(Saskatchewan) Insursable Interest During Foreclosure Proceedings By David I. Marr & Gregory L. Juliano Canadian Litigation Counsellor newsletter In the recent case of Walton v. General Accident Assurance Company of Canada (1999), 171 D.L.R.(4th) 570, the Saskatchewan Court of Appeal determined that a mortgagor continues to maintain an insurable interest in a home, despite the issuance of a final order of foreclosure in favour of the mortgagee. A recent case before the Saskatchewan Court of Appeal raised the interesting question of whether a mortgagee retains an insurable interest in a property throughout foreclosure proceedings initiated by the mortgagee. In order to insure any type of property, the law requires that the person taking out the policy have some sort of interest in the continued existence of that property. This requirement exists in order to deter people from taking out policies on property in which they have no interest. If this were allowed, there would always exist an inherent temptation to destroy the property in order to collect the insurance proceeds. In Walton v. General Accident Assurance Company of Canada , the court was forced to consider whether the mortgagors continued to have an insurable interest in their home once a final order of foreclosure had been issued. The Waltons were a couple who purchased a 40 acre parcel of land as joint tenants in 1994. In 1987, they constructed a house on the property with the assistance of money loaned by Saskatoon Credit Union and secured by a mortgage. Everything went smoothly for a number of years, until the Waltons became entangled in a dispute with the local Rural Municipality and deliberately withheld their taxes. By September 1995, the Credit Union had determined that it was not prepared to renew the mortgage and initiated foreclosure proceedings based upon the mortgagors' default in paying their taxes. A final order of foreclosure was granted on April 4, 1996, and title issued in the name of the Credit Union four days later. The Waltons continued to reside in the home and the lender was forced to obtain a writ of possession. Before the Sheriff could execute the writ, the house was completely destroyed by fire on May 17, 1996. At the time of the fire, the Waltons still had all their possessions in the house and had built up considerable equity through their mortgage payments. As a result, they made a claim for the house and its contents through their insurer, General Accident Assurance Company of Canada. The insurer denied liability, saying that the Waltons no longer had an insurable interest in the property due to the foreclosure proceedings. The insurer took the position that the Waltons no longer had a legal or equitable interest in the property, and hence could not have an insurable interest. They pointed to the final order of foreclosure and the fact that title had already issued in the name of the mortgagee. However, the Waltons argued for the more generous definition of insurable interest found in the classic Supreme Court of Canada decision of Kosmopoulos v. Constitution Insurance Company, [1987] 1 S.C.R. 2. The court agreed that all that is required for an insurable interest in property to exist is that the insured will receive "benefit from its existence [and] prejudice from its destruction". Clearly this was the case for the Waltons, who were still living in the house at the time of the fire. In addition, the court acknowledged that the Waltons still had a limited right to redemption of the property, even after the final order of forclosure. Although redemption could only be accomplished at the discretion of the court, the appeal judges felt that "a mortgagor's equity of redemption constitutes an insurable interest". Combined with the financial equity which the Waltons had built up through their mortgage payments, the court was willing to find that the plaintiffs continued to have an insurable interest in the property at the time of the fire, and the insurer was liable to pay pursuant to their claim.

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