Recently, the Court of Appeal rendered an interesting decision on the exclusion regarding construction used for illegal or criminal activities, specifying that the determining factor when analyzing of the application of such an exclusion is the use for illicit ends and not the extent of such use.
The plaintiffs claimed $189,513 from their insurer after a fire broke out in their garage and damaged their home. The evidence revealed that the man of the house was growing cannabis in a substantial portion of the garage, while the principal residence had been used minimally. On July 4, 2011, the Superior Court dismissed the insurer’s argument that the exclusion concerning use for criminal activities applied, both as regards the indemnity for damage to the garage and that for damage to the home.
The exclusion clause in question was worded as follows: […], WE DO NOT COVER: […]16. Constructions […] occupied by the Insured and used for illegal or criminal activities.
According to the judge, in the absence of the words “used in whole or in part for illegal activities,” a narrow interpretation of the exclusion clause required that a substantial portion of the construction would have been used for an illegal activity. However, since the evidence had revealed that only the garage was substantially used to grow cannabis, the Superior Court found that the exclusion did not apply to the principal residence.
On April 17, 2013, the Court of Appeal unanimously overturned the first instance judgment. The Court specified that the mere fact that an insured occupies or uses a construction for unlawful activities is sufficient reason to find that the construction is not insured.
The Court of Appeal was of the opinion that an analysis of the exclusion clause only requires a determination of whether the insured construction is used or occupied for purposes of criminal or illegal activities. Even in the absence of the words “in whole or in part,” the degree of use is irrelevant and coverage is void, whether the use for criminal or illegal purposes is total or partial.
Finally, the Court of Appeal specified that insurance is designed to protect the property of an insured in the context of legal activities and that it would be contrary to the spirit of the insurance contract to interpret the exclusion clause in such a way that the insurer would cover a construction used only partly for criminal activities, but not a construction of which a substantial part is used for criminal activities.