Two Step Process for interpreting: Consolidated Bathurst Export
(1) Unambiguous Language: Search for intention
- What did the parties contemplate at the time of contract based on plain reading?
o Undefined words: plain and ordinary meaning subject to intentions
o Holistic interpretation
o Consistent with other policies
- Corbould: primary principle is that where there is no ambiguity could should give effect to clear
language. To do this, need to read policy as a whole.
- Only in rare cases do you resort to reasonable expectations absent ambiguity, only where the purpose of
the policy will be undermined if you don’t resort to such an expectation
- Critique: is there some sort of fictional meeting of minds, mandated terms, scope of pre-contractual
terms
(2) Ambiguous Language
Reid: interpretation of ambiguous words must not result in unreasonable results
(a) Contra Proferentum
- Ambiguous terms interpreted against insurer:
- Policy: to encourage them to be more clear, they have resources to drafted the forms etc.
- Exception: Statutory conditions – then look at reasonable expectation
- Brissette: the dissent stated that since it was ambiguous, then in favour of insured
(b) Coverage provisions broadly construed; exclusions narrowly interpreted
- Similar rationale as contra proferentem since insurers drafted the clauses to limit their own liability
- Applies to statutory conditions
- Consolidated Bathurst: the exclusion clause covered actual damages and not consequential because
would otherwise make the contract useless
(c) Parties’ Reasonable Expectations at time of contract
- Corbould it was limited to ambiguity, exception was where the purpose of the contract is threatened
- Applies to both parties, but if irreconcilable, favours the insured. They are the vulnerable party
- Potential conflict and undermining other interpretive principles
(d) Consumer Protection/ Pro-coverage
- Don’t necessarily always favour coverage
- Jesuit: coverage not consistent with reasonable expectations of parties
- Vytlingam: Cannot reasonably stretch the coverage for the underinsured motorist that would be
inconsistent with the intentions.
- Other mechanisms to promote consumer protection, e.g. relief from unreasonable terms and conditions
(BCIA, s. 129(1); waiver and estoppel
B. Loss Caused by “Accident”
What was the nature of the loss
- Losses caused by negligence, even calculated risks can be accident as long as the outcome was not
desired Canadian Indemnity
- Stats v Mutual Omaha: although actions grossly negligent, does not mean outcome was desired, was an
unexpected consequence
- Poor workmanship may constitute accident, depends on case. As long as result not desired can be
fortuitous
Was the harm intended? Martin approach
- Insured’s subjective intent: Did they intend the loss? Look at this based on evidence
- Subjective-objective test: What a reasonable person in those circumstances would have thought
o If subjective not available, then would a reasonable person have seen the outcome to be
substantially certain to occur, then its intentional.
Framework for accidental losses Nelson
- (1) Prior external force or impact on insured’s body resulting in bodily injury or death
o Triggering event fortuitous, starting point was an external force that would constitute an
accidental loss.
o Examples: slip and fall; falling off horse
o Kolbuc: It was an unforeseen, unexpected event that was caused by an external source and
because the insured had no reasonable expectation that he would get the virus from the activity in
which he was engaged, it was an accident
- (2) Voluntary movement causing unexpected injury/loss peculiar to insured
o Normal activities causing unexpected injury/loss, you pick something up and break back, not
expected. Not something you normally expect from the normal human physiology. May have
been voluntary but the resulting loss was not expected, so characterized as accidental loss.
- (3) Deliberate conduct causing injury due to miscalculation of consequences: Martin
- (4) Excluded: Injury from natural processes within the body in ordinary course of event’s
o If the loss was caused by disease from natural causes, then it is not accidental. A person’s death
by natural causes would not be in ordinary and popular language referred to as an accident.
o Gibbens: Paralysis due to natural processes within insured’s body during normal activity. Simply
because something is unexpected does not mean that it is accidental.
o Wang: Amniotic fluid embolism natural with child birth
o Nelson: Death from swimming not caused by mishap, he didn’t drown which would have been a
different situation. Martin distinguished: no miscalculation of consequences of dangerous
conduct. Here there was no evidence that swimming was a dangerous activity or that he
miscalculated the consequences of swimming.
C. Loss Caused by Intentional/Criminal Acts
Is the loss intentional?
- BCIA, s. 2.3; Ont. Insurance Act, s. 118: Can recover as long as the conduct was not intended to bring
about the harm. Even if it was criminal and the resulting loss was not intended, you can still recover.
o But it says unless the contract otherwise provides, so they can include the CL rule
- BCIA, s. 28.6: Innocent persons, insured and third parties, can recover via severability
- When there is a criminal exclusion clause, intent is not required. Applies to all CC offences regardless of
MR and a conviction is not required, prima facie evidence. Eichmanis
- Intent to injure or cause harm excludes deliberate conduct causing unintended loss. R.D.F.
o Here could have just been negligent, and so covered
- Intent to injure presumed for inherently harmful conduct, e.g. sexual wrongdoing, Scalera and
Sansalone
The scope of harm does not matter if intentional.
- So long as some damage was intended, the actual degree of harm is irrelevant.
- Co-operative Fire & Casualty v. Saindon: Loss is intentional where an 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
occurring.
