It sounds like something that only happens in the movies.
A buyer agreed to purchase a beautiful century home on a two-acre property near Tillsonburg for $775,000.
Just 20 days after signing the Agreement of Purchase and Sale—but before closing—the home was completely destroyed by fire.
The buyer wanted to complete the purchase, but only if the seller guaranteed that the insurance proceeds would be enough to rebuild the home.
The seller refused.
The dispute ended up before the Ontario Superior Court.
The Court ruled that the buyer could not rewrite the agreement by demanding a guaranteed insurance payout. Under the standard Ontario Agreement of Purchase and Sale, the buyer had only two options: walk away and receive the deposit back, or complete the purchase and accept whatever insurance proceeds were available.
It’s a fascinating reminder that insurance doesn’t just matter after you own a home—it can determine what happens before you even get the keys.
Here are three things every homeowner should know.
- Home Insurance Isn’t Optional If You’re Getting a Mortgage.
Many buyers don’t realize this, but if you’re financing your purchase, your lender will almost certainly require proof of home insurance before your lawyer can close the transaction.
Why?
Because the lender’s security is the home itself.
If the house suffers a catastrophic loss immediately after closing, both you and your lender need to know there are sufficient funds available to rebuild it.
Without acceptable insurance, most lenders simply will not advance the mortgage funds.
- Home Insurance Covers More Than Fire—But Not Everything.
A standard homeowner’s policy generally provides protection for:
• Your home
• Detached structures
• Personal belongings
• Personal liability
• Additional living expenses following an insured loss
However, many homeowners are surprised to learn that home insurance typically does not cover:
• Poor workmanship
• Construction deficiencies
• Normal wear and tear
• Deferred maintenance
• Certain types of water damage unless additional coverage has been purchased
When speaking with your broker, it’s also worth discussing optional coverage for:
• Sewer backup
• Overland flooding
• Cyber and identity theft
• Home businesses
• Jewellery, artwork and other valuable collections
• Rental income for investment properties
Most importantly, confirm that your policy provides full replacement cost coverage so your insurer pays today‘s rebuilding costs—not simply the depreciated value of your home.
- One Insurance Policy Most Homeowners Never Think About.
As real estate lawyers, one recommendation we often make is to ask your insurance broker about an Umbrella Liability Policy.
It provides additional liability coverage after the limits on your home or automobile policy have been exhausted.
Imagine:
• A fire spreads from your property to neighbouring homes.
• A water leak causes extensive damage to multiple condominium units.
• A serious motor vehicle accident results in catastrophic injuries.
Many homeowner policies include $2 million of liability coverage.
An umbrella policy can often increase that protection by another $2–3 million for a surprisingly modest annual premium.
For homeowners with significant assets, rental properties, cottages, or simply a desire for additional peace of mind, it’s well worth discussing.
Practical Tips
• Never assume your home insurance covers every type of loss—ask questions before you need to make a claim.
• Review your policy every time you renovate or substantially improve your property.
• Confirm that you have full replacement cost coverage, not just actual cash value.
• Ask your broker whether sewer backup, overland flooding, cyber protection or umbrella liability insurance would be appropriate for your circumstances.
• Before signing an Agreement of Purchase and Sale, understand what the insurance clause says if the unexpected happens before closing.
Dig Deeper:
Financial Consumer Agency of Canada – Home Insurance
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Financial Services Regulatory Authority of Ontario (FSRA) – Property and Other Insurance
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McDonald v. Lowrie, 2025 ONSC 1397 (CanLII)
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