirely ignore the 168-hour clause or treat it as if it did not exist.  Moreover, Justice Leven viewed the clause as only a “narrow limitation on coverage”:

Depending on the timing of the overland flooding and the sewer backup, the plaintiffs might easily have had valid claims for both during the course of a policy-year … the [Endorsement] also contains a narrow limitation on coverage, which only applies when two events occur within 168 hours. In all other cases, that narrow limitation has no effect.

Put another way, one could easily imagine scenarios where the Endorsement paid under either or both coverages, namely, if a flood and sewer backup did not occur within 168 hours of each other.  As such, Mr. Bradley did not pay for coverage he could never reasonably have collected on.  He paid for coverage subject to certain limitations, a situation likened to an insured who purchased a flood endorsement which excluded tsunami.  If such an insured “suffered damage caused by a tsunami … it would be absurd … to argue that it was somehow unfair because he paid for insurance and received none.  The reality would be that he paid for insurance with clear explicit limitations, and he received exactly that…”, said Justice Leven.

Where it is reasonably argued that a policy exclusion has the effect of ‘nullifying’ coverage under an endorsement or extension, we expect the most common analysis will continue to be to resolve interpretative ambiguities in favour of the insured (i.e., read the coverage broadly and the exclusions narrow, among other things) and in some instances to stretch what is reasonable to find the necessary “ambiguity”.

Nonetheless, the caselaw referred to by Justice Leven does support a separate doctrine of “nullification” even in the absence of ambiguity.  Where an insured purchases specific coverage but no reasonable scenario can be imagined whereby the insured will have a payable claim thereunder given the characteristics of the risk, decisions such as Cabell and Le Treport create room for the court to simply refuse to apply the exclusion no matter how clear and unambiguous the policy language may be: no premium without risk.