Insurance Law
Fall 2014
Cassidy Thomson
Table of Contents
I.
INTRODUCTION ............................................................................................................................................................................. 3
1.
Basic Insurance Theory ................................................................................................................................................................ 3
Insurance Theory ............................................................................................................................................................................... 3
Definition of Insurance Contract ....................................................................................................................................................... 4
Insurance Contract Distinguished from General Contract Law ......................................................................................................... 5
Expectations of Insurance .................................................................................................................................................................. 7
2.
Distinguishing Insurance from Wagering ..................................................................................................................................... 8
3.
Regulation of the Insurance Industry ............................................................................................................................................ 9
II.
NATURE OF INSURANCE CONTRACTS .............................................................................................................................. 12
1.
Indemnity and Non-Indemnity .................................................................................................................................................... 12
2.
First and Third Party ................................................................................................................................................................... 13
3.
Classification of Insurance Contracts ........................................................................................................................................ 13
III.
INSURABLE INTEREST .......................................................................................................................................................... 15
1.
Character and Timing of Insurable Interest ................................................................................................................................ 15
2.
Insuring Other Interests .............................................................................................................................................................. 17
3.
Joint Venture, Sub-Contractors, etc ............................................................................................................................................ 17
IV.
MAKING AN INSURANCE CONTRACT ............................................................................................................................... 19
1.
Requirements for a Valid Contract ............................................................................................................................................. 20
2.
Contents of Insurance Policy ...................................................................................................................................................... 22
3.
Duration of Insurance Contract ................................................................................................................................................... 25
V.
DUTY OF GOOD FAITH AND OBLIGATION OF FULL DISCLOSURE ............................................................................ 28
1.
Introduction................................................................................................................................................................................. 28
2.
Duty of Disclosure ...................................................................................................................................................................... 29
Test for Materiality .......................................................................................................................................................................... 29
Extent of Insured’s Disclosure Duty ................................................................................................................................................ 30
3.
Limits on the Insurers’ Risk Control: Statutory Modifications ................................................................................................... 31
General Insurance Contracts - BCIA, Pt 2 ....................................................................................................................................... 31
Property Insurance ........................................................................................................................................................................... 31
Automobile Insurance ...................................................................................................................................................................... 32
Life and Accident & Sickness Insurance ......................................................................................................................................... 33
4.
Material Change in Risk ............................................................................................................................................................. 35
5.
Proving Breach of Insured’s Disclosure Obligations .................................................................................................................. 35
6.
Proof of Materiality .................................................................................................................................................................... 37
7.
Effects and Consequences of Breach of the Insured’s Duty of Disclosure ................................................................................. 37
8.
Causation, Fairness and the Insured’s Duty of Disclosure.......................................................................................................... 39
9.
Legal Liability of Insurance Intermediaries ................................................................................................................................ 39
VI.
SELECTED ISSUES IN INTERPRETING INSURANCE POLICIES ..................................................................................... 41
1
1.
Policy Interpretation, .................................................................................................................................................................. 41
2.
Loss Caused by Accident ............................................................................................................................................................ 45
3.
Loss Caused by Intentional/Criminal Acts ................................................................................................................................. 47
4.
Automobile Insurance ................................................................................................................................................................. 49
Who is Covered? .............................................................................................................................................................................. 49
Loss Arsing from “Use or Operation” of a Motor Vehicle .............................................................................................................. 50
VII.
PUBLIC POLICY RESTRICTIONS .......................................................................................................................................... 53
VIII.
CLAIMS PROCESS............................................................................................................................................................... 56
1.
Introduction................................................................................................................................................................................. 56
2.
Obligations of an Insured Making a Claim ................................................................................................................................. 56
Notice of Loss .................................................................................................................................................................................. 56
Proof of Loss .................................................................................................................................................................................... 58
Duty to Cooperate ............................................................................................................................................................................ 60
Fraud by Insured .............................................................................................................................................................................. 61
3.
Excusing Insured’s Breach of Contract ...................................................................................................................................... 62
Introduction ...................................................................................................................................................................................... 62
Relief against Forfeiture and Termination ...................................................................................................................................... 63
Waiver and Estoppel ........................................................................................................................................................................ 65
4.
Insurer’s Obligation to Respond to Claims in Good Faith .......................................................................................................... 67
5.
Insurer’s Duty to Defend under Liability Insurance Policy ........................................................................................................ 70
6.
Duty to Settle within Policy Limits ............................................................................................................................................ 74
IX. OVERLAPPING POLICIES AND OTHER CONSEQUENCES OF INDEMNITY ....................................................................... 76
X.
SUBROGATION ........................................................................................................................................................................ 81
XI.
VALUATION ............................................................................................................................................................................. 84
Valued vs. Open Policies ..................................................................................................................................................................... 84
Method of Valuation ............................................................................................................................................................................ 84
Extent of Loss ...................................................................................................................................................................................... 86
Terms Affecting Recovery ................................................................................................................................................................... 87
Disputes Over Valuation ...................................................................................................................................................................... 88
2
I.
INTRODUCTION
1.
Basic Insurance Theory
Insurance Theory
Issue
What is Insurance?
Where
BCIA s.
1
Purpose of Insurance
Lecture
Role of Modern
Corporations &
Financial Institutions
Lecture
Private Insurance
Industry
Lecture
Government as Insurer
Lecture
Public v. Private Insurer
Lecture
How are Government
Able to Provide
Effective Insurance in
these Areas?
Lecture
Ratio
"insurance" means the undertaking by one person to indemnify another person
against loss or liability for loss in respect of a certain risk or peril to which the
object of the insurance may be exposed, or to pay a sum of money or other thing of
value on the happening of a certain event.
 Mechanism for managing risk in modern society
 Financial protection for insured
 Reflects neo-liberalism
 Promotes self-reliance
 Ability to collect and analyze information
 Accurate prediction re nature and probability of risks materializing
 Effective underwriting decisions
 Sophisticated systems of banking and investments
 Business model
 Risk segmentation
 Disconnect between sales and claims visions of insurance
Why should governments be involved in provision of insurance services?
 Limits to individual self-reliance
 Socialization of risks
 Part of social safety net
o Adequate protection for specific risks, e.g. highway
o Eliminating/reducing socio-economic inequalities, e.g. employment
insurance
o Cost spreading re vital services, e.g. health insurance
What risks should be Insured by Public Insurers?
Relevant factors include:
 Nature of risk – often highly unpredictable, e.g. employment insurance
 Difficulties determining insurer’s ability to pay in event of loss
 Possibility of higher premiums; raises affordability concerns
 Mandatory insurance
 Single insurer
 Large customer base relative to probability of risk
 Subsidization through general tax revenues
3
Definition of Insurance Contract
Issue
Definition of Insurance K
1. Undertaking
2. Promise of
Indemnity
Where Ratio
Lecture Five Part Definition of Insurance K at
Common-law:
1. An undertaking of one person
2. To indemnify another person
3. For an agreed consideration
4. From loss or liability in respect of
an event,
5. The happening of which is
uncertain
Lecture The person who gives the undertaking
is called the “insurer”
Lecture The promise of indemnity is to
compensate the person. The person
receiving the promise is called the
“insured”
3. Consideration
Lecture The consideration given in exchange is
called the “premium”
4. Loss or Liability
Lecture The event is defined, and loss/ liability
is subject to policy limits and other
contractual terms.
