The Delayed, Deferred, Amended Possession Date and Insurance

The Delayed, Deferred, Amended Possession Date and Insurance

Ontario Real Estate Source

By Brian Madigan LL.B.

Here’s the problem. The vendor needs a little extra time to move out. The purchaser isn’t moving in for about one week. So, the closing is scheduled for Friday. The purchaser says that the vendor can stay until Sunday. The purchaser wants to come in and do some painting, but the crew can’t start until Monday.

In essence, this is a big favour to the vendor.

Only one little problem: the house burns down on Saturday.

Do you see any problems with this?

The new purchaser placed insurance upon the premises on Friday. So, the purchaser is protected. He paid for the property, but has yet to move in. The fire is not his fault, and his insurance will respond to the loss.

What about the vendor?

The vendor no longer owns the property. His “insurable interest” was eliminated on Friday when he received the closing funds. So, his policy won’t pay.

That’s fine for the loss of the building, but what if he’s sued for the loss? Will his liability coverage provide him with a defence? This could be significant.

To some extent, he is protected under the Accidental Fires Act. So, let’s change our example somewhat, so that he causes damage to the property by his own negligence. Let’s assume that he leaves early, left the water running, it overflowed and caused $30,000.00 in damage.

The owner’s insurer will pay for the loss. The insurer then upon payment is subrogated to the rights of the owner (its insured). The insurance company can now sue the vendor for compensation for the loss.

So, what happened to the vendor’s insurance?

Hopefully, it was not terminated on Friday! The loss took place on Saturday and Sunday.

The vendor, being the former owner no longer has an insurable interest in the property. But, that’s OK, since as luck would have it, the purchaser (new owner) had his policy start on Friday.

However, think of the issue if that policy didn’t start until Monday. Fire damage would not be covered. There would be no right to sue the vendor for an accidental fire. There would at least be a right to sue for the water damage. But, as you can appreciate, this is starting to be a mess.

Now, we come to a technical problem in this case. Let’s assume that the vendor doesn’t say anything. His policy ends on Friday at midnight. The damage occurred on Saturday and Sunday when there was no coverage.

Or, let’s assume that he is really looking to fire and extended perils coverage. He loses that when he conveys the property. He no longer has an insurable interest in the property.

He may still have coverage, assuming that the policy was not cancelled and it was continued for another property for:

1)     liability, and

2)     contents.

But, in this case, the big issue is still the substantial loss to the building and he is without insurance.

Are there any solutions?

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com