National Bank of Greece (Canada) v. Katsikonouris

National Bank of Greece (Canada) v. Katsikonouris
Collection
Supreme Court Judgments
Date
1990-10-04
Report
[1990] 2 SCR 1029
Case number
21341
Judges
La Forest, Gérard V.; L'Heureux-Dubé, Claire; Gonthier, Charles Doherty; Cory, Peter deCarteret; McLachlin, Beverley
On appeal from
Quebec
Subjects
Insurance
Notes
SCC Case Information: 21341
Decision Content
National Bank of Greece (Canada) v. Katsikonouris, [1990] 2 S.C.R. 1029
Antonio Panzera, Giuseppe Valiante,
Francesco Tatta and Andrea Barbiero Appellants
v.
Simcoe & Erie Insurance Company, General
Accident Insurance and Balboa Insurance Company Respondents
indexed as: national bank of greece (canada) v. katsikonouris
File No.: 21341.
1990: March 20; 1990: October 4.
Present: La Forest, L'Heureux‑Dubé, Gonthier, Cory and McLachlin JJ.
on appeal from the court of appeal for quebec
Insurance -- Fire insurance -- Nature and effect of hypothecary (mortgage) clause -- Misrepresentations by hypothecary debtor when insurance policy purchased -- Whether nullity ab initio of insurance policy can be invoked against hypothecary creditors.
A businessman obtained a loan from appellants and hypothecated one of his properties to secure its repayment. The hypothecary deed of loan provided that the debtor undertook to insure the hypothecated property in favour of appellants and in fulfilment of this obligation the debtor later purchased a fire insurance policy from respondent insurers. This policy contained a standard mortgage clause (or standard hypothecary clause) which provided that "this insurance . . . is and shall be in force notwithstanding any act, neglect, omission or misrepresentation attributable to the mortgagor, owner or occupant of the property insured, including transfer of interest, any vacancy or non‑occupancy, or the occupation of the property for purposes more hazardous than specified in the description of the risk". The debtor's property was destroyed by fire and the insurers refused to pay appellants the indemnity, alleging that the policy was void ab initio as the result of misrepresentations by the debtor when the policy was purchased. The latter allegedly did not disclose the occurrence of criminal fires on the insured premises and the refusal by the previous insurer to continue insuring the property. Relying on the mortgage clause, appellants then brought an action against the insurers for payment of the indemnity. The Superior Court allowed the action but the Court of Appeal reversed this judgment. This appeal is to determine whether the nullity ab initio of the insurance policy, resulting from misrepresentations by the hypothecary debtor at the time the policy was purchased, can be invoked against the hypothecary creditors.
Held (L'Heureux‑Dubé and Gonthier JJ. dissenting): The appeal should be allowed.
Per La Forest, Cory and McLachlin JJ.: When insuring its own interest in the property, the hypothecary debtor also assumed a mandate to take out a separate and distinct contract of insurance to insure the hypothecary creditors' interest in the hypothecated property. The insurers cannot refuse to honour this independent contract (the standard mortgage clause) with the hypothecary creditors on discovering that their contract with the hypothecary debtor was issued on the basis of misrepresentations or omissions such that it was null ab initio. The standard mortgage clause makes no distinction between acts and neglects of the hypothecary debtor committed at the inception of the policy, and acts and neglects subsequent to its formation. The clause is written in clear and untechnical language and simply states that the insurance of the hypothecary creditors will not be invalidated by any omission or misrepresentation of the hypothecary debtor. In the face of this unequivocal representation, the courts should not import interpretive subtleties where none exist. Where the contract is unambiguous, and its meaning clear, there is no occasion for construction. The insurance of the hypothecary creditors cannot, therefore, be invalidated by any act or neglect of the hypothecary debtor, be it at the inception of the policy, or subsequent to its formation. The validity of this independent contract depends solely on the course of action between the hypothecary creditors and the insurers. To hold otherwise would distort the plain and ordinary language used in the clause.
The ejusdem generis rule finds no application in the context of the standard mortgage clause. The precondition for application of the rule is not met, for in the clause under consideration the general words precede and do not follow the specific enumeration. The rationale for applying the rule is accordingly absent. Further, while the specific examples of omissions and misrepresentations found in the policy all relate to faults which the hypothecary debtor is in a position to commit only subsequent to the formation of a valid contract, these terms are found in a clause in which the insurer is enumerating faults of the hypothecary debtor which the insurer represents that it will not rely on in order to deny coverage to the hypothecary creditor. Far from intending to represent to the hypothecary creditor that only omissions and misrepresentations committed by the hypothecary debtor after the conclusion of a valid contract will not invalidate coverage, the insurer makes it clear that even omissions and misrepresentations of this nature will not invalidate the hypothecary creditor's coverage.
