VI. SELECTED ISSUES IN INTERPRETING INSURANCE POLICIES .................... 2
Policy Interpretation .................................................... 2
Corbould v. BCAA Insurance Corp (BCSC 2010) ............................ 4
Brissette Estate v. Wesbury Life Insurance (SCC) ....................... 4
Loss Caused by Accident .................................................. 4
Co-operators Life Insurance Co. v. Gibbens (SCC 2009) .................. 5
Progressive Homes Ltd. v. Lombard General Insurance Co (SCC 2010) ...... 6
Nelson v. Industrial-Alliance Pacific Life Insurance (ABQB 2010) ....... 7
Loss Caused by Intentional/Criminal Acts ................................. 8
Eichmanis v. Wawanesa Mutual Insurance ................................. 9
Erik Knutsen: “Why insurers should rethink criminal conduct exclusion” . 9
Automobile Insurance: Who is Covered? ................................... 10
Wawanesa Mutual Insurance Co v. SC Construction (ONSC 2012) ........... 10
Automobile Insurance: Loss Arising from the “Use or Operation” of a Motor
Vehicle ................................................................. 11
Amos v. ICBC (SCC 1995) ............................................... 11
Citadel General Assurance Co. v. Vytlingham (SCC 2007) ................ 12
Lumbermens Mutual Casualty Co v. Herbison (SCC 2007) .................. 13
Russo et al. v. John Doe (ONCA 2009) .................................. 13
Martin v. Freeze Night Club (ONCA 2013) ............................... 14
V-Twin Motorcycle School Ltd. v. ICBC (BCSC 2010) ..................... 14
Whipple v. Economic Mutual Insurance Co (2010) ........................ 15
VII. PUBLIC POLICY RESTRICTIONS .......................................... 15
Criminal Acts ........................................................... 16
Oldfield v. Transamerica and Goulet v. Transamerica (SCC 2002) ........ 17
Life Insurance Proceeds and Suicide ..................................... 17
Husak v. Imperial Life Assurance (Sask. CA 1969) ...................... 18
Burdens and Standards of Proof .......................................... 18
VIII. CLAIMS PROCESS ..................................................... 19
Introduction ............................................................ 19
Obligations of an Insured Making a Claim ................................ 19
Marcoux v. Halifax Fire Insurance Co .................................. 20
Swan Hills v. Royal General Insurance (ABCA 1977) ..................... 24
Excusing Insured’s Breach of Contract ................................... 24
Jackson v. Canadian Northern Shield ................................... 28
Saskatchewan River Bungalows v. Maritime Life Assurance Co (SCC 1994) . 28
Maracle v. Travellers Indemnity Co .................................... 30
McConnell v. Aviva Insurance Co ....................................... 30
Paul v. Cumis Life .................................................... 32
Insurer’s Obligation to Respond to Claims in Good Faith ................. 32
Whiten v. Pilot Insurance Co (SCC 2002) ............................... 33
Fidler v. Sunlife (SCC 2006) .......................................... 33
ICBC v. Hosseini (BCCA 2006) .......................................... 34
Insurer’s Duty to Defend under Liability Insurance Policy ............... 34
Great West Steel Industries v. Simcoe & Erie (ONCA 1980) .............. 35
Nichols v. American Home Assurance Co (SCC 1990) ...................... 36
Lloyd’s of London v. Scalera (SCC 2000) ............................... 36
Monenco Ltd. v. Commonwealth Insurance Co. (SCC 2001) ................. 37
Summary of the Nichols/Scalera/Monenco Trilogy ........................ 37
Sommerfield v. Lombard Insurance Group (SCC 2005) ..................... 39
Hanis v. Teevan (ONCA 2008) ........................................... 40
Broadhurst & Ball v. American Home Assurance Co (ONCA 1990) ........... 40
1
Economical Mutual Insurance Co v. ICBC (ABQB 1986) .................... 41
Duty to Settle Within Policy Limits ..................................... 41
X. OVERLAPPING POLICIES AND OTHER CONSEQUENCES OF INDEMNITY .............. 43
Doctrine of Contribution ................................................ 43
Determining Insurer’s Liability under Overlapping Policies .............. 45
Family Insurance v. Lombard Canada Ltd (SCC 2002) ..................... 46
Commercial Union Assurance v. Hayden (QB 1977) ........................ 46
Recovery under Overlapping Policies ..................................... 46
Redefining Policy Coverage in the Event of Other Insurance .............. 48
XI. SUBROGATION .......................................................... 48
Purposes of subrogation ................................................. 48
Operation of Doctrine of Subrogation .................................... 49
Castellain v. Preston ................................................. 49
Wellington Insurance Co. v. Armac Diving Services ..................... 50
Exercising Right of Subrogation ......................................... 50
IX. VALUATION ............................................................ 54
Introduction ............................................................ 54
Valued Policies ......................................................... 55
Re Art Gallery of Toronto and Eaton ................................... 55
Raymond v. United States Fire Insurance Co ............................ 55
Unvalued or Open Policies ............................................... 56
Valuation Methods ....................................................... 56
Rising Replacement Cost and Inflation ................................... 57
Dispute Resolution Process .............................................. 60
Future Contingencies .................................................... 61
Leger v. Royal Insurance Co ........................................... 61
Datatech Systems Ltd. v. Commonwealth Insurance Co .................... 61
Newfoundland (Attorney General) v. Commercial Union Assurance Co of
Canada ................................................................ 61
Partial Loss in Valued Policies ......................................... 62
Re Art Gallery of Toronto and Eaton ................................... 62
Extent of Loss Suffered: Constructive Total Loss, Abandonment and Salvage
........................................................................ 62
Limits on Liability in Open Policies .................................... 62
Sue and Labour Clauses .................................................. 63
Benson & Hedges Ltd v. Hartford Fire Insurance ........................ 64
Office Garages Ltd v Phoenix Insurance Co of Hartford ................. 64
VI. SELECTED ISSUES IN INTERPRETING INSURANCE POLICIES
Policy Interpretation

Insurance contracts are interpreted on a case-by-case basis, with a
view to reflecting the intentions of the parties
2




Heavy burden on insurance companies to clearly reflect their
intentions in policy wording
o Unequal bargaining power between insured and insurer
o Limited negotiation with standard form contracts
Step one: the search for intention (Consolidated Bathurst Export v.
Mutual Boiler)
o Search for an interpretation which promotes or advances the true
intent
 Literal meaning should not be applied where to do so would
bring about an unrealistic result
 Holistic interpretation to achieve commercially reasonable
outcome
o Principles:
 Undefined words should be given plain and ordinary meaning,
but if there are two meanings then go with the one that is
more reasonable in promoting the intention of the parties
 Contract should be interpreted as a whole, with the
presumed purpose of the reasonable protection of the
insured
 Objective of the contract should not be negated by a
technical definition
Step two: if there are two reasonable but differing interpretations
after step 1
o Contra proferentem
 Ambiguous terms are interpreted against the party who
drafted the agreement (the insurer)
 Does not apply to statutory conditions because they are not
drafted by the insurer
o Broad interpretation of coverage clauses/narrow interpretation of
exclusion clauses
 May apply to statutorily mandated provisions that are
immune to contra p.
o Fulfillment of the reasonable expectations of the parties
 American approach is to resolve ambiguities by interpreting
the contract in accordance with the insured’s reasonable
expectations
 Unclear whether this doctrine can apply where the contract
terms are not ambiguous
 Applies to both expectations of insurer and insured, but
giving effect to the expectations of the insured may go
against contra proferentem
 Blurred distinction between reasonable expectations
doctrine and the primary principle of interpreting a
contract in accordance with intentions of parties
o E.g. Reid Crowther Ltd. v. Simcoe & Erie General Ins Co (SCC
1993))
 Different use of triggering words in different parts of the
policy created ambiguity as to whether the policy was
limited to claims or occurrences within coverage period
Public policy
3
o
o
o
Courts need to limit the degree to which they allow contextual or
public policy considerations to influence their interpretation of
insurance contracts
 Jesuit Fathers of Upper Canada v. Guardian- public policy
considerations do not and should not trump foundational
principles of interpretation
 Double endorsement requirement precluded claims due to
circumstances known prior to commencement of coverage
period- favoured insurer to insured’s detriment
May be more appropriate for the courts to use statutory authority
or draw on estoppel to refuse to apply an unreasonable provision,
rather than to interpret it in favour of the insured
Examples of interpretation pp. 149-150
Corbould v. BCAA Insurance Corp (BCSC 2010)


Facts: above ground oil storage tank leaked into ground and home,
insurer denied coverage because policy excluded loss due to pollution
or contamination and that the escape of fuel oil into the property is
within the plain and ordinary meaning of contamination/pollution
Analysis: a reasonably informed person would consider a spill of 950L
of heating oil to constitute contamination or pollution- there is no
ambiguity
o Parties’ intentions prevail- unnecessary to resort to reasonable
expectations absent ambiguity
o The only time that we should consider reasonable expectations of
the parties as an independent tool absent ambiguity is if not
doing so would render the whole contract useless (if the purpose
of the contract was threatened)
Brissette Estate v. Wesbury Life Insurance (SCC)



Facts: couple had a life insurance policy but it didn’t say who would
be the beneficiary if the death was caused by one of them
Issue: should insurance proceeds be payable for the benefit of the
executor who murdered the insured?
Held: no matter how the policy is interpreted, finding in favour of
the beneficiary would allow him to recover from the loss that he has
caused- public policy was applied
o Dissent saw this as an ambiguity because the policy did not
provide for what should happen if the beneficiary causes the
loss, so should interpret in insured’s favour
Loss Caused by Accident



Unless specifically stated otherwise, insurance contracts are
interpreted as impliedly excluding coverage for expected losses (and
inevitable wear and tear), but many losses are neither purposely
caused nor entirely fortuitous
Continuum: purely fortuitous, blameless event – negligent act –
grossly negligent – reckless act – action intended to cause loss
Evolution of definition of “accident”
4
o
o
o
Walkem: includes negligence of the insured
 Contract provided coverage for accidents, but the damage
was caused by collapsing cranes that were negligently
repaired by the insured
 SCC held that interpreting “accidents” to mean only wholly
anticipated events would be unreasonably narrow
 Even calculated risks can be accidents as long as the
outcome was not desired
Stats: plain and ordinary meaning of “accident” includes gross
negligence, but excludes recklessness or “a foolhardy venture
from which personal injury could be foreseen as an almost
inevitable consequence”
 Insurer said that there should be a narrow construction
where the focus of the policy is just to indemnify the
specific insured- liberal construction is only applicable
to policies that protect third parties
 Court rejected this- the definition of accident is the
same for accident and indemnity policies
 The fact that the insured was grossly negligent does not
mean she desired the outcome
Martin: the question of whether a loss was caused by an accident
depends on the insured’s state of mind, not the activity
undertaken by the insured
 Insured’s death due to an overdose is still an accident
even if he intended to inject himself, because he did not
intend to cause his death
 Engaging in risky behaviour does not mean that the
resulting loss was intentional
 Insured’s expectations or intentions should be ascertained
from his subjective perspective, or from the perspective of
a reasonable person in the insured’s position
 If the insured expected the loss to occur then it is
not an accident
 Note that the finding in Martin is restricted to
situations where the insured’s actions led to the
loss- ONCA has held that death from natural causes is
not an accident
Co-operators Life Insurance Co. v. Gibbens (SCC 2009)



Facts: insured had unprotected sex and contracted herpes, which caused
a rare complication that resulted in total paralysis of his lower body
Issue: does the paraplegia constitute “bodily injury occasioned solely
through external, violent and accidental means”?
Analysis: “accident” involves something fortuitous and unexpected, as
opposed to something proceeding from natural causes- should be given
its ordinary meaning
o Just because an outcome is unexpected does not establish the
existence of an accident within the scope of the policy (Wang)
5

Held: “accident” does not include ailments proceeding from natural
causes
o The bodily injury proceeded from natural causes in this case,
since the transmission followed the normal method by which
sexually transmitted diseases replicate
o Onus is on the claimant to show that the loss is covered by the
policy
 Once the claimant establishes a prima facie case that the
injury was caused by an accident, the burden shifts to the
insurer to show that it was not an accident
o Average insured test: “accident” is an ordinary word- should be
construed as it would be understood by the average person
applying for insurance, not as it might be perceived by persons
well versed in insurance law- should be given its plan and
ordinary meaning
Progressive Homes Ltd. v. Lombard General Insurance Co (SCC 2010)


Facts: Progressive homes was hired as a general contractor,
negligently built housing complexes, actions were brought against
Progressive
o Insurance policies required Lombard to defend and indemnify
Progressive when Progressive is legally obligated to pay damages
because of property damage caused by an occurrence or accident
o Lombard argues that interpreting “accident” broadly would
effectively make Commercial General Liability policies into
guarantees of the quality of the work done by the insured
 Court rejects this position- performance bonds ensure that
work is brought to completion, whereas CGL policies only
cover damage to the insured’s own work once completed
Analysis:
o An insurer is required to defend a claim where the facts alleged
in the pleadings, if proven to be true, would require the insurer
to indemnify the insured’s claim
 Duty to defend is not dependent on the insured actually
being liable
o It is generally advisable to interpret the policy in the order
of: coverage, exclusions, and then exceptions
o Onus is on Progressive to show that the pleadings fall within the
initial grant of coverage, which covers property damage caused by
an accident
 Once this is shown, the onus shifts to Lombard to show that
the coverage is precluded by an exclusion clause
o “accident” should apply when an event causes property damage
neither expected nor intended by the insured- need not be a
sudden event and can result from continuous or repeated exposure
to conditions
 whether defective workmanship is an accident is case
specific
6


property damage is not limited to damage to the property of
a third party- can include damage to the building that
Progressive constructed
Held: for Progressive. Lombard’s duty to defend is triggered.
Nelson v. Industrial-Alliance Pacific Life Insurance (ABQB 2010)


Facts: Insured died while swimming- medical experts concluded that he
likely had an arrythmia (irregular heartbeat) that was the immediate
cause of his death
Analysis: was his death an accident? Applied principles from Gibbens
o Care must be taken not to convert an accidental benefits policy
into a general health, disability, or life insurance policy
o Circumstances giving rise to claims on accident benefits polcies:
 Antecedent mishaps external to the person of the insured
(e.g. car accident, slip and fall, bodily injury or death
caused by illness that is a consequence of a mishap or
untoward event external to the insured)
 Antecedent mishaps internal to the person of the insured
(e.g. deliberate acts of ordinary living that lead to an
unforeseen or unexpected injury, that is a fortuitous and
unexpected result of a bodily malfunction peculiar to the
insured
 Antecedent mishaps due to miscalculation by the insured
(e.g. insured has a mistaken belief about circumstances,
fails to perform an action in a timely manner or undertake
a necessary check, or simply miscalculates the effects)
 Disease or illness of the insured- does not constitute an
accident if it arises from processes that occur naturally
within the body in the ordinary course of events
o Accident occurs where:
 A prior unexpected mishap or occurrence external to the
insured’s body causes bodily injury or death
 A disease or illness attributed to a prior unanticipated
mishap or occurrence external to the insured’s body causes
bodily injury or death
 E.g. Kolbuc- West Nile was unforeseen
 A prior unanticipated mishap or occurrence due to a
deliberate action of the insured results in bodily injury
or death due to a bodily malfunction peculiar to the
insured
 A deliberate action on the part of the insured causes
bodily injury or death due to the insured’s miscalculation
or mistaken belief about his or her circumstances
 e.g. Martin- drug overdose
o Accident does not occur where disease or illness resulting from
natural causes or bodily infirmity in the ordinary course of
events causes bodily injury or death
 E.g. Gibbens (paralysis due to natural processes within the
insured’s body), Wang (amniotic fluid embolism natural with
7

child birth), Nelson (death from swimming not caused by
mishap)
 If the loss was caused by disease from natural causes, then
it is not accidental
Held: there was no mishap or trauma that triggered the bodily
malfunction- swimming is a natural and common event
Loss Caused by Intentional/Criminal Acts