5. Fortuity
Contract may be Indemnity or Nonindemnity
a. Indemnity = recovery for actual
loss, not put in better position
than before loss—insured must
prove event occurred and what
the actual loss suffered was to
recover insurance monies
b. Non-indemnity = no correlation
between loss and compensation—
insured need only prove event
occurred, not what actual loss is.
Ex: Life Insurance
Lecture The happening of the insured event
must be uncertain because the purpose
of insurance is to provide for uncertain
loss—not known loss.
4
Notes
a. Named and Unnamed insured, e.g.
Automobile; homeowner
b. Personal Insurance – life, accident,
sickness
 Assured/Primary person:
purchaser
 Insured: Person whose life is
insured
 Beneficiary: Receives insurance
money; assured/primary person or
3rd party
Premium amount is based on the
likelihood of risk… the higher the risk,
the higher the premium.
 Usually there is a “policy limit”—
insurer not undertaking to
indemnify ad infinitum
 Other terms limit recovery e.g.
“deductible”—which represents
amount insured is ‘self-insured’—
likely to try to avoid risk if partially
self-insured.
 Even life insurance has element of
uncertainty—yes it is known you
will eventually die, but how and
when is not known.
Insurance Contract Distinguished from General Contract Law
Issue
1. Purpose
2. Duty of
Utmost Good
Faith
3. Fortuity
4. Indemnity
5. Consumer
Protection
Where Ratio
Notes
Lecture  The purpose of an insurance contract is to transfer risk of random losses from the
insured to the insurer
 Unlike general contract law, where purpose is to make money or to have certainty in
legal affairs
 There is a unique level of mutual dependence in insurance K—b/c insurer requires
insured to accurately tell the risk and insured depends on insurer to pay out if it
occurs
 NOT an arms-length transaction
 Freedom of K severely curtailed in insurance Ks
Can’t withhold info like you can in normal Ks
Lecture  Open and frank
On both insured and insurer
communication
 Insured has duty at outset to disclose risk to
insurer at time of claim (MUST tell)
 Maintaining the integrity of
the system
 Insurer has duty at time of claim, insured is
very vulnerable then, insurer can’t take
 Insurer not to exploit
advantage of this and try to withhold payment
insured’s vulnerability
for real claim.
 Also insurer can’t allow insured to make a
mistake at outset that could potentially void
K—i.e. can’t trap them
Lecture  Random losses – uncertain
So if someone engineers the loss, it is not fortuitous
and the insurance K will not pay out.
which insured will suffer or
timing of losses
 Predictable loss, e.g. death
but timing uncertain
 Excludes normal wear and
tear unless specifically
provided in contract
Lecture  Insurance generally indemnity contracts
 Recovery limited to insured’s actual losses except in non-indemnity insurance
contracts
 Prevents moral hazard—don’t want to give people incentive to engineer loss b/c
they will be better off. Will be the same after loss so no need to cause it.
 Mechanisms to promote indemnity principle:
o Notice of loss
o Proof or loss—must show it was caused by insured risk, fraud to claim for
things not caused by insured risk.
o Subrogation—after insurer pays out, insured has no incentive to follow up
and recover from third party actually responsible, so insurer has ability to
subrogate and get this money.
o Multiple insurance contracts – contribution—no double recovery from
multiple insurance policies, and where there are multiple, insurance
companies have to all contribute.
o Constructive total loss: Insurer entitled to salvage value once insured is fully
indemnified (i.e. insured doesn’t get to sell wheel rims after car written off,
b/c that would be putting you in a better position than you were before)
Lecture
 Regulation and principles
 Ensure that insured’s interests are adequately
designed to protect
protected
consumers and public
 Insurance companies are large, have lots of
5



6. Compensation
Lecture

generally
Insured’s reasonable
expectations inform
interpretation of insurance
contracts
Statutory conditions: BCIA, s
29—these have to be in the
insurance K, cannot
remove.
Misrepresentation –
materiality requirement:
BCIA, s. 17—insrued cannot
allow you to make innocent
misrep on material issue—if
you make negligent misrep,
K is only void if undisclosed
info was material to the risk
i.e. relevant for the
premium rate. If fraud, K is
void.
Compensation for victims,
especially in third party
policies
6
money, could crush individual claimants
 Want people to have trust in the system so that
they will protect themselves.
 Usually standard form Ks—insured has no control
over the fine print, so gov. needs to regulate
Examples:
 No-fault benefits in automobile
insurance—esp. pedestrians hit by cars,
they can recover from driver’s insurance.
 Third party rights: BC Insurance (Vehicle)
Act, s. 76
o Protecting victim’s right to
compensation even if insured in
default:
o Claimant entitled to recover
judgment or settlement from
insurer
 Liability Insurance: Judgment creditor
may enforce judgment directly against
insurer - BC Ins. Act, s. 25
o Even if insured didn’t claim
against their insurer for the loss
(i.e. represented themselves), a
3rd party can go straight to the
insurer and claim against them
where the 3rd party has a
judgment for the insured liability
against the insured.
Expectations of Insurance
Issue
Insured’s
Perspective
Societal/Insurer’s
Perspective
Ensuring Solvency
Reinsurance
Where Ratio
Lecture
 Prospectively providing against risk of loss—way for people to plan for and manage
risk.
 Loss shifting in exchange for rateable contribution – premium/consideration
 Premium determined based on nature and chances of risk to ensure fairness—
otherwise members of pool would be subsidizing highly risky people.
o Physical—the subject matter of the insurance i.e. old building vs. new building
vs. building in earthquake zone.
o Moral hazards—the person who owns the subject of insurance, are they
personally a risky person? What is their claims history? Are they likely to take
care, or conversely to engineer the happening of the insured event?
Lecture
 Loss distribution/spreading—not all those in the pool will suffer the risk, so their
premiums help the few that do.
 Risk prediction: is particular loss worth insuring and at what rate
 No correlation between amount of premiums paid and amount of recovery—you
could get insurance today and claim tomorrow, or pay for 50 years and never
claim.
 Random losses: majority contribute to pay for losses of few
 Large number of insureds; Independent risk—if one person in the pool suffers the
loss, doesn’t make it any more or less likely that another person will suffer it too.
Lecture
 Insurers’ solvency essential to loss shifting and spreading—need system to ensure
insurance company has adequate resources to meet liabilities if they occur.
 Done through regulation, e.g. Financial Institutions Act, s. 77: Reserves
 Value claims liability formula—i.e. you’ve ensured X people for X amount, should
X% risk materialize, you have to have adequate reserves to meet the payments
required.
 Establish adequate reserves against liabilities consistent with regulations:
Insurance Company Reserves Valuation Reg. BC Reg. 325/90
 Reserves commensurate with financial obligations
 Effect of reinsurance on reserves
Lecture
 Financial Institutions Act, s.78
 Insurers may reinsure their liability or interest (insurance for insurers)
 Insurers transfer some risk to other insurers—mechanism for direct/primary
insurers to spread their risk and shift their liabilities
 Need less reserves where you have re-insurance because you can get $ from your
reinsurance
 Reinsurers typically multinationals; operate solely in reinsurance market
 Macro level risk spreading—most consumers are unaware of this. So your
insurance claim may be coming from a pool of people in Australia.
