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How to Beat a Bully

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How to Beat a Bully

The Issue Case Background Terminology

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Michael Alexander defeats State farm insurance


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“A lawyer who represents himself has a fool for a client.”

How did Alexander do it, and what are the implications for homeowners across North America, now that cash-strapped insurance companies are using undisclosed fine print and other tactics to diminish their obligations?

In 1996, newlyweds Todd and Julaine Deeks began building their dream home on a picturesque 22-acre country lot in Lucan, Ontario, 100 miles west of Toronto. Local entrepreneur Michael Alexander was running a real estate fund at the time, and agreed to provide the couple with a loan for construction. In return, Alexander took a mortgage on the property. Two years later, the Deeks’ marriage fell apart; they abandoned their house and went into foreclosure.To recover his investment, Alexander put the property up for sale. Then calamity struck. Just as he was about to receive a handsome offer from another couple, the house burned to the ground in the middle of the night. The cause of the fire was never determined. Stunned by this further misfortune, Alexander sought compensation from State Farm (U.S.), the company that insured the Deeks' home. He had the right to recover his loan based on something called the "standard mortgage clause." This clause has been included in every homeowner’s policy in North America for nearly a century. It gives the lender, or “mortgagee,” the right to receive first payment from the proceeds of a policy when fire destroys a home. The lender’s protection is absolute. It has to be. Without the mortgage clause guarantee, lenders wouldn’t feel secure enough to extend financing, and the housing market would collapse.

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CASE BACKGROUND

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The case of Michael Alexander v. State Farm is a remarkable exception to that old adage. Armed with little more than a law degree and a library card, Alexander battled a multi-national insurance company and its cadre of attorneys all the way up to the Supreme Court of Canada – and prevailed. He won the right to be compensated as the mortgage holder for a house that was engulfed by flames while insured by State Farm.

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Alexander submitted his claim to the Illinois-based insurance giant. But State Farm, perhaps assuming that a young businessman in rural Ontario wouldn’t have the resources to fight them, decided to test the limits of the clause. They refused to pay Alexander, arguing that the clause didn’t apply to houses that were – however temporarily – empty. The implications were astounding. If State Farm got away with this argument, not only would Alexander lose his investment, but homeowners would also be forced to buy extra insurance to protect lenders. The cost of securing a home would skyrocket, and insurance companies would reap an enormous windfall. Alexander retained a top Toronto litigation firm and took State Farm to court. He won, but the insurance company appealed and persuaded the Ontario Court of Appeal to overturn the decision.

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Nonetheless, against the odds, the Supreme Court not only agreed to hear the case but also did so on a rush basis due the harmful impact it could have on the housing market and the economy as a whole. Alexander was now under immense pressure. If he lost the appeal, he would have to declare bankruptcy and his name would be on a case that would cost homeowner's countless millions. Friends and colleagues upped the pressure, warning that he couldn’t succeed alone against a corporation with annual revenues of $58 billion. To gain an advantage in this David and Goliath contest, Alexander developed a communications strategy based on irony aimed at turning his presumed weaknesses into strengths.

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With so much at stake, Alexander took a calculated yet virtually unheard-of risk: He fired his costly lawyers and applied to represent himself in an appeal before the Supreme Court of Canada. Trying to get his case before the Court would be tough. The Justices only accept ten percent of the appeal applications they receive every year, limiting themselves to cases that truly raise issues of "national concern." Appearing before the court would be even tougher. Although experienced in advisory work, Alexander had no courtroom experience.

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The ruling created a crisis in the housing market. Since other provincial courts tend to follow Ontario insurance cases, the Court of Appeal's ruling would affect homeowners across the country. The smack down also caused a personal crisis for Alexander. He was forced to wind up his investment fund when co-investors withdrew, their confidence shaken by the unexpected loss in court.

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Mortgagor: Someone who receives a loan to purchase a home and gives the lender a mortgage on the property as security; in this case, the mortgagors are Todd and Julaine Deeks.

The court responded by rendering a rare unanimous decision in his favor. It also awarded him his monetary claims and restored the lender’s absolute right to repayment under the mortgage clause.

Mortgagee: The lender who receives the mortgage on the property; here the first mortgagee is the Royal Bank of Canada and the second is Alexander. The lender can also be referred to as the creditor.

In this DVD, you'll see 10 minutes of highlights from Alexander's televised submissions and another 10 from State Farm's. Alexander's 30-minute appearance and State Farm's 60-minute appearance are also included for those who want to follow the arguments from beginning to end.To comment on the case, send an e-mail to: michaelalexander3000@gmail.com

Standard Mortgage Clause: A standard industry-approved clause inserted in all homeowner insurance policies issued in North America. It gives the mortgagee an absolute right to have its loan repaid from the proceeds of the homeowner's policy when a fire, flood or other insurable peril destroys a home.

TERMINOLOGY

Statutory Conditions: All provincial governments have passed legislation that requires insurance companies to include standard conditions in every homeowner's policy they issue. These conditions set up special rules to regulate the relationship between the homeowner and his or her insurance company. The aim of the rules is to ensure that the insurance company treats the homeowner fairly. State Farm made the novel argument that these rules could also be used to regulate the relationship between the mortgagee and the insurance company. Furthermore, it argued that one of these rules - statutory condition number 4 - could be used to eliminate the mortgagee's coverage when a fire destroys a vacant home.

Here are some definitions of legal terminology to assist you in understanding points made during the hearing:

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Mortgage: When a homebuyer gets a loan from a bank, credit union or private investor to purchase a home, the buyer often says that he has "taken a mortgage", or sometimes simply that she "has" a mortgage. This is inaccurate. In fact, the lender is the party that "has" the mortgage. When the lender advances money to the buyer, the buyer signs a contract that gives the lender a "right" to sell the home to recover its money in the event that the buyer fails to repay the loan in full. The lender's right to sell the home is the mortgage.

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This strategy allowed him to surprise State Farm at the Supreme Court hearing with principled arguments that exposed the company’s sleightof-hand reasoning.


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How to Beat a Bully Michael Alexander defeats State farm insurance at the

supreme Court of canada

Alexander’s Highlights - 10 min 12 sec State Farm’s Highlights - 11 min 20 sec Full Submissions - 1 hr 32 min 35 sec

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This DVD has been reproduced and distributed with the permission of the Supreme Court of Canada. It may not be copied or redistributed without the Court's permission. For additional copies, please contact Michael Alexander at: michaelalexander3000@gmail.com

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How to Beat a Bully Alexander's Highlights 10 min 12 sec State Farm’s Highlights 11 min 20 sec

Full Submissions 1 hr 32 min 35 sec


Mike