- Emeneau v. Lombard Canada Ltd.: Intent is not synonymous with desire or object, but refers to more
general intent to cause harm. The fact that actual damage was more extensive then he contemplated
doesn’t entitle him to be indemnified.
Automobile Insurance
Basis of recovery
 Loss or injury from use or operation of motor vehicle – BC Ins. (Vehicle) Act. S. 7(1)
Meaning of “use or operation of a motor vehicle” – 2 part test from Amos
(1) Purpose Test
-
-
-
Did accident arise from well-known and ordinary activity normally associated with use of motor vehicle
Liberal and contextual interpretation of “use or operation”
o Driving vehicle off-road an ordinary and well-known activity of vehicles: Pender
o Pushing motorcycle during driving lesson is an ordinary activity when learning to drive: V-Twin
Motorcycle School Ltd. v. Insurance Corp. of British Columbia
Irrelevant that conduct is illegal or dangerous
o Vehicle being used for a criminal purpose doesn’t take away the fact that it was being driven as a
vehicle normally is, Citadel General Assurance Co. v. Vytlingam
o Insured’s negligence is not a factor to consider in 1st party benefits, Whipple
Same test for no-fault benefits and indemnity claims
(2) Causation Test
- Is there some nexus or causal relationship between the appellants injuries and the owners use and
operation of his vehicle or
- Is the connection between the injuries and owners use and operation merely incidental or fortuitous
- Should be an unbroken chain between the use of the vehicle as a vehicle and the injuries.
o Causal link, has to be sufficiently close for the claim to qualify as use or operation of the vehicle.
- Requisite degree of connection depends on nature of claim
- (a) No fault benefits
o The use has to be more than fortuitous
o The connection between the injury and use or operation of car need not be direct
o Injury need not arise from negligent use of vehicle, so long as car contributed to injury
o Suffice injury arose from tortious conduct but need not involve negligent use of vehicle.
o Amos: If he had not been operating his car, would not have been a victim of the wrongdoing, it is
irrelevant that the injury did not arise out of the use of the 3P vehicle as a weapon.
- (b) Indemnity Insurance
o The actions of the tortfeasor must have been done using their vehicle.
o Requires unbroken chain between use of vehicle and injury/loss. Once there is an intervening act,
the causal chain has been severed and cannot make an indemnity claim.
o Criminal nature of conduct irrelevant: Vytlingam
o Test more demanding than for no-fault benefits: Vytlingam
 Indemnity claim denied because the other person did not used their vehicle when harm
happened. But they received no-fault benefits because injury was from driving on
highway which is an ordinary motoring activity
o Shooting not motoring activity although used car to get to hunting site: Lumbermens
o He got out of his car, used the lights for illumination and shot a person by accident.
o In drive-by shooting, the shooting was an intervening act independent of the use or operation of
vehicle: Russo v. John Doe
- Policy for difference: no fault is purchased for peace of mind, so it should matter if your vehicle played
an essential role. In indemnity it is consistent with the parties reasonable expectations that when you buy
the coverage it is only for your use of the car.
G. Public Policy Restrictions
Criminal Forfeiture Principle
Payment denied for public policy concerns
(1) If coverage for illegal activity
- Contractual freedom irrelevant
- The wrongdoer is barred from recovery, and the contract remains valid
(2) Loss caused by criminal conduct
- Innocent beneficiaries or 3rd parties can recover if death occurred during criminal conduct, Oldfield and
Goulet
-
But there is no recovery by or through the criminals estate, Mutual of Ohama v Stats
Statutory Modifications of Criminal Forfeiture Principle
(1) Criminal conduct bar abolished
- The insured’s criminal act will not result in forfeiture unless insured intended to cause damage or loss BCIA, s. 2.3
- Cases above
- Exceptions: Wrong by insured or another person with insured’s consent intended to cause loss
o Contractual terms: can preserve common law criminal forfeiture; intention to cause loss
irrelevant
o Life insurance – criminal forfeiture applies
(2) Innocent Co-Insured
- Not protected by BCIA, s. 2.3
- Innocent co-insured and other 3rd parties recover losses: BCIA, s. 28.6
o Claim limited to innocent party’s interest
o Severability of insured’s
(3) Automobile Insurance
- 3rd party claim unaffected by insured’s criminal activity - BC Ins (Vehicle) Act, s. 76(6)(c)
- An auto liability insurer is prohibited from denying payment to a 3P claimant on the basis of the
insured’s criminal act
Common Law – Suicide Forfeiture
- No payment for death by suicide because contrary to public policy
- Contractual interpretation – suicide not within scope of insured risk: Husak.
o Presumption that the common law applies unless stated otherwise.
- Consistent with intentional injury exclusion
Statutory Modification: Contractual Suicide Clauses Enforceable
- Coverage for suicide not required but permitted.
