In Merei v. State Farm Fire and Casualty Company, 2014 ONSC 1960 (S.C.J.), the plaintiffs' home was destroyed by fire eight days after their home insurance policy was cancelled. The insurer's underwriting department made the decision not to renew the policy after the plaintiffs made three claims and had a history of non-payment. The policy contained the following clause:
Automatic Renewal – if the policy period is shown as 12 months, this policy will be renewed automatically subject to the premiums, rules and forms in effect for each succeeding policy period. If this policy is terminated, we will give you and the Mortgagee/Lienholder written notice in compliance with the policy provisions or as required by law.The plaintiffs alleged that the "automatic renewal" section of their policy obligated the insurer to renew the policy as they were not in arrears, not in breach of any of the rules in the policy and had submitted all forms.
The Court disagreed, relying on the plain reading of the contract (and common sense). Justice Carey held that the policy was intended to allow for a renewal of the policy when the policy has not been cancelled. He stated, "It is contrary to all rules of interpretation and normal insurance practice to conclude the insurer intended that they could only cancel the policy if the policy was not in good standing".