Insurance policies often expressly exclude coverage for losses
intentionally caused by the insured
o Loss is intentionally caused where the insured takes action with
the purpose of causing some loss or harm, even if the insured
does not intend the extent of the loss actually incurred (Cooperative Fire & Casualty v. Saindon)
 E.g. Emeneau v. Lombard Canada: insured tried to commit
suicide in his car, car caught fire, exclusion clause
applied to preclude recovery because it was an intentional
act
 Saindon: got in a fight with neighbour, tried to scare him
with the lawnmower, which then fell on the neighbour- loss
was intentional because the insured took action with the
purpose of causing some harm, even if he did not intend the
extent of the loss actually caused
o Court should look for evidence of the insured’s subjective
intent, failing which the court may apply a subjective-objective
analysis based on the circumstances of the loss
 Whether a reasonable person in the circumstances would have
considered the conduct to result in that kind of outcome;
whether a reasonable person would have thought that the
resulting damage was something that was substantially
certain to result from the conduct in question
o Intent to injure presumed for inherently harmful conduct, e.g.
sexual wrongdoing: Marine Underwriters, Lloyd’s of London v.
Scalera; Sansalone v. Wawanesa Mutual Insurance
Common law: complete bar- no recovery
o This had adverse consequences for 3rd party victims and coinsureds
 Scott v. Wawanesa: parents couldn’t recover from son’s
conduct because he was an unnamed insured
 Beck Estate v. Johnston: loss was caused by co-insured’s
wrongdoing
Statutory modification: loss or damage from criminal conduct per se
not a bar to indemnity- recovery is subject to policy terms
o BCIA s. 5: “Unless a contract otherwise provides, a violation of
a criminal or other law in force in British Columbia or elsewhere
does not render unenforceable a claim for indemnity under the
contract unless the violation is committed by the insured, or by
another person with the consent of the insured, with intent to
bring about loss or damage, except that in the case of a contract
of life insurance this section applies only to insurance payable
8

under the contract in the event the person whose life is insured
becomes disabled as a result of bodily injury or disease”
 Can recover as long as the conduct was not intended to
bring about the harm- recovery permitted even if an action
was criminal, so long as the resulting loss was not
intended
 But contract can provide otherwise- common law rule
can be included in the contract and will be given
effect
o Ontario Insurance Act s. 118- similar provision
Intent to injure or cause harm required; excludes deliberate conduct
causing unintended loss (RDF v. Co-operators General Insurance Co)
Eichmanis v. Wawanesa Mutual Insurance



Facts: Eichmanis was shot and injured but was 25% contributorily
negligent- brought an action against the insurers of the shooter when
the judgment went unsatisfied
o Policy excludes coverage for bodily injury or property damage
caused by any intentional or criminal act or failure to act by
any person insured by the policy or any person at the direction
of any person insured
Analysis:
o S. 118 of the Ontario Insurance Act says that unless the contract
provides otherwise, a contravention of any criminal or other law
does not by that fact alone render unenforceable a claim for
indemnity
 But the contract does provide otherwise in this caseexclusion clause excludes coverage for losses resulting
from criminal acts
o The exclusion applies even without proof of intention to cause
the injury or damage, so long as the act or omission that causes
the harm is criminal in nature- includes all breaches of the
Criminal Code regardless of whether mens rea was required
 A conviction is not required, but if there is one it is
prima facie proof of the fact
Held: exclusion clause triggered, no duty to defend
Erik Knutsen: “Why insurers should rethink criminal conduct exclusion”


Courts are too literalist and have failed to consider two
fundamentals:
o Insurers exclude “criminal” behavior from coverage to motivate
policyholders to avoid definite, unfortuitous losses
o Removing liability insurance for “criminal” behaviour removes a
primary source of compensation for accident victims
The literalist construction of the exclusion ignores the sole purpose
of the “criminal act” fortuity clause- to motivate insureds to control
behaviour to avoid a definite, unfortuitous loss
o By holding that insurance coverage is ousted on the commission of
any criminal act, regardless of the insured’s subjective intent,
9

the court transformed the fortuity clause into something more
than it was meant to do
o No matter how an insured adjusts her risky behaviour, if the
behaviour which cause a loss can somehow be construed as a
“crime”, coverage is ousted- but “crimes” can happen by accident,
as was the case in Eichmanis. Then the behavioural deterrent
effect of the clause is lost.
o This interpretation also reads an exclusion clause broadly and
against the interests of the insured, which goes against standard
insurance contract interpretation principles
Solution: interpret the clause to require an insured to have the
requisite subjective mental intent to bring about the ensuing
unfortuitous loss- then the clause will achieve some mediating effect
on fortuity
Automobile Insurance: Who is Covered?



BCI(V)A s. 63, Reg 447/83: named insured, members of their household,
and persons operating the vehicle with the insured’s consent
o No liability where vehicle used without insured’s permission
No liability where vehicle operated by unauthorized person, e.g.
unlicensed driver or otherwise in breach of coverage condition:
Insurance (Vehicle) Act s. 75(b), Reg 447/83, s. 55(3), Schedule 10 s.
3(1),(2),(3),(7)
Determining whether the insured permitted unauthorized operation is a
question of fact: Ins (V) Reg 447/83 s. 55(3.1), Schedule 10 s. 3(3)
 Did the insured have actual or constructive knowledge of
unauthorized status?
 Whether a reasonable person would have known that the
person was unauthorized or operated vehicle in breach of
coverage conditions
Wawanesa Mutual Insurance Co v. SC Construction (ONSC 2012)


Facts:
o Statutory condition 4(1) says that you cannot permit another
person to drive the insured automobile unless the other person is
authorized by law to drive it
o Employee’s vehicle stopped working so his employer let him take a
company van- he was involved in a personal injury accident and it
turned out he didn’t have a valid license
Analysis:
o An insured will not be in breach of statutory condition 4(1) if
he acts reasonably in all the circumstances
 Key question is whether the accused took reasonable care
(Sault Ste. Marie)
o If an insured who has given someone an unqualified permission to
drive his car has no reason to expect that the car will be driven
in contravention of policy terms, then he cannot be said to have
permitted the contravening use
10



The word “permit” connotes knowledge, wilful blindness, or
at least a failure to take reasonable steps to inform
oneself of the relevant facts
The proper test is to determine what the insured knew or
ought to have known
Held:
o When the employee was not hired as a driver and a valid drivers
license is not necessary, and there are good reasons to believe
that he has a driver’s license, it is not unreasonable to let the
employee drive the employer’s vehicle occasionally without first
demanding to see the actual license
 The employer did not act unreasonably in letting the
employee take the van home
Automobile Insurance: Loss Arising from the “Use or Operation” of a Motor
Vehicle

BCI(V)A s. 7
o (1) Subject to section 2 and compliance with this Act and the
regulations, the corporation must administer a plan of universal
compulsory vehicle insurance providing coverage under a motor
vehicle liability policy required by the Motor Vehicle Act, of at
least the amount prescribed, to all persons
o (a) whether named in a certificate or not, to whom, or in
respect of whom, or to whose dependants, benefits are payable
if bodily injury is sustained or death results,
o (b) whether named in a certificate or not, to whom or on whose
behalf insurance money is payable, if bodily injury to, or the
death of another or others, or damage to property, for which
he or she is legally liable, results, or
o (c) to whom insurance money is payable, if loss or damage to a
vehicle results
o from one of the perils mentioned in the regulations caused by a
vehicle or its use or operation, or any other risk arising out of
its use or operation.
Amos v. ICBC (SCC 1995)


Facts:
o Insurance policy provided death and disability benefits where
death or injury was caused by an accident that arises out of the
ownership, use or operation of the vehicle
o Amos was driving his van to California and was surrounded and
attacked by 6 men, was shot in the process and rendered
permanently disabled
o Insurer denied coverage, saying his injury did not result from
the use and operation of the insured vehicle
Analysis- “Amos Test”:
o First, did the accident result from the ordinary and well-known
activities to which automobiles are put?
 Driving vehicle off-road is an ordinary and well-known
activity (Pender v. Squires)
11


Pushing motorcycle during a driving lesson is also ordinary
and well-known (V-Twin Motorcycle School v. ICBC)
 Irrelevant if conduct is illegal or dangerous
 Vytlingham: SCC rejected insurer’s argument to deny
indemnity claim where vehicle was used for a criminal
purpose
 Whipple: insured’s negligence not a factor in
determining “accident” for first party statutory
benefits
 Same test for no-fault benefits and indemnity claims
o Second, is there some nexus or causal relationship (not
necessarily a direct or proximate causal relationship) between
the plaintiff’s injuries and the ownership, use or operation of
his vehicle, or is the connection merely incidental or
fortuitous?
 This causal link should be more strictly defined in the
context of a liability insurance policy (Vytlingham,
Herbison) than in the context of no-fault automobile
insurance benefits (Amos)
 For no-fault benefits coverage, must be an unbroken
chain of causation linking the conduct of the motorist
as a motorist to the injuries in respect of which the
claim is made (Martin)
o Injury need not arise from negligent use of
vehicle
o Connection between injury and use or operation of
car need not be direct (Amos)
o Vehicle use must be more than fortuitous
 But for liability policies/indemnity insurance, the
insured vehicle must be more than the site of the
loss, but a direct causal connection is not required
and the insured vehicle need not be the instrument of
the injury- causation element is met where the use or
operation of a motor vehicle in some manner
contributes or adds to the injury without an
intervening act which breaks the chain of causation
o Vytligham: tortfeasor not at fault as a motorist
o Test is more demanding than for no-fault benefits
(Vytlingham)
Held: Mr. Amos was entitled to disability benefits because he was
driving the van when the assaut occurred and was therefore using the
vehicle or its ordinary purpose- the shooting had resulted from the
attackers’ attempts to gain entry into the van
Citadel General Assurance Co. v. Vytlingham (SCC 2007)

Facts:
o Insured suffered permanent injuries when the vehicle in which he
was traveling was struck by a boulder dropped from a highway
overpass bridge by two people who had brought boulders up to the
12

overpass for that specific purpose, and had used their car to
transport the boulders and make a getaway
o Insurance policy covered damage caused by an inadequately insured
motorist, arising directly or indirectly from the use or
operation of an automobile
Held: while the purpose element of the Amos test was satisfied, the
causation element was not- the loss resulted from the tortfeasors act
of throwing boulders off the bridge, which was independent from their
use of a motor vehicle to bring boulders to the bridge
o They were covered for their no-fault benefits- causation test was
satisfied because it was the driving of the vehicle that placed
them on the highway
 But they could not recover the excess losses under the
underinsured motorist policy which is an indemnity policyfor indemnity the injury must have resulted from the use of
the vehicle (i.e. vehicle must be used as a weapon), but in
this case the dropping of the rock was an independent and
separate event and so the chain of causation was brokentortfeasor was not at fault as a motorist
Lumbermens Mutual Casualty Co v. Herbison (SCC 2007)


Facts: a group of friends went hunting, one of them had driven to the
hunting area in his truck- thought he saw a dear so he stopped his
truck and shot the target, which turned out to be another hunter who
was permanently disabled by the shot
Held: same reasoning as Vytlingham- the plaintiff’s injuries were
caused by the defendant firing a rifle, which was unrelated to the
defendant’s use of the insured vehicle to travel to the hunting site
o He was no longer acting as a motorist at the time of the shooting
Russo et al. v. John Doe (ONCA 2009)


Facts:
o Appellant was the victim of a drive-by shooting in which she
sustained spine injuries that rendered her paraplegic
o Insurer said that the shooting was an intervening independent act
Analysis:
o This case deals with at-fault insurance coverage, so it is
outside the scope of Amos and must follow Lumbermens and
Vytlingham instead
 The at-fault defendant’s tort must be committed as a
motorist
o Purpose test: excludes only aberrant uses of a motor vehicle
 It is the actual manner in which the car is used that is
determinative, not the subjective reasons that the
tortfeasor may have for using it- therefore, the fact that
a motor vehicle is used for a criminal purpose does not
necessarily exclude coverage, provided that it is used as a
motor vehicle
13

o
Met in this case- the vehicle was used to transport
passengers and apparatus from one place to another, which
is a well-known and ordinary use of an automobile
Causation test:
 But-for test is not enough- there must be an unbroken chain
of causation linking the motorist as a motorist to the
injuries in respect of which the claim is made
 Not satisfied- the shooting was a severable intervening
event from the use or operation of the motor vehicle
Martin v. Freeze Night Club (ONCA 2013)


Facts: Martin is a part time audio technician, was assaulted while
loading his car after finishing work- was driven a few blocks in his
own vehicle, further assaulted and then abandoned
Analysis:
o Purpose test is satisfied
o Causation test?
 An intervening act may not absolve the insurer of liability
for no-fault benefits if it can fairly be considered a
normal incident of the risk created by the use or operation
of the car
 Can it be said that the use or operation of the vehicle was
a direct cause of the injuries?
o His car was nothing more than the venue where the
assaults occurred
o It is not enough to show that an automobile was the
location of an injury inflicted by tortfeasors, or
that the automobile was somehow involved in the
incident giving rise to the injury- the use or
operation of the automobile must have directly caused
the injury
o His car was not the dominant vehicle in the assaultsall of the assaults except for the car driving over
his foot constituted intervening acts that cannot
reasonably be said to be part of the ordinary course
of things associated with the use or operation of his
vehicle
o The involvement of the car was merely ancillary or
fortuitous to the injuries inflicted
V-Twin Motorcycle School Ltd. v. ICBC (BCSC 2010)


Facts: student fell and was injured while pushing a motorcycle during
a motorcycle course
Analysis:
o Did the accident result from the ordinary and well-known
activities to which automobiles are put?
 Instructing students in the use of a motorcycle as part of
a course in learning to operate the motorcycle is part of
the ordinary and well-known use of a motorcycle
14
o
Is there some nexus between the third-party claimant’s injury and
the use or operation of the vehicle by the insured?
 There is an unbroken chain of causation from the use of the
motorcycle by V-Twin to instruct its student in pushing a
motorcycle to the injury
Whipple v. Economic Mutual Insurance Co (2010)


Facts: Whipple attempted to do a headstand against a pole in the
centre of a party bus, fractured his neck, resulted in incomplete
quadriplegia
Analysis:
o Purpose test:
 In the no-fault benefits scheme, the parties expectations
about what is covered is governed by what qualifies as an
accident- the negligence of the insured person is not a
factor
 Whether a particular activity associated with a motor
vehicle is or is not itself inherently dangerous is not
determinative- the test is whether the activity could
reasonably be expected to fall within the use or operation
of the vehicle
 The headstand was within the ordinary use and operation of
the party bus
o There are few restrictions on the use of the bus- the
activities of the group, including the headstand, were
not outside the scope of its use or operation
o Causation test:
 The headstand, though unusual, flowed naturally from the
increasingly creative activities around the pole, which was
an integral part of the vehicle
 The use of the pole was not incidental to the use and
operation of the vehicle- it was a key element and thus
meets the dominant feature test
VII. PUBLIC POLICY RESTRICTIONS

BCIA s. 35:
o (1) Despite section 5, if a contract contains a term or condition
excluding coverage for loss or damage to property caused by a
criminal or intentional act or omission of an insured or any
other person, the exclusion applies only to the claim of a person
 (a) whose act or omission caused the loss or damage,
 (b) who abetted or colluded in the act or omission,
 (c) who
 (i) consented to the act or omission, and
 (ii) knew or ought to have known that the act or
omission would cause the loss or damage, or
 (d) who is in a class prescribed by regulation.
o (2) Nothing in subsection (1) allows a person whose property is
insured under the contract to recover more than their
proportionate interest in the lost or damaged property.
15
o