- Contractual terms for recovery in suicide lawful and enforceable – BCIA, s. 46(1)
o Sympathy for beneficiaries
o Freedom of contract
- But contains a suicide or self-destruction provision: Payment for death by suicide within specified
period excluded or benefits reduced, also applies to reinstatement: BCIA, s. 46(2).
o Prevents persons contemplating suicide from obtaining/reinstating life insurance
o Unlikely insured will defer suicide plans for that long
H. The Claims Process
(1) Making a claim: Insured’s obligations
(a) They must file a notice of loss
- The accident has to be reported, even if no claim has been made
- Have an obligation to make timely notification of loss & intention to make claim
- The insurance company bears the burden of proving on a balance of probabilities that the insured failed
to comply with obligation.
- The court must determine whether
- (1) The insured’s obligation to report the notice was triggered and
o Generally triggered at the time of loss
o Objective Test: Would a reasonable person believe that the obligation to inform has been
triggered, the insured’s honest belief is not relevant, Marcoux
- (2) Whether the insured reported the loss within the specified time frame for the triggering event
o Generally a time limits are specified in K
o A&S: notification- 30 days; Proof of loss - 90 days: BCIA, s. 89, stat. cond. 7
-
o Fire: written notice “forthwith”, BCIA, s. 126(2), stat. cond. 6
o Auto: promptly give written notice – BC Ins. (Vehicle) Reg. Reg. 477/83, s. 169, stat. cond. 4 &
5
o These terms are interpreted based on circumstances of case
Consequences is that claim is forfeited since notification is a condition precedent
No forfeiture absent prejudice to insurer, Bissett v. I.C.B.C
(b) They must file a proof of loss
- Sufficient evidence of occurrence and value of loss within specified time
- Purpose: gives insurer details of claim, can assess and validate them
- Time limit and sufficiency of information contextual. These are questions of fact
o A&S: Notice - 30 days; proof of loss - 90 days and in any event not exceeding 1 year, BCIA, S.
89, stat. cond. 7
o Fire: Statutory declaration of proof of loss as soon as practicable, BCIA, s. 126(2), stat. Cond. 6
- Insured Provide must provide:
o Information in insured’s actual or constructive knowledge, make reasonable inquiries to obtain
necessary information
o Manner of proof: Depends on type of contract or contractual terms
- The burden of proof lies on the insured to establish a right to recover under the terms of the policy,
Dimana v Pilot Insurance
- Sufficiency of information: based on a standard of reasonableness, fact specific
o Nixon v Queen: not satisfied as he failed to make reasonable inquiries of people with
information
o Anglo-American Fire the obligation was fulfilled where the insured provided the insurer with
copies of last stock-taking records predating the fire and invoices since fire
o The insured’s duty of good faith underlies the court’s assessment of the sufficiency of
information provided by an insured pursuant to proof of loss requirement.
- Consequences of Breach: Condition precedent so claim forfeited subject to relief from forfeiture or
waiver/estoppel. Contract valid
(c) Have a duty to co-operate
- Assist insurer in investigation, willingly and to best of ability and judgement
- The insured’s conduct must be material and substantial in order to constitute a breach
- In Somersall v Friedman: the SCC interpreted the duty in a subrogation action as requiring a little more
than the insured’s actual participation as a witness
- In liability insurance:
o Cannot assume liability
o Must assist insurer in defending 3rd party claim.
o Provide necessary information for settlement.
- Duty to co-operate condition precedent so breach results in forfeiture
- Must act in good faith, no fraud or wilful concealment of material information or misrepresentation
about what happened or the extent of your loss.
- If fraud found, entitles the insurer to avoid all obligations under the contract
- Proving Fraud - Onus on Insurer
o Standard of proof - beyond the civil standard of balance of probabilities but not past reasonable
doubt. Depends on the seriousness of what is being alleged in the circumstances.
o Presumption of fraud in grossly overvalued claims.
o Presumption rebutted by honest mistake.
o Materiality: fraud material to claim
o Fraud established where insured: Knowingly or recklessly makes false representations (positive
assertions or omissions) material to claim
- Consequences of finding of fraud
-
o Claim forfeited but contract valid (fire, s. 126(2), stat. cond. 7); Auto Ins. (Vehicle) Act, s. 75
o Insurer may exercise unilateral termination
o S 126(2), stat. cond. 7: Any fraud or wilfully false statement in a statutory declaration in relation
to any of the above particulars vitiates the claim of the person making the declaration.
Amount of fraudulent claim irrelevant, the claim may exceed policy limit
No relief against forfeiture due to fraud: Swan Hills Emporium
Punitive damages: you have breached your duty of good faith, and therefore could be subject to punitive
damages, Akers v ICBC
2. Excusing Insured’s Breach
A. Relief from Forfeiture
(1) Threshold Question: Is relief from forfeiture available
- Depends on source of court’s power to grant relief; type of insurance; nature of breach.
- General power to grant relief against forfeiture: Law & Equity Act, S. 24
o Court can grant a relief that they think is justified in the circumstances, this is outside the
insurance contract
o Discretion in contracts which don’t have statutory conditions, life insurance. Saskatchewan River
- Insurance Statute: relief for imperfect compliance B.C.I.A., S. 10: Accident & Sickness: BCIA, s. 89,
stat. cond. 7(2)
- Specific relief power applies to ordinary contractual terms as well as to statutory conditions. So the
specific relief applies to all types of insurance contracts unless the relevant insurance legislation
expressly staates otherwise, Falk Brothers
(2) Is it non-compliance or imperfect compliance?
