A property owner in southern Alberta acquired a 3-storey mixed-use building in 2019, operating the ground floor as a small retail space while maintaining 4 residential rental units on the upper floors. The building had been continuously insured under a commercial property policy since acquisition, with coverage limits reflecting the rental income, the building's replacement cost, and the nature of its retail and residential uses. The property generated steady rental income for approximately 4 years, during which time the owner maintained the policy without incident and submitted no claims.
In the spring of 2023, the owner decided to undertake a significant redevelopment of the property. The plan involved converting the ground-floor retail space into 2 additional residential units, upgrading the electrical and plumbing systems throughout the building, and installing new windows and exterior cladding. The project was expected to take between 8 and 12 months to complete. To facilitate the renovation, the owner issued notices to all existing tenants, and by mid-June 2023, the building stood entirely vacant. A general contractor was retained, and demolition of interior finishes began in early July.
The owner did not contact the insurer before the tenants vacated or before construction commenced. The existing policy remained in force with premiums paid automatically through a pre-authorized debit arrangement. No endorsements were requested, no vacancy permits were sought, and no notification was provided regarding the scope of the planned work or the change in the building's occupancy status. The owner understood the policy to remain valid so long as premiums continued to be paid.
In late September 2023, while the building remained under construction and unoccupied, a fire broke out in the basement area where electrical work had been underway. The fire caused extensive damage to the structure, with preliminary estimates suggesting losses exceeding $1.2 million including the cost of completed renovation work that was destroyed. The owner submitted a claim under the property policy, expecting full indemnification for the loss.
The insurer's adjuster attended the property within days of the loss and began an investigation into the circumstances. The adjuster's preliminary report identified 3 distinct coverage concerns: the building had been vacant for more than 60 days at the time of the fire, substantial construction work was underway that had not been disclosed to the insurer, and the intended use of the property had changed materially from mixed commercial and residential to fully residential. The insurer reserved its rights pending further investigation, and the owner now faces the possibility that some or all of the claimed loss may fall outside the scope of coverage.