 Legal consequences of re-insurance: No privity of contract between insured and
re-insurer. See Re Northern Union Ins. Co (1985) 38 Man R. (2d) 81 (QB), affd
(1986) 36 Man R. (2d) 115 (C.A.) (not required reading)
o In event of insolvency of insurance company, where reinsurer has provided
money to insurance company due to the insured’s claim, the insured does
NOT have entitlement or preference for this money, even though it was
only provided on account of the insured.
o Insured must line up with all other creditors in normal bankruptcy
preference
o Ex. Here was BC Hydro, claiming it should get reinsurance money based on
7
o
o
2.
their claim before other creditors upon dissolution of insurance company.
Rejected by court—no privity between Hydro and reinsurer
So large companies often slice up their insurance, and have it with multiple
companies so as to not get stuck where an insurance company can’t pay
out despite reinsurance if risk materializes.
Distinguishing Insurance from Wagering
BCIA, s.10:
(1) A contract by way of gaming or wagering is void.
(2) A contract is deemed to be a gaming or wagering contract if the insured has no interest in the subject matter of the
contract.
Rationale:
 Public Policy
o Don’t want to encourage gambling—useless social enterprise—gambling creates risk where none
existed before, unlike insurance which protects against risk that already exists.
 Moral Hazard
o If you are otherwise neutral to the happening of th event, then people may be tempted to engineer the
risk—i.e. if I bet that an athelete will lose, I may try to hurt them so that they do in fact lose.
o In insurance, b/c you have an interest in the risk NOT happening, it is seen as less likely people will
egineer the risk and therefore risk is lower.
Insurance
 Anterior risk creates need for insurance for
cushioning in event of loss
 Insurable interest in object of insurance:
interested in object’s continued existence; risks
prejudice from loss or destruction
Wagering
 Risk arises from speculation re outcome of event
“pure speculation”
 Parties neutral to happening of event but for
wager
 Purpose: Windfall
Difficult to Distinguish:
 Insurance companies do insure promotional events i.e. hole in one competition and such contracts are
enforceable—not wagering
 BYPA 1693 Holdings Ltd. v Innovators Ins. Agency Ltd. (2001), 29 CCLI.(3d) 99 (BCSC)
o P car dealership agreed to provide a car as a prize for a hole-in-one golf tournament. D, an insurance
agency, agreed to provide hole-in-one insurance if car is won. Car was won but P could not collect
insurance money because D had negligently failed to obtain insurance and misrepresented to P that it
had. Action allowed. D liable for breach of contract and negligent misrepresentation
 Itravel 2000’s “Let it Snow” promotion
o Promotion funded by weather insurance obtained by itravel2000
o Potential abuse of insurance—people in the insurance pool are paying to help itravel’s marketing
campaign.
o Seems to be elements of wager—the only reason itravel has an interest in the event is because they
created this marketing campaign. Otherwise they are neutral.
o However, there is no risk of moral hazard because you can’t engineer the weather. If you aren’t capable
of engineering the occurance of the risk, then insurance industry doesn’t care whether there are
wagering elements.
8
3.
Regulation of the Insurance Industry
Issue
Why
Regulate?
Where
Lecture
How is it
Regulated?
Lecture
Jurisdiction
s.92(13)
constitution
Canadian
Indemnity Co. v
British
Columbia (AG)
(1977 SCC):
Ratio
 Power imbalance
 Potential exploitation of vulnerable party
 Solvency of insurers and protecting loss
spreading goals of insurance
 Ultimate goal: consumer protection and
confidence in insurance system—encourage
self-sufficiency
 Formation and operation of insurance
companies
 Contents and enforceability of insurance
contracts
o Terms and conditions
o Obligations of parties to insurance
contract
o Qualifications and responsibilities of
intermediaries
Property and Civil Rights


Ontario (AG) v
Policy Holders
of Wentworth
Ins Co (1969
SCC)

Canadian
Western Bank v
Alberta [2007]
2 SCR 3






Provinces get to regulate insurance within
province… NOT a federal power under
regulation of trade and commerce, intra vires
province under property and civil rights.
Federally incorporated companies, are NOT
constitutionally entitled, by virtue of their
federal incorporation, to avoid valid provincial
regulation, as long as capacity to incorporate
federally is not precluded by the provincial
law.
However, provincially regulated insurance
companies are still subject to federal
legislation
Priority rules in Winding Up Act (federal)
supersedes prioerty provisions in Provincial
Insurance Act
Chartered Banks offering insurance products
not exempt from provincial licensing
requirements
Selling credit insurance as collateral not
incidental service
Regulation of insurance industry is pith and
substance intra vires province, under property
and civil rights.
No paramountcy b/c no conflict with Bank Act,
Bank Act not a complete code
RATIO: unless jurisdiction has statute
exemption, then selling credit insurance is
9
Notes
If insurance co. goes bankrupt,
then they can’t pay out when
risk materializes, there will be a
huge social cost that ultimately
Gov. will have to pick up.
Regulated with goal of
protecting the consumer.
Provincial jurisdiction to regulate
insurance industry
 Federally incorporated
insurance companies;
previously licensed to sell
auto insurance in BC;
unsuccessfully challenged
provincial statutes re
universal compulsory auto
insurance in BC and
monopoly for ICBC to provide
auto insurance.
 Bankruptcy and insolvency
remains a Federal power,
even for insurance
companies
 Note: No exemption in
Alberta legislation
Bank of Nova
Scotia v Canada
(Supt. of
Financial
Institutions)
BCCA 2003
NOT a reason to avoid provincial legislation re:
insurance.
Issue: Meaning of “incidental” to fall under
exemption from provincial Insurance licensing
requirements
Specific-Issue: Whether insurance for credit card
balance is incidental to bank’s core business to
warrant exemption, when offered by telephone
after credit card purchased
Ratio: credit insurance incidental to banking
business; provincial legislation inapplicable; no
“temporal” connection required to be “incidental”
to business… i.e. not necessary to be purchasing the
credit card insurance when getting the credit card.
Incidental means “connected with in a meaningful
way.”
Charter
Issues
Lecture
Miron v. Trudel
Morrow v.
Zhang
The very nature of underwriting decisions raises
Charter concerns. Personal characteristics are used
to determine rates. But insurance is a private
contract and therefore not subject to Charter
scrutiny
However, insurance legislation and regulation are
governmental activities and subject to Charter
scrutiny.
Statutory cap on damages are not discriminatory
and do not violate Charter equality guarantee.
Have to look at regulations in totality, province
entitled to legislate re: insurance industry, strong
public policy in favour of capping damages:
 Rising cost of insurance
 Desire to keep premiums affordable
 Reduces number of uninsured vehicles
10
 Insurance salespersons and
agents must satisfy
licensing requirements: BC
Financial Institutions Act, S.
171(2)
 However, s. 171(2) is
inapplicable to those
exempted by regulations: s.
171(3)
 Insurance Licensing
Exemptions Regulations, BC
Reg. 375/90, s. 2(1)(b.1):
Exempts banks from
licensing requirement re
credit insurance
“incidental” to core
business
 Gender, age, marital status,
family status, health status
etc.
 Therefore legislation which
denies benefits to
common-law spouses is
discrimination on the basis
of marital status and
contrary to s. 15(1).
 Regulations focus on type
of injury and cap damages
for that type
 Issue is that “minor” injury
i.e. whiplash, may have
very different affects for
different people
 Person claimed
discrimination based on
disability/health status
Human Rights Legislation
Subject to?
Lecture
Discrimination?