- Non-payment of premiums is non-compliance, so no discretion Pluzak v. Gerling Global Life Ins.
- Vehicle registration is a precondition for valid insurance contract and so no basis to exercise discretion
on it.
- Pre-loss breaches or non-compliance: Jackson v. Canadian Northern Shield Ins
- Limitation Period for initiating an action has expired, statutory or contractual term: National Juice Co.
Ltd. v. Dominion Insurance Co
- No relief from forfeiture for fraud even absent prejudice to insurer
(3) Is exercise of discretion warranted in particular case
- Purpose is to prevent the insurer from denying a critical benefit to the insured on the basis of a technical
breach which is not substantially prejudicial to the insurer
- Nature of Insured’s Breach: Imperfect compliance with post-loss obligations
- If unintentional breach and no prejudice to insurer court will be more likely to grant relief: Pilotte v.
Zurich North America Canada
- Court should consider 2 factors when granting relief under the specific power
o (1) has the insurer been prejudiced by the imperfect compliance
o (2) would it be equitable to hold the insured to strict compliance with the relevant obligations
- Where general relied is granted, 3 factors need to be looked at
o (1) conduct of claimant: was it reasonable in the circumstances
o (2) gravity of the breaches
o (3) disparity between value of property forfeited and the damage caused by the breach
B. Waiver and Estoppel
Waiver
- Purpose: Relieve insured from strict contractual obligations, something is said or done whereby the
performance or observance of a condition or warranty needs not be carried out or proved.
Requirements
- (a) Insurer knowingly abandons rights
o Written and signed by authorized person: BCIA, s. 11(1); Accident & sickness – s. 89, stat. Cond.
1(2); Auto: Ins (V.) Act, s. 85(2)
o Writing requirement liberally interpreted: Paul v. Cumis Life Ins
- (b) Unequivocally and consciously communicates to insured
o Party who seeks to rely on waiver must show that the party waiving the right had full
knowledge of its rights and that it has an unequivocal and conscious intention to abandon
those rights. Paul v Cumis
- (c) Unfair for insurer to retract promise of abandonment
o Insurer entitled to retract waiver without notice but notice required after reliance, Saskatchewan
Rivers
Limitations
- Unavailable for proof, valuation, investigation & adjustment of loss: BCIA, s. 11(2); Ins (V) Act, s. 85(3)
Estoppel
- Estoppel prevents an insurer from denying coverage on the basis of an insured’s breach of K where:
- (1) Representation by insurer to insured that existing facts or future intention is not to enforce
contractual right
o No writing requirement.
- (2) Detrimental reliance by insured
Two Types of Estoppel
- (1)Estoppel by Representation: arises where the insurer makes a representation of fact to the insured.
o Accepting premiums after due date
o Accepting proof of loss filed after prescribed period
o Providing defence absent obligation to do so.
o McConnell v. Aviva Ins. Co. of Canada
- (2) Promissory Estoppel: arises where the insurer makes a representation about a future state of affair
o Insurer promises not to insist on future compliance with insured’s particular contractual
obligation
o Insured notifies insurer of loss; insured told doesn’t need statutory declaration for proof of loss;
Insurer estopped from denying claim for breach of contractual duty
o Maracle v. Travellers Indemnity Co. of Canada
4. Insurer’s Obligation to Respond to Claims in Good Faith
Basis and Nature of Duty of Good Faith Dealings
(1) Purpose of the duty of good faith
- There are Reciprocal obligations of good faith
- Mutual reliance and vulnerability
- Insured particularly vulnerable at time of loss/claims
- Insurer to further purpose of insurance - peace of mind;
- Obligation of good faith means the appellant’s peace of mind should have been insurer’s objective and
her vulnerability ought not to have been aggravated as a negotiation tactic. Gave full punitive, Whitten
(2) Requirements Fiddler
- Must look at the manner in which the insurer investigates and assesses the claim and to the decision
whether or not to pay the claim
o Requires timely and diligent investigation and notification
- Insurer need not be correct to dispute obligation
o Mere denial is not itself bad faith, it depends on the circumstance
o Insurer cannot exploit
o Must be based on reasonable and balanced assessment of merits of claim.
o Refusal based on reasonable interpretation of insured’s contractual duties
o Insurer need not be correct in decision to dispute or deny payment
(3) Scope, broader than duty to pay
- Good faith response is triggered with notification of loss, Maschek v Gleeson
- Whereas duty to pay is after satisfactory proof of loss and post-loss obligations
- In a particular situation can have either or both duties triggered: Fidler
- Not limited to losses covered.
- Duty may independently of coverage, Hosseini
(4) Implications of Duty of Good Faith Response
- Fair treatment of insured
- Diligent investigation and timely resolution of claim
- Timely payment if no grounds to contest claim
- Whiten v. Pilot Insurance: her vulnerability was used as a negotiation tactic.