Additionally, insurance contracts must be interpreted as they would be understood by the average person applying for insurance, and not as they might be perceived by persons versed in the niceties of insurance law. If the insurer were reserving to itself the right to invalidate the coverage of the hypothecary creditor as a result of some misrepresentations and omissions of the hypothecary debtor, it was incumbent on the insurer, in drafting its insurance form, to make this known in clear, express and easily intelligible terms.
Finally, while the hypothecary debtor is acting as the mandatary of the hypothecary creditor when it insures the hypothecary creditor's interest, it does not follow that any false representations made by the hypothecary debtor in effecting its mandate should be held to be those of the hypothecary creditor. The law of mandate does not operate so as to have this effect in the context of the standard mortgage clause. This inference would run counter to what must be taken to be the understanding of the parties. When a hypothecary creditor elects to insure through the medium of the standard mortgage clause, it does so on the reasonable expectation that its interest will be protected in the same way as if it had entered into an independent contract evidenced by a separate piece of paper, and nothing in the wording of the clause supports the conclusion that the insurer is proceeding on any other understanding. To make the insurance of the hypothecary creditor dependent to a certain degree on the course of dealings between the hypothecary debtor and the insurer would strike at the very raison d'être of the standard mortgage clause.
Per L'Heureux‑Dubé and Gonthier JJ. (dissenting): The insurance clause in the hypothecary loan contract is a contract of mandate, by which the hypothecary debtor undertakes to insure the hypothecated property on behalf of his hypothecary creditor. In accordance with that mandate, the hypothecary debtor purchased an insurance policy containing a standard mortgage clause. That policy thus sets out two separate insurance contracts, one between the hypothecary debtor and the insurers, and the other between the hypothecary creditors and the insurers. However, the hypothecary debtor's insurance contract is void ab initio because of the latter's misrepresentations when the policy was purchased. Since the debtor was acting in accordance with his mandate by purchasing the hypothecary creditors' insurance contract, the misrepresentations he made at that time must be regarded, for the purposes of considering the validity of this contract, as misrepresentations made by the hypothecary creditors themselves. These misrepresentations have, as to the insurance contract between the hypothecary creditors and the insurers, consequences similar to those produced on the hypothecary debtor's personal insurance contract. They have the effect of misrepresenting the risk to the insurers and thereby of vitiating their consent to the insurance contract purchased for the hypothecary creditors, in the same way as these misrepresentations vitiated the insurers' consent to the hypothecary debtor's insurance contract. The insurance contract between the insurers and the hypothecary creditors is thus also void ab initio.
Analysis of the language of the mortgage clause and its context indicate that the nullity ab initio of the insurance contract as a consequence of misrepresentation by the hypothecary debtor when the contract is purchased can be invoked against the hypothecary creditors. The examples given in the clause are not exhaustive but clearly indicate the type of act the parties intended to include in the expression "act, neglect, omission or misrepresentation". All these examples are a homogeneous group having as their common feature occurrence after the purchase of the policy. By application of the rule of interpretation noscitur a sociis or the ejusdem generis rule, we must therefore conclude that only misrepresentations subsequent to purchase are covered by the mortgage clause. Further, the insurance contract, like any other contract, rests on the presumed good faith of the parties. If the parties wished to cover the risk concerned here, they should have done so in clear and express language, which is not the case in the mortgage clause at issue here.
Cases Cited
By La Forest J.
Followed: Hastings v. Westchester Fire Insurance Co., 73 N.Y. 141 (1878); Syndicate Ins. Co. v. Bohn, 65 F. 165 (1894); Caisse populaire des Deux Rives v. Société mutuelle d'assurance contre l'incendie de la Vallée du Richelieu, [1990] 2 S.C.R. 000; not followed: Imperial Building & Loan Ass'n v. Aetna Ins. Co., 166 S.E. 841 (1932); Hanover Fire Ins. Co. v. National Exchange Bank, 34 S.W. 333 (1896); Omnium Securities Co. v. Canada Fire and Mutual Insurance Co. (1882), 1 O.R. 494; Chenier v. Madill (1973), 2 O.R. (2d) 361; distinguished: Liverpool and London and Globe Insurance Co. v. Agricultural Savings and Loan Co. (1903), 33 S.C.R. 94; referred to: London and Midland General Insurance Co. v. Bonser, [1973] S.C.R. 10; Madill v. Lirette, [1987] R.J.Q. 993; Thames and Mersey Marine Insurance Co. v. Hamilton, Fraser & Co. (1887), 12 App. Cas. 484; Renault v. Bell Asbestos Mines Ltd., [1980] C.A. 370; Scott v. Wawanesa Mutual Insurance Co., [1989] 1 S.C.R. 1445; Consolidated‑Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888.
