Hum v Grain Insurance & Guarantee Co. 2009 ABQB 714 (Alta. Q.B.)

In this case from the Alberta Court of Queen's Bench, the applicants sought coverage as mortgagees under a standard mortgage clause in a fire insurance policy (the Policy). The Policy was issued to an insured who was not a party to the proceedings (presumably the mortgagor). The insured property was damaged in a November 2007 fire, which was deliberately set by the insured's tenant.

The Standard Mortgage Clause of the Policy stated that insurance would be in force as to the interest of the mortgagee "notwithstanding any act, neglect, omission or misrepresentation attributable to the mortgagor, owner or occupant of the property insured.". The Standard Mortgage Clause specifically stated that it would supersede any conflicting provisions but only as to the interest of the mortgagee. The Policy, however, also contained an endorsement excluding loss resulting from vandalism or criminal acts caused by tenants.

The insurer denied coverage to the applicants on the basis of the tenant's exclusion endorsement. While the applicants argued that the wording of the Standard Mortgage Clause was clear and included protection in the immediate case, the insurer attempted to distinguish between policy exclusions and breaches of terms. According to the insurer, policy exclusions or conditions apply to insureds and mortgagees, while breaches of a term of a policy on the part of an insured or an insured's tenant may still allow a mortgagee to recover pursuant to the Standard Mortgage Clause.

While the Court found no case law considering the interaction between a Standard Mortgage Clause and a tenant's exclusion clause specifically, it examined several cases that considered the relationship between a Standard Mortgage Clause and other types of exclusion clauses. Specifically, the Court relied on Royal Bank of Canada v. State Farm Fire and Casualty Co., [2005] 1 S.C.R. 779 for the proposition that a Standard Mortgage Clause supersedes "any Exclusions in a policy which are in conflict with the Standard Mortgage Clause". According to the Court of Queen's Bench, the Supreme Court's findings suggest that in such cases, "the Standard Mortgage Clause permits recovery by a mortgagee in circumstances where the Exclusion may operate so as to otherwise preclude recovery by an insured."

Ultimately, the Court found that the Standard Mortgage Clause was clear in protecting the mortgagees against any act attributable to the mortgagor, owner or occupant of the property, while superseding any conflicting provisions as to the interests of the mortgagee. Citing the Supreme Court in Royal Bank, the Court found that the mortgagee's coverage was thus unaffected by exceptions to the mortgagor's coverage that conflicted with the Standard Mortgage Clause. As such, the applicants prevailed.