(3) A person whose coverage under a contract would be excluded
but for subsection (1) must comply with any requirements
prescribed by regulation.
o Indemnification for innocent co-insured’s proportionate share in
subject property- nature of innocent co-insured’s interest in
property irrelevant
o Intentional/criminal conduct exclusion limited to persons
implicated in wrongdoing or prescribed by regulation
o Protects victims of domestic violence
o Note: limited to property damage or loss; does not include
indemnification for bodily injury or death
BC Reg 114/2013 s. 7
o (1) For the purposes of section 35 (1) (d) [recovery by innocent
persons] of the Act, all classes of persons other than natural
persons are prescribed.
o (2) For the purposes of section 35 (3) of the Act, a person
described by that provision must co-operate with the insurer in
respect of the investigation of the loss, including, without
limitation,
 (a) by submitting to an examination under oath, if
requested by the insurer, and
 (b) by producing, for examination at a reasonable time and
place designated by the insurer, documents specified by the
insurer that relate to the loss.
BCI(V)A s. 76(6)
o The following do not prejudice the right of a person entitled
under subsection (2) to have the insurance money applied toward
the person's judgment or settlement, and are not available to the
insurer as a defence to an action under subsection (3):
 (c) contravention of the Criminal Code or of a law or
statute of any province, state or country by the owner,
lessee or driver of the vehicle specified in the owner's
certificate or policy.
Where an insurance contract provides coverage for a particular loss,
payment of the insurance proceeds may nonetheless be prohibited by
public policy
o Courts rely on public policy to nullify the operation of a
contract where completion of the contract would violate the
social or moral values of society- public policy will always
trump contractual terms
Criminal Acts

Common law: a criminal should not benefit from his crime (criminal
forfeiture principle)
o Extends to the criminal’s estate and to anyone claiming through
the estate
 But some courts have suggested in obiter that this should
be reformed because of the inherent unfairness of allowing
a named beneficiary to recover, but not the insured’s
estate- this distinction seems arbitrary
16



As a matter of law, a criminal’s estate stands in the
shoes of the criminal, but a beneficiary under an
insurance policy does not
Statutory modification: BCIA s. 5 restricts the application of the
criminal forfeiture rule to circumstances in which the insured commits
a criminal act with the intention of bringing about a loss
o Exceptions:
 Loss or damage caused by insured or 3rd party with insured’s
consent intended to cause loss
 Contractual terms can override statutory provision (BCIA s.
5)
 Life insurance: criminal forfeiture applies, except to
insurance payable under the contract in the event that the
person whose life is insured becomes disabled from bodily
injury or disease
Public policy rules are not constrained by contractual terms
o An insurance contract designed to cover illegal activity is
unenforceable
o Public policy considerations do not impact the legal status of
the contract so as to render it void or invalid- they simply
render it unenforceable on moral grounds
 Particular claim fails and insurer is excused from
contractual obligation, but contract remains valid
o But the need to resort to public policy can be avoided by a welldrafted contract
o Reliance on public policy is necessary where the contract is
silent on the issue
Oldfield v. Transamerica and Goulet v. Transamerica (SCC 2002)




Oldfield was insured under a life insurance policy naming his wife as
the beneficiary, died of a heart attack when a cocaine-filled condom
in his stomach unexpectedly ruptured
Goulet had life insurance naming his wife as a beneficiary and died
when a car bomb he was planting unexpectedly exploded
Insurer in both cases argued that payment of insurance proceeds would
violate the criminal forfeiture principle
SCC held in both cases that public policy did not prohibit paymentthe beneficiaries were not participants in the criminal acts in
question- payment to them did not benefit the guilty insureds
Life Insurance Proceeds and Suicide


At common law, life insurance proceeds are not payable if the
insured’s death results from suicide
Modification by statute:
o Provincial insurance statutes commonly override by making
contractual suicide clauses enforceable- this permits insurers to
cover suicide (BCIA s. 56(1))
17


Payment for death by suicide within a specific period can
be excluded, or benefits reduced- implied term to pay after
stated period
 Reinstatement- relevant period from last reinstatement
(BCIA s. 56(2))
o But if a life insurance contract is silent as to suicide, common
law applies (Husak)
Civil Code of Quebec c. 64, article 2441
o Presumption of validity; life insurance not voided by suicide
 The insurer may not refuse payment of the sums insured by
reason of the suicide of the insured unless he stipulated
an express exclusion of coverage in such a case and, even
then, the stipulation is without effect if the suicide
occurs after two years of uninterrupted insurance
 Any change made to a contract to increase the insurance
coverage is, in respect of the additional coverage, subject
to the clause of exclusion initially stipulated for a
period of two years of uninterrupted insurance beginning on
the effective date of the increase
o Insurer entitled to exclude payment for suicide as a contractual
term
o Suicide exclusion provision ineffective after 2 years of contract
Husak v. Imperial Life Assurance (Sask. CA 1969)

Husak applied for life insurance policy and received an interim
assurance certificate providing him with temporary coverage pending
the issuance of the full policy
o Interim certificate made no mention of suicide
o Policy provided that no coverage would be provided if the insured
committed suicide within two years of the policy taking effect
o 4 days before the insurer issued the full policy, Husak died from
an apparent suicide- this death was not covered by the policy
Burdens and Standards of Proof



Party seeking payment has the onus of establishing on a prima facie
basis that the loss claimed falls within the terms of the insuring
agreement
o Insurer may introduce evidence to rebut the claimant’s prima
facie case
Insurer has the burden of proving that the loss is exempted from
coverage, whether by application of a contractual exclusion or by the
application of public policy
Each party must meet its burden of proof on a balance of
probabilities, even where the element to be proven is the commission
of a criminal or quasi-criminal offence
18
VIII. CLAIMS PROCESS
Introduction

Steps must be followed before an insured can expect to recover
benefits:
o Insured must advise the insurer of the loss and the insurance
claim being advanced
o Insurer must investigate, verify, and otherwise respond to the
claim
 Involves a determination of the validity of the insurance
contract and its application to the loss in question, as
well as an assessment of the amount of compensation owed by
the insurer given the nature of the loss and the terms of
the insurance contract
Obligations of an Insured Making a Claim
Notice of Loss
 Insured must first advise the insurance company that a loss has
occurred
o Insurance policies typically include an express notice provision
which requires the insured to report losses within a prescribed
time frame- this makes timely notice a condition precedent to the
insured’s right of recovery
 Insurance company bears the burden of proving on a balance of
probabilities that the insured failed to comply with the notice
obligation
 Courts must determine whether and when the insured’s obligation to
report the notice was triggered (Marcoux), and whether the insured
reported the loss within the specified time frame from the triggering
event
o Courts have refused to assign standard definitions to terms such
as “promptly”, “immediately”, or “as soon as practicable”
 These general notice requirements are interpreted in
accordance with the circumstances of each case and the
ordinary and reasonable understanding of such a requirement
(but relative to each other, immediately is more stringent
than promptly, and promptly is more stringent than as soon
as possible)
o Triggering event is most often the date of the loss, but is
dependent on context
 BCIA s. 29 Statutory Condition 6
o (1) On the happening of any loss of or damage to insured
property, the insured must, if the loss or damage is covered by
the contract, in addition to observing the requirements of
Statutory Condition 9,
 (a) immediately give notice in writing to the insurer
 BCIA s. 101 Statutory Condition 5
o (1) The insured or a person insured, or a beneficiary entitled to
make a claim, or the agent of any of them, must
19




(a) give written notice of claim to the insurer
 (i) by delivery of the notice, or by sending it by
registered mail to the head office or chief agency of
the insurer in the province, or
 (ii) by delivery of the notice to an authorized agent
of the insurer in the province,
 not later than 30 days after the date a claim arises under
the contract on account of an accident, sickness or
disability
BC Reg 447/83 Schedule 10 Statutory Conditions 5 & 6
o Requires insured to promptly give insurer written notice
Rationale for notification requirement
o Avoids prejudice to insurer re investigation and defence
 Timely investigation
 Determine ground to contest claim
 Preserves insurer’s salvage interest
Insurer is obliged to provide insured/beneficiary forms for proof of
claim upon requrest or within 60 days of receipt of notice of loss
(BCIA s. 27(1))
o Forms provided without prejudice to insurer (27(4))
o Failure to provide forms precludes insurer from setting up
limitation defence under s. 23(2) (27(2))
o Insurer may be relieved of obligation to provide forms if loss
adjusted to satisfaction of insured/payee within 30 days of
notice of loss (27(3))
o BCIA s. 101 (accident & sickness) Statutory Condition 6: insurer
to provide forms within 15 days from receipt of notice of loss,
insured may submit written statement of proof of loss where
insurer fails to furnish forms
Marcoux v. Halifax Fire Insurance Co



Insured was required to “promptly” notify the insurer of any accident
involving bodily injury
o Hit someone with his truck, victim insisted he was okay
o Insured did not give notice of the accident until 2 months later
when the pedestrian sought damages
SCC: the notice obligation must be interpreted in the context of the
circumstances surrounding the loss
o Objective/subjective test: apply the standard of a reasonable
person in the position of the insured
 Found that in this case a reasonable person would have
concluded that bodily injury had probably been suffered at
the time of the accident
o The good intentions of the insured are irrelevant in determining
whether the duty to report a loss has been triggered- insured’s
good faith is irrelevant
Consequences of breach: claim forfeited
o Contract remains valid
o No forfeiture absent prejudice to insurer: Bissett v ICBC- timely
notification by 3rd party, insurer was not prejudiced because it
20
was aware of the plaintiff’s claim and had the opportunity to
investigate
Proof of Loss
 A proof of loss clause makes the insured’s obligation to prove a loss
a condition precedent for recovery- failure to comply results in
forfeiture of the right to recover for the loss in question, but
contract itself remains valid
 sufficient evidence of occurrence and value of loss required within
specified time
 time limit and sufficiency of information contextual
 Dimana v. Pilot Insurance: burden of proof rests on the insured to
establish a right to recover under the terms of the policy- must
establish on a BoP that:
o a valid insurance policy exists
o a loss has occurred
o the loss occurred during the time period covered by the policies
o the loss falls within the coverage of the policy
o the amount of the loss
 obligations to provide notice of loss and proof of loss are distinct
and separate acts designed to serve different purposes- proof of loss
may amount to notice, but notice is not proof
o notice of loss clauses typically require only written notice, but
proof of loss clauses commonly require the insured to verify
information via statutory declaration
 court must determine:
o whether the insured provided proof of loss within the required
time frame
 evaluated as a question of fact given the specific
circumstances in the case at bar
o whether the information provided by the insured was sufficient to
satisfy the proof of loss requirement
 based on a standard of reasonableness- insured is required
to provide information about the loss in his/her possession
or which can reasonably be obtained by the insured, and
which might reasonably be expected by the insurer in order
to usefully evaluate the insurance claim
 Nixon v. Queen Insurance: proof of loss clause was not satisfied where
the insured, who did not have personal knowledge about all the store
inventory destroyed by a fire, failed to make inquiries of his clerk
and bookkeeper who could have provided this information
 Anglo-American Fire Insurance Co. v. Hendry: proof of loss obligation
was fulfilled when the insured provided the insurer with copies of the
last stock-taking records predating the fire, and copies of invoices
for goods purchased since that stock-taking
 BCIA s. 29 statutory condition 6(b) requires proof of loss verified by
statutory declaration:
o (i) giving a complete inventory of that property and showing in
detail quantities and cost of that property and particulars of
the amount of loss claimed,
21
o
o
o
o
o
o

BCIA
o
(ii) stating when and how the loss occurred, and if caused by
fire or explosion due to ignition, how the fire or explosion
originated, so far as the insured knows or believes,
(iii) stating that the loss did not occur through any wilful act
or neglect or the procurement, means or connivance of the
insured,
(iv) stating the amount of other insurances and the names of
other insurers,
(v) stating the interest of the insured and of all others in that
property with particulars of all liens, encumbrances and other
charges on that property,
(vi) stating any changes in title, use, occupation, location,
possession or exposure of the property since the contract was
issued, and
(vii) stating the place where the insured property was at the
time of loss
s. 101 Statutory condition 5(1)(b)- insured must:
(b) within 90 days after the date a claim arises under the
contract on account of an accident, sickness or disability,
furnish to the insurer such proof, as is reasonably possible in
the circumstances, of
 (i) the happening of the accident or the start of the
sickness or disability,
 (ii) the loss caused by the accident, sickness or
disability,
 (iii) the right of the claimant to receive payment,
 (iv) the claimant's age, and
 (v) if relevant, the beneficiary's age
Duty to Cooperate
 may include other elements than the obligations to provide notice and
proof of loss
 takes on a particular meaning in the context of liability insurance:
o vital that the insurer has the insured’s assistance and
cooperation both in conducting a proper defence of the claim and
in concluding a settlement on advantageous terms
o modern liability policies typically include express provisions
prohibiting the insured from assuming liability for any claim
brought against the insured by a third party, and imposing a
general duty on the insured to cooperate with the insurer in the
defence of any action
 an insured’s breach of this duty entitles the insurer to
refuse to defend or indemnify the insured
 generally defined as obliging an insured to assist willingly and to
the best of his judgment and ability
o conduct must be material and substantial in order to constitute a
breach
o some examples of breach:
 failure to respond to letters and other communication by
the insurer seeking additional information
22

insured investigated and settled a claim brought against
him without involving the insurance company
 insured failed to keep the insurer informed about the
status of the lawsuit and various offers made to settle by
the third party claimant
 insured intentionally failed to attend hearings, provide
evidence or assist in obtaining witnesses
 insured promoted the action brought against him by a third
party claimant
 insured lied to the insurer about the circumstances of the
accident for the first two or three months following the
accident
 liability insurance
o insured not to assume liability in 3rd party action- this
prejudices the insurer’s interest
o insured must assist insurer in defending 3rd party claim, provide
necessary information for settlement
Fraud by the Insured
 under common law, insured’s fraud in advancing a claim entitles the
insurer to avoid all obligations under the contract
o by committing fraud, the insured forfeits all benefits under the
policy
o this may be modified by the terms of the contract and has been
tempered by statutory provisions
 provincial fire and car insurance provisions typically
provide that fraud by the insured with respect to a claim
forfeits the insured’s right to recover for that claim,
even if the amount of the fraudulent claim is small
 an insured commits fraud in advancing a claim where the insured makes
false representations to the insurer either knowingly, recklessly, or
without an honest belief in the truth of those representations
 burden of proving fraud lies on the insurer- heavy burden because of
the serious nature of the allegation
o higher degree of probability than establishing negligence- higher
than BoP, but not as high as beyond reasonable doubt
o must provide proof of actual fraud- cannot be assumed from
omitted or inaccurate information
o where the insured makes a gross misrepresentation/overvaluation,
a presumption of fraud arises which can only be rebutted by a
finding that the insured was honestly mistaken
o insurer must prove that fraud was material- capable of misleading
the insurer by affecting the insurer’s management or payment of
the claim
o inadvertence, omission or mistake not sufficient evidence of
fraud
 consequences of a finding of fraud
o common law: claim forfeited and contract voidable by insurerinsurer retains premiums
o statutory modification: claim forfeited; contract valid (general,
s. 29 statutory condition 7; BCI(V)A s. 75)
23
 insurer may exercise unilateral termination
amount of fraudulent claim irrelevant; irrelevant claim may
exceed policy limit
o stays on your record and is material information for subsequent
insurance applications- failure to disclose previous forfeitures
due to fraud would be a breach of the disclosure duty
o no relief against forfeiture due to fraud (Swan Hills)
 if the breach is imperfect compliance, can grant relief,
but not for fraud
punitive damages: ICBC v. AkersI (BCSC 2009)
o vehicle was not being driven by insured- he was drunk and allowed
his unlicensed friend to drive, but pretended that he was the one
driving when there was an accident
o claim was forfeited and punitive damages were assessed against
all of the passengers ($500 each) and also against the insured
($5,000 because he was lying to obtain a financial gain)
o