By L'Heureux‑Dubé J. (dissenting)
Caisse populaire des Deux Rives v. Société mutuelle d'assurance contre l'incendie de la Vallée du Richelieu, [1990] 2 S.C.R. 000, aff'g [1988] R.J.Q. 2355 (C.A.); Madill v. Lirette, [1987] R.J.Q. 993 (C.A.), rev'g [1982] C.S. 49 (sub nom. Great American Insurance Co. v. Lirette); Hastings v. Westchester Fire Insurance Co., 73 N.Y. 141 (1878); Syndicate Ins. Co. v. Bohn, 65 F. 165 (1894); Reed v. Firemen's Insurance Co. of Newark, 35 L.R.A. (N.S.) 343 (1911); Federal Land Bank of Columbia v. Atlas Assur. Co., 125 S.E. 631 (1924); Collins v. Michigan Commercial Underwriters, 6 Tenn. App. 528 (1928); Fayetteville Building & Loan Ass'n v. Mutual Fire Ins. Co. of West Virginia, 141 S.E. 634 (1928); National Union Fire Ins. Co. v. Short, 32 F.2d 631 (1929); Stockton v. Atlantic Fire Ins. Co., 175 S.E. 695 (1934); National Fire Ins. Co. of Hartford, Conn. v. Dallas Joint Stock Land Bank of Dallas, 50 P.2d 326 (1935); Western Assur. Co. v. Hughes, 66 P.2d 1056 (1937); Great American Insurance Co. of New York v. Southwestern Finance Co., 297 P.2d 403 (1956); Northwestern National Insurance Co. v. Mildenberger, 359 S.W.2d 380 (1962); Equality Savings and Loan Association v. Missouri Property Insurance Placement Facility, 537 S.W.2d 440 (1976); Meade v. North Country Co‑Operative Insurance Co., 487 N.Y.S.2d 983 (1985); Hanover Fire Ins. Co. v. National Exchange Bank, 34 S.W. 333 (1896); Graham v. Fireman's Insurance Co., 87 N.Y. 69 (1881); Young Men's Lyceum of Tarrytown v. National Ben Franklin Fire Ins. Co. of Pittsburg, 163 N.Y.S. 226 (1917); Imperial Building & Loan Ass'n v. Aetna Ins. Co., 166 S.E. 841 (1932); Omnium Securities Co. v. Canada Fire and Mutual Insurance Co. (1882), 1 O.R. 494; Liverpool and London and Globe Insurance Co. v. Agricultural Savings and Loan Co. (1903), 33 S.C.R. 94; Chenier v. Madill (1973), 2 O.R. (2d) 361; Canadian Imperial Bank of Commerce v. Dominion of Canada General Insurance Co. (1987), 29 C.C.L.I. 313; Renault v. Bell Asbestos Mines Ltd., [1980] C.A. 370; Duchesneau v. Great American Insurance Co., [1955] Que. Q.B. 120; Amin v. Cie d'assurance American Home, [1989] R.R.A. 151; Veilleux v. Victoria Insurance Co., [1989] R.J.Q. 1075.
Statutes and Regulations Cited
Civil Code of Lower Canada [am. 1974, c. 70, s. 2], arts. 1024, 1727, 2485 [am. 1979, c. 33, s. 44], 2486 [am. idem, s. 45], 2487, 2499, 2510 to 2515, 2566 [am. idem, s. 48], 2572, 2573.
Authors Cited
American Jurisprudence, vol. 43, 2nd ed. Rochester, N.Y.: Lawyers Co‑operative Publishing Co., 1982.
Bergeron, Jean‑Guy. "L'opposabilité des exceptions à différents intéressés dans un contrat d'assurance" (1987), 47 R. du B. 933.
