February 9, 2026
Dolden Class Action Newsletter – February 2026
When Clear Building Cost Exclusions Aren’t the Last Word: Nullification Goes National
By: Mark Barrett and Cody Mann
In Emond v. Trillium, the Supreme Court of Canada (“SCC”) recently considered the special “nullification of coverage” rule and confirmed that even crystal clear exclusions can sometimes be set aside by this doctrine that now applies across Canadian insurance law, not just Ontario.
The Emonds’ home was damaged by a 2019 flood and declared a total loss. Trillium insured the property under a homeowners’ policy with a guaranteed rebuilding cost endorsement (“GRC endorsement”). The GRC endorsement altered the “Basis of Claim Payment” provision in the base policy booklet and provided that the insurer will pay for insured loss or damage if the insureds repair or replace the damaged or destroyed house on the same location with materials of similar quality using current building techniques. The GRC endorsement also provided that “in all other respects, the policy provisions and limits of liability remain unchanged”.
The base policy wording contained an exclusion that stated the policy does not cover “increased costs of repair or replacement due to operation of any law regulating the zoning, demolition, repair or construction of buildings and their related services; except as provided under Additional Coverages of Section 1” (the “compliance cost exclusion”). The policy also contained an exception to this exclusion that provided that the insurer will pay an additional amount up to $10,000 for the increased cost to comply with zoning and construction-related laws. The original dwelling had been constructed in a flood zone managed by the Mississippi Valley Conservation Authority. The Conservation Authority required extensive compliance work for the rebuild.
The Emonds argued that the GRC endorsement entitled them to the full rebuilding costs, including the costs of compliance with the requirements imposed by the Conservation Authority, and that the compliance cost exclusion did not apply given the GRC endorsement. They argued that if the exclusion were to apply, it would nullify the coverage provided by the GRC endorsement. Trillium argued that the language of the policy was unambiguous and that, reading the policy as a whole, the Ontario Court of Appeal correctly found that coverage under the policy limited the recoverable costs of complying with the Conservation Authority’s requirements to $10,000, and that the compliance cost exclusion did not nullify the coverage provided by the GRC endorsement because the Emonds benefitted from the endorsement’s modification of the Basis of Claim Payment provision.
The SCC dismissed the Emonds’ appeal. First, the SCC affirmed the “generally advisable” order in which to interpret insurance contracts that the SCC had previously set out in Ledcor. (Insured has the onus of establishing that the loss falls within the grant of coverage. Insurer has the onus to establish that an exclusion applies. Insured has onus to establish that an exception to the exclusion applies.) The SCC went on to hold that endorsements are not excepted from the generally advisable order. Endorsements are not standalone contracts. An endorsement “changes or varies or amends the underlying policy”. Aspects of the endorsement that affect coverage are considered as part of the coverage conferred by the insurance contract, aspects that create exclusions are considered later, followed by any exceptions to the exclusions. The generally advisable order assists interpreters of insurance contracts in understanding the structure of coverage, exclusion and exception and clarifies the burden of establishing each. It does not mean a court must, for example, interpret a provision that confers coverage without recourse to other provisions, including exclusions or exceptions to exclusions.
The SCC found that the GRC endorsement simply amended the Basis of Claim Payment provision in the base policy by extending the amount payable beyond the limit of insurance purchased by the insureds. The exclusions in the policy continued to apply to the endorsement as they did to the original provision, and this was confirmed by language in the GRC endorsement that the policy provisions and limits of liability remain unchanged. The SCC found that it was also unambiguous that the Conservation Authority requirements were captured by the compliance cost exclusion and that increased costs of compliance with the Conservation Authority’s requirements in excess of the applicable $10,000 exception were excluded.
With respect to the nullification of coverage doctrine (whereby a court will refuse to apply exclusions where the result would be to nullify the coverage provided by the policy), the Emonds argued that the application judge was right to conclude that this is a freestanding rule that continues to apply even in face of unambiguous language. Trillium argued that the doctrine applies only where there is ambiguity in the wording, that the doctrine should be considered at the third stage of the Ledcor framework, and that the existence of a grant of coverage alongside a term that removes such coverage does not create ambiguity. The SCC rejected Trillium’s position, because it would fundamentally change the rule as it has been developed for decades by Ontario courts, which have been clear that the doctrine applies even where the language is unambiguous. However, the SCC found that the compliance cost exclusion did not nullify the coverage provided by the GRC endorsement in this case. While the Emonds’ recovery is less than it would have been without the exclusion, this did not nullify the benefit of the GRC endorsement.
Takeaway
For the most part, the SCC simply affirmed and clarified the principles of insurance policy interpretation. Most notably, the SCC affirmed that the “nullification of coverage” doctrine is a stand-alone doctrine that applies across Canada independently of any ambiguity in the policy wording. This means courts can refuse to apply a clause even if its wording is clear. At the same time, the SCC fenced the nullification doctrine in tightly, by indicating that it applies only in the “extreme and specific” situations where coverage is virtually gutted and where it would “completely defeat the very objective” of the coverage sold, letting the insurer pocket a higher premium “without any material risk.”.
For further information or if you have any questions about this article, please contact the authors: Mark Barrett (mbarrett@dolden.com) and Cody Mann (cmann@dolden.com).