Swan Hills v. Royal General Insurance (ABCA 1977)



Swan Hills operated a hardware store and lumber business, owned the
building which housed the hardware store
Royal General insured the building against fire loss to a maximum of
$29,000, and against fire loss to the building contents to a maximum
of $30,000
In completing proof of loss following a fire, an officer of Swan Hills
falsely listed three TV sets, a lumber shed and a metal shed amongst
the items damaged in the fire
o This was fraud, and was material despite the fact that the amount
of the insurance contents claim exceeded coverage limits even
without the addition of the fraudulently claimed losses
o Court rejected officer’s suggestion that he understood the
purpose of the proof of loss to be a negotiating position only
o The claim for both building and contents coverage was vitiated
despite the fact that the fraud related to the contents only
Excusing Insured’s Breach of Contract

BCIA s. 13:
24
o



Without limiting section 24 of the Law and Equity Act, if
 (a) there has been
 (i) imperfect compliance with a statutory condition
as to the proof of loss to be given by the insured or
another matter or thing required to be done or omitted
by the insured with respect to the loss, and
 (ii) a consequent forfeiture or avoidance of the
insurance in whole or in part, or
 (b) there has been a termination of the policy by a notice
that was not received by the insured because of the
insured's absence from the address to which the notice was
addressed,
 and the court considers it inequitable that the insurance
should be forfeited or avoided on that ground or
terminated, the court, on terms it considers just, may
 (c) relieve against the forfeiture or avoidance, or
 (d) if the application for relief is made within 90 days of
the date of the mailing of the notice of termination,
relieve against the termination.
o Note that this section is applicable to accident and sickness
insurance (s. 93)
Law & Equity Act s. 24- general power to grant relief against
forfeiture
o The court may relieve against all penalties and forfeitures, and
in granting the relief may impose any terms as to costs,
expenses, damages, compensations and all other matters that the
court thinks fit
May not be fair to allow one contracting party to void an agreement by
relying on a breach of contract if the breach is of a minor, technical
nature or was previously condoned
Relief from forfeiture, waiver, and estoppel are typically applied to
prevent an insurer from successfully relying on an insured’s breach of
contract to deny coverage
Relief Against Forfeiture and Termination
 Relief against forfeiture is an equitable doctrine which allows the
court to excuse the insured’s breach in circumstances where the
forfeiture of coverage would be unfair to the insured
o Purpose of this doctrine is to prevent the insurer from denying a
critical benefit to the insured on the basis of a technical
breach which is not substantively prejudicial to the insurer
 Court must decide on the facts of each case whether it should be
granted-must be satisfied of two factors, both of which must be
established by the insured:
o (1) that the doctrine can by applied as a matter of law
 this is a threshold to the second factor- unless the
doctrine applies as a matter of law, court cannot apply its
discretion to grant relief
25


but this is often applied in reverse: if the court has
decided that the facts of the case do not merit the
application of relief from forfeiture, there is no
need for the court to determine whether the doctrine
is available as a matter of law
o (2) that the facts of the case merit the application of the
doctrine
the legal threshold depends on three factors:
o (1) the source of the court’s power to grant relief
 currently authorized by statute, either by specific power
to grant relief from forfeiture or by a general power to
grant relief in a provincial justice statute (not
restricted to the insurance context)
o (2) the type of insurance involved
 the specific ameliorative provision should be broadly
interpreted (Falk Bros)
 applies to ordinary contract terms as well as
statutory conditions, so it applies to all types of
insurance contracts unless the relevant insurance
legislation expressly states otherwise
 it is open to the courts to exercise wide latitude in
interpreting statutory provisions in a manner
favourable to the insured
 the general relief power can apply to an insurance contract
which is expressly excluded from the reach of the specific
relief power
 e.g. life insurance contracts are omitted from the
specific relief power, but this does not implicitly
reflect a legislative intention to prevent relief from
forfeiture from applying to life insurance contracts
at all
 do the powers overlap such that an insurance contract may
be subject to both sources of relief?
 Remains an open question
 Specific provision is both narrower (more
restrictively defines the circumstance giving rise to
relief) and broader (authorizes the court to provide
relief against the consequences of breach of a
statutory condition, whereas the general relief power
has traditionally been held not to apply to
obligations imposed by statute)
o (3) the nature of the insured’s breach
 specific relief power is only available where the insured’s
breach constitutes imperfect compliance (as opposed to noncompliance) with a statutory condition or contract term and
where the imperfect compliance relates to the insured loss
 insured’s breach must be accidental and not prejudice the
insurer (Pilotte v. Zurich- claim was filed 12 years after
accident- even if relief from forfeiture was possible it
26


would be inappropriate to exercise discretion because the
delay prejudiced the insurer)
 Examples:
 Specific relief power is available where an insured
has failed to provide the insurer with timely notice
or proof of loss, but is not available to relieve an
insured’s failure to commence litigation on the
contract within the prescribed limitation period
 Specific relief power does not apply to breaches which
relate to preconditions for the existence of an
insurance contract (e.g. not applicable to the
insured’s failure to maintain valid vehicle
registration/driver’s license as required by
automobile insurance legislation)
 If an insured’s breach does not fall within the
requirements of the specific relief power, can the general
relief power apply?
 Dominant view is that the general relief power does
not apply to a wider range of breaches than the
specific power- general power does not apply to a
breach which the court characterizes as non-compliance
with a condition precedent to the contract
Under what circumstances should relief from forfeiture be granted?
o Two factors relevant to specific power:
 (1) has the insurer been prejudiced by the imperfect
compliance?
 (2) would it be equitable to hold the insured to strict
compliance with the relevant legislation?
o Three relevant factors where the general relief power applies:
 (1) the conduct of the claimant- was it reasonable in the
circumstances?
 (2) the gravity of the breaches- was the object of the
right of forfeiture essentially to secure the payment of
money?
 (3) the disparity between the value of the property
forfeited and the damage caused by the breach
o a court should only grant relief in the circumstances where it
would be more fair to relieve the insured from the consequences
of its breach than to hold the insured strictly accountable for
the breach
o insured seeking relief must come to court with clean handsrelief will not be granted where the insured intentionally or
maliciously breached an obligation, where the insured’s
unreasonable conduct led to the breach, or where the insured
liked about the circumstances giving rise to the breach
the relief from forfeiture section of provincial insurance legislation
extends to matters other than statutory conditions- it can apply to
contractual terms as well (National Juice Co v. Dominion Insurance
Ltd)
27


judge cannot relieve the contractual limitation period (National
Juice)
no relief from forfeiture for fraud even absent prejudice to the
insurer
Jackson v. Canadian Northern Shield



Plaintiffs constructed a barn and greenhouse, installed an auxiliary
woodstove in the outbuildings and did not disclose the stove to the
insurer
insurer denied liability when the building was destroyed by fireinstallation of the woodstove is a material change and the insured
failed to give notice to the insurer
relief from forfeiture requires imperfect compliance with a statutory
condition
o but can not apply here because this was failure to comply (by
giving prompt notice of the installation of the woodstove) rather
than imperfect compliance
o party seeking relief must show (1) there has been imperfect
compliance, (2) this imperfect compliance pertained either to a
statutory condition as to the proof of loss or to a thing
required to be done by the insured about the loss, (3) a
consequent forfeiture or avoidance of the insurance occurred, and
(4) it is inequitable that the insurance be forfeited or
terminated
Waiver and Estoppel- Common Law
 Waiver under the common law:
o Applies to alleviate an insured from its strict contractual
obligations where there is, on the part of the insurer,
“something said or done whereby the performance or observance of
the condition or warranty need not be carried out, made nor
proved”
o Amounts to a purposeful decision, on the part of the insurer, not
to hold the insured to a particular contractual obligation- it is
an intentional alteration of a contract term which can occur
before or after the contract term is breached
Saskatchewan River Bungalows v. Maritime Life Assurance Co (SCC 1994)

Facts: life insurance policy was issued on the life of Mr. Fikowskiinsurance premiums were payable by Saskatchewan River Bungalows, but
Connie Fikowski was named beneficiary
o Premiums were payable annually, contract expressly provided for a
31-day grace period for every premium due date
o Policy provided for reinstatement within three years of a lapse,
subject to evidence of insurability and the payment of all
outstanding premiums plus interest
o They were usually late on payments and the policy lapsed twicethe first time, Maritime reinstated it in accordance with the
policy terms, but the second time they reinstated it without any
evidence of insurability
28
o


SRB sent a cheque that was not received, then received a premium
due notice that asked for a higher premium than the amount they
had already sent, so they sent another cheque for the difference
but the main cheque still hadn’t arrived
o MLA sent a letter advising Connie, but she didn’t send in any
more payment- SRB had closed its hotel for the winter and did not
regularly pick up its mail
o MLA then sent a notice of policy lapse inviting SRB to apply for
reinstatement
 When SRB tried to reinstate they were refused because Mr
Fikowski was terminally ill- Maritime denied payment upon
his death because the policy had lapsed
 SRB argued that the policy remained in effect because MLA
had, by its conduct, waived the right to timely premium
payment
Analysis:
o Court established the two-part waiver test: in order to find that
an insurer has waived its right to strict performance of the
contract by the insured, evidence must establish that the insurer
had:
 (1) A full knowledge of rights; and
 (2) an unequivocal and conscious intention to abandon them
 this may be proven by express words or may be implied
by action
o the waiver test does not require any reliance by the insured on
the insurer’s decision to forego its contractual right
 but once waiver is established, the insured’s reliance on
the waiver is relevant to the insurer’s ability to retract
the waiver- can be retracted if reasonable notice is given
to the party in whose favour it operates, but reasonable
notice is not required where there is no reliance
Held: for Maritime. The policy had lapsed before Mr. Fikowski’s death.
o There was a waiver (the letter that said that the policy was
technically out of force) but this waiver was retracted when the
notice of policy lapse was sent. Since SRB became aware of the
waiver and the retraction at the same time, there was no reliance
and so Maritime was not required to give any notice of its
intention to lapse the policy.
Estoppel under the common law
 Equitable doctrine which essentially prohibits a party from acting
inconsistently with representations it has made, where it would be
unfair to do so
 Prevents an insurer from denying coverage on the basis of an insured’s
breach of contract where:
o An insurer represents to the insured that the contract term will
not be enforced; and
o The insured relies on this representation to its detriment
 Two main types of estoppel:
29
o
o
Promissory estoppel: where the insurer makes a representation
(promise) about a future state of affairs
Estoppel by representation: Where the insurer makes a
representation of fact to the insured (e.g. advising the insured
that coverage is provided for a particular loss, accepting
premiums after due date, reinstatement within 2 years of policy
lapse without proof of good health and insurability, providing
defence absent obligation to do so)
Maracle v. Travellers Indemnity Co





Promissory estoppel
Building owned by Maracle and insured by Travellers was destroyed by
fire- insurer and insured were unable to agree as to the value of the
building on the date of the loss
Insurer sent a letter to Maracle setting out the terms of a “without
prejudice” settlement offer
o Maracle did not respond to this offer and issued a statement of
claim, but it was not filed within one year of the loss as
required by the insurance contract
o Maracle argued that the insurer was estopped from relying on the
limitation period because it had already admitted liability for
the claim
Analysis:
o In order for promissory estoppel to apply, the party relying on
the doctrine must establish that the other party has, by words or
conduct, made a promise or assurance which was intended to affect
their legal relationship and to be acted on
o The use of “without prejudice” is commonly understood to mean
that if there is no settlement, the party making the offer is
free to assert all its rights, unaffected by anything stated or
done in the negotiations
Held: Travellers did not represent to the insured that the limitation
period would not be enforced
McConnell v. Aviva Insurance Co




Estoppel by representation
Edith McConnell applied to enforce a judgment she had obtained against
the employees of a moving company which was issued under a cargo
insurance policy issued by Aviva
Aviva responded to the claim by filing a defence on behalf of the
moving company and its employees, then advised the two employees of
the lawsuit- but one employee was unreachable, and they lost contact
with the other after he failed to attend examinations for discovery
o Aviva argued that the two employees were not insured persons,
McConnell argued that Aviva should be estopped from claiming that
the two employees were not insured because Aviva had represented
that coverage existed when it defended the individuals
Held: the two employees were not insured under the policy, and Aviva
was not estopped from raising this defence with regard to the claim
against the employee that they had never reached, but full estoppel by
30
representation was applied with regard to the employee that they had
successfully contacted
o Because the one employee (Mallette) knew of the lawsuit and
Aviva’s involvement, it was reasonable to infer that he would
have understood that Aviva was taking care of his defence because
he was covered by the policy
Waiver and Estoppel: Modification by Statute and Contract
 BCIA s. 14:
o (1) The obligation of an insured to comply with a requirement
under a contract is excused to the extent that
 (a) the insurer has given notice in writing that the
insured's compliance with the requirement is excused in
whole or in part, subject to the terms specified in the
notice, if any, or
 (b) the insurer's conduct reasonably causes the insured to
believe that the insured's compliance with the requirement
is excused in whole or in part, and the insured acts on
that belief to the insured's detriment.
o (2) Neither the insurer nor the insured is deemed to have waived
any term or condition of a contract by reason only of
 (a) the insurer's or insured's participation in a dispute
resolution process under section 12,
 (b) the delivery and completion of a proof of loss, or
 (c) the investigation or adjustment of any claim under the
contract.
o Note that this provision is applicable to general insurance, life
insurance (s. 38) and accident & sickness insurance (s. 93)
 Waiver requirements:
o (1) insurer knowingly abandons rights
o (2) unequivocally and consciously communicates to insured;
written notice excusing insured’s compliance
o (3) unfair for insurer to retract promise of abandonment
 insurer entitled to retract waiver without notice, but
notice required after reliance
o note that statutory modifications require that the waiver is
stated in writing and signed by a person authorized for the
purpose of the insurer
 under common aw, a waiver can take any form as long as it demonstrates
an insurer’s clear intention to give up the right to enforce an
insured’s contractual obligation
o but s. 14 of the BCIA says that the waiver must be stated in
writing
 insurer’s written notice to insured signals intention not
to enforce contractual right
o written documents relating to the insurer’s investigation and
adjustment of the loss are not by themselves sufficient to
demonstrate waiver
 waiver and estoppel are broader than relief from forfeiture
31
o
o


no distinction between imperfect and non-compliance
not limited to post-loss technical or minor breaches- applies to
any contractual requirement
o substantive legal doctrines- not discretionary
o prejudice to insurer is relevant
examples of waiver and estoppel p. 220-221
documents used by insurers to pre-empt arguments of waiver and
estoppel- provide the insured with written notice of a coverage
concern and written confirmation that the insurer is not intending, by
its subsequent actions, to forfeit its right to withhold coverage
o reservation of rights agreement:
 insurer unilaterally and unequivocally informs the insured
of the insurer’s intention to preserve its right to deny
coverage
 insured’s consent is not required
o non-waiver agreement:
 the insurer and the insured mutually acknowledge and agree
to the insurer’s reservation of rights
 will not be enforced if the terms or relevance of the
agreement were misrepresented by the insurer or otherwise
misunderstood by the insured
 liability insurance: parties can agree on parameters of
defence, indemnification arrangement if no duty to defend
and indemnify etc
o in order to be effective, such documents must clearly set out the
rights which are reserved to the insurer
 documents are no longer effective once the insurer has
denied coverage
Paul v. Cumis Life


insured failed to pay premiums and policy lapsed- insured died, his
wife reinstated the policy without telling the insurer that he had
died
held:
o no question of waiver arises- a valid waiver requires complete
knowledge of, and a conscious intention to abandon, one’s rightsthis was not present here because the insurer was not aware that
the insured had already died
o no estoppel either- she suffered no loss by reason of relying on
what was said by the representative
 insurer’s conduct did not deprive claimant from obtaining
insurance- no insurable risk or life to be insured at the
time of the alleged representation
Insurer’s Obligation to Respond to Claims in Good Faith

insurance contracts give rise to a fundamental and reciprocal
obligation on the part of insurer and insureds to deal with one
another in utmost good faith
32
o




court recognizes that most people buy insurance in order to
alleviate the potential emotional and financial stress associated
with an unexpected loss, and thus insurance agreements are
understood to be peace of mind contracts
In order to meet its obligation of good faith, an insurer must:
o Investigate and assess the claim objectively and on proper
grounds
o Act with reasonable diligence during each step of the claims
process to see the claim resolved in a timely way
o If no reasonable grounds for denying coverage or payment exists,
pay the claim on a timely basis
The question of whether the insurer has breached this standard depends
on the particular facts of each case- examples p. 229
Insurer’s duty to respond to a claim in good faith is distinct from
the insurer’s obligation to pay the insured’s loss
o The duty to act promptly and in good faith arises the day the
insurer receives the claim, as opposed to being relevant only
after the insurer’s obligation to pay the claim arises
o Duty of good faith arises fro the existence of the insurance
contract itself, regardless of whether the contract provides
coverage for the loss claimed
Consequences of breach of duty of good faith
o Pay claim
o Insurer may be liable for punitive damages (Whiten) or
aggravated/mental distress damages (Fidler- requires reasonable
foreseeability at the time of the contract)
Whiten v. Pilot Insurance Co (SCC 2002)