(5) Consequences of breach
- Pay claim
- Liability for punitive damages – Whiten
- Liability for aggravated/mental distress damages: Fidler
o Requires reasonable foreseeability at time of contract
(5) Insurer’s Duty to Defend under Liability Insurance Policy
Insurer’s Obligations under Liability Policies
(a) Duty to defend
- Mutually benefit insured and insurer
o Insured’s perspective: don’t have to deal with potential financial consequences of legal action
o Insurer’s perspective: they have control and so can try to prevent liability or settle claims. Ensure
that your interests are vigorously protected. If the insured is not the one who is going to pay the
money, will not take it as seriously
- Contractual obligation; Scope determined by contract terms
- Put into issue before the merits of the claim have been determined, so not contingent on the duty to
indemnify. Great West Steel
(b) Duty to indemnify
 If insured liable, will insurer have to indemnify
(1) Triggering the Duty to Defend
- Pleadings Rule: Pleadings disclose if the cause of action is within scope of policy, outcome irrelevant:
Nichols v. American Home Assurance Co.
o Holistic construction of pleadings
o Even if at least one ground of action being covered, or claim might succeed, must defend
o Insured need not prove duty to indemnify will actually arise
o Irrelevant action without merits are dismissed
o No duty to defend excluded claims, regardless of outcome, Nichols
- Are the pleadings clear? Scalera
o (1) Are allegations against insured properly pleaded
 Can the facts alleged in the statement of claim support the legal assertions contained in
the pleadings.
o (2) Multiple Claims: Are some claims entirely derivative in nature in that are any of the claims
parasitic on other claims.
 Must ask whether all of the causes of action arise from different circumstances and result
in independent and distinct harms.

Where the claims all arise from the same conduct and result in indistinguishable
harms, even if we have a properly pleaded claim, it is considered to be parasitic
o (3) Are any properly pleaded non-derivative claims within scope of coverage to trigger duty to
defend.
- If the pleadings are ambiguous
o Duty triggered if inference of coverage reasonable from pleadings
o Insured entitled to benefit of doubt if on a reasonable reading of the pleadings a claim of
coverage can be inferred, Monenco Ltd v. Commonwealth Insurance Co
- Extrinsic Evidence referred to in the pleadings, may be used to determine substance of pleadings,
Monenco
(2) Problems with the Pleadings
- (a) Scope of the Pleadings Rule: Pleadings rule is limited to P’s statement of claim and extrinsic
evidence if necessary. Only exception is where the defence pleadings include admissions of fact as
opposed to mere denials.
o Wi Lan v St.Paul: Makes the duty dependent on statement of defence, merits of case may be
considered with statement of defence, this is contrary to the pleadings rule and can result in
strategic defence contrary to duty of good faith
- (b) Severability of Claims: If insured sued for both covered and uncovered claims, no duty to defend
uncovered claims
o Apportionment: Insurer’s liability limited to defence cost for covered claims: Sommerfield v.
Lombard Insurance Group
- (c) Inter-Related Claims: Severability impossible and the defence of covered claims benefit uncovered
claims
o Hanis v. Teevan: Allocation of defence is a matter of contractual obligation as per terms of
policy and not fair & equitable allocation.
o Presumption: Defence costs for covered and uncovered claims undifferentiated, if
distinguishable, insurer’s liability limited to defence cost for covered claims: Dunn v. Chubb
Insurance Co. of Canada
- (d) Multiple Liability Coverage: Allegations against insured covered by multiple policies
o Concurrent duty to defend
o Each insurer contributes to defence costs; irrelevant whether the policy is primary or excess
o Irrelevant that the duty to indemnify under excess may not be triggered, still have to defend
o No contract then the court will apportion defence costs between insurers
o Apportionment must be fair and just in the circumstances, Broadhurst & Ball
o Auto Insurance: Proportionate share based on liabilities for damages/settlement: I(V) Act, s.
79(5)
- (e) Multiple Liability Coverage: Which Insurer Defends
o Auto: Court must determine insurer to defend as it considers proper in circumstances: S. 79(1)
o Usually primary insurer, but may be excess depends on which insurer has the greatest risk of
loss Econ. Mut. Ins. Co. v. I.C.B.C.
6. Duty to Settle within Policy Limits
(1) Where the 3rd Party Claims Exceeds Policy Limit insurer must consider insured’s interest
(2) Should not unreasonably refuse settlement offer within policy limit
- This is because it is in the legitimate interests of the insured to have the 3P action settled within the
policy limit if possible: Shea v. M.P.I.C.
(3) Nature and implications of Duty: Shea v Manitoba Public Insurance Co
- Insured vulnerable in settlement process
- Equal consideration of insurer and insured’s interests
- Advise insured of conflict of interests and the nature and extent of conflict.
-
Where there are adverse positions, they have an obligation to instruct separate counsel solely for the
insured’s at the insurers own costs.
- Minimize insured’s damages liabilities: Attempt to minimize by all lawful means the amount of any
judgement awarded against the insured
- Timely defence and settlement, and where last minute ensure that the insured interests are given equal
protection with those of the insurer.
(3) When the 3rd Party Judgment against Insured Exceeds Policy Limit
- There is no automatic breach of good faith duty to settle within policy limit
- Insurer only required to act fairly and openly: Fredrikson v. I.C.B.C.
