Supreme Court of Canada reaffirms framework for interpreting endorsements and exclusions in insurance policies

Canadian legal professionals known that rulings from our highest court on private law matters — especially in insurance law — have become increasingly rare.

Canadian legal professionals known that rulings from our highest court on private law matters — especially in insurance law — have become increasingly rare. It’s therefore no surprise that the Supreme Court of Canada’s recent decision in Emond v. Trillium Mutual Insurance Co.¹ has drawn significant attention among practitioners in the field. In this article, we analyze the Court’s decision and comment on the key lessons professionals and policyholders alike should take away. 

Context

The Emonds owned a home on the Ottawa River, in Ontario, and held a residential insurance policy, marketed as a Homeowners’ Package Comprehensive Form Insurance Policy, with Trillium Mutual Insurance Company (“Trillium”), a local insurer. 

After a severe flood in April 2019 caused a total loss of their home, the Emonds turned to Trillium for indemnity under their policy. Of note, the Emonds’ policy contained an endorsement titled Guaranteed Rebuilding Cost Coverage (the “GRC Endorsement”). The GRC Endorsement provided that the Emonds would be paid for the cost of rebuilding their home “using current building techniques”, even beyond policy limits, and without the co-insurance penalties² that would have otherwise applied under the main form of their policy. 

There was no dispute that the GRC Endorsement applied. A disagreement arose, however, as to the following exclusion clause, printed not in the GRC Endorsement but in Trillium’s main policy form: 

This exclusion was of crucial importance, because between the construction of the Emonds’ home and the 2019 flood, several building requirements and policies had been implemented by a local conservation authority. The Emonds estimated at $700,000 the increased rebuilding costs required to comply with these new construction requirements. Trillium argued that the exclusion prevented recovery for these added costs — with the exception of a $10,000 coverage extension stipulated specifically for this type of costs.  

The Court’s judgment 

The Emonds were initially successful against Trillium before the Ontario Superior Court of Justice,³ but the Court of Appeal disagreed and sided instead with Trillium in interpreting the policy and its exclusion.⁴ The Emonds were granted leave to appeal on July 4, 2024, which set the stage for the Supreme Court’s January 30, 2026 ruling. 

The seven-judge majority of the Supreme Court, led by Rowe J., upheld the Court of Appeal’s interpretation. In particular, the Court clarified how endorsements (such as the GRC Endorsement) fit into the well-established order in which the provisions of an insurance policy ought to be interpreted (insuring clauses first, exclusions next, exceptions last). 

The Court stated that endorsements are not self-contained and standalone contracts and that, as such, they do not alter the established order of interpretation. The Court therefore rejected the Emonds’ argument that the GRC Endorsement was “comprehensive” on the subject of the rebuilding costs. Having determined that the GRC Endorsement simply amended the policy’s insuring clause, the Court found that the exclusion continued to apply, even though it was printed in the main policy form and not the GRC Endorsement. 

The Court also reminded that the clear language of the policy must be given effect and only in case of ambiguity will interpretative principles (e.g., reasonable expectations of the parties, commercial intent, or consistency with similar policies) come into play. Here, the Court found there was no ambiguity in Trillium’s policy, notably finding that: 

• the use of the term “guaranteed” in the heading of the GRC Endorsement could not overwhelm its otherwise clear language; 
• the expression “current building techniques”, used in the GRC Endorsement, referred to methods of carrying out construction and not compliance with legal requirements; and
• the exclusion applied regardless of when the building restrictions at issue came into force.⁵ 

Lastly, the Court commented on the so-called “nullification of coverage doctrine”, long settled law in Ontario, which allows a Court to refuse to apply an exclusion clause, albeit clear and unambiguous, if doing so would virtually nullify the coverage provided by the policy. While the Supreme Court upheld the validity of the doctrine in Ontario law, it ultimately rejected the Emonds’ argument that the exclusion nullified the coverage afforded under the GRC Endorsement.⁶

Takeaways 

We consider the ruling in Emond a consecration of the traditional framework of interpretation of insurance policies in Canada, which have been consistently reiterated by the Court throughout the years. In our view, the Court’s clarification that policy endorsements should not be interpreted in isolation aligns squarely with its prior pronouncements in other insurance cases.  

The Court’s discussion of the doctrine of nullification of coverage, even though it was found not to apply in the Emonds’ case, is particularly instructive in two respects. First, the Court stressed that the doctrine was mostly developed through the jurisprudence of the Ontario courts, and explicitly acknowledged that courts in other Canadian jurisdictions have expressed doubts about the approach taken in that province.  Second, the Court commented that the doctrine places a “high bar” on the insured to establish the unenforceability of an exclusion clause. The fact that the Emonds still retained a benefit from the GRC Endorsement, despite it being less than what it would have been without the exclusion, was sufficient to set the doctrine aside in this case. 

Lastly, the ruling in Emond underscores the importance for Canadians who, like the Emonds, own residences in high-risk areas, such as flood-prone zones, of reviewing their policy wordings to assess the incidence of ever-evolving building regulations. 

¹ 2026 SCC 3 [“Emond”].

² A “co-insurance clause” applies when a policyholder underinsures their property. The clause provides that the insured will be indemnified only partially if the actual repair cost is higher than the insured value of the property.

³ 2022 ONSC 5519.

⁴ 2023 ONCA 729.

⁵ This is, incidentally, the main point of disagreement raised by the two dissenting judges, who notably would have considered that the exclusion applied only to costs to comply with restrictions implemented after policy inception. 

⁶ Indeed, the Court had already found that an exclusion clause, found in the main policy wording, could apply to coverage afforded under an endorsement: Pickford Black Ltd. v. Canadian General Insurance Co., [1977] 1 S.C.R. 261, 1976 CanLII 153.

⁷ See, e.g., the rulings of the British Columbia Court of Appeal discussed by Rowe, J. in Emond, para. 57.