Ms. Whiten’s house was destroyed by fire
Pilot made a single payment of $5,000 for living expenses and covered
the cost of a rental cottage for a few months, then cut off rental
payments without telling the Whitens and refused to pay the fire loss
claim because it suspected that the loss was caused by arson- did not
explain the reason for the denial to the Whitens
Held: Pilot had to pay the full value of the lost property, additional
living expenses and $1 million in punitive damages- the obligation of
good faith dealing means that Whiten’s peace of mind should have been
Pilot’s objective, and her vulnerability ought not to have been
aggravated as a negotiating tactic
o It is this relationship of reliance and vulnerability that was
outrageously exploited by Pilot in this case
Fidler v. Sunlife (SCC 2006)

Ms. Fidler suffered an acute kidney infection and continued to suffer
from chronic fatigue and fibromyalgia- Sunlife provided her with LTD
benefits for 6 years, then terminated benefits with no advance notice
having concluded that she was no longer temporarily disabled
o Based this decision on video surveillance of Ms. Fidler engaged
in a variety of daily activities- did not have any medical
evidence to support its conclusion
33
o

One week before the trial (after maintaining denial of coverage
for five years) the insurer reinstated her benefits and paid all
amounts owing under the contract
Held: Sunlife was liable for aggravated but not punitive damages- diid
not breach duty of good faith
o A decision by an insurer to refuse payment should be based on a
reasonable interpretation of its obligations under the policy,
but this duty of fairness does not require that an insurer
necessarily be correct in making a decision to dispute its
obligation to pay a claim
o Mere denial of a claim that ultimately succeeds is not, in
itself, an act of bad faith- the question is whether the denial
was the result of the overwhelmingly inadequate handling of the
claim, or the introduction of improper considerations into the
claims process
 Sunlife’s denial was based on real, albeit incorrect, doubt
as to the extent of Ms. Fidler’s disability
ICBC v. Hosseini (BCCA 2006)




Case arose because of physical injuries suffered by Ian Chan when he
was a passenger on a motorcycle operated by Mr. Hosseini which was
insured under an owner’s policy issued by ICBC
o Hosseini was operating the vehicle without the consent of its
owner and without a valid license
ICBC negotiated a settlement with Mr. Chan and then advised Hosseini
that he was not an insured under the ICBC policy because he was not
driving with the owner’s consent- claimed reimbursement from Hosseini
for the settlement funds paid to Mr. Chan but didn’t communicate that
he was not insured for 6 years
Hosseini argued that ICBC breached their duty of good faith to him by
unreasonably delaying in advising him about their denial of coverage
Held:
o Regardless of actual coverage, an insured-insurer relationship
for the purposes of good faith conduct was established by ICBC’s
conduct toward Mr. Hosseini, so he could properly consider
himself an insured of ICBC
o Insurer’s duty to respond to a claim in good faith may exist
independently from coverage
 This duty may arise from the insurer’s conduct towards the
party seeking coverage, not only on the basis of the
contractual relationship between the insurer and the
insured
o Obligation of good faith was breached by leading him to believe
that he was insured
Insurer’s Duty to Defend under Liability Insurance Policy

Liability insurance policies ordinarily require the insurer to fulfill
two separate, but related duties:
34
o




Duty to defend: to pay for and instruct legal counsel in
defending the insured against the third party claim, and
o Duty to indemnify: to pay for any judgment awarded to the third
party against the insured (or any settlement)
o Both duties arise as a matter of contract between the insurer and
the insured
Obligation to defend is necessarily put in issue before the merits of
the claim have been determined
Ambiguous pleadings- duty triggered if an inference of coverage is
reasonable from the proceedings
o The insured is entitled to the benefit of the doubt (Monenco)“where pleadings are not framed with sufficient precision to
determine whether the claims are covered by a policy, the
insurer’s obligation to defend will be triggered where, on a
reasonable reading of the pleadings, a claim within coverage can
be inferred”
Remedy for breach of duty to defend
o Declaration: insurer required to defend
o Breach of contract: insurer liable for defence cost and
indemnification
 Insurer cannot resist indemnification because it didn’t
control the proceedings- can’t refuse to defend and then
argue that the judgment would have required less
indemnification if it had provided a defence
Out of court settlement: condition precedent for indemnificationinsured not to accept liability or settle before liability determined
o If the insurer unreasonably refuses to defend, not entitled to
deny indemnification for reasonable settlements
o Insurer is deemed to have waived right to insist on compliance
with contractual conditions
o Stevenson v. Reliance Petroleum: Insurer refused to defend an
insured who was vicariously liable for the negligence of its
employee
 Another insurer provided defence, customer went after first
insurer to indemnify
 Where the insurer refuses to defend, and a court concludes
that coverage was provided under the policym the insurer
may be obligated to pay for the reasonable settlement
achieved by the insured and the third party in the third
party action
Great West Steel Industries v. Simcoe & Erie (ONCA 1980)


Appellant was employed by the main contractor to design and install
structural steel in the construction of a large warehouse- was insured
against errors and omissions by the respondent
Appellant sought a declaration that the respondent insurer was obliged
to defend actions against the appellant arising from the second
collapse of the warehouse roof
35


There was a clause in the insurance policy that prohibited suits by
the insured against the insurer until the amount payable by the
insured has been determined by action or agreement
Held:
o The right of the appellant to compel the respondent to defend
actions is independent of its right to claim indemnity
 Therefore, the appellant insured is not forced to await the
final determination of actions against it before becoming
entitled to enforce the insurer’s obligation to defend such
actions
Nichols v. American Home Assurance Co (SCC 1990)


Nichols was a lawyer who had been sued by BMO for fraud- he
successfully defended this claim and was awarded costs, but this did
not fully indemnify him for the expenses he incurred in defending the
claim, so he sought to recover the balance of his defence costs from
his professional liability insurer
o Liability insurance expressly excluded coverage for “any
dishonest, fraudulent, criminal, or malicious act or omission of
the insured”
 Insurer argued that since the policy did not provide
indemnity for fraud, the insurer was not obligated to
defend Mr. Nichols against this claim
Held:
o The insurer had no obligation to defend- an insurer’s duty to
defend only arises if, assuming that the facts alleged in the
pleadings were proven to be true, the insurer would have an
obligation to indemnify the insured (pleadings rule: an insurer
must defend if the pleadings in the third party action raise the
mere possibility that a claim within the policy may succeed)
o Duty to defend is triggered by the allegations set out in the
pleadings, without regard to the merits of the allegations
Lloyd’s of London v. Scalera (SCC 2000)



SCC considers the practicalities of the pleadings rule- in particular,
the possibility that the pleadings rule as stated in Nichols might
give rise to a third party intentionally drafting its pleadings so as
to trigger the duty to defend
Facts: Scalera was sued by a young girl for damages arising from a
serious of sexual assaults allegedly perpetrated against her by bus
drivers
o Pleadings raised allegations of battery, negligent battery,
negligent misrepresentation and breach of fiduciary duty
o Insurer refused to provide defence costs because the policy
specifically excluded coverage for “bodily injury or property
damage caused by any intentional or criminal act”
Held: the insurer’s duty to defend was not triggered by the pleadingsall of the allegations were based on the same set of facts and were
essentially grounded in a claim of sexual assault, which is excluded
from coverage because it is an intentional act
36


The linkage established in Nichols between the duty to defend and the
pleadings does not mean that the duty to defend is determined solely
by reference to the words used in the pleadings
o The relevant question in determining a duty to defend is whether
the substance of the pleadings against the insured gives rise to
a duty to defend
Three-step process for determining whether the insurer’s obligation to
defend is triggered by the true nature of the claim set out in the
pleadings:
o (1) without attempting to determine the merits of the claims and
assuming that all of the claimant’s factual allegations are true,
court must determine which of the legal assertions contained in
the pleadings could potentially be supported by those factual
allegations
o (2) where multiple claims are properly pleaded, court must
determine whether any of the claims are entirely derivative of
another
 a claim is derivative of another if it arises from the same
actions and causes the same harm
o (3) having identified the properly pleaded, non-derivative
claims, the court must determine whether any of these claims, if
proven, would require the insurer to provide indemnity
 only claims which satisfy this final threshold give rise to
the insurer’s duty to defend
Monenco Ltd. v. Commonwealth Insurance Co. (SCC 2001)




court further refined the three-step process from Scalera
case arose as a result of a lawsuit commenced by Suncor against
Monenco and its subsidiary
o Suncor was suing to recover damages with respect to a major fire
which occurred at its tarsands plant in Fort Mac
Held: the elements of the exclusion were met given the corporate
relationship between Monenco and the subsidiary, and given the
services provided to Suncor by these entities
o Court had to go beyond the pleadings because the amended
statement of facts mentioned a joint venture- court had to follow
up on this to determine who the subsidiary was and whether what
they were doing brought them within the exclusion clause
 Found that the subsidiary was an independent legal entity
and so fell within the exclusion clause
A court is entitled, at a minimum, to look at any extrinsic evidence
which is expressly referred to in the pleadings, but only where “a
review of the extrinsic evidence simply illuminates the substance of
the pleadings”
Summary of the Nichols/Scalera/Monenco Trilogy

The Pleadings Rule applies to determine whether an insurer’s duty to
defend is triggered
37




The Pleadings Rule provides that an insurer is obligated to defend a
third party claim on behalf of its insured where the allegations
pleaded, if proven to be true, would fall within policy coverage
o The merits of the allegations are not to be considered
o The duty to defend is broader than the duty to indemnify because
an insurer may be responsible for defending a third party action
for which, if successfully defended, the insurer will not be
obliged to provide indemnity
For the purposes of the Pleadings Rule, the allegations in the
pleadings are to be read generously, but with regard to the substance,
or true nature, of the allegations rather than with regard to the
literal wording of the pleadings
In order to determine the “true nature” of the allegations, courts
should look at which of the allegations can be supported by the
factual allegations in the pleadings and which allegations are merely
derivative of others
o Courts may also review extrinsic evidence explicitly referred to
in the pleadings
Outstanding issues:
o Scope of pleadings rule: appears limited to plaintiff’s statement
of claim and not statement of defence
 Duty to defend not dependent on statement of defence
 Merits of case may be considered with statement of defence
 Strategic defence contrary to duty of good faith- could
find a way to manipulate the pleadings to bring them within
the scope of coverage
o Severability of claims
 No duty to defend uncovered claims
 Insurer’s liability limited to defence cost for covered
claims (Sommerfield)
 Potential problems re apportionment- control of litigation?
Insurer may not be the one calling the shots
o Inter-related claims
 Severability impossible- defence of covered claims benefits
uncovered claims
 Apportionment of defence cost in inter-related claimsshould the insurer pay defence cost for covered claims,
ignoring the collateral benefit for uncovered claims?
 Allocation depends on contractual obligation as per
policy terms, not fair & equitable allocation (Hanis
v. Teevan)
 No apportionment between covered and uncovered claimsinsurer liable for entire defence cost in accordance
with contract- irrelevant defence of covered claims
benefits uncovered claims (Hanis v. Teevan)
 Where distinguishable, insurer’s liability limited to
defence cost for covered claims
o Multiple liability coverage
38


Allegations against insured covered by multiple policiesconcurrent duty to defend for all insurers whose policy is
engaged in the circumstances
 Each insurer contributes to defence costs- irrelevant
policy primary or excess
 Irreleveant duty to indemnify under excess may not be
triggered
 If there is no contract re apportionment of defence costs
between insurers then apportionment must be fair and just
in the circumstances and not necessarily correlate with
policy limits (Broadhurst & Ball)
 Which insurer defends if they both want to? Usually primary
insurer, but should be the insurer with the greatest risk
of loss (Economical Mutual Insurance v. ICBC)
 If the excess insurer is at a greater risk of loss,
still must consult primary insurer
 Auto insurance: court must determine insurer to defend as
it considers proper in the circumstances (BCI(V)A s. 79)
 Insurance Bureau of Canada Agreement of Guiding Principles:
 Primary insurer conducts claim- advises named insured
to notify excess insurer if the claim is likely to
exceed the limit of the primary policy
o But should be in full consultation with excess
insurer
 Excess insurer may request to be part of investigation
and defence- if they so request, excess insurer shares
equally with primary insurer all costs associated with
claim regardless of the final outcome
Auto Insurance
o Proportionate share based on liability for damages awarded
against insured or settlement on their behalf (BCI(V)A s. 79(5)
 So if claim was for 2 million and primary pays 500k,
primary would be liable for 25% of defence costs and excess
insurer for 75%
 79(5): If insurance is provided to the insured under more
than one optional insurance contract or under the plan and
one or more optional insurance contracts and one or more of
them are excess insurance, the insurers must, as between
themselves, contribute to the payment of costs, expenses,
interest and reimbursement in accordance with their
respective liabilities for (a) damages awarded against the
insured, or (b) the amount payable under a settlement made
on behalf of the insured
Sommerfield v. Lombard Insurance Group (SCC 2005)

Former student brought an action against applicants (teachers)
alleging that each applicant independently sexually abused the
student, and that the applicants were professionally negligent
39


Applicants were insured under a policy which excluded coverage for
bodily injury caused intentionally by or at the direction of the
insured
Held:
o The claim of professional negligence is not exempted from
coverage under the insurance policy- it would be open to the
triers of fact to find any of the applicants not liable for the
intentional tort of sexual battery and yet to find that applicant
liable for failing to report the sexual abuse of the other
teachers
o Respondent had no duty to defend the sexual assault claim, but
the negligence claim was properly pleaded and was not derivative
of the sexual abuse claim
 Negligence claim triggered the respondent’s duty to defend
because it was a separate and distinct cause of action
o To require the respondent to pay for the entire defence would be
unfair because almost the entire claim dealt with the allegations
of sexual abuse- the respondent was ordered to pay 20% of the
legal fees of each applicant
Hanis v. Teevan (ONCA 2008)


