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Ontario court requires insurer to replace, not clean, fire-damaged equipment

Aviva Insurance Co. of Canada v. Freedman, 2024 ONSC 2886 (CanLII) 

Reading Time: 3.5 minutes (approx.) 

By: Sarah Richard (Articled Clerk) 

Following a fire on the main floor of a commercial building, a clinic operating on the third floor, Dr. Lawrence Freedman Dentistry Professional Corporation (“Insured”) made a claim for smoke and water damage to the clinic and to its storage space in the basement. The Insured was covered under an “all risk” policy by Aviva Insurance, the Insurer.   

The Insurer stated that the equipment needed to be cleaned and obtained a $58,400 estimate to do the work. The Insured, however, claimed that the equipment needed to be replaced, not cleaned, and submitted a Proof of Loss and a claim for which stated the replacement cost of the contents was $2,349,689.22. The claim was rejected by the Insurer, who insisted that the equipment did not need to be replaced and cleaning it would be sufficient. 

According to the Insurance Act, R.S.O. 1990, c. I-8, disagreements on property value, loss amount, etc., are resolved through appraisal before any recovery under the contract. Each party appoints an appraiser, and if am agreement cannot be reached, they choose an umpire. 

In this case, the Insured’s appraiser revised the total replacement cost twice. In August 2022, the Insured’s appraiser advised the Insurer that the total replacement cost was $1,898,389.81. Later, in June 2023, the Insured’s appraiser advised the Insurer that the revised total for replacement costs was $2,128,711.04. 

The umpire advised the parties that the appraisal would proceed as previously submitted. During the appraisal, the panel disagreed on the contents of the clinic and the interruption to practice operations. The replacement of the office contents was found to be $1,720,000, and the cash value of the contents was found to be $900,000.  

The Insurer filed for judicial review of the appraisal award, claiming the panel overstepped its jurisdiction by assessing replacement costs instead of cleaning, which it argued should be determined separately or by the court. The Insurer also argued that the process had been marked by procedural unfairness and disputed the valuation of equipment. 

Ultimately, the Court upheld the decision made by the appraisal panel regarding the insurance claim dispute, finding that the panel had acted within its authority and upholding the replacement cost and cash value determination. The court also dismissed the Insurer’s claims of procedural unfairness and valuation disputes and ordered it to pay legal costs. 

Link: https://canlii.ca/t/k4tm5  

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