Bouzat, Pierre. "De la clause par laquelle une partie dans une convention s'engage à ne pas en demander la nullité" (1934), 54 Rev. crit. lég. et jur. 350.
Concise Oxford Dictionary, 7th ed. By J. B. Sykes. Oxford: Clarendon Press, 1982, "include".
Côté, Pierre‑André. The Interpretation of Legislation in Canada. Cowansville: Yvon Blais Inc., 1984.
Couch, George J. Cyclopedia of Insurance Law, vol. 10A, 2nd ed. By Ronald A. Anderson. Revised volume by Mark S. Rhodes. Rochester, N.Y.: Lawyers Co‑operative Publishing Co., 1982.
Domenget, M. Du mandat, de la commission et de la gestion d'affaires, t. 1. Paris: Cotillon, 1862.
Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983.
Dwyer, James R. and Carey S. Barney. "Analysis of Standard Mortgage Clause and Selected Provisions of the New York Standard Fire Policy" (1984), 19 Forum 639.
Encyclopédie juridique Dalloz: Répertoire de droit civil, t. 5, 2e éd. "Mandat", par René Rodière.
Faribault, Bernard. "Du papillon à la chrysalide ou l'étrange métamorphose de l'assurance de responsabilité" (1987), 55 Assurances 300.
Petit Robert 1. Par Paul Robert. Paris: Le Robert, 1987, "notamment".
Picard, Maurice et André Besson. Traité général des assurances terrestres en droit français, t. 2. Paris: L.G.D.J., 1940.
Simard Jr., François‑Xavier. "La faute intentionnelle de l'assuré et la clause de garantie hypothécaire" (1987), 21 R.J.T. 335.
Stroud's Judicial Dictionary, vol. 3, 5th ed. By John S. James. London: Sweet & Maxwell, 1986, "include", "including".
APPEAL from a judgment of the Quebec Court of Appeal, [1989] R.D.I. 46, [1989] R.R.A. 145, 20 Q.A.C. 226, 36 C.C.L.I. 296, reversing a judgment of the Superior Court, [1985] C.S. 1263, 16 C.C.L.I. 126. Appeal allowed, L'Heureux‑Dubé and Gonthier JJ. dissenting.
Jacques Fournier, for the appellants.
Émile Colas, Q.C., for the respondents.
//La Forest J.//
The judgment of La Forest, Cory and McLachlin JJ. was delivered by
LA FOREST J. -- I have had the advantage of reading the reasons of my colleague, Justice L'Heureux‑Dubé. She has fully set forth the facts and judicial history of the case, and I need not repeat them. However, I am unable, with respect, to agree with her conclusions for the reasons that follow.
In its decision in Caisse populaire des Deux Rives v. Société mutuelle d'assurance contre l'incendie de la Vallée du Richelieu, [1990] 2 S.C.R. 000 (hereinafter Caisse populaire), issued concurrently, this Court elaborated an explanation for the operation of the standard mortgage clause in light of civil law principles. For ease of reference, I set out the French and English versions of the clause as it appears in the policy issued by the respondent insurers:
IT IS HEREBY PROVIDED AND AGREED THAT:
1.This insurance and every documented renewal thereof -‑ AS TO THE INTEREST OF THE MORTGAGEE ONLY THEREIN -‑ is and shall be in force notwithstanding any act, neglect, omission or misrepresentation attributable to the mortgagor, owner or occupant of the property insured, including transfer of interest, any vacancy or non‑occupancy, or the occupation of the property for purposes more hazardous than specified in the description of the risk.
VIOLATIONS DU CONTRAT
Ne sont pas opposables aux créanciers hypothécaires les actes, négligences ou déclarations des propriétaires, locataires ou occupants des biens assurés, notamment en ce qui concerne les transferts d'intérêts, la vacance ou l'inoccupation, ou l'affectation des lieux à des fins plus dangereuses que celles déclarées.
The clause, which with variations is used throughout North America, was obviously intended to have the same effect in both common law and civil law jurisdictions and reference will be made to cases arising under both judicial systems. To avoid terminological confusion, I have, consistently with the clause itself, used the word "mortgage" and related expressions in the English version of these reasons to include "hypothec" and related concepts.
