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Court Explains Test for Determining if Contractor Has “Insurable Interest”

Duri Homes Ltd v Quest Coating Ltd, 2023 ABCA 276

Reading Time: 3 minutes (approx.)

By: Weston McArthur


In April 2016, a house constructed by Duri Homes Ltd (the Appellant) was destroyed in a fire. The Appellant received funds from its insurer to repair the damages, and the insurer initiated a subrogated action against Quest Coating (the Respondent) to recover the amount paid. The Respondent and its subcontractors had been hired by the homeowner, not the Appellant, and had been painting in the home on the day of the fire. The Respondent applied for a summary dismissal – arguing that it was an “unnamed insured” under the Appellant’s policy and therefore the subrogation waiver in the policy was applicable – which was granted and then appealed.

The Court found that the Respondent was an insured under the Appellant’s policy; however, it also needed to analyze whether the Respondent had an insurable interest in the property that was covered under the Appellant’s policy.

The Respondent argued that it attended the property for the purpose of contributing to its construction and took on the risk that its contribution could damage the total construction project. The Appellant’s position was that the Respondent was hired by the homeowner, and therefore outside of the contractual chain for the overall project. The court explained that the homeowner hiring the Respondent does not preclude the Respondent from being an unnamed insured and having an insurable interest because this question is determined by applying the factual expectancy test.

Justice Crighton wrote at paragraph 39 that “The “factual expectancy test” is applied to determine whether an insured can demonstrate ‘some relation to, or concern in the subject of the insurance, which relation or concern by the happening of the perils insured against may be so affected as to produce a damage, detriment, or prejudice to the’ insured. If they can, then they have an insurable interest.”

The Court found that, in addition to being an unnamed insured, the Respondent satisfied the factual expectancy test and therefore had an insurable interest in the property. The Appellant’s insurer therefore waived the right to subrogation per the terms of the policy. The lower court’s decision was upheld and the appeal was dismissed.

Link: https://www.canlii.org/en/ab/abca/doc/2023/2023abca276/2023abca276.html?autocompleteStr=2023%20abca%20276&autocompletePos=1

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