Zurich
Insurance
v. OHRC
Exemption
BC Human
Rights Code
s. 8
Does exemption
apply?
Lecture
NSHRC v.
Canada Life
Zurich
Insurance
v. OHRC
Insurance companies provide a public
service and are therefore subject to
human rights legislation.
 Insurance premiums are based on
group characteristics and statistics
 But not every individual will always fit
their groups profile
 Thus practice of determining
insurance premiums is inherently
discriminatory
Discriminatory insurance practices and
policies (services customarily available to
the public) are exempt from application of
human rights legislation if based on
reasonable and bona fide distinctions.
Type of policy:
 In BC only for life & health
(accident, sickness disability)
policies
 In ON exemption also applies to
auto
If distinctions used to determine premiums
and/or amount of benefit available of
insurance is legitimate or unavoidable the
insurer can rely on the Human Rights
exemption. Essentially insurer must act in
good faith.
A discriminatory practice will be
reasonable if:
1. Based upon sound and accepted
insurance practice; and
2. There is no practical alternative—
business efficacy is not enough.
Result: auto insurance exempted from
human rights code, allowed to charge
young men more for insurance than any
other group.
11

 Here it was young male drivers in
Ontario being charged higher
premium than young female
drivers, or older male drivers—age
and sex.
 Rationale: risk segmentation and
actuarial discrimination necessary
for effective underwriting, and
creates fairness b/c those in the
pool with low risk should not
subsidize those with higher risk.

 Only discrimination if distinction is
made due to an irrelevant personal
characteristic.
 Should not use discriminatory
policies to refuse to provide service
though. Just to charge x rate or limit
benefit to x amount.
 Dissent: exemption should be
narrowly construed, if you want to
fall into exemption must should
that there is NO reasonable or
practical alternative.
 Relying on traditional or accepted
insurance practices is inadequate.
Circular.
 Policy Criticism: if cost of insurance
too high, many people will not
insure… Gov wants insurance b/c it
spreads the risk, otherwise Gov has
to pick up the pieces when things
go bad.
II.
NATURE OF INSURANCE CONTRACTS
1.
Indemnity and Non-Indemnity
BCIA s. 1
Purpose
Amount
Recovered
Requirements
Cumulation?
Test
Examples
Contemplates both indemnity and non-indemnity “…the undertaking by one person to to indemnify another
person against loss or liability… or to pay a sum of money…”
INDEMNITY INSURANCE
Replace loss on happening of insured risk
Actual loss, subject to parties’ intentions—can agree
to less than perfect indemnity
1. Happening of insured peril
2. Proof of loss
3. Value of loss
Exception: Valued Policies – predetermined value of
property in event of loss or destruction. Only proof of
loss/happening of insured peril required.
No cumulation
o Cannot recover insurance money as well as
money from a 3rd party who is liable for the
loss.
o Insurer has right of subrogation unless
specifically excluded—no need to mention
subrogation in K, flows automatically from
indemnity principle: Gibson, Wilson
Glynn v. Scottish Union & National Insurance co Ltd:
o Whether any particular engagement of
insurer is indemnity or non-indemnity is to be
determined by the exact nature of the
agreement entered into, based on terms and
the parties’ intentions.
o If insured has to prove loss, this is indemnity
K b/c don’t have to do that in non-indemnity.
Gibson:
o Disability benefits policy, insurer wants to
subrogate judgment given against 3rd party
o Determined K was partial indemnity,
intended to be partial income replacement
o Insurer entitled to subrogate after insured
achieves full indemnity
Wilson
o Policy for LTD, terms indicated income
replacement scheme for disable employee
unable to work
o Deductions for other benefits in K, so
designed to avoid double recovery
o Thus must be indemnity
o CL says that insurer must wait until insured is
100% indemnified, and then can subrogate
any amounts above that. However BCIA s. 36
gives insurer right to subrogate even if
12
NON-INDEMNITY INSURANCE
Provide sum of money on happening of
specified event
Predetermined regardless of actual pecuniary
loss, if any
1. Happening of insured peril, for e.g. death of
insured
Cumulation permitted
o Can have as many insurance policies
as you like, they will all pay out
o Can also recover from third party
liable for a loss
o No right of subrogation subject to
terms of contract: Mutual Life v Tucker
Glynn v. Scottish Union & National Insurance
co Ltd:
o The starting point is indemnity K,
unless the subject matter of insurance
is not capable of financial qualification
(i.e. life) and then that is nonindemnity.
Tucker:
o Insured received settlement from 3rd
party
o Policy paid benefits w/o proof of loss,
amount determined based on formula
in contract independent of actual loss
o Distinguished Gibson, b/c no
connection between actual lost wages
and amount received
o Because it is non-indemnity, insurer
has no right of subrogation—insurer
did not reserve right in the K to do so.
insured is not fully indemnified.
2.
First and Third Party
First Party
o Protects insured’s interests
Purpose
Triggered
o
Benefits
Payable
o
Loss of subject matter of
insurance/occurrence of
insured risk
Benefits paid to insured
Third Party
o Protects insured against liability
to others
o Payment triggered by insured’s
liability to a 3rd party
o
o
o
Policy
Encourage people to protect
themselves, be self-sufficient
o
o
o
Which is
better?
There is not always someone
responsible for a loss, if just an
accident, third party won’t
help you b/c there is no one to
sue
o
o
o
3.
Hybrid
o Does both
o
Does both
To 3rd party, beneficiaries not
identified by name
Duty to defend insured
o
Person may be entitled
to 1st and 3rd party
benefits from single
event, subject to
subrogation: Glynn
Protects insured from liability,
gives them peace of mind
Guaranteed source of
compensation for claimant/victim
so Gov. wants to encourage.
More efficient for service
provider to have third party,
rather than victim to have general
insurance, b/c risks are known,
easy to establish premiums
Individual has no idea what kind
of harm they may suffer when
utilizing a certain service
provider, so not affordable just to
generally have insurance.
Better b/c not everyone can afford
1st party, so gives those people
potential source of compensation.
o
o
Classification of Insurance Contracts
Issue
Why classify?
Types
Where
Lecture
Lecture
Legislation in BC
BCIA s.2
BCIA part 2
BCIA part 3
BCIA part 4
BCIA part 5
Marine
Insurance Act
BC Insurance
(Vehicle) Act
Lecture
Traditional
Classficiation
Approach
KP Pacific
Post-KP Pacific
Approach
Lecture
BCIA s. 8
Ratio
Notes
Different statutes apply to regulate the insurance depending on what type it is.
I. Object defined: policy classified by subject-matter of insurance, i.e. aircraft, auto,
boiler, life etc.
II. Peril-defined: characterized by insured risk i.e. accident & sickness, fire, hail, liability,
multi-risk policies,i.e. homeowners’ policies
Applicable to every insurance contract, except marine and auto
General, applies to every type of insurance unless specifically exempted.
Governs life insurance
Governs accident and sickness
Miscellaneous classes and subclasses of insurance, includes home warranty insurance
Federal—governs marine insurance Ks
Governs auto insurance
Problematic, b/c many different regs/statutes, but multi-risk
Multi-peril policies:
policies are the norm. So hard to know what legislation to
covers numerous risks
apply
including fire
Absent specific legislative provisions to the contrary, multiSingle policy is not subject
risk policies governed by general part of legislation and not
to muliple parts or
specific part (i.e. fire) even if specific risk (i.e. fire) is one of
different statutory regimes.
the risks covered.
