“The significance of this decision is that the Court of Appeal both reaffirms how to determine and resolve ambiguity in an insurance contract, but also how the courts might apply a statutory provision (Section 32 [of the Insurance Act]) to relieve insureds from exclusionary terms that produce an unreasonable or unfair result,” said Sepideh Alimirzaee of McQuarrie Hunter LLP, counsel for the appellant.
In Busato v. Gore Mutual Insurance Company, 2025 BCCA 79, the appellant Anthony Busato’s home was destroyed in an accidental fire in 2017 that started in the kitchen. He had previously purchased an insurance policy from the respondent Gore Mutual Insurance Company in 2014 and renewed it yearly.
The respondent investigated after receiving the claim and discovered that the appellant was growing about 25 marijuana plants. He had a valid Health Canada licence permitting him to have up to 73 plants and use medical marijuana. Gore relied on an exclusion clause in the policy relating to marijuana cultivation on a property when denying the insurance claim.
The Supreme Court of British Columbia had found that the exclusion was unambiguous and that it did not matter whether the appellant had a licence or not “or that the cultivation had nothing to do with the cause of the fire.” The appellant was also not entitled to relief from forfeiture, it concluded.
The court noted that the exclusion was broadly worded, excluding all marijuana-related uses of the property whether they were legal or not. The appellant’s argument that Gore’s interpretation of the policy would require reading the words “licensed or not” was rejected. The judge found that an exclusion applying only to illicit marijuana-related activities is “unduly narrow and inconsistent with the plain wording of the exclusion.
The appellant’s argument that the exclusion was unjust or unreasonable was also rejected. The court found that Gore had a “valid and legitimate business concern” related to risks of marijuana production in residential homes, so the exclusion was justified by a “reasonable economic rationale.”
As a result of the fire, the appellant required five surgeries and experienced chronic and debilitating pain. The accidental kitchen fire resulted in the total loss of his home and its contents. While not caused by the marijuana cultivation, it was not disputed that this was an insured risk. Gore did not void the policy after denying payment, and continued to accept the appellant’s payments.
The lower court judge relied on Pietrangelo et al v. Gore Mutual Life Ins. Co. et al, 2010 ONSC 568, which dealt with illegal activity. It involved an “inherently dangerous chemical exercise,” converting marijuana to oil using butane gas, causing an explosion.
Gore had “explicitly stated its purpose for using broad language was to capture illegal substances and prohibited activities,” said Justice Janet Winteringham of the appellate court.
“However, Gore relies on the evidence of the underwriter that he wished to make the language ‘as wide as possible’ to demonstrate that the exclusion intended to capture licensed activity as well, including marijuana grown for medicinal activities. In my view, Gore invites the Court to apply Pietrangelo to circumstances which never arose in that case.”
The judge found that the exclusion applied to licensed cultivation based on evidence in Pietrangelo. However, the appellate court found it was unclear what the evidence was “beyond the testimony of Gore’s policy writer.” The case did not discuss any distinction between legal or illegal grow operations. Further, it related to a “product derived from or containing marijuana” and not marijuana itself. The judged erred in relying on the case when it did not apply to the case at hand.
Until 2018, marijuana was noted as a controlled substance in Schedule II of the Controlled Drugs and Substances Act and in the single Schedule of the Narcotic Control Regulations. The policy exclusion referred to substances listed in the “Controlled Drugs and Substances Act Narcotic Control Regulations” which does not exist.
The judge in Pietrangelo noted that if Gore had relied on this aspect of the exclusion to deny coverage, it “might well have been thwarted by its own faulty and confusing [wording].” Justice Winteringham found that the wording created ambiguity “with respect to the relevant legislation and attached schedules that purport to inform the meaning of the exclusion” and “with respect to which particular substances trigger the exclusion.”
The appellate court noted that where there is ambiguity that is not resolved, the coverage provisions must be broadly interpreted and exclusion clauses narrowly interpreted against the insurer. Further, the average person would not be capable of “parsing a reference to incorrectly cited legislation and its accompanying regulations and schedules.”
Justice Winteringham agreed with the appellant’s alternative reasonable interpretation of the policy that the exclusion was to limit the risks associated with cultivation of illegal drugs. Since this did not occur, it could be reasonably expected that the exclusion did not apply. She noted that Gore could have reworded the exclusion to avoid ambiguity after Pietrangelo, but did not do so.
“Gore could have explicitly excluded from coverage properties used for any possession or cultivation of marijuana — illegal or licensed — to make certain the insured would be aware of the extent of the coverage. However, Gore declined to do so,” she said.
The judge had further relied on Schellenberg v. Wawanesa Mutual Insurance Company, 2020 BCCA 22, a case in which the insureds intentionally concealed a material change in risk as they were cultivating marijuana, knowing the insurer would decline to endorse the policy.
“Throughout her analysis, the judge considered the exclusion generally and failed to consider whether the operation of the exclusion, in these particular circumstances, resulted in an unjust or unreasonable result for the appellant,” said Justice Winteringham.
“She improperly found that a lack of causal nexus does not support a finding that the exclusion was unjust or unreasonable. She failed to consider that the distinction between a breach of a statutory condition (as in Schellenberg) and the operation of an exclusion clause (as in this case) may be relevant.”
The appellate court found that under the circumstances, it would be unjust or unreasonable to give effect to the exclusion. The clause did not apply to removing coverage for the loss when properly interpreted. If necessary, relief from forfeiture would also have been granted.
Alimirzaee said the case is important for the insurance industry for two reasons.
“First, insurance contracts are drafted by insurers, giving them full control over the clarity and precision of policy language.” she said. “It is within their power to draft exclusionary clauses as broadly or as narrowly as they choose. However, when ambiguity exists in an insurance provision, the principle of contra proferentem requires that the exclusion be interpreted narrowly in favour of the insured.”
“Second,” she added, “the case serves as a reminder to the industry that even when an exclusion is unambiguous, courts have the discretion to intervene if the strict application of a contractual term would result in an unjust or unfair outcome.”
The appeal was allowed. Justices Barbara Fisher and Susan Griffin agreed.
The appellant was also represented by Jordan Jutras.
Counsel for the respondent was Paul Dawson of Dolden Wallace Folick LLP, who was not immediately available for comment.
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