Plaintiff was awarded wrongful dismissal charges against Western, but
his claim for malicious prosecution was not successful- Western had
comprehensive general liability policies with Guardian
Held:
o Cannot read Sommerfield etc. to mean that there must be an
allocation of defence costs as between the insurer and insured in
all cases where covered and uncovered claims based on different
factual allegations are advanced in the same lawsuit
 The nature and extent of the insuerer’s obligation to pay
defence costs is not a question of fairness or unfairnessit is a question of what the insurer has agreed to do in
the policy
o The malicious prosecution claim was covered and that coverage
triggered Guardian’s duty to defend and its obligation to pay
defence costs associated with the malicious prosecution claim- on
a plain reading of the relevant part of the policy, Guardian was
responsible for all costs associated with the defence of the
malicious prosecution claim
 Nothing in the policy exempts Guardian from paying those
costs simply because they also assisted Western in the
defence of uncovered claims
 The policy made it clear that Guardian had a duty to defend
all claims associated with coverd risks, regardless of
whether the defence would also assist in the defence of
uncovered claims
Broadhurst & Ball v. American Home Assurance Co (ONCA 1990)

Plaintiffs obtained professional liability insurance from two separate
insurers
40
o

American Home provided standard primary professional liability
coverage to a limit of $500,000 per occurrence to all lawyers
practicing in Ontario, including the plaintiffs
o In addition, the plaintiffs purchased excess professional
liability coverage to a limit of $9,500,000 per loss from
Guardian Insurance
o An action claiming $20 million in damages was commenced against
the plaintiffs and others alleging conspiracy, breach of
fiduciary duty and negligence
o American Home acknowledged its obligation to defend the action on
the plaintiff’s behalf, but Guardian denied duty to defend,
saying that the plaintiffs were aware of the claim when they
applied for the Guardian policy
Held: American Home and Guardian have concurrent obligations to
defend, and therefore Guardian should pay a proper share of the costs
of defence- American Home should be able to compel such payment
o To require a primary insurer whose financial exposure is
significantly less than that of the excess insurer to bear the
entire burden of defending an action is patently inconsistent
with the principles of equity and good conscience, as is allowing
an excess insurer to deny responsibility for costs which it ought
in good conscience to pay
o Not appropriate to allocate costs simply by reference to
respective policy limits- in this case, most fitting to apportion
the costs equally between the parties
Economical Mutual Insurance Co v. ICBC (ABQB 1986)




Question was which insurer was entitled to defend two actions for
damages for personal injuries suffered by the plaintiffs as a result
of a motor vehicle accident
Third party liability limit under Economical policy was $300,000 and
under ICBC policy was $1 million- Economical was the primary insurer
Clearly the insurer who carries first loss insurance bears the first
risk of loss and should be required to assume the first or primary
obligation to defend to the extent of the limits of its coverage
But who should have control and carriage of the proceedings?
o If the insurers are unable to agree who is to defend, the court
must choose between first loss and excess insurer- seems
reasonable that the insurer who has the greater risk of loss is
entitled to defend
 This would usually be the first loss insurer, but in this
case it is ICBC
Duty to Settle Within Policy Limits

if a third party claim is for more than the limits of the policy, the
insured’s interests are implicated because the potential exists for a
judgment to exceed policy limits, in which case the insurer and the
insured will each pay a portion
o in such cases, the insurer defending the action is required to
give at least as much consideration to the insured’s interests as
41





it does to its own interests- must make reasonable efforts to
settle the third party action within the liits of the liability
insurance policy
o this duty imposes a positive obligation on the insurer to pursue
settlement offers within policy limits if a liability finding
against the insured is likely
further, where the third party claim exceeds policy limits, insurer
has a duty to disclose with reasonable promptitude to the insured all
material information touching upon the insured’s position in the
litigation and settlement negotiations, so that the insured is fully
aware of the insurer’s strategy and the risks
this does not mean that an insurer will be in breach of its obligation
to provide a good faith defence every time the insured is held liable
for a third party judgment which exceeds policy limits (Fredrikson v.
ICBC- insurer only required to act fairly and openly)
o insurer’s obligation is simply to make best efforts to resolve
the claim within policy limits if there is a real risk that the
judgment will exceed those limits
o if the insurer breaches this duty, it may be held responsible for
paying both the insured and uninsured portions of the third party
judgment
nature and implications of duty (Shea v. Manitoba Public Insurance Co)
o insurer-insured relationship is commercial, involves special
rights and duties beyond duty of honesty, but not fiduciary
standard
o the insured is vulnerable in the settlement process- must be
mindful of their interests
o must advise the insured of conflict of interests and the nature
and extent of the conflict
 where there are adverse positions, have an obligation to
instruct separate counsel solely for the insured at the
insurer’s own cost
o must attempt to minimize by all lawful means the amount of any
judgment awarded against the insured
o timely defence and settlement
consequences of breach of duty of good faith in settlement offers
o liability for entire judgment amount (Dillon v. Guardian
Insurance Co)
 3rd party claimed $100,000, policy limit was $50,000,
settlement offer was $45,000, insurer declined and made a
counter offer of $40,000
 judgment against insured for $78,000- was held liable for
the full amount because it was unreasonable to refuse
initial settlement offer
Tripartite Relationship: Insured, Insurer, and Defence Counsel
o Third party claims against insured under liability insurance
policy
o Insurer appoints, instructs, and pays counsel
o Counsel to defend insured in 3rd party liability claim
42
o
o
o
o
Common interests between insured and insurer – judgment in
liability claim in insured’s favour or limit liability, for e.g.
quantum of damages
Potential conflict of interests: Insurer alleges breach of
condition/terms; coverage dispute, mixed claims, judgment v
settlement, etc.
Conflict of interest: whether a reasonable person will perceive
defence counsel’s ability to equally protect the insured and
insurer as compromised in the circumstances.
Remedy: insured appoints independent counsel at insurer’s expense
X. OVERLAPPING POLICIES AND OTHER CONSEQUENCES OF INDEMNITY

BCIA s. 30:
o (1) If, on the happening of loss or damage, there is in force
more than one contract covering the loss or damage, the insurers
under the respective contracts are each liable to the insured for
their rateable proportion of the loss, unless it is otherwise
expressly agreed in writing between the insurers.
Doctrine of Contribution



requires insurers who provide coverage for the same loss under
separate contracts to share the cost of indemnifying the insured for
the loss
only applies to indemnity contracts- not life insurance
o note that principle of indemnity still applies- despite the fact
that the insured has multiple sources of insurance coverage, the
insured is not entitled to recover more than the value of the
loss
o sharing of the loss ensures that the insured is not overindemnified by recovering the full amount of the loss from
multiple sources
Contribution at common law
o Insurer is entitled to contribution from all other insurers who
have covered the same risk- this is founded upon the general
principle that parties under a coordinate liability to make good
a loss must share that burden pro rata (Family Insurance Corp v.
Lombard)
 The fact that one insurer has indemnified the insured does
not relieve the other insurers from their contractual
obligation to indemnify
o Insurer is entitled to enforce this right by commencing an
action, in its own name, against the other insurers
o Equitable doctrine- relies fundamentally on notions of fairness
and natural justice
 So a court will not allow an insurer to recover on the
basis of contribution where the insurer’s own actions make
such recovery unfair
 Continental Insurance Co. v. Prudential Insurance Co:
Prudential issued property insurance on garage owned by the
insured, agent from Phoenix of London Group convinced the
43

insured to replace the Prudential policy with one from
Phoenix- he did not cancel it in accordance with
statutorily mandated procedures and so Phoenix tried to get
Prudential to pay
 Phoenix could not recover from Prudential on the basis
of equitable contribution in light of Phoenix’s role
in convincing the insured to replace the Prudential
policy with the Phoenix policy
 Claim defeated if unfair to allow contribution
 Indemnification by other insurers not a defence
o Requirement of overlapping coverage (Lombard)
 Same object of insurance/subject-matter
 Same risk
 Same insurable interest
 Same insured
 All policies effective (legal and in force) at the time of
the loss
 No policy excludes contribution
o Overlapping policies not affected by different wording/policy
limits/scope of coverage
o Examples:
 Clarke v. Fidelity Fire Insurance Co: homeowner purchased a
policy of insurance on her house, mortgagee purchased a
separate policy of insurance on the same property- same
subject matter, but different insureds and different
interests- doctrine of contribution did not apply
 Canadian Universities Reciprocal Insurance v. Halwell
Mutual Insurance: President of a university student
residence was an unnamed insured under the university’s
general liability policy issued by Reciprocal, but was also
insured under his parents’ Co-operators homeowner’s policyhe was sued by an injured student, Reciproal settled the
claim and sought contribution from Co-operators, but the
co-operators policy contained an exclusion clause and so
did not have to contribute
 McKenzie v. Dominion of Canada General Insurance:
negligence claim was brought against operator of the boat
(McKenzie) and the boat owner (Tischler)- McKenzie was
covered by three liability policies: (1) State Farm boat
owner’s policy issued to Tischler, State Farm personal
umbrella policy issued to Tischler, and Dominion
homeowner’s policy issued to McKenzie’s father
 Dominion policy provided primary coverage and State
farm policies provided excess coverage- same insured
but policies protected different interests
Contribution and Subrogation: Cameco Corp v. Insurance Co of State of
Pennsylvania
o Where a claim is advanced by way of subrogation, the subrogated
party (the insurer) is entitled to all of the amount recovered by
44
the insured as against the third party up to the amount of
indemnity
o In a contribution action, however, the proportionate liability of
each insurer is determined and the paying insurer will recover
from the other insurers only such amount as exceeds his
proportionate share
Subrogation
Contribution
Indemnity policies
Indemnity policies
Insured entitled to compensation from Overlapping policies for loss
insurer and 3rd party
Loss satisfied by some insurer(s)
Insurer satisfies insured’s loss
Claim against tortfeasor
Claim against co-insurer(s) for same
loss under separate policy
Insurer brings action in insured’s
Insurer brings action in its own
name
right
Insurer entitled to amount recovered
Insurer recovers amount exceeding its
up to indemnity amount
proportionate share
Purpose: Prevents windfall to insured Purpose: Avoid windfall for coinsurer(s)
 Non-paying insurers not
relieved of indemnification
obligation
Determining Insurer’s Liability under Overlapping Policies


Maximum Liaility
o Insurer’s contribution assessed by reference to policy limit in
insurance contract relative to overall coverage in all policies
subject to policy limit
 E.g. Insurer A limit=$25,000; Insurer B limit $175,000
 Total coverage=$200,000
 Insurer A’s contribution=25,000/200,000=12.5%
 Insurer B’s contribution=175,000/200,000=87.5%
 Scenario One: Value of loss=$100,000
o Insurer A pays 12.5% of loss=$12,500
o Insurer B pays 87.5% of loss=$87,500
 Scenario Two: Value of loss=$220,000
o Insurer A pays 12.5% of loss up to policy
limit=$25,000
o Insurer B pays 87.5% of loss up to policy
limit=$175,000
Independent Liability
o Each insurer pays 50% or equal amount of total loss up to policy
limit
 E.g. Insurer A limit=$100,000, Insurer B limit=$500,000
 Scenario One: Value of loss=$160,000
o Insurer A pays $80,000 (50% of loss up to policy
limit)
45
o

Insurer B pays $80,000 (50% of loss up to policy
limit)
 Scenario Two: Value of loss=$200,000
o Insurer A’s Liability: $100,000 (50% of loss up
to policy limit)
o Insurer B’s Liability: $100,000 (50% of loss up
to policy limit)
 Scenario Three: Value of Loss=$240,000
o Insurer A’s Liability: $100,000 (50% of loss up
to policy limit)
o Insurer B’s Liability: $140,000 (50% of loss up
to policy limit)
Choosing between maximum and independent liability
o Depends on:
 Type of insurance
 Liability insurance=independent liability approach
 Property insurance=maximum liability approach
 Wording of policy
 Nature of protection under the various policies
Family Insurance v. Lombard Canada Ltd (SCC 2002)





Two liability insurance policies- different policy limits
o Family policy limit=$1 million, Lombard policy limit=$5 million
Amount of loss=$500,000 (within the limits of both policies)
Family policy contained no contribution formula
Both policies had “other insurance” clauses making them excess
insurers
Held: Independent liability- each insurer liable for 50% of loss to
policy limit ($250,000 each)
Commercial Union Assurance v. Hayden (QB 1977)



Two overlapping liability policies with different limits- policy
1=$100,000, policy 2=$10,000
Claim against insured=$4,425.45
Held: independent liability approach
o Maximum liability is appropriate for property insurance because
there is a correlation between the premiums paid and the policy
limits- limits are set by reference to the value of the property
o Independent liability is appropriate for liability insurance
because there is no correlation between the premium and the risks
of the policy limit- policy limits are arbitrary
 Would be inconsistent with the parties’ reasonable
expectations to use the maximum liability approach
Recovery under Overlapping Policies

Common law:
o Joint and several liability- insured entitled to full
indemnification from one insurer subject to policy limit, insurer
acquires equitable right of contribution from co-insurers
46
o

Note: common law position not applicable in BC re: general
insurance contracts- BCIA part 2 and optional auto policies
o Rateable proportion may be applicable as a contractual term
Statutory position: General Insurance Contracts (BCIA part 2) and Auto
insurance
o Rateable proportion- determined based on maximum liability
(property) or independent liability (liability) depending on the
policy- then BCIA pretty much just says pay what you have to pay
 Indemnification obligation limited to insurer’s rateable
proportion subject to express agreement between insurers
(BCIA s. 30, BCI(V)A s. 80(1))
 Effect: several liability
o Insurer’s indemnification obligation limited to pro
rata share
o Insured pursues each insurer for its share of insured
loss
o Co-insurer not required to make full payment
 What happens where insurer exceeds rateable proportion
absent agreement between co-insurers?
o Generally, no right of contribution absent agreement
between insurers
o Remedy: recover excess payment from insured or
subrogated claim
o Contribution may be appropriate as an equitable remedy
o Avoiding payment in excess of rateable proportion:
o Notice of other insurance and amount required at
time of claim- General- BCIA s. 29 stat cond.
6(1)(b)(iv), Auto- BCI(V)A s. 80(2)
o No overlapping coverage re some types of insurance
 General insurance BCIA Part 2
o Items specifically identified and insured in policy
(s. 30(6))
o Items also insured under another policy issued to same
insured re same interest and for same loss but items
not identified
o No overlapping policy
o Policy with identified items primary, other policies
excess
o Irrelevant one or all policies contain “other
insurance” clauses- BCIA s. 30(2)
o “other insurance” clauses are ineffective with
respect to specifically identified items
 Auto:
o Two owners’ certificates: certificate of car involved
in accident primary (Ins. (V) regulations 447/83, s.
77 (3rd party liability), s. 104 (accident benefits)
o Owner’s policy will always be primary
o Basic compulsory policy primary; optional coverage
excess (Reg 447/83, s. 149(1))
47
o
o
Exception: loss from nuclear energy hazard
covered by nuclear energy hazard policy; auto
policy excess (447/83 s. 175(1))
Garage vehicle certificate: Reg 447/83 s. 150.1
 Garage policy will always be primary and
auto is excess
Redefining Policy Coverage in the Event of Other Insurance




Strategy for avoiding overlapping coverage
Primary and excess policies: “other insurance” clauses- coverage
excess if loss covered by another policy
o If both policies contain “other insurance” clauses, they are
mutually repugnant and each insurer must pay their rateable
proportion (Family Insurance v. Lombard)
 But this irreconcilability should be limited to situations
of true impasse- should respect contractual freedom and
uphold contracts where possible
 McKenzie v. Dominion of Canada
o 3 policies: 1. Boat owner’s policy, 2. Homeowner’s
policy, contains “other insurance” clause, 3. Personal
liability umbrella policy, excess coverage
o policy 1 primary, limit exhausted
o are parties 2 and 3 equally liable? No, there is no
overlapping coverage.
Exclusion clauses: coverage excluded if loss covered by another policy
o Effect: insurer excused from indemnification in event of
overlapping policies
o If both policies contain exclusionary clauses re loss covered by
another policy, then both exclusionary clauses are inoperative,
each policy is primary, and the insurers are liable for their
rateable proportion
Freedom of contract: insurers entitled to include such clauses unless
precluded by statute
XI. SUBROGATION