Legislative response to classfication problem identified in KP & Churcland, harmonized
insurance contracts (BC & AB): All insurance contracts governed by the same rules.
General insurance provisions apply to every insurance K except life, accident & sickness,
13
Limitation Periods
BCIA s. 23
reinsurance and miscellaneous classes of insurance.
Property loss or damage:
Other Loss:
Limitation period is 2 years from when insured knew or ought
to have known of loss or damage.
BCIA s. 6
Insurance Reg
403/2012 s. 4
(BC)
BCIA s. 3
KP Pacific
Sander v. Sun
Life
2 years after cause of
action against insurer
arose
Discovery rules for minors/disabled adults from Limitaiton Act apply
Limitation Period is suspended if person becomes under disability in accordance with
Limitations Act
Insurer must provide written notice of limitation period:
o (2)(a) at time of claim or within 5 business days after denial of liability, AND
o (2)(b) at or within 10 business days of first anniversary of claim
o (4) BUT only for unrepresented claimants
o (6) failure to give notice suspends running of limitation period
(1)insurance contracts cannot be inconsistent with the Act
Contractual terms cannot be harsher than statutory provisions
Act provides minimum floor protection, insurers can put in more generous terms if they
choose, including providing a more generous limitation period.
14
III.
INSURABLE INTEREST
1.
Character and Timing of Insurable Interest
Issue
What is
insurable
interest?
Where
Lecture
Rationale
Lecture
Test
Kosmopoulos
Application
Rider
Laratta
Life, Accident &
Sickness
Insurance
BCIA ss. 45,
107
BCIA ss. 46,
108
Ratio
Notes
o Nexus between insured and object of insurance
o Loss or destruction of that interest triggers insurance payment
o Required for valid insurance contract
o Having an insurable interest distinguishes insurance contract from wager: BCIA, s. 10
o Furthers indemnity principle – recovery limited to actual loss
o Discourages wagering
o Avoids moral hazard: no incentive to facilitate loss
o Promotes public safety
To determine if insurable interest exists, use “Factual
Requirements:
Expectancy Test:”
o Insured must have pecuniary
o Assess insurable interest on a case-by-case
interest in subjet matter of
basis
insurance—senitimental or
o Determined on the basis of a close relationship
emotional attachment not
between insured and object of insurance—must
sufficient
be readily ascertainable
o Insurable interest must be real or
o No pre-determined indicator, depends on facts
presently vested—hope of
o Insured’s interest in insured object can be legal,
obtaining property in future not
equaitable or contractual
sufficient
o Legal right not required—reasonable
o Not established by legal title
expectation of benefit from the status quo and
alone, this only gives rebuttable
loss from risk is sufficient
presumption in favour of
Insurable Interest
Presumption of insurable interest when someone has title P obtained property from bother,
to property is rebuttable
did not pay anything, thus no
pecuniary interest in property and
no insurable interest.
Actual possession is not required for insurable interest
Car left w seller for repairs, stolen
before buyer got it. Buyer had
insurable interest even though never
actually possessed it b/c ownership
had transferred.
45: Life insurance, have to have insurable interest or K is Problem is that factual expectancy
void
test doesn’t work for this kind, b/c
107: accident and sickness: have to have insurable
non-indemnity and no pecuniary
interest or K is void
loss is required.
46, Life insurance:
Once you fit into these
If person falls into one of these categories in relation to
relationships, no other proof of
the owner of the policy, the owner has an insurable
insurable interest is required.
interest. If not in the category, no insurable interest:
(a) The primary person’s (Assured) own life, and
Insurer is not required to notify the
the lives of:
person whose life is insured.
(i) Their child or grandchild
(ii) Their spouse
(iii) Person on whom they are wholly or
partly dependant on, or are reciving
support education from
(iv) Their employee
(v) Anyone they have a pecuniary interest
in the duration of that person’s life
(b) If primary person is corp, then:
(i) Their director, officer or employee
(ii) Anyone they have a pecuniary interest
in the duration of that person’s life
108, Accident and Sickness
15
Exception
BCIA 45(2)(a);
107(2)(a)
Same as life, but just add “life or well-being”
Insurable interest is not required for group insurance
Group insurance is where an
association takes out insurance, is
the insured, and lets members opt
in… of course association will
never have insurable interest, or be
able to prove it.
So use this if the person falls
outside the categories.
BCIA s.
45(2)(b);
107(2)(b)
BCIA s. 45(3);
107(3)
BCIA ss.
45(1); 107(1)
If person consents in writing, then dispense with
insurable interest requirement
Lecture
Onus is on insured to establish insurable interest at the
relevant time.
o
Timing of proof:
Indemnity
Lecture
Must prove insurable interest, at time of loss.
o
Consequences of
Lack: Indemnity
Lecture
Contract is NOT void, the claim just fails.
o
Timing of proof:
Non-indemnity
BCIA 45(1),
107(1)
Chantiam
Must have insurable interest at the commencement of the
K
Subsequent loss of insurable interest is irrelevant—only
need to have it at the commencment of the policy.
o
BCIA ss. 47;
109
Person whose life is insured under a K, by someone else,
can apply to the court if “the person reasonably believes
that their life or health might be endangered by the
insurance on their life continuing”
o
Policy:
o Statutory protections may not be useful,
because person has to know about the insurance
policy. There are no notice requirements so
unlikely that they will know.
o Also unclear what test you have to meet to get
the remedy—no case law
o
Consequences of
NO insurable
interest
Burden of Proof
Policy
Lecture
To insure life of person who is under 16, you need
parental consent as well as insurable interest.
K is void ab initio
16
Just need one parent’s consent
though.
But the premiums paid are returned,
absent fraud.
o
o
However in practice, there is a
presumption of insurable
interest, so has the effect of
shifting the burden.
Irrelevant if insurable interest
lapses but is regained at time
of loss
Premiums are not refunded
absent mistaken belief re:
object of insurance (i.e.
ownership of property)
Create policy problem: if you
have no interest, maybe moral
hazard that you will act to
bring about the person’s
death/accident to get the
payout
Court can: terminate the K,
reduce the amount
An order made by the court
binds any person who has
interest in the K.
Court could use test from
Family Law protection orders
to determine if remedy is
warranted.
2.
Insuring Other Interests
Issue
Can person with
limited interest
insure entire
property?
Where
Lecture
Ratio
Yes
Requirements
Keefer
To insure the interests of others:
1. Insured must have some insurable interest in the
property
2. Parties must have intended to insure the intrests
of others i.e. entire value of property
3. Insuring the interests of others is permitted
under the terms of the K
4. No obligation to disclose limited interest subject
to contractual terms
Stat condition 2: insurer not liable for loss or damage to
property owned by person other than the insured unless
disclosed
“Owner” is interpreted liberally—a partial interest is
sufficient to be an “owner” and therefore you don’t have
to disclose. Insured is indemnified for losses to other
interests absent prejudice to insurer i.e. breach of stat
condition 1.
The amount of the insurance that is paid out for other’s
interests, is held in trust by the insured for them.
BCIA s.
29
Evergreen
Result
3.