(4) Where the insurer breach their duty of good faith in settlement offers liable for the whole judgement
- Liability for entire judgment amount: Dillon v. Guardian Insurance Co.
- The insurer’s obligation is simply to make best efforts to resolve the claim within policy limits. If the
insurer breaches this duty, they may be held responsible for paying both the insured and uninsured
portions of the 3P judgement.
(5) Statutory Duty to Mediate
- Ontario: Insurance Act, s. 258.6: Auto insurance claims where one party requests
- BC: Mandatory mediation for parties and insurers in auto vehicle injuries-related claims: Insurance
(Vehicle) Act, Notice to Mediate Regulation, B.C. Reg. 127/98, s. 3
- Failure to mediate may expose insurer to indemnity cost in favour of 3rd party: Keam v. Caddey,
- There can be no legitimate reason to refuse to participate because to elect not to participate constitutes a
breach of insurer’s statutory obligations.
VALUATION
Issues with Property Insurance
(1) Type of policy: valued v. open policy
- Valued: Value of loss pre-determined at time of contract. This is a substitute value, can be more or less
than the actual market value at the time of loss.
- Open: No predetermined value, a maximum amount is stated and binds the insurer to pay the value of
loss actually suffered.
- Determined via parties intention, stated value doesn’t make it valued.
- Can have both open and valued combined, Art Gallery
- Need to look at the entire policy, Freesman
- Advantages: pre-determined value, so no post loss problems, put an amount on things with no consumer
surplus. Risk and premiums calculated on that basis, Raymond
(2) Valuation method – contractual term re valuation method?
- (a) Actual Cash Value: Objectively determined value of property at time of loss. Look at the use of the
property
- (b) Repair Cost less Depreciation: Repairs possible and cost less than replacement, insured recovers
repair costs. If repairs enhance property then get a deduction for depreciation
o No presumption for betterment, must have evidence which shows property in hands of insured is
more valuable than prior to loss, Malcolm
- (c) Optional Loss Settlement Clause (OLSC) or Replacement Cost Endorsement (RCE): Are included to
provide the insured with coverage for depreciation and having the loss resolved by repair or replacement
over cash.
o Unilateral exercise of option, notify insurer of intention otherwise the default is ACV
o Requires actual replacement or repair with like materials within reasonable time: Malainy v. The
Canadian Indemnity
o Replacement not required for ACV– Datatech Systems Ltd. v. Commonwealth Insurance Co
o Can be an issue for people who don’t have the money to repair because there is no obligation to
pay until the work is done, Carlyle v. Elite Ins. Co: No obligation to pay until work is done
o Insured is not obligated to keep the replacement property, Barke v Economic Mutual
-
(d) Optional Repair Clause: the insurer undertakes to repair or reinstate, in certain time frame
o E.g. BCIA, s. 126(2) stat. cond.13: Insurer can opt to "repair, rebuild or replace the property
damaged or lost" without depreciation upon giving notice to do so
(3) Extent of insured’s loss. Can this be repaired, is it a total loss
- Need to focus on the time of loss, not what could have happened. Future contingencies are not relevant,
Leger v Royal Insurance
o This is because it is possible that the insured could have changed their mind before the proposed
plan were to go through, Cyand Investments v Aetna
o No certainty that the structure would be demolished, the sale may have fallen through, the
insured could have moved the structure to adjoining lot, could have sold it to someone, Datatech
o Future plans are not ignored where sufficiently certain to occur, Newfoundland v Commercial
Union
- (a) Is it a Partial Loss: Assessing Value of partial Loss in valued policies
o Step 1: Determine % of depreciation due to partial loss
o Step 2: Apply depreciation factor to predetermined amount
- (b) Constructive Loss: where the cost of repairs exceeds the cost of replacement the insurer may treat it
as a constructive loss and compensate for whole property. Re Art Gallery
o Test: Will reasonable person without insurance consider property worth restoring?
 If answer is no, not worth fixing and so better to have a replacement
o Avoiding over-indemnification: Insured abandons remains of insured property
 Insurer acquires salvage rights – contractual or statutory condition. E.g. Auto: BC Ins.
(Vehicle) Reg. , schedule 10, stat. Cond. 5(9)
o Insurer’s consent required for abandonment: Fire: BCIA, s. 126(2), stat. Cond. 10
(4) Contractual terms that limit or expand insurer’s obligation
- (a) Policy Limits: Maximum insurance amounts
- (b) Aggregate Limits: total amount of insurance claims
- (c) Deductibles: amount borne by the insured
o Rationale: consumer choice, reduces moral hazard, promotes efficiency
o Problems: Settlement amount less than actual loss, the insurer is allowed to claim salvage while
enforcing the insured’s obligation to pay a deductible, David Polowin Real Estate v Dominion
Ins due to windfall, business efficacy and incentive to leave damaged property with insured.
o Clauses limiting insurer’s liability must be visible in policy: BCIA, s. 128:
- (d) Sue and Labour Clause: insured to take reasonable steps to prevent further damage to property after
initial loss
o Statutory duty e.g. BC Ins. Act, s. 126(2), stat cond. 9 (salvage); or contractual
o Rationale: Insured best situated to protect property because they are still in control of it
o Purpose: Minimize losses payable by insurer, minimize insurer’s liability, Maximize insurer’s
salvage rights, Insurer not liable for preventable damage
o To recover: (1) Correlation between cost and insured loss, must relate to a loss falling within the
policy (2) Cost reasonably incurred to prevent further losses (insurer will be liable for these) (3)
Recovery limited to cost of containing consequences of materialized peril.