In Caisse populaire, the Court held that the hypothecary debtor (or the mortgagor), when insuring its own interest in the property, also assumes a mandate to take out a separate and distinct contract of insurance to insure the hypothecary creditor's (or the mortgagee's) interest in the mortgaged property. This appeal now raises the important question whether the insurer can refuse to honour this independent contract with the hypothecary creditor or mortgagee on discovering that its contract with the hypothecary debtor or mortgagor was issued on the basis of misrepresentations or omissions such that it was null ab initio. Unlike my colleague, I am of the view that both the nature and the language of the standard mortgage clause, as well as compelling considerations of history and policy, militate against this conclusion.
The Nature and Interpretation of the Mortgage Clause
In her reasons in Caisse populaire, at p. 000, L'Heureux‑Dubé J. has drawn attention to the fact that the civil law explanation for the operation of the standard mortgage clause harmonizes with the interpretation that has emerged in the common law jurisprudence. My colleague has pointed out that the standard mortgage clause was first used in the United States. A review of the American authorities reveals an all but universal consensus to the effect that this clause evidences an independent contract between the insurer and the mortgagee. My colleague has also noted that the "two contract" theory is now well anchored in Canadian jurisprudence. Notably, in London and Midland General Insurance Co. v. Bonser, [1973] S.C.R. 10, a common law decision, this Court expressed approval of the two contract theory, and several recent lower court decisions have also adopted this approach to the operation of the standard mortgage clause; see Caisse populaire, at p. 000.
It should also be noted that the American jurisprudence dealing with the narrow issue raised by this appeal is all but unanimous in concluding that by virtue of the two contract theory, the insurance of the mortgagee cannot be invalidated by any act or neglect of the mortgagor, be it at the inception of the policy, or subsequent to its formation; see Couch, Couch on Insurance (2nd ed. 1982), vol. 10A, {SS} 42:736. Thus the overwhelming majority of the decisions are in essential agreement with an interpretation of the clause that would seem to have first emerged in the decision of the New York Court of Appeal in Hastings v. Westchester Fire Insurance Co., 73 N.Y. 141 (1878). There Rapallo J. stated the following, at p. 153:
To hold otherwise would, I think, defeat the purpose intended, and deprive the mortgagees of the protection upon which they had a right to rely. Although the clause might be construed so as to exempt the mortgagees from the consequences only of acts of the owners done after the making of the agreement, I do not think, in view of its apparent purpose, that any such distinction was intended.
I note that my colleague who cites a plethora of decisions that have followed the lead taken in Hastings can point to no decision since Imperial Building & Loan Ass'n v. Aetna Ins. Co., 166 S.E. 841 (W. Va. 1932), rejecting that approach.
As I view the matter, the contrary interpretation, which is to the effect that the clause only protects the mortgagee or hypothecary creditor from faults of the mortgagor or hypothecary debtor after the inception of a valid contract between the mortgagor and the insurer distorts the plain and ordinary language used in the standard clause.
In Syndicate Ins. Co. v. Bohn, 65 F. 165 (1894), the Eighth Circuit of the United States Court of Appeal was called on to interpret a standard mortgage clause that read "this insurance, as to the interests of the . . . mortgagee . . . only, shall not be invalidated by any act or neglect of the mortgagor or owner of the property insured", a text which is essentially of the same character as that in issue here. I find myself in full agreement with the analysis of Sanborn Cir. J. who concluded, at pp. 176‑77:
Was it that contract that the indemnity of the mortgagee should not be protected against any prior act or negligence of the mortgagors? There is no such restriction in the contract. It provides that the mortgagee's interest shall not be invalidated by any act or neglect of the mortgagors, by any occupancy or vacancy, or by any change of title or possession of the premises, provided that the mortgagee shall notify the insurance company of any change of ownership or increase of hazard that may come to its knowledge, shall have permission therefor indorsed on the policy, and shall pay for it. . . . What apter terms could be chosen to effect a separate insurance on the interest of the mortgagee, to free that insurance from any possible influence of any act or neglect of the mortgagors, and to make it dependent solely on the course of action of the mortgagee and the insurance company? None occur to us. [Emphasis added.]
These comments remind one that it is important in interpreting a contract of insurance to give words their ordinary meanings. In the version of the standard mortgage clause under consideration here, no distinction is made between the "act", "neglect", "omission" or "misrepresentation" that a mortgagor might commit. The clause merely states, in simple and untechnical language, that the insurance, as to the interest of the mortgagee, is and shall be in force notwithstanding any act, neglect, omission or misrepresentation committed by the mortgagor. Given this unequivocal representation, it is unclear to me on what grounds one may seek to limit the application of the word "any", which, of course, is commonly understood as meaning "no matter which". I respectfully share the conclusion of the trial judge, Lamb J., who stated:
The express renunciation of the insurers must therefore be read as intending to refer to absolute as well as relative nullity, in the absence of any words imposing a restrictive distinction between the two.