Lecture
Notes
Rationale:
o Efficiency—avoids
duplication
o Simplified claims process
o Access to insurance—those
unable to obtain are protected.
o Here K said insuring “the
insured’s interest”
o Court held this was broad
enough to include the
interests of others in the
property as well
o No specifc bar to insuring
other’s interests so it was
permitted.
o So seems to say you have to
disclose other interests in the
property… contrary to Keefer
o Basically renders this stat
condition useless.
o Better than Keefer though
that case just ignored it.
o
o
Indemnity principle protected
Also ensures that other’s get
their indemnity, they have no
privity so can’t get directly
from insurer
Joint Venture, Sub-Contractors, etc
Issue
What type of
policy?
Where
Lecture
Insurable
interest
Commonwealth v.
Imperial Oil
Medicine hat v. Starks
Canada Pacific v.
Base-Fort Security
Subrogation
Rationale
Commonwealth v.
Imperial Oil
Ratio
Notes
Where multiple persons are working on a
Ex. Builders’ risk policy, covers the
project, i.e. construction site, they get one single contractor, owner, sub-contractor,
policy to protect them all.
trades people.
Each party covered by the policy has an insurable interest in the entire project.
Insurable interest is not limited to extension projects, extends to entire building even if it is
not being renovated.
All those people providing work that is integral
Those providing incidental or collateral
to the project and necessary for it to continue
services not covered unless specifically
has an insurable interest.
included.
In this case, security company not
included when employee damaged
work site.
No right of subrogation against someone
Ex. Can’t indemnify owner for damage
covered by the same policy.
to property and then sue tradesperson
that caused it.
 Damage to property of others or entire site inevitable
 Insurable BCIA interest in entire project and trades people avoids litigation
 Simplified coverage for complicated projects; cost effective
 Consistent with legal principle re bailment
 Guaranteed compensation to rebuild in event of loss
17
18
IV.
MAKING AN INSURANCE CONTRACT
Note on Electronic Communication
Can communicate electronically for doing all the things in this section (instead of delivering personally) EXCEPT for
termination!
Just needs to be possible to save the electronically sent document and then you are good to go.
BCIA s. 7:
7 (1) If under this Act a record is required or permitted to be provided to a person personally, by mail or by any other means, unless
regulations referred to in subsection (4) of this section or under section 149 (2) (f) provide otherwise, the record may be provided to
the person in electronic form in accordance with the Electronic Transactions Act.
(2) Despite section 2 (4) (a) and (b) of the Electronic Transactions Act, in this section, "record" includes a contract or declaration that
designates the insured, the insured's personal representative or a beneficiary as a person to whom or for whose benefit insurance
money is to be payable.
(3) If a record is provided in electronic form under this section,
(a) the record is deemed to have been provided by registered mail, and
(b) a period of time that, under this Act, starts to run when that record, or notification of it, is delivered to the addressee's postal
address starts to run when the record is deemed received in accordance with the Electronic Transactions Act.
(4) The Electronic Transactions Act and subsection (1) of this section do not apply to a record, or in relation to a provision, under this
Act that is excluded from their application by regulation.
BC Ins Reg s. 2
2 The Electronic Transactions Act and section 7 (1) of the Act do not apply to or in respect of an insurer's notice terminating a
contract under
(a) section 20 or 106 of the Act, or
(b) a statutory condition.
19
1.
Requirements for a Valid Contract
Text Book- Pg. 53-69
Issue
Notes
Offer
o
o
Acceptance
o
For initial (not renewal), made by party seeking insurance i.e.
insured
Communicated to insurer by way of application form completed by
the insured and provided to company or agent/broker who gives to
company
Made by the insurer by issuing a policy or insurance certificate
verifying the requested coverage
o
Consideration
Parties are in
agreement as to the
essential terms (ad
idem)
All applied in Light
of the Context
o
If renewal, offer is
made by insurer prior
to the expiration of
existing K
o
Made by insured by
paying the required
premium by the
designated date
s. 18 BCIA: If a policy or a receipt for the premium under a contract
o
is delivered to the insured by the insurer or its agent, the insurer is
bound by the contract, even though (a) the delivery may have been
made by the agent without authority, or (b) the premium may not in
fact have been paid.
o BUT Doesn’t nullify the requirement for offer and acceptance of
essential terms however, just more places onus on insurer that they
can’t avoid the K by arguing the K was never formed due to nonpayment of premiums after insurer has delivered premium
o From insurer is the promise to indemnify the insured for any loss falling within the coverage
parameters outlined by the insurance K
o From the insured is the promise to pay the insurer an agreed upon sum of money
o Promise of payment is sufficient to satisfy the requirement of consideration, as long as amount of
premium has been agreed upon by the parties
o Premium need not be paid for K to be formed
o However, LIFE INSURANCE exception: first premium must be paid in order to fulfill consideration
and form a K—s. 48 BCIA
Parties must agree on the following essential elements:
o The nature of the risk (including who is insured and what perils are insured against)
o The duration of the risk (that is, the period of time when the insurance agreement is to operate)
o The amount of premium payment required from the insured; and
o The policy limits (that is, the value or amount of insurance coverage provided by the insurer)
Example: Davidson v. Global Insurance Co.
o Agent sent letter “confirming” that store owner would be covered, however letter had no mention of
premium
o Store owner and agent orally discussed premium, owner felt it was too high and insured with different
company
o When risk materialized, this other company argued that the first company should contribute
o Held: no insurance K b/c no agreement on amount of premium
Example: McCunn Estate
o Life insurance policy, premiums automatically deducted from bank account
o Insurance coverage was supposed to cease at age 70
o Following 70th birthday, payments continued to be taken out
o Court held that K was NOT extended by continuing payments taken in error by the bank
o No intention to continue K, no agreement on terms, no offer, no acceptance and therefore no K
o Insurance agreements are NOT typically negotiated on a clause-by-clause basis between the parties
– Insurance company decides the terms and conditions
– Insurance company does not negotiate with individual customers
– Insurer uses standard form contracts outlining the terms upon which particular kinds of
coverage will be provided—called “standard form policies”
– Legislation mandates the content of contracts, by requiring specific terms to be included, by
deeming specific coverage to be included in particular insurance Ks or by requiring insurers
to have their standard form policy wordings approved by government
o Insurance Policy and Insurance Contract are NOT the same thing
POLICY
CONTRACT
- Recitation of contract terms and conditions that do not attach to any
- Contract is broader
20
-
particular person, item or interest (in writing)
creates no legal obligations by its existence, or by possessing one
doesn’t mean you are entitled to insurance
Needs to be supplemented by contract to have any legal effect
Evidence that a K was created, and of the terms of that K but not
determinative, parties intentions prevail
Ex. Davie v. Palliser Ins Co, Policy erroneously states it comes into
effect the day the insured took the policy out, however, insured
regularly got this insurance and it always came into effect the day
after the policy was taken out. Discussed this with insurance agent
and was in agreement. Risk occurred day that policy was taken out.
Insured applies for coverage. Statement of date of effectiveness in
policy NOT determinative—parties intended it to take effect the next
day: no coverage.
21
-
-
-
than the policy
May incorporate the
policy
However policy is not
necessary for the
formation of an
insurance K
Can be in writing or
orally
Insurer agrees to
indemnify insured for
specific risk
Legally binding
2.
Contents of Insurance Policy
Issue
Basic Contents
Where
BB
Typical Extra
Components in
SFK
BB
Legislative
Requirements
BCIA s.
11
BCIA s.
42(2)
Ratio
Notes
1. The insuring agreement
Breach of condition has varying impact on
- Statement describing the subject-matter of breacher’s contracual rights, depends on
the insurance K and the risks insured
whether it is a “warranty” or “condition”
2. Exclusions
- Statements describing the subject-matter
Warranty:
or risks that are specifically excluded from
i.
