The home of Stephen and Claudette Emond (“the Appellants”) was deemed a total loss following a flooding event. At the time of the loss, the Appellants were insured under a Homeowners Policy issued by Trillium Mutual Insurance Company (“Trillium”), which included a Guaranteed Rebuilding Cost (“GRC”) endorsement. The Policy also included a clause excluding increased costs of compliance with zoning and construction-related laws [“By-Law exclusion clause”].

The Appellants’ house was located within the jurisdiction of the Mississippi Valley Conservation Authority (“MVCA”), which imposed additional costs to rebuild.

The parties agreed that the physical damage and replacements were covered under the policy. The issue arose regarding if additional costs relating to compliance with the local conservation authority were excluded. The Appellants believed that Trillium was responsible for covering the entirety of costs. Trillium took the position that it was not responsible for covering the entire cost of the rebuild due to the By-Law exclusion clause.

The Application Judge issued a Declaration that the GRC endorsement entitled them to recover the total costs of rebuilding the house, with no limitation of coverage for the cost of complying with the legal requirements. The Court of Appeal allowed Trillium’s appeal, holding that recovery under the Policy did not include the compliance costs, other than $10,000 extended under an exception in the Additional Coverages section of the Policy.

The majority of the Supreme Court of Canada (“SCC”) dismissed the appeal, concluding that the Appellants were not entitled to recover the increased compliance costs, other than the $10,000 under the applicable exception. Relying on the contractual interpretation principles in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, the SCC held that the contested language could only bear one reasonable meaning: the compliance cost exclusion applies to the increased costs of complying with the conservation authority’s requirements, despite the GRC endorsement.

Justices Karakatsanis and Côté dissented in part, concluding that the Policy and GRC endorsement were ambiguous.