Subrogation is a corollary of indemnity principle- insured is entitled
to compensation from 3rd party (e.g. tortfeasor) and insurer for same
loss
o Cumulation not permitted (Glynn v. Scottish Union)- insured is
not entitled to recover more than their actual loss
Allows an insurer to stand in place of an insured for the purpose of
recovering compensation for particular losses suffered by the insured
Purposes of subrogation


Preserves indemnity principle and minimizes moral hazards
o Insurer sues 3rd party on insured’s behalf
Promotes legal accountability of 3rd party
o Insurance not intended to relieve 3rd parties of legal liability
48
Insurer succeeds insured’s rights against 3rd party
Presumption of subrogation re: indemnity contracts- right of
subrogation need not be expressly stated (Somersall v. Friedman)
Insured not better placed against 3rd party than insured
o Insurer’s right of subrogation derivative- claim against 3rd party
is subject to defences available against insured
 No right of subrogated claim if insured precluded from
suing 3rd party
o Examples:
 Insured released 3rd party from liability for loss in
question
 Insured assumed risk of loss caused by 3rd party; e.g.
covenant to insure in tenancy agreement- no right of
subrogation against tenant when lease has insurance clause
(T. Eaton Co v. Smith)
No right of subrogation against an insured under the same policy,
named or unnamed (Imperial Oil)
o Capacity in which insured acting at time of loss irrelevant
(Condominium Corp No. 9813678 v. Statesman Corp)
 Statesman was a developer working on the last phase of the
project, but was also a condo owner in one of the complexes
and so was considered an insured. Even though the cause of
the fire in question arose from his status as a developer,
he was an insured and so there was no right of subrogation
o
o


Operation of Doctrine of Subrogation


Works 1 of 3 ways:
o 1. Insurer indemnifies insured, insurer sues 3rd party in
insured’s name, insured entitled to excess recovery;
o 2. 3rd party fully compensates insured- insured not entitled to
recovery from insurer (Glynn);
o 3. Insured recovers from insurer and 3rd party- insured required
to reimburse insurer (Castellain)
payment to insured pursuant to insurer’s contractual obligations
(Wellington)
Castellain v. Preston

insured received full purchase price as per terms of sales contract
notwithstanding damage to house prior to completion, but also received
insurance proceeds
o insurer recovered insurance settlement for loss already paid to
insured
o insurer entitled to all insured’s rights, legal or equitable,
whether fulfilled or unfulfilled
o irrelevant payment from 3rd party independent of insured risk
o irrelevant insurer not entitled to compel payment from 3rd party
for default
o payment from 3rd party intended to satisfy insured loss
49
Wellington Insurance Co. v. Armac Diving Services



no right of subrogation/reimbursement from insured if payment not
pursuant to insurer’s contractual obligation
insurer’s right of subrogation unaffected if payment honestly intended
as indemnification under policy
in this case, insurer only settled because they didn’t want bad
publicity- there was no actual claim
Exercising Right of Subrogation

Common Law position (doesn’t have much force in BC now that we have a
subrogation provision under s. 36):
o Full indemnity
 No right of subrogation unless insured’s loss fully
satisfied- policy limit irrelevant
 Full indemnification required only re insured loss
 Subrogation right unaffected by non-recovery for uninsured
losses
o Willumsen et al v. Royal Insurance
 Building and land subject to purchase agreement; damage to
building; shortfall in purchase price; only building
insured; partial indemnity for building
 No subrogation right until full indemnity for building
 Insurer’s subrogation right unaffected by shortfall in land
value
 In determining whether an insured has been fully
indemnified by a 3rd party for the insured loss, the courts
will carefully scrutinize the payments made by the 3rd party
to determine whether they are attributable to the insured’s
losses or the uninsured losses
o Full indemnity includes recovery for reasonable cost of action or
settlement of 3rd party claim
 Partial indemnity by insurer
 Insured recovers from 3rd party for insured loss
 No reimbursement unless net recovery from 3rd party and
insurer exceeds insured’s actual loss (Confederation Life
Ins. v. Causton)
 Insured suffered injuries arising out of a car
accident caused by the negligence of the 3rd partyafter receiving partial compensation for lost wages
from the insurer, insured went after 3rd party for wage
loss and other damages. After fees were taken care of,
only 75% of loss covered
 Held: no subrogation because the insured was not fully
indemnified for her wage loss and had not been overindemnified by the combination of 3rd party payment and
insurance proceeds
o Rationale for full indemnification requirement
 Subrogation preserves indemnification principle
 No risk of windfall absent full indemnification
50
o

Preserving insurer’s subrogation interest
 Loss partially insured or exceeds policy limit- insurer
interested in outcome of 3rd party action because it can
potentially prejudice insurer’s interests
 Insured obliged to protect insurer’s subrogation interest
(Globe & Rutgers Fire Insurance v. Truedell)
 Insured obliged to pursue 3rd party claim diligently
and in good faith
 Claim against 3rd party not limited to difference
between loss and insurance amount
 Insured must claim full amount possible from 3rd party
 Test for due diligence and good faith: did the insured
claim less than what they honestly and in good faith
believed was wise to accept in the circumstances?
(Truedell)
o Truedell had lots of properties- some insured and
some not. He was able to collect the maximum
amount for insured structures, but that was only
11% of the losses. Accepted a settlement which he
thought was reasonable in the circumstancesinsurer claimed that it was not consulted and
should receive some money back
o there was no bad faith because he honestly felt
that the best thing to do in the circumstances
was to accept a settlement, so the insurer could
not claim subrogation
 Insured liable to insurer for failure to settle loss
against 3rd party for full amount
 No presumption of bad faith wehre insured settles for
less
 Insured’s motivation relevant (Davis- deliberately
asked for less than he should have)
Statutory Modifications
o Indemnification (full or partial) or assumption of liability for
insured loss pursuant to insurer’s contractual obligation is
enough to trigger right of subrogation (BCIA s. 36, BCI(V)A s.
84(1))
 36(1): the insurer, on making a payment or assuming
liability under a contract, is subrogated to all rights of
recovery of the insured against any person, and may bring
an action in the name of the insured to enforce those
rights
o who controls subrogated claim where insured partially
indemnified?
 BCI(V)A s. 84(2), (3)
 Loss of or damage to vehicle or use- insurer has
carriage (2)
 All other losses where parties disagree, court to make
an order it considers reasonable having regard to
parties’ interests (3)
51
o
General Insurance Contracts: BCIA Part 2
 S. 36 silent on dominus litis (Farrell Estates Ltd. v.
Canadian Indemnity Co- explained and affirmed in Zurich
Ins. Co. v. Ison TH Auto Sales Inc)
 Subrogation provision/clause only alters common law re
pre-conditions for exercise of insurer’s subrogation
rights
 Provision silent on control of litigation where
insured not fully indemnified
 Common law prevails- insured dominus liti until fully
indemnified- express language required to abrogate
insured’s common law right
 Contrast with specific provisions in auto legislation
 Extent of insured’s interest relative to insurer’s
interest irrelevant
 Insured to act in good faith- don’t prejudice insurers
interest
 Facts: fire and explosion occurred in an apartment
building where insured had 71 new cars stored in a
rental space- received factory prices for them minus
deductible, insurer got salvage costs and insured lost
profits
o Insured is in control of the litigation until it
has been fully indemnified for its insured and
uninsured costs


Rationale:
o fairness to insured where insurer pays or assumes
liability for small part of insured’s loss, e.g.
Truedell
o avoids multiple 3rd party claims
o contractual freedom: insurers can specifically
address carriage of litigation in policy
o insurers’ practice- agreement re control of
litigation at time of claim
o court not to assist insurers who fail to protect
themselves
effect of settlement with 3rd party on insurer’s subrogation rights
o Somersall v. Friedman
 Insureds entered into limits agreement with tortfeasor
without notice to insurer- said that they would not pursue
tortfeasor for more than his liability limits
 Insureds sought to recover unsatisfied losses from their
own insurer under underinsured motorist coverage
 Issue: is insurer bound by limits agreement?
 SCC: no dishonesty or malice in limiting claim to 3rd
party’s liability insurance
 No breach of duty to act in good faith to preserve
insurer’s subrogation right
52


o
Auto



Prorating
Pragmatic approach- insurer’s right was not
compromised in substance because 3rd party was
impecunious
Dissent: Characterization of Freidman’s impecunious was
mere speculation given lack of evidence. It is the
existence of the limits agreement which calls the insured’s
fulfillment of the duty of good faith into question in the
first place.
 Therefore it is circular reasoning to rely on the
existence of the agreement of evidence as to the
fulfillment of the duty. The majority incorrectly
places the state of financial value of the insurer’s
subrogation right at the center of the good faith
analysis
 They should have looked beyond the 3Ps financial
status and should have assessed the Somersall’s
actions according to the same standards of good faith
that the Canadian courts have applied in assessing an
action in relation to the uninsured claims where the
insurer has conduct of recovery action.
Insurance
Insurer’s subrogation rights preserved notwithstanding
settlement with or release of 3rd party by insured
 BCI(V)A s. 84(6): “a settlement or release does not
restrict the rights of the insured or the insurer
under this section unless the insured or insurer, as
the case may be, concurred in it”
Dwyer v. Liberty Insurance Co of Canada
 Facts: there was a settlement and the insured went to
the insurer for the remainder of the loss- insurer
wanted to claim losses from 3rd party despite the
settlement
 Single action rule unaffected; matter res judicata
between insured and 3rd party
o Unfair to 3rd party if insurer can disregard
release or settlement
o Contrary to underlying principle re subrogation
 Discourage settlement with 3rd parties
 Codifies insurer’s right of action against insured if
latter disregards former’s subrogation interest in
settlement
 Insurer entitled to recover from insured
 The statutory provision does nothing more than to
codify the insurer’s common law right to claim damages
from an insured if the insured resolves its cause of
action against the 3rd party without regard to the
insurer’s subrogated interests and without the
insurer’s consent
amount recovered where indemnity partial
53
o
o
o
BCIA s. 36(2) If the net amount recovered after deducting the
costs of recovery is not sufficient to provide a complete
indemnity for the loss or damage suffered, that amount must be
divided between the insurer and the insured in the proportions in
which the loss or damage has been borne by them respectively.
Recovery from 3rd party action less than full indemnity- insurer’s
recovery proportionate to percentage of loss borne
Illustration
 Policy Limit: $150,000
 Deductible per occurrence: $10,000
 Value of loss: $200,000
 Insurance amount paid to insured: $150,000 (75% of loss)
 Insured’s personal liability: $50,000 (25% of loss)
 Net amount recovered from 3rd party: $120,000
 Insured receives 25% of $120,000: $30,000
 Insurer receives 75% of $120,000: $90,000
 Insured’s total recovery: $150,000 + $30,000 = $180,000
IX. VALUATION
Introduction

Once an insurer’s obligation to pay for an insured loss is triggered,
it becomes necessary to determine how much to pay to fulfill this
obligation
o Easy cases- accident & sickness (available data), liability
insurance (judgment amount)
o Valuation can be complicated in the case of property insurance
where the principle of indemnity requires a measure of the
intrinsic worth of the insured property to the insured on the
date of the loss
o Valuation of loss under a property insurance policy necessarily
turns on three factors:
 The type of policy in question
 The valuation method identified in the contract
 The extent of the insured loss
o The amount of insurance proceeds payable may also be affected by
contractual terms specifically designed to restrict or expand the
insurer’s payment obligations
Valued Policy
Value of loss pre-determined at
time of contract
Value binding on parties
Irrelevant actual value at time of
loss more or less
Open Policy
No predetermined value; stated
policy limit
Recovery for value at time of loss
subject to policy limit
54
Valued Policies



Dollar amount payable by the insurer in the event of an insured loss
is specifically identified in the insurance contract
o Value binding on parties- irrelevant actual value at time of loss
more or less
Advantages
o Post-loss valuation problems avoided
o Pre-determined value regardless of ACV
o Policy of choice for unique items with subjective value
o Risk insured and premiums calculated on that basis
Scheduled Loss Endorsement
o Policy provides lower limit for valuable items
o Insured may insure each item separately under “scheduled property
endorsement” for additional premium
o Not valued policy- normal rules of valuation applicable
Re Art Gallery of Toronto and Eaton



Central question is whether the parties intended the contract to be a
valued policy or an open policy
Insurance policy was issued on 6 paintings owned by the Art Gallery of
Toronto- identified the paintings as having an insured value of
$640,000
o policy also provided that the insurer’s liability was limited to
“the amount set opposite the respective articles covered
hereunder, which amounts are agreed to be the values of said
articles for the purpose of this insurance”
 given this provision, court concluded that it was a valued
policy
contrast with Freesman v. Royal Insurance Co of Canada, in which a
policy of homeowner’s insurance included coverage for a diamond ring
which had been appraised by the insured’s independent jeweler for
$13,886 and this amount was included in the coverage summary- policy
endorsement provided that the items listed in the schedule were
“insured for replacement value, but not for more than the amount shown
in the coverage summary”
o court found that the policy wording did not clearly express the
intention of the parties to have the value of loss predetermined
by the figures identified in the contract
Raymond v. United States Fire Insurance Co


insured obtained an all-risk policy of insurance on a model of the
Notre-Dame Cathedral of Paris which the insured had constructed
o before the policy was entered into, the model was appraised at
the request of the insurer
o appraiser’s report identified the model as a work of art and
assigned a value of $85,000
o insurance policy referenced the $85,0000 and the appraiser’s
report
model was destroyed by fire
55

insured said it was a valued policy, insurer said it wasn’t a work of
art and only wanted to pay $6,000
o court ruled in favour of the insured but declined to expressly
classify the contract as either a valued or an open policy
 treated it as a dispute between expert valuations and held
that, in the circumstances, the $85,000 figure should be
accepted as the prima facie value of the property because
it was the insurer’s appraiser who determined it to be a
work of art- “when the insurers are or their agent is party
to an appraisement of the property for the purpose of the
insurance, the amount so settled is probably prima facie
proof of value, but otherwise the amount stated in the
policy as the amount insured on any particular subject is
not even prima facie evidence of the value”
 premiums were charged with the higher appraisal value in
mind
Unvalued or Open Policies


when a policy is classified as an open policy, so that the amount of
insurance proceeds payable must be evaluated as of the date of loss,
the wording of the policy also determines the method by which the loss
will be valued
o most open property insurance policies provide for loss payment on
the basis of “actual cash value” or “replacement cost”
actual cash value
o BC Reg 447/83
 1(1) "actual cash value" means the average market price a
purchaser would have paid for an insured vehicle or other
insured property immediately before loss or damage occurs
to the vehicle or other property
o means “the intrinsic value of the physical property to the
insured at the time of the loss”
o options for calculating intrinsic value:
 replacement cost less depreciation
 market value
 tax assessment value
 rental value
 investment value
o most appropriate method of calculating actual cash value must be
determined on a case-by-case basis, taking into account all the
conditions and circumstances relevant to the insured property
value at the time of the loss, including:
 the extent to which the insured property may have already
depreciated from its original value at the time the loss
occurred
 the use being made of the insured property
 the uniqueness of the insured property
Valuation Methods