It is a term of the K
coverage… narrows the scope of the
ii.
The matter warranted need not be
insuring agreement
material to the risk
3. Conditions
iii.
It must be exactly complied with; and
- Statements setting out the pre-loss and
iv.
A breach entitles the insurer to
post-loss duties and obligations of the
repudiate the K notwithstanding that
insured and insurer. Each party must
the loss has no connection with the
comply with conditions to preserve its
breach of that the breach has been
rights under the K.
remedied before the time of loss
4. Definitions
- Statements which assign meaning to
Condition:
particular terms used in an insurance
- Will not result in repudiation if the
policy
condition is substantially complied
- Apply only in the policy in which they
with or
appear
- if the breach is immaterial to the loss
- May have the effect of broadening or
narrowing the coverage by modifying the
meaning of words used in the insuring
agreement or exceptions
1. A Declarations Page
- Personalizes the policy by setting out the essential terms of the K, including the indentiy of
the insurer, the identity of the insured and the amount of policy coverage purchased, premium
amount, existence and amount of deductible, effective date of insurance
2. Endorsements
- Ks which are subsidiary to a main K and which alter the coverage otherwise provided by the
main K
- Typically drafted in standard form policy in exchange for an adjusted premium as agreed by
the parties
(1) A policy must contain all of the following:
(a) the name of the insurer;
(b) the name of the insured;
(c) the name of the person to whom the insurance money is payable;
(d) the amount, or the method of determining the amount, of the premium for the insurance;
(e) the subject matter of the insurance;
(f) the indemnity for which the insurer may become liable;
(g) the event on the happening of which the liability is to accrue;
(h) the date the insurance takes effect;
(i) the date the insurance terminates or the method by which that date is established;
(j) the following statement:
Every action or proceeding against an insurer for the recovery of insurance money payable
under the contract is absolutely barred unless commenced within the time set out in the
Insurance Act.
(2) This section does not apply to a contract of fidelity insurance or surety insurance.
(2) An insurer must set out in the policy the following:
(a) the name or a sufficient description of the insured and of the person whose life is insured;
(b) the amount, or the method of determining the amount, of the insurance money payable, and
the conditions under which it becomes payable;
(c) the amount, or the method of determining the amount, of the premium and the period of grace,
if any, within which it may be paid;
(d) whether the contract provides for participation in a distribution of surplus or profits that may
be declared by the insurer;
(e) the conditions on which the contract may be reinstated if it lapses;
22
Deemed
Consistent with
Offer
Limitation on
Freedom to K
BCIA s.
97(2)
BCIA s.
15
BCIA s.
16(1)
BCIA s.
16(2)
BCIA s.
16(3)
BCIA s.
29(1)
BCIA s.
101
BCIA s.
33
BCIA s.
34
BCIA s.
35
Ins Reg
s. 6(2)
Ins. Reg
s. 6(3)
BCIA s.
32
Lecture
(f) the options, if any,
(i) of surrendering the contract for cash,
(ii) of obtaining a loan or an advance payment of the insurance money, and
(iii) of obtaining paid up or extended insurance.
(g) the following statement:
Every action or proceeding against an insurer for the recovery of insurance money
payable under the contract is absolutely barred unless commenced within the time set out
in the Insurance Act.
(3) If a policy contains a provision removing or restricting the right of the insured to designate persons
to whom or for whose benefit insurance money is to be payable, the front page of the policy must
include the following statement in conspicuous bold type:
This policy contains a provision removing or restricting the right of the insured to designate
persons to whom or for whose benefit insurance money is to be payable.
Accident and Sickness—same as Life
o
Policy issued is deemed to be consistent with Rebuttable presumption
application for insurance UNLESS insurer
gives immediate written notice of changes.
Policy: to protect the insured from the insurer
o Insured then has two weeks to reject policy
sneaking in clauses that was not part of the
after receipt of notice.
application.
o If insured does NOTHING, they are deemed
to have accepted the changes through
acquiescence
Terms and conditions not included in or attached to policy are unenforceable against the insured or
beneficiary
Alteration made after policy is issued are excluded from contract terms and conditions
But when you are renewing policy, you don’t have to re-deliver the terms and conditions with each
renewal. You can just reference the terms and conditions in original K.
Satutory Conditions that are part of EVERY insurance K
Accident and Sickness Statutory Conditions, part of every A&S insurance K
Risks deemed excluded by contract that includes coverage for loss or damage by fire or peril
prescribed by regulation
Covered risks - contract that includes coverage for loss or damage by fire deemed to include loss or
damage caused by lightening (34(1)(a)), or explosion of natural gas or manufactured gas in a building
that does not form part of the gasworks, etc. (34(1)(b))
Excluded perils:
o Loss of or damage to electrical devices or appliances caused by lightning or other electrical
currents, unless fire originates outside the device or appliance, and causes loss or damage: s.
34(2)
o Loss or damage caused by caused by contamination by radioactive material, resulting directly or
indirectly from fire, lightning or an explosion subject to the terms of the contract: s. 34(3)
 Discretion to exclude from scope of coverage in contracts that include coverage for loss or
damage by fire where loss or damage from fire or explosion is caused by:
o (a) criminal act or omission, subject to right of innocent insured to recover their loss
under BCIA s. 35 (recovery by innocent persons): Ins. Reg, [Revised Regulation], BC
Reg. 403/2012, s. 6(1)(a)
o (b) riot, civil commotion, war, invasion, act of a foreign enemy, hostilities, whether war
is declared or not, civil war, rebellion, revolution, insurrection or military power: Ins.
Reg., s. 6(1)(b)
 Discretion to exclude from coverage in respect of non-residential property loss or damage caused
by fire or explosion resulting from act of terrorism
 Limits insurer’s right to exclude coverage for fire loss or damage when insured property is vacant
for less than 30 days
 Unjust contract provisions - term or conditions - not binding on insured if courts deems unjust or
unreasonable
Wording of standard form policy subject to approval
23
24
3.
Duration of Insurance Contract
Issue
Interim Coverage
Where
Lecture
Ratio
Immediate, temporary, protection, pending
review.
Duration: less than full term
Notes
Given where insured has
immediate need of insurance
and cannot wait for full policy
approval.
Premium: adjusted accordingly—usually less
than would be for full policy
Coverage Amount: less than contract amount
Terms & Conditions: subject to agreement,
usually insurer’s standard policy terms and
conditions
Any special terms or conditions that the
insurer plans to include in the full policy does
NOT apply to the interim coverage, unless
insured consents: Aviva Insurance Co. of
Canada BCSC 2007
No obligation to issue full coverage. Insurer
gets to review application and decide.
Inn Cor
There is NO obligation on the insurer to replicate interim terms and conditions
International Ltd. in full coverage, HOWEVER if there is a change from interim to full policy, the
insurer MUST bring this change to the attention of the insured.
Lecture
Interim Coverage Lasts:
1. Until full coverage issued (which then overrides the interim)
2. Until termination by insurer or insured
3. Until expiry of stated time
4. Until a reasonable time has passed
Kostiuk
A “reasonable time” is something LESS than 5 Farmer got interim insurance to
months.
get financing for machinery—5
months later the machine was
destroyed.