([1985] C.S. 1263, at p. 1269.)
The Court of Appeal, [1989] R.D.I. 46, relying in great part on its earlier decision in Madill v. Lirette, [1987] R.J.Q. 993, downplayed the fact that the clause does not expressly distinguish between the "act", "neglect", "omission" or "misrepresentation". It accorded great importance to the fact that the omissions and misrepresentations specifically mentioned in the clause all relate to acts which the mortgagor is only in a position to commit following the inception of a valid contract. As put by Desmeules J. (ad hoc), at p. 50:
[TRANSLATION] The wording of the present hypothecary (mortgage) clause, in effect since 1972, refers to certain situations such as transfers of interest, vacancy or non‑occupancy or the occupation of the property for purposes more hazardous than those specified, and it subjects creditors to an obligation to inform the insurer as soon as they are aware of such situations.
These events are subsequent to the issuing of the insurance policy, and this leads me to conclude that it is such situations that the insurers sought to provide for in their hypothecary (mortgage) clause.
In his concurring judgment, Beauregard J.A. added, at p. 47:
[TRANSLATION] Despite the use of the adverb "including", by application of the "rule" of interpretation noscitur a sociis or the ejusdem generis rule, we must conclude that "any act, neglect, omission or misrepresentation attributable to the mortgagor, owner or occupant of the property insured" is an "act, neglect, omission or misrepresentation" which took place or was made after the policy was issued, just as "transfer of interest, vacancy or non‑occupancy or the occupation of the property for purposes more hazardous than those specified".
I am unable to agree with the Court of Appeal's view that it is clear, by application of the ejusdem generis rule, that the reference in the clause to "omission[s] or misrepresentation[s]" is to be taken as limited to omissions and misrepresentations subsequent to the inception of the policy. I am of the view that this rule of construction finds no application in the context of the standard mortgage clause.
At page 111 of his book Construction of Statutes (2nd ed. 1983), Professor Driedger points to the definition of the rule given by Lord Halsbury L.C. in Thames and Mersey Marine Insurance Co. v. Hamilton, Fraser & Co. (1887), 12 App. Cas. 484, at p. 490. Lord Halsbury L.C. observes that the rule is predicated on the notion that "general words may be restricted to the same genus as the specific words that precede them". I would also cite from an illustration of the working of the rule provided by Professor Côté in The Interpretation of Legislation in Canada (1984), at p. 243. Professor Côté quotes from the observations of Turgeon J.A. in Renault v. Bell Asbestos Mines Ltd., [1980] C.A. 370, at p. 372. The remarks are to the same effect as those of Lord Halsbury L.C., though I would draw attention to Turgeon J.A.'s important observation:
[TRANSLATION] In other words, for the rule to apply it is absolutely necessary that there be a class or category preceding the general terms, if the intent is to limit them to that class or category. [Emphasis added.]
Here, of course, this precondition for application of the rule is not met, for in the clause under consideration the general words precede and do not follow the specific enumeration. The clause states that coverage as to the interest of the mortgagee is valid notwithstanding "omission[s] or misrepresentation[s]", and then provides illustrative examples of such omissions and misrepresentations. The rationale for applying the ejusdem generis rule is accordingly absent. Whatever the particular document one is construing, when one finds a clause that sets out a list of specific words followed by a general term, it will normally be appropriate to limit the general term to the genus of the narrow enumeration that precedes it. But it would be illogical to proceed in the same manner when a general term precedes an enumeration of specific examples. In this situation, it is logical to infer that the purpose of providing specific examples from within a broad general category is to remove any ambiguity as to whether those examples are in fact included in the category. It would defeat the intention of the person drafting the document if one were to view the specific illustrations as an exhaustive definition of the larger category of which they form a part.
Moreover, in this instance, the very language used to introduce the list of omissions and misrepresentations confirms that it would be erroneous to view them as exhaustive. In the English version of the clause, the term "including" precedes the list of examples of omissions and misrepresentations, while the term "notamment" is used in the French text. I note that the Concise Oxford Dictionary (7th ed. 1982) defines "include" as "comprise or embrace (thing etc.) as part of a whole", while the Petit Robert 1 (1987) says of "notamment" that it "sert le plus souvent à attirer l'attention sur un ou plusieurs objets particuliers faisant partie d'un ensemble précédemment désigné ou sous‑entendu". This meaning finds confirmation in legal lexicons as well: the entries under "include" and "including" in Stroud's Judicial Dictionary (5th ed. 1986) to take but one example, again make it clear that these words are terms of extension, designed to enlarge the meaning of preceding words, and, not, to limit them.
