In Banque Nationale du Canada c. Compagnie mutuelle d'assurances Wa-wanesa, the Superior Court granted to the mortgage creditor an insurance indemnity equal to the value of the loss caused to the property insured and not its remaining secured debt as it claimed.
The insured obtained a mortgage on his residence for $185,000.00 which was later damaged in a ﬁre. Since the insured went bankrupt, the mortgagee named in the mortgage clause claimed from the insurer an indemnity corre- sponding to the balance of the mort- gage, which was $187,015.24. The in- surer argued that the mortgagee was entitled only to the amount of the loss, which was the value at the time of the loss less depreciation, estimated by the Court at $108,637.86.
The Superior Court ruled in favor of the insurer. Although the mortgage clause is a separate insurance contract, the Court recalled that the amount of the guarantee provided by the insurance policy is the same for the mortgagee.
The Court added that the mortgage clause is not ambiguous and required no interpretation. The Court also point- ed out that the purpose of Article 2457 CCQ, which provides priority allocation of allowances to the mortgagee and the mortgage clause, is not to allow the mortgagee to enforce its security in the event of a loss but rather to compen- sate for the reduction of its debt ac- cording to the damage caused to the insured property.
Finally, the Court refused to grant the mortgagee replacement value since no work had been undertaken by the mortgagee after the ﬁre and that the arguments invoked were not suﬃcient to set aside the clear terms of the mortgage clause.