Repair Cost less Enhanced Value from Repairs
56






Repairs possible
Cheaper to repair compared to replacement
Recovery limited to repair cost
Repairs enhances property value, deduction for betterment
Consistent with indemnification principle
No presumption of betterment - Malcolm E. Walker & Sons Ltd. v. Cooperative Fire Ins. Co
o Improved property after repairs not indicative of betterment
o Onus on insurer to prove increased value for insured after
repairs
o Case at bar: No evidence to support deduction for betterment
 Replacement Cost
 Repair impossible or impractical
 Replacement cost with or without deduction for enhanced value (based
on contract terms), subject to policy limit
Rising Replacement Cost and Inflation: Optional Loss Settlement Clause
(OLSC) or Replacement Cost Endorsement (RCE)
 Shortfall from deduction for betterment/depreciation factor
 ACV of property less than replacement cost
 E.g. 3-year-old TV damaged, average life expectancy=10 years,
replacement cost=$1000
o Depreciation is 30% of $1,000 so insured recovers $700
Solution: Optional Loss Settlement Clause or “Replacement Cost Endorsement”
 Protects insured against depreciation
 Option for repair or replacement cost without deduction for
depreciation/betterment
 OLSC/RCE must be purchased separately
Rising Replacement Cost and Inflation


replacement cost is defined as the lower of the cost to repair or the
cost to replace, without deduction for depreciation
o by failing to account for the depreciated value of the originally
insured property, replacement cost technically violates the
indemnity principle by providing the insured with compensation of
greater value than the loss actually suffered
o valuation by replacement cost must be specifically agreed upon by
the insurer and the insured- usually accomplished by including a
replacement cost provision in the insurance contract, which is
added to an open policy in exchange for the insured paying an
increased premium
 replacement cost clause usually provides that if the
insured opts to replace the insured property following a
loss, as opposed to taking an actual cash value settlement,
the insurer will pay the cost of replacement
replacement cost clauses typically restrict the insurer’s obligation
to pay for replacement value to situations where the insured has:
o replaced the insured property
o with due diligence and
o with materials of like kind and quality
57


Exercising option to claim actual replacement cost under RCE/OLSC
o Unilateral exercise of option by insured
o Notify insurer of intention to claim actual replacement cost
otherwise ACV
o Actual replacement or repair with like materials within
reasonable time (Malainy v. the Canadian Indemnity Co)
o Insured not required to keep replaced property (Barke v.
Economical Mutual)
replacement cost clauses are different from optional repair clauses
o insurer may repair, rebuild or replace lost or damaged insured
property (s. 29 stat cond. 13)
 option not available where dispute resolution process
initiated under s. 12
 notify insured of intention to do so within 30 days after
receiving proof of loss
 work must begin within 45 days after receiving proof of
loss
 insurer must proceed with due diligence to complete work
within reasonable time
 exercising option creates new contract
 insurer obliged to complete work even if cost exceeds
policy limit
 insurer not entitled to deductions for betterment
o optional repair clauses are statutorily required in fire and
automobile insurance contracts in order to protect the insurer
from liability to pay the full pecuniary value of the loss, if
the loss can be more cheaply made good otherwise
o optional repair clauses give the choice of having the loss
resolved by repair or replacement rather than cash settlement to
the insurer rather than to the insured
o under RCC, insurer’s obligation to replace property is generally
governed by policy limits, but when an insurer exercises its
option of repairing or replacing the property under an optional
repair clause, the insurer is liable for all costs involved even
if those costs exceed policy limits
Optional Repair Clauses
Stat. condition: part of all
contracts under BCIA Part 2
Insurer exercises option
Work to commence within 45 days
from proof of loss; proceed with
due diligence; complete work within
reasonable time
Option creates new contract
Repair/ replacement cost may exceed
policy limit

Replacement Cost Endorsement
Contractual term
Insured exercises option
Insurer’s obligation limited to
replacement cost subject to policy
limit
courts tend to generously interpret these replacement cost conditions
in a manner which favours the insured
58
o

insured cannot be held to strict compliance with the due
diligence requirement where the insured’s delay in replacing or
rebuilding the insured property has resulted from the insurer’s
refusal to promptly confirm coverage for the proposed replacement
o the insured’s obligation to rebuild with material of like kind
and quality can be fulfilled even if the insured rebuilds to
different specifications or on a different site in order to meet
the requirements of building or planning bylaws
o in some circumstances the insurer may be obliged to help finance
the insured’s replacement efforts by providing the insured with
an immediate actual cash value payment followed by a “top up” to
the replacement cost once the insured has fulfilled its
obligation of replacing or rebuilding the property
o once the insured has replaced the property and received
replacement cost from the insurer, the insured is under no
obligation to keep the replacement property unless the contract
states otherwise
Problems with Replacement Cost Endorsement
o (1) Cash-strapped or Impecunious Insured
 Actual replacement/repairs precondition
 If insured cannot afford replacement/repair cost is insurer
obliged to advance money for replacement/repairs?
 Carlyle v. Elite Ins. Co: No obligation to pay until work
is done
 Facts: claimed on a fire insurance policy which
contained an optional loss settlement clause which
provided the insured to elect to make settlement on
the basis of the cost of repairs to or the replacement
cost of building.
 Law: The option clause clearly contemplates that the
insurer will pay the cost of replacement after the
replacement is complete. As a matter of practice, it
appears that insurers will generally pay the actual
cash value where that is less and may make other
progress payment, but the policy does not require them
to do so.
 The insurer is not obligated to give you a cash
advance even if it is ACV.
 Is this consistent with insured’s reasonable expectations?
 Would have thought he would get money to do the work
and get the actual cash value
o (2) Insured not obliged to keep replaced property under RCE
 Barke v. Economical Mutual Insurance
 Insured entitled to return or sell replacement
property and keep cash
 Facts: Insured claimed replacement of personal
property under RCE and then returned some items prior
to claiming reimbursement, ACV less than replacement
cost
 Trial Judge: Fraud, insured not entitled to recovery
59




C.A.: No fraud and no obligation to keep items
replaced under RCE
The policy could have provided that the goods must be
replaced or repaired and retained or replaced or
repaired with an intention to replace, but didn’t.
Fraud if never purchase items
Justification: They emphasized ownership; owners are
at liberty to deal with the property any way they
chose. All that the RCE is saying is how to value the
loss. Not a case that deals with how owners should
deal with the property.
Policy: In addition to being very difficult to enforce
any attempt by the insurer or by the courts to impose
an obligation on the insured to retain replaced
property this would fly in the face of fundamental
legal principles favouring the free movement of
property.
Dispute Resolution Process



BCIA s. 12:
o Disagreements about matters stated in s. 29, stat. cond. 11:
value of insured property, value of property saved, nature and
extent of repairs or replacements required (or adequacy of those
made), amount of loss or damage
o Right independent of other questions, e.g. insured’s right to
recover
o Insurer required to notify insured of dispute resolution
procedures: Insurance Regulation [Revised Regulation] 403/2012,
s.3
o Insured or insurer may demand dispute resolution process in
writing after proof of loss delivered to insurer. S. 12(3)
o Parties appoint representatives who appoint an umpire (4)
o Representatives determine disputed matters or submit difference
to umpire (6)
o Each party pays their representative and shares cost of umpire
(7)
o May be subject to special costs for failing to appoint a
representative (9)
o Participation in DR does not constitute waiver: s. 14(2)(a)
Rationale for DR Process
o Part of the movement to limit reliance on judicial/adversarial
system for resolving disputes
o Decentralizes decision-making authority
S. 29 Statutory Condition 11
o 11. (1) In the event of disagreement as to the value of the
insured property, the value of the property saved, the nature and
extent of the repairs or replacements required or, if made, their
adequacy, or the amount of the loss or damage, those questions
must be determined using the applicable dispute resolution
process set out in the Insurance Act, whether or not the
60
o
insured's right to recover
independently of all other
(2) There is no right to a
condition until
 (a) a specific demand
 (b) the proof of loss
under the contract is disputed, and
questions.
dispute resolution process under this
is made for it in writing, and
has been delivered to the insurer.
Future Contingencies

regardless of whether an open policy provides coverage on the basis of
actual cash value or on the basis of replacement cost, a proper
valuation of property on the date of loss should not take into account
possible future events
Leger v. Royal Insurance Co



fire insurance policy provided coverage on the basis of actual cash
value
prior to the loss occurring, insured had expressed an intention to
demolish the insured building and, on the date of loss, the building
was the subject of a demolition order issued under a municipal bylaw
o insurer argued that the insured property had no intrinsic value
on the date of loss because it would have been demolished anyway
 court rejected this argument- the intrinsic value of the
building on the date of loss could not be diminished by a
potential, but uncertain, future demolition
note also Cyrand Investments Ltd v. Aetna Insurance Co: despite the
fact that the insured had applied for a demolition permit for the
insured property and had given eviction notices to the tenants of the
property in preparation for its destruction, the insured property was
not without value when it was destroyed by fire prior to the planned
demolition
Datatech Systems Ltd. v. Commonwealth Insurance Co

the fact that the insured had entered into a sales agreement which
obliged the insured to remove the insured building from the land
should not be taken into account in determining the value under a
replacement cost endorsement because, until the insured property was
actually destroyed, the insured had a number of options for dealing
with the property in a way which preserved its value
Newfoundland (Attorney General) v. Commercial Union Assurance Co of Canada



a prospective event which is sufficiently certain may affect the value
of the insured property on the date of loss and therefore may be
included in the court’s valuation assessment
insured (government) had called for tenders for the demolition of the
property, and then it was damaged by fire
court found that the government had made a definitive decision to
proceed with demolition of the property and so it was of no value to
the government on the date of loss- there was no reason to believe
61
that the demolition would not have gone forward if the fire had not
occurred
Partial Loss in Valued Policies

where insured property is only partially damaged, the insurer’s
obligation is to reimburse the insured only for the portion of the
property which has been lost
o compensation still depends on the type of policy in question and
the valuation method set out in the policy
o where a partial loss occurs under a valued policy, the amount of
insurance proceeds payable must be calculated with reference to
the value assigned to the insured item under the contract
Re Art Gallery of Toronto and Eaton


6 paintings were stolen form an art gallery
o a valued policy of insurance issued to the gallery assigned a
value of $640,000 to the paintings
o they were ultimately recovered, but damaged
insured claimed damages of $413,000- estimated value of paintings upon
recovery ($631,900) subtracted from estimated value of paintings at
time of theft ($1,045,000)
o court rejected this- the property value assigned under the valued
policy must govern a partial loss as well as a total loss because
the insurance contract did not expressly say otherwise
o insurer was obligated to pay $252,999.04 (arrived at by applying
the percentage of depreciation incurred to the paintings to the
value assigned to the paintings under the contract)
Extent of Loss Suffered: Constructive Total Loss, Abandonment and Salvage



if insured property is sufficiently damaged so that the cost of repair
exceeds the cost of replacing the whole property, the insurer may
treat the property as a “constructive total loss” and may compensate
the insured for the whole property
o test: would a reasonable person without insurance consider the
property worth restoring?
o upon paying the insured for the value of the entire property, the
insurer can rely on the doctrine of salvage to take possession of
the remnants of the damaged property
 this prevents the insured from being over-indemnified
authority to declare partial loss constructive total loss
o no unilateral abandonment of damaged property by insured
o insurer’s consent required for abandonment: BCIA s. 29 stat cond
10
salvage rights: BCIA s. 29 statutory condition 9, BC Ins.(V) Reg
Schedule 10 stat cond 5(9)
Limits on Liability in Open Policies

indemnity insurance policies typically provide for a deductible- the
portion of a loss which the insured agrees to bear before the
insurer’s obligation to pay arises
62




o they prevent moral hazard and discourage claims for small losses
o deductibles and the cost of premiums are inversely related
insurer’s obligation to pay triggered only where loss/damage exceeds
deductible amount
is an insurer entitled to rely on the doctrine of salvage to take
possession of insured property if the insured has contributed to
payment of the loss via a deductible?
o So fart his has only been dealt with in the context of auto
insurance where the insurer’s salvage rights are expressly
provided for by statutory condition- prevailing view in these
cases is that an insurer is entitled to claim salvage while
enforcing the insured’s obligation to pay a deductible
o Policy reasoning p. 270
 The risk that the insurer will retain a salvage interest in
the insured property without paying the deductible is a
factor which the insured can and should consider in
balancing the deductible amount with the associated premium
Rationale for Deductibles
o Consumer choice:
 Inverse relationship between deductible amount and premiums
 Promotes affordability of insurance
o Opportunity for high risk consumers to obtain insurance
o Minimizes likelihood of loss and moral hazard
 Insured self-insurer for part of loss
 Incentive for responsible behavior re insured loss/property
 Promotes public safety
o Administrative efficiency, lower costs and affordability for
consumers
Effect of Deductibles from Insured’s perspective
o Detrimental to insured’s interests
 In every loss situation you are responsible for at least
part of it
o Recovery less than actual loss
o Clauses limiting insurer’s liability must be visible in policy:
BCIA, s. 31
 Insurers are required to warn insureds when the policy
contains a deductible or any other clause that affects the
amount that an insured can recover
Sue and Labour Clauses
 Contractual provision which obligate the insured to take reasonable
steps to prevent insured property from further loss or damage when the
property has been partially damaged by an insured risk
o Requires the insurer to pay for all or some of the cost of the
insured’s preservation efforts- this payment duty is ordinarily
imposed irrespective of whether the insured is successful in
preventing further damage
o Insurer can refuse to pay for further damage if the insured fails
to fulfill its sue and labour responsibility
63


Generally, an insured can only recover sue and labour costs if the
insured’s expenditures satisfy three criteria:
o The costs must relate to a loss falling within policy coverage
 The insurer is not responsible for costs incurred by the
insured in preventing loss which is not covered by the
relevant policy
o The expenses must be reasonable
 Reasonableness is determined by comparing the sue and
labour costs with the cost which the insurer would be
expected to pay if a further loss did occur
 An insurer will not be responsible for preventative
measures which cost more than the loss they were intended
to avert
o The costs must have been incurred to prevent further damage from
a materialized risk
 The insurer is liable for mitigation expenses, not for
costs associated with generally preventative measures
BCIA s. 29 stat cond 9
o (1) In the event of loss or damage to insured property, the
insured must take all reasonable steps to prevent further loss or
damage to that property and to prevent loss or damage to other
property insured under the contract, including, if necessary,
removing the property to prevent loss or damage or further loss
or damage to the property
o (2) The insurer must contribute on a prorated basis towards any
reasonable and proper expenses in connection with steps taken by
the insured under subparagraph (1) of this condition.
Benson & Hedges Ltd v. Hartford Fire Insurance



A bottling tank exploded at the insured’s brewery- experts determined
that the explosion was caused by faulty welding in the tank
o After repairing the ruptured tank, the insured hired experts to
inspect the remaining tanks and to repair any tanks which had a
similar defect- claimed associated expenses under sue and labour
clause
Majority held that the insurer was not obligated to pay for the costs
relating to the unruptured tanks
o The risk of these tanks exploding was distinct from the risk of
further loss caused by the tank which had already exploded
Dissent said that the risk was continuing and indivisible- imminent
danger should be liberally interpreted
Office Garages Ltd v Phoenix Insurance Co of Hartford


Insured building suffered $8,000 in damage as a result of an explosion
o Following the explosion, the atmosphere in the basement of the
building contained a mixture of gasoline and air- insured hired
an engineering firm to investigate the cause of the explosion and
to excavate and remove contaminated soil from the basement of the
building in order to prevent a further explosion
Insured’s claim for sue and labour costs was about $27,000
64
o
o
In assessing reasonability, court considered the value of the
insured property as a whole- the expenditure was not unreasonable
to prevent further loss to a building valued at $900,000
Note that court did not compare the amount of the expenditure
claim to the amount of the loss already suffered
65