Was there a sufficient insurable interest for this insured whose building housed a printing business owned by a different entity with the same shareholder?
On January 12, 2023, the Honourable Dominique Poulin of the Superior Court of Quebec answered this question in a decision on the notion of insurable interest: 9208-9499 Québec inc. c. Royal & Sun Alliance du Canada, société d’assurances, 2023 QCCS 62.
Summary of the Facts
9208-9499 Québec inc. (the “insured“) is the owner of a building that was damaged by a fire on March 18, 2018. The fire partially destroyed the building where a printing business was located, the property and equipment of which belonged to 9228-4280 Québec inc. who occupied the building as a tenant (the “tenant“).Mr. Mehdi Afzali, owned both companies as sole share-holder. Royal & Sun Alliance du Canada, société d’assurances (the “insurer“) issued a policy only in favour of its insured covering the building and its contents.
Following the fire, the insurer refused to indemnify its insured on the grounds that it would not have an insurable interest in the insured property, in that the contents of the building did not belong to it and that it did not have an economic interest in the building used exclusively by the tenant. The latter also paid the expenses.
The Court’s Decision
The leading principles regarding insurance interests were set out by the Supreme Court of Canada in Kosmopoulos v. Constitution Insurance Co,  SCR 2. Essentially, the court stated that there is a sufficient interest as long as some relationship or connection is established with the insured property and that he sustains damages as a result of the loss because he gains a certain benefit from the insured property and sustains a loss if the property is damaged. The Honourable Dominique Poulin relied on this leading case to render her judgment and did not apply a strict interpretation of the concept of insurable interest.
Insured’s Insurance Interest in the Building
The insurer attempted to establish that its insured was acting as a prêt-nom for the tenant. However, the insured established, to the satisfaction of the Court, its ownership and insurable interest in the building. Indeed, the insured communicated a deed of purchase of the building and demonstrated that it had resold it to a third party. Furthermore, the fact that the insured had a financial obligation to the bank, secured by mortgage, established its economic interest in the building.
The insurer also argued that its insured was not acting as an owner at the time the policy was taken out in 2016 in that it was the tenant that, as of 2015, was paying the mortgage payments and the other expenses related to the building. Mr. Afzali explained that the tenant was occupying the premises under a lease, the rent for which was paid by assumption of the mortgage payments and by the payment of other building expenses. The judge found that this was not sufficient to raise questions about the existence of the insured’s ownership and insurance interest in the building.
Insured’s Insurance Interest in the Contents
The Court concluded from the evidence that the contents of the building were owned by the tenant, that they were intended for the operation of the tenant’s business, that the tenant’s operations allowed it to generate income and pay its rent, and that the insured, the owner of the building, had no ongoing financial activities since 2015. The Court also noted that the insured and the tenant were related companies owned by the same person, Mr. Afzali, and that the tenant was not insured for its assets and was not compensated for its loss.
In light of the foregoing, the Court determined that the insured had a clear economic interest in the tenant’s assets. Indeed, since Mr. Afzali had an insurable interest in the tenant’s assets and was the sole shareholder of both the tenant and the insured, the Court concluded that this interest existed even though Mr. Afzali was acting through the insured company.
The Court therefore concluded that the insured succeeded in demonstrating its insurable interest and ordered the insurer to pay an indemnity to the insured for damages to the building and to its contents.