As I have noted, the natural inference is that the drafter will provide a specific illustration of a subset of a given category of things in order to make it clear that that category extends to things that might otherwise be expected to fall outside it. As I see it, it is precisely this reasoning which explains the reference to specific omissions and misrepresentations in the standard mortgage clause. The Court of Appeal was correct in pointing out that the specific examples of omissions and misrepresentations found in the policy all relate to faults which the mortgagor is in a position to commit only subsequent to the formation of a valid contract. It is important to bear in mind, however, that these terms are found in a clause in which the insurer is enumerating faults of the mortgagor which the insurer represents that it will not rely on in order to deny coverage to the mortgagee. When due account is taken of this fact, it becomes apparent that the insurer, far from intending to represent to the mortgagee that only omissions and misrepresentations committed by the mortgagor after the conclusion of a valid contract will not invalidate coverage, is, instead, at pains to make it clear that even omissions and misrepresentations of this nature will not invalidate the mortgagee's coverage. For from the perspective of the insurer by far the greater risk is posed precisely by omissions and misrepresentations the mortgagor may commit after a validly formed contract is entered into. In his article "L'opposabilité des exceptions à différents intéressés dans un contrat d'assurance" (1987), 47 R. du B. 933, Professor Bergeron puts the matter convincingly when he argues, at p. 988:
[TRANSLATION] When one reflects carefully about it, one realizes that there is in this list one exception, the transfer of interest, which is of much greater concern to the insurer than nullity for misrepresentation. In the first case the assignee is a new insured, unknown to the insurer, about whom he has been unable to make any inquiries in order to determine the risk. It is thus all the more reasonable that misrepresentations by an insured from whom the insurer has had an opportunity of obtaining all relevant information cannot be pleaded. [Emphasis in original.]
The same could, of course, be said with respect to the occupation of the property for purposes more hazardous than specified in the description of the risk. If the mortgagor concludes a valid contract and then, unbeknownst to the insurer, transforms the property into a depository for flammable liquids, an omission to convey this change in the vocation of the property may be infinitely more prejudicial to the insurer than a simple misrepresentation at the time of concluding the contract.
In the result, considerations of a practical commercial nature militate strongly against the interpretation advanced by the Court of Appeal. It defies rational explanation to suppose that the insurer would agree not to invalidate coverage of the mortgagee with respect to the very omissions and misrepresentations of the mortgagor that stand to affect most radically the risk it has agreed to assume, while at the same time reserving to itself the right to invalidate coverage in respect of the omissions and misrepresentations it had a reasonable opportunity to investigate before agreeing to issue a policy.
I respectfully conclude therefore that the Court of Appeal has misconstrued the reference to specific omissions and misrepresentations in the standard mortgage clause. The interpretation of the Court of Appeal ignores commercial practicalities, and gives a strained and unnatural meaning to the language used.
Additionally, I am of the view that to adopt the interpretation of the Court of Appeal would be to ignore the well‑recognized principle that it is necessary to interpret insurance contracts as they would be understood by the average person applying for insurance, and not as they might be perceived by persons versed in the niceties of insurance law. I have elaborated (in dissent) on this principle in Scott v. Wawanesa Mutual Insurance Co., [1989] 1 S.C.R. 1445, at pp. 1454‑55. Here, in the absence of clear and explicit language pointing to a different meaning in the policy itself, I am at a loss to see how mortgagee purchasers of fire insurance, on reading that their coverage will not be denied for "any" misrepresentations or omissions of their mortgagor, could be expected to do other than take this statement at face value. If, in fact, the insurer were reserving to itself the right to invalidate the coverage of the mortgagee as a result of some misrepresentations and omissions of the mortgagor (i.e., those made at the inception of the contract between the insurer and the mortgagor), I would hold that it was incumbent on the insurer, in drafting its insurance form, to make this known in clear, express and easily intelligible terms. It can hardly be expected that a mortgagee deduce, on the basis of the type of subtle analysis engaged in by the Court of Appeal, that the insurer, despite expressly saying that coverage will not be denied for "any" omissions and misrepresentations of the mortgagor, has, in fact, meant to say that coverage will not be denied for "some" omissions and misrepresentations.
