Ontario’s top court rejects retroactive application of Insurance Act amendment to claim arising from cannabis-caused fire
October 18th, 2022
The Ontario Court of Appeal recently provided clarification about the application of an amendment to the Insurance Act, in particular a provision that came into force in 2018 to limit the application of some exclusion clauses in insurance contracts. In Lin v Weng 2022 ONCA 367, the Court of Appeal held that the new section 129.1 of the Insurance Act does not apply retroactively, meaning that it does not apply to events or potential claims that occurred before the amendment came into force.
The event at the heart of the case involved cannabis use gone awry. A policy holder rented a room in his house to two tenants, who he later evicted for non-payment of rent. On the day when the two tenants were supposed to move out, they instead went to their landlord’s basement and used a butane lighter, a stove, and propane gas to try and extract resin from marijuana. Their efforts caused an explosion, which destroyed the house. The homeowner was at work at the time and had no idea about the activities of his outgoing tenants.
The homeowner’s insurer declined to cover the damage, relying on two provisions of the insurance contact. The first provision was a clause excluding coverage for damage caused by illegal activity, and the second was a clause excluding coverage for damage related to marijuana use. The homeowner argued that the exclusion clauses did not apply thanks to a recent amendment to the Insurance Act—section 129.1—that precluded the effect of exclusion clauses for illegal activity in cases where the policyholder was innocent of the activity and did not know it was taking place.
The insurer was successful on a summary judgement motion, with the motion judge concluding that, thanks to the exclusion clauses, there was no genuine issue for trial. The Court of Appeal agreed and provided clarification on the lack of retroactive effect of section 129.1. The Court of Appeal said that it was not necessary to consider the motion judge’s conclusion that the marijuana exclusion clause applied irrespective of the recent change to the Insurance Act.
The key issue in the Court of Appeal’s decision was whether section 129.1 applied retroactively to a loss that occurred before the new provision came into force. The Court distinguished between retroactive and retrospective application of a law. A retroactive law “applies to a new law to an event that happened in the past and to which the old law applied before the new law was enacted”. By contrast, a retrospective law “has an effect for the future on a set of facts that occurred in the past” meaning that “it would apply to existing insurance policies entered into before the amendment, but for events that happen in the future”. In other words, a retroactive law would apply to policies and loss-causing events that took place before the law came into effect, while a retrospective law would apply to pre-existing insurance policies, but would only apply to loss-causing events that took place after the law came into force.
The Court said that, although the motion judge and appellants framed their arguments in terms of retrospective application, the correct legal question was whether section 129.1 applied retroactively. Because the appellant was seeking to apply section 129.1 to a loss stemming from an event that took place before the provision came into force, the key question became whether section 129.1 applied retroactively.
The Court held that section 129.1 did not apply retroactively, and therefore that the claimant was not entitled to coverage. There is a high bar to establish retroactive applicability of a law, and in this case the legislature provided no clear direction that it intended section 129.1 to apply retroactively.
Given the lack of retroactive application of the new provision, it was important to establish a specific timing for the claim. The Court interpreted the Insurance Act and held that, for the purposes of section 129.1, the relevant point in time was the date when the loss was suffered. Because the loss from the marijuana-related explosion happened before the new law was in place, the claim was not subject to the new law and the exclusion clause was effective.
This case clarifies that exclusion clauses for illegality can be valid notwithstanding the recent amendments to the Insurance Act, so long as the event that caused the loss took place before the amendment came into force on April 30, 2018. Any amendments to the Insurance Act will need express language from the legislator in order to have retroactive effect. The Court of Appeal did not engage the motions judge’s holding that the marijuana exclusion clause applied irrespective of section 129.1 of the Insurance Act.