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Insurance policies are often viewed as some of the most difficult contracts to read. To many policyholders, they can feel dense, technical, and full of cross-references that seem to send the reader in circles. It’s a common frustration, and not an unreasonable one.
The good news is that there is a method to the madness. Insurance policies are carefully organized documents. They typically begin by describing what is covered, identify situations where coverage is excluded, and then create exceptions that restore coverage in particular circumstances. As a result, determining whether a loss is covered often requires reading several different provisions together, rather than relying on a single clause in isolation.
When disputes arise, courts are therefore tasked with more than simply interpreting individual words. They must determine how the policy operates as a whole and reconcile its various provisions in a coherent way.
In Emond v. Trillium Mutual Insurance Co., 2026 SCC 3, the Supreme Court of Canada used what began as a relatively narrow coverage dispute to provide broader guidance on the interpretation of standard form insurance policies. While the dispute concerned whether a guaranteed rebuilding cost endorsement required an insurer to cover the costs of complying with conservation authority requirements after a total loss, the SCC’s reasons are likely to become a frequently cited authority in insurance coverage disputes.
The decision brings together principles from Progressive Homes, Ledcor, and Sabean and explains how they should be applied in practice. In particular, the SCC clarified the role of endorsements, what constitutes ambiguity, when contra proferentem may properly be invoked, and the distinct circumstances in which the nullification of coverage doctrine may prevent an otherwise unambiguous exclusion from being applied.
At the centre of the Court’s reasons is a comprehensive restatement of the framework governing the interpretation of insurance contracts. While the Court reaffirmed the “generally advisable” approach established in Ledcor, it also clarified how that framework should operate in practice.1 In particular, the Court distinguished between the sequential order in which courts analyze coverage, exclusions, and exceptions, and the interpretive exercise itself, emphasizing that policy provisions must always be read in the context of the contract as a whole.
The Three-Stage Framework
Justice Rowe began by reaffirming that the analysis of insurance coverage follows the “generally advisable” order first articulated in Ledcor. First, the insured bears the burden of establishing that the claim falls within the initial grant of coverage.2 If coverage is established, the insurer must demonstrate that an exclusion applies.3 Finally, where an exclusion applies, the onus then shifts back to the insured to prove that an exception to the exclusion applies.4 The framework therefore allocates the burden of proof between the insured and the insurer.
The SCC explained that this sequence reflects the structure of standard form insurance policies themselves.5 Insurance policies set out coverage, exclusions remove coverage where a claim would otherwise fall within, and exceptions to exclusions restore coverage for claims that would otherwise be excluded.6 The framework also mirrors the allocation of the burden of proof between them. Although this sequencing has long been accepted following Ledcor, the SCC took the opportunity to explain how each stage fits within the broader context of contractual interpretation.
The SCC cautioned that this analytical sequence should not be confused with the process of interpreting the policy. While courts assess coverage, exclusions, and exceptions sequentially, the provisions themselves cannot be interpreted in isolation.7 Rather, each provision must be considered in the context of the contract as a whole. As Justice Rowe observed, the generally advisable order assists courts in understanding the structure of the policy and allocating the burden of proof, it does not require courts to ignore other provisions when determining the meaning of a particular clause.8
Stage One: The Policy Language
The Court reaffirmed that the starting point for interpreting an insurance policy is its language. Where the wording is unambiguous, effect must be given to its ordinary and grammatical meaning.9 Consistent with earlier jurisprudence, the policy is to be interpreted as it would be understood by the average person applying for insurance, and not as they might be perceived by persons versed in the niceties of insurance law.10
Justice Rowe also emphasized that ordinary meaning cannot be determined by reading provisions in isolation.11 Even where a clause appears clear, its meaning may change once it is considered within the broader contractual scheme.12 Accordingly, ambiguity cannot be assessed without first reading the policy as a whole.13
The SCC then went on to clarify the meaning on ambiguity, which arises when there “are multiple reasonable but different interpretations of the policy.”14 That said, the mere articulation of a different interpretation does not mean it is reasonable.15
The SCC identified two situations in which ambiguity may arise. The first occurs where a “…provision appears unclear in isolation and continues to admit of more than one reasonable meaning when read in light of the contract as a whole.”16 The second arises where “…a provision that appears clear in isolation is capable of holding more than one reasonable meaning when the contract is read as a whole.”17 That said, the SCC specifically noted that insurance policies frequently contain overlapping grants of coverage, exclusions, and endorsements.18 Such overlap does not itself create ambiguity. Instead, courts should strive to read the policy harmoniously and reconcile apparently overlapping provisions wherever possible.19
Stage Two: Resolving Ambiguity
Only where genuine ambiguity remains does the analysis proceed beyond the policy language. At this stage, courts may employ established interpretive principles to determine which competing interpretation should prevail.20
Justice Rowe identified several such principles, including the reasonable expectations of the parties, commercial reasonableness, and consistency with the interpretation of similar insurance policies.21 These principles assist the court in selecting between competing reasonable interpretations where the policy language alone does not resolve the dispute.
Stage Three: Contra Proferentem
If ambiguity persists after applying these interpretive principles, the analysis proceeds to a third and final stage. The SCC reaffirmed that the doctrine of contra proferentem remains a rule of last resort.22
In the insurance context, the doctrine requires any remaining ambiguity to be resolved against the drafter of the policy. Practically speaking, this generally results in broader interpretations of coverage provisions, narrower interpretations of exclusions, and broader interpretations of exceptions to exclusions.23
Conclusion
Although Emond concerned the interpretation of a guaranteed rebuilding cost endorsement, its significance extends well beyond property insurance. The decision provides a clear overview of the analytical framework governing the interpretation of insurance contracts. In doing so, the SCC reinforced that insurance coverage disputes are exercises in contractual interpretation.
Accordingly, courts are to begin with the policy language, interpreted in the context of the contract as a whole. Only where that exercise reveals genuine ambiguity should they turn to broader interpretive principles, with contra proferentem remaining a doctrine of last resort. By clearly distinguishing each stage of the analysis, Emond provides a practical roadmap that will likely guide insurance coverage litigation for years to come.
Footnotes
1 Emond v. Trillium Mutual Insurance Co., 2026 SCC 3 at para 33.
2 Ibid.
3 Ibid.
4 Ibid.
5 Ibid at para 34.
6 Ibid.
7 Ibid at para 44.
8 Ibid at para 45.
9 Ibid at paras 38.
10 Ibid.
11 Ibid at para 44.
12 Ibid.
13 Ibid at para 40.
14 Ibid at para 41.
15 Ibid.
16 Ibid at para 46.
17 Ibid.
18 Ibid at para 47.
19 Ibid.
20 Ibid at para 48.
21 Ibid at para 49.
22 Ibid at para 50.
23 Ibid.
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