 Benson & Hedges v. Hartford Fire Insurance: The risk of the tanks exploding was
distinct from the risk of further loss caused by the tank which had already occurred.
 Office Garages v. Phoenix Insurance Co of Hartford: When determining whether the
amount spent was reasonable must take into account the value of the property.
Contribution
(1) Must have overlapping policies
- No right of contribution unless all requirements met:
o (1) Same property, or subject matter
o
o
o
o
o
(2) Same insurable interest
(3) Same risk
(4) Same insured
(5) All policies effective at time of loss
(6) No policy excludes contribution: cannot say we will exclude coverage if someone else is
covering it
- Overlapping polices not affected by
o Different wording
o Different policy limits: this is common in liability insurance
o Different scope of coverage
- Clarke v. Fidelity-Fire Insurance Co. Of New York: Same subject matter but different insured’s and
different interests
- Canadian Universities Reciprocal Ins. v. Halwell Mutual Ins. Co.: Same insured but loss excluded from
Co-operators policy under business exclusion clause
- McKenzie v. Dominion of Canada General Insurance Co.: Same insured but policies protected different
interests; No overlap between primary and excess policies
(2) How much do you have to contribute?
- (1) Maximum Liability: Insurer’s contribution assessed by reference to policy limit in insurance contract
relative to overall coverage in all policies subject to policy limit. Pg 48
o Used for property insurance, correlation between premium and risk. Commerical Union
- (2) Independent Liability: Each insurer pays 50% of total loss up to its policy limit. The policy with the
lower limit will easily be exhausted and the one with the higher limit will keep on going. Pg 49
o Used for liability insurance because no correlation between premium and risk, Commerical
Union
o Is the prevailing position in Canada
- Also look at wording of the policy and nature of the protection, where the policies cannot be read in
harmony, must treat the conflicting clauses as repugnant and inoperative, Family v Lombard.
(3) How does Contribution Operate?
- Common Law position: Joint & Several Liability – Insured can claim full indemnification from one
insurer subject to policy limit; insurer acquires equitable right of contribution
- Statutory Modifications: Fire & Auto Insurance
- (a) Rateable proportion: Statutory provisions obligate each insurer to pay only its share of the loss. No
joint and several liability and so the insured then bears the burden of pursing each insurer for the
proportion payable by them.
o In overlapping policies the indemnification obligation limited to insurer’s rateable proportion
subject to express agreement between insurers- BCIA, s. 127(1) – fire; BC Insurance (Vehicle)
Act, s. 80(1) – auto re optional primary policies
 127(1): liable only for your proportionate share
o Notice of co-insurance: Notice of other insurance and amount required at time of claim
 Fire: BCIA, s. 126, stat. cond. 6(1)(b)(iv)
 Auto: BC Insurance (Vehicle) Act, s. 80(2) (auto)
- (b) No overlapping coverage for some types of insurance: Some parameters are set in the circumstances
or types of insurance which will and will not give rise to overlapping coverage so as to trigger
contribution principles
o Fire: Irrelevant one or all policies contain “other insurance” clauses – BCIA, s. 127(6)
 Policy with identified items primary; other policies excess
o Auto: Two owners’ certificates: certificate of car involved in accident is the primary insurer Ins. (V) Reg. 447/83, s. 77 (3rd party liab.); s. 104 (accident benefits)
 Basic compulsory policy primary & optional coverage excess: Ins. (V) Reg. 447/83, s.
149(1). The vehicle insurance is primary, and any insurance on the person is in excess
o Exception: Loss from nuclear energy hazard covered by nuclear energy hazard policy; auto
policy excess – Ins. (V) Reg. B.C. Reg. 447/83, s. 175(1)
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-
o Garage Vehicle Certificate: Ins. (V) Reg. B.C. Reg. 447/83, s. 150.1
Contractual Modification
(a) Rateable Proportion: can also include this as a term of contract where there may be overlapping
policies.
o Your indemnity obligation is limited to your pro rata share, i.e. several liability and co-insurer
not required to make full payment
(b) Redefining policy coverage in event of other insurance
o Can avoid overlapping policy by having “other insurance clauses” where you go from primary to
excess.
o Or exclusion clauses: coverage excluded if loss covered by another policy
 But if both polices have this, they become inoperative, Lombard
o Effect: Insurer excused from indemnification if overlapping policies
o Freedom of contract – insurers entitled to include such clauses unless precluded by statute
SUBROGATION
(1) Purposes of Subrogation
- (1) Preserve indemnity principle; minimizes moral hazards
o Insurer sues 3rd party on insured’s behalf
- (2) Legal accountability of 3rd party
- (3) Insurance not intended to relieve 3rd parties of legal liability
- (4) Preserves the indemnity principle: Insured fully indemnified, No incentive to pursue 3rd party
- (5) Insurer succeeds insured’s rights against 3rd party
- (6) Presumption of subrogation in indemnity contracts: right of subrogation need not be expressly stated,
Somersall v. Friedman; Glynn
o (1) preserves the fundamental principle of indemnity by ensuring that an insured receives no
more and no less than a full indemnity – prevents double recovery. (2) Ensures the loss falls on
the person who is legally responsible for causing it.