In short, there is little mystery to me why the overwhelming majority of the American decisions reject the notion that the standard mortgage clause makes a distinction between acts and neglects of the mortgagor committed at the inception of the policy, and acts and neglects subsequent to its formation. The standard mortgage clause is written in clear and untechnical language and simply states that the insurance of the mortgagee will not be invalidated because of anything the mortgagor might do. As I see it, in the face of this unequivocal representation, the courts have shied from importing interpretive subtleties where none exist. In a word, the American courts have applied the principle that where the contract is unambiguous, and its meaning clear, there is no occasion for construction; see 43 Am. Jur. 2d Insurance {SS} 271 (1982).
It is true that the clause under consideration here differs somewhat from that which was the object of consideration in the American decisions. But when one looks to the substance of the differences, I conclude that they, if anything, only reinforce the case for adopting the interpretation of the standard mortgage clause advanced in the overwhelming majority of the American decisions.
For ease of comparison, I set out first the relevant portion of the American clause:
. . . and this insurance shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property . . .
and, once again, its counterpart in use in Canada:
IT IS HEREBY PROVIDED AND AGREED THAT:
1.This insurance and every documented renewal thereof ‑- AS TO THE INTEREST OF THE MORTGAGEE ONLY THEREIN -‑ is and shall be in force notwithstanding any act, neglect, omission or misrepresentation attributable to the mortgagor, owner or occupant of the property insured, including transfer of interest, any vacancy or non‑occupancy, or the occupation of the property for purposes more hazardous than specified in the description of the risk.
VIOLATIONS DU CONTRAT
Ne sont pas opposables aux créanciers hypothécaires les actes, négligences ou déclarations des propriétaires, locataires ou occupants des biens assurés, notamment en ce qui concerne les transferts d'intérêts, la vacance ou l'inoccupation, ou l'affectation des lieux à des fins plus dangereuses que celles déclarées.
It is clear that the substance of the difference between the Canadian and American versions of the clause lies in the fact that the text used in Canada incorporates a distinct and pointed reference to "omission" and "misrepresentation" of the mortgagor, over and above the mention of "act" and "neglect".
I have already drawn attention to the fact that there is today all but unanimous agreement in the American decisions that a mortgagee insuring its interest through the medium of the standard mortgage clause will not be denied coverage because of anything that its mortgagor may do, be it at the inception of the contract or subsequent to its formation. It is clear, therefore, that the American courts have proceeded on the basis that the terms "act" and "neglect" in the clause include breaches of warranty or fraudulent concealments mortgagors may commit on taking out their policy. I am firmly of the view that that particular interpretation is sound given the wide sweep of the words used in the clause. It is difficult to understand on what basis one could argue that an omission or misrepresentation is not included within the meaning of the open‑ended terms "act" and "neglect". But whatever view one might hold on the matter, the effect of the additions in the clause in question here make the issue moot, for in that clause the insurer has expressly undertaken not to refuse coverage on the basis of any omission or misrepresentation of the mortgagor. In effect, the additions in the Canadian version of the clause make all the more compelling the case for following the lead of the American courts and concluding that by virtue of the standard mortgage clause the insurer is representing to the mortgagee that the contract between them is meant to be unaffected by anything the mortgagor might do before or after the inception of the policies. It would be paradoxical indeed if one were to compare the Canadian and American versions of the clause and then conclude that, here, the insurer is in fact cutting down on the scope of the protection afforded the mortgagee because it has added terms that explicitly expand on the list of actions of the mortgagor that will not invalidate the insurance of the mortgagee.
In summary, when the standard mortgage clause is interpreted in the light of the settled principles that govern the construction of insurance contracts, there can be no doubt that the insurer, by virtue of this clause, is representing to the mortgagee that a separate and distinct contract exists between them, and that the validity of this independent contract depends solely on the course of action between the mortgagee and the insurer. Moreover, even if the language of the clause was ambiguous, art. 2499 C.C.L.C. reminds us that it would be necessary to resolve this ambiguity against the insurer. No mortgagee would wish that the validity of its "separate and distinct" contract with the insurer rest on the question whether its mortgagor dealt in good faith in effecting coverage on its (the mortgagor's) insurable interest. From the perspective of the mortgagee, this would stand to defeat the very purpose of relying on the