(2) Operation of Subrogation
(1) Insurer indemnifies insured
- Then the insurer sues 3rd party in insured’s name and are entitled to excess recovery
- Irrelevant payment from 3rd party independent of insured risk
- Irrelevant insurer not entitled to compel payment from 3rd party for default
- The payment from the 3rd party must be intended to satisfy the insured loss
- Exception is gifts, etc.
(2) If the insured is fully paid by 3rd party, no right of recovery from insurer since no loss to insured - Glynn.
(3) Recovery from both insurer and 3rd party – insured to reimburse insurer – Castellain v. Preston
(3) When is the insured fully indemnified?
- No right of subrogation unless insured’s loss fully satisfied, policy limit irrelevant, absent
statutory/contractual modification
- This is only in regards to insured object/loss
- Subrogation right unaffected by non-compensation for uninsured losses/objects, Willumsen et al v. Royal
Ins.
- Full indemnity includes recovery for reasonable cost of action or settlement of 3rd party claim
- No reimbursement unless net recovery from 3rd party and insurer exceeds insured’s actual loss:
Confederation Life Ins. v. Causton
(4) Who controls the action against 3rd party?
- Insurer not entitled to subrogation absent full indemnity so insured can control
- If property/interest partially insured then the insurer is also interested in outcome of 3rd party action
When insured brings the claim, they must preserve insurer’s subrogation rights, Globe & Rutgers Fire
Ins. v. Truedell
o Insured obliged to pursue claim diligently and in good faith and for full amount possible
o Claim against 3rd party not limited to difference between loss and insurance amount.
- Test for due diligence and good faith: did insured claim less than what they honestly and in good faith
believed was wise to accept in the circumstances? Truedell
o Insured liable to insurer for failure to settle loss against 3rd party for full amount.
o No presumption of bad faith where insured settles for less. There should be evidence that they
did in fact not do so in good faith
o Insured’s motivation relevant
o Differ from Davis v. MacRitchie where they clearly went after their own interests
(5) What happens if they settle contrary to insurers subrogation right?
- Somersall v. Friedman, settlement within the third parties liability policy was not a breach. They did not
breach their duty by entering into limits agreement since they did not act dishonestly or with malice
-
(6) Statutory Modification
- Insurer’s subrogation rights are preserved notwithstanding settlement with or release of 3rd party by
insured.
- This section codifies insurer’s right of action against insured if insured disregards insurers subrogation
interest in settlement. It does nothing more than codifies the common law which allows insurer to
recover from insured if they settle without consent. Dwyer v. Liberty Insurance Co of Canada
- Auto: BC Ins (Vehicle) Act, 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 the insurer, as the case may be, concurred in it.”
(7) If they pay to insured pursuant to insurer’s contractual obligation no subrogation
- No subrogation if payment was not made pursuant to insurance contract but
- Insurer’s right of subrogation is unaffected if payment honestly intended as indemnification under
policy: Wellington Insurance Co. v. Armac Diving Services,
(8) Insurer has same rights as insured
- Insurer assumes benefits and burdens of insured’s rights against 3rd party since claim is derivative
- Insurer’s claim subject to defences available against insured
- Examples: Insured released 3rd party from liability for loss in question
o 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
(9) No right of subrogation against insured; named or unnamed
- Imperial Oil v. Commonwealth Construction (covered under Insurable Interest)
- Capacity in which insured acting at time of loss irrelevant: Condominium Corp. No. 9813678 v.
Statesman Corp
(10) Statutory Modifications
- Partial indemnification or assumption of liability for insured loss
- Insurer may exercise subrogation right absent full indemnification: Fire: BCIA, Pt 5, fire - s. 130; Auto:
BC Ins. (Vehicle) Act, s. 84(1)
- Who controls subrogated claim where insured not fully indemnified?
o Subrogation clause may be statutory or contractual
o Auto: BC Insurance (Vehicle) Act, s. 84(3)(4)
 Insured’s interest limited to damage to vehicle or loss of use: insurer controls
 Insured’s interest outside these areas and parties can’t agree: court decides based on what
is reasonable
o Fire and other insurance policies: BCIA, s. 130 silent on dominus litis, control

o
o
o
o
o
Subrogation provision/clause only alters common law in regards to insurer’s subrogation
rights and is silent on control of litigation where insured not fully indemnified, so the
common law applies, Farrell Estates Ltd. v. Canadian Indemnity Co. and Zurich Ins. Co
v. Ison T.H. Auto Sales Inc.
Fairness to insured where insurer pays or assumes liability for small part of insured’s loss, e.g.
Truedell
Avoid multiple 3rd party claims
Contractual freedom: insurers can specifically address carriage of litigation in policy
Insurers’ practice: agreement re control of litigation at time of claim
Court not to assist insurers who fail to protect themselves