Commencement
of Policy
BCIA s. 18; 107
BCIA s. 21
BCIA s. 48(1)
Termination of
Lecture
Held: Five months was beyond a
reasonable time for coverage,
interim coverage was expired.
Delivery of Policy/receipt for premium under (b) non-payment of premium is
a K is delivered to the insured by the insurer
irrelevant… K starts from
or agent, Insurance coverage commences
delivery, NOT from first
payment of the premium.
However, insurer can sue for unpaid
i.e. b/c you could have a claim
premium or deduct unpaid premium from
before you’ve even paid any
claim that occurs before first premium paid.
premiums at all.
Exception: Life insurance does not commence until (a) delivery of polic, (b) first
premium is paid and (c) no change in insurable interest between application, (2)
UNLESS K explicitly states otherwise.
3 ways an insurance K can be terminated:
25
Policy
Mutual
Agreement
Unilateral
Termination
(a) By insured
Ellis
Statute
Ins. Reg
403/2013 s. 9
Lecture
(b) By insurer
BCIA s. 20
BCIA s. 7(4), Ins.
Reg 403/2013 s.
2
BCIA s. 29 stat
cond. 5 or s. 101
stat cond. 4
BCIA s. 28
Renewal
Lecture
Continuous
Lecture
Non-Continuous
Lecture
1. Specified date or event in K
2. Mutual Agreement
3. Unilateral termination by insured or insurer
No prescribed form; agreement to terminate: Policy returned at insurer’s
request; premium refunded; this constituted a mutual agreement to terminate
Expressly permitted by statute:
BCIA s. 29 stat cond. 5
BCIA s. 101 stat cond. 4
Auto(insurance (vehicle) regulation) Sch. 10 stat condition 10
For life, Accident and Sickness Ks—insured
Full refund of premium paid
may rescind K within 10 days or longer as
permitted by K
After K comes into effect, insured may terminate by notifying insurer:
- Send registered mail to head office or chief agent in province
- Can deliver electronically (s. 7 BCIA)
- Termination effective upon receipt of notification
- Refund of unusued premium upon surrender of policy
Discretion to terminate for non-payment of
- Terminate w/o reason
premium in accordance with stat or K cond.,
- Notice sent to last known
or by giving notice by registered mail
address
- K terminates 15 days after
delivery if sent by
registered mail, and 5 days
after delivery if delivered
personally.
- Refund unused premium
Cannot use electronic communication to send termination to insured
Termination effective after:
- Personal delivery: 5 days
- Registered Mail delivery: 15 days
Insurer also MUST
(1) Notify person entitled to receive payment of insurance money other
than insured
(2) Length and manner of notification same as to insured
Renewal extendes the duration, usually upon payment of the premium.
However the renewal process depends on whether the K is continuous or noncontinous.
 Automatic right of renewal
 Usually life insurance: effective until death of subject
 Renewal procedure in original contract
 Accident & sickness: effective until insured reaches specified age
 Renewal extends original contract duration; no new contract
 Unilateral renewal
Can be done by:
 All other policies
- One step process, renewal
 No automatic right of renewal
request sent to insured
 Renewal by mutual consent
with certificate of
 Discretion to accept or decline
insurance, all insured has
renewal
to do is pay premium and K
26

Patterson v.
Gallent
Grace Period
Lecture
Paul v. Cumis
BCIA s. 50(3) ;
106(4)
BCIA s. 50(2);
106(3)
Firth
Tiller
Reinstatement
Lecture
BCIA s. 57(2)
BCIA s. 57(3)
Parker
Policy
is binding.
- Two step process, insured
mails renewal offer, and

then the certificate of

insurance is sent when the
premium is paid.
 Insurer sent renewal offer and “pink card”- car insurance
 Court held this was NOT a binding K until the premium was paid… done
for administrative convenience only
 However raises issue that if 3rd party relied on pink card, then maybe
insurer would have been liable
In practice, insurers always give
 Period between expiry and due date
grace period.
for renewal premium
 Contract presumed effective upon
payment within grace period
 Insurer NOT obligated to give grace
period (see exception below)
If you do not pay within grace period, K
Insurer NOT required to give
terminated on ORIGINAL expiry date… so
subsequent termination notice
NOT covered during grace period unless you
if you don’t pay w/n grace
pay w/n specified time.
period.
Loss w/n grace period is covered, provided premium is paid w/n specified time
Paying premium within stated period
constitutes acceptance
Renewal creates new contract
Which means incontestability period
re-starts!
Mandatory grace period of 30 days for life insurance and A &S. 28 days for
industrial life insurance.
The Grace period starts on the day the premium first fell due, even if that day is
a holiday or a weekend.
If the last day of the grace period falls on a weekend or holiday, it is moved to
the next business day.
Where there is a failure to renew or the K is terminated, the parties’ have
discretion to reinstate the K
Life insurance is reinstated upon payment of
Different than grace period, b/c
overdue premiums w/n 30 days after end of
there you could pay even if
grace period provided that the person
person had died during
insured is ALIVE at the time of payment
payment but
Obliged to reinstate LIFE K w/n 2 years of the policy lapsing, insured must pay
overdue premiums, interest and other debts IF insured is satified that life
insured is in good health and insurable.
A reinstated policy is NOT retroactive (so losses that occur while K lapsed are
NOT covered—opposite of grace period).
May want to reinstate b/c although it creates a new K in terms of
incontestability, you get all your old terms and conditions which may no longer
be offered.
27
V.
DUTY OF GOOD FAITH AND OBLIGATION OF FULL DISCLOSURE
1.
Introduction
Issue
Utmost
Good
Faith
Where Ratio
Lecture  Duty of disclosure
 Caveat emptor inapplicable—
the opposite applies
 Customer/insured disclose
material facts
Rationale
Walsh
Origins
Accurate information necessary for
accurate risk assessment and
informed underwriting practices.
Insurance is valuable to society, so
we all have an obligation to keep it
going
Lecture  Dawn of insurance industry;
Limited access to information
 Times have changed;
information age
 Is there a continuing
justification for disclosure
duty given enhanced
accessibility to information
today?
Notes
BB, pp. 85 – 87
- Insurance Ks are by nature personal Ks
- Personal characteristics, and activities are
significant factors in underwriting decisions
- Most reliable and accurate source of information
is the insured
- Therefore, Canadian insurance law employs
doctine of “utmost good faith”… requires every
insured to be completely forthright and
forthcoming in providing the insurer with info
relevant to insurance coverage
- Obligation is broadly referred to as “disclosure
duty”
- Recipricoal duty on insurer to accurately and fully
disclose to the insured any facts known to the
insurer about the insured risk and relevant to the
decision to purchase the insuarance—although in
practice there is never anything so really it is just
all on the insured.
Also, facts inacccessible to the insurer.
-
28
It is still just easier for insured to disclose, rather than
to have insurance company spying on you to find out.
2.
Duty of Disclosure
Issue
What must an
insured
disclose?
Where
Carter v.
Boehm
Limits on
Disclosure
Effect of nondisclosure
Conclusion
BCIA s.
17
Ratio
Notes
Facts: insurance for a Fort in case it was attacked. Fort
 Insured only has duty to
disclose all material facts was attacked by the French, also it wasn’t very fortified.
Insurer said breach of disclosure b/c leader of Fort knew
w/n their sole
French were planning attack. But so did everybody else—
knowledge.
 Insured does not have to it was all over the news. No breach.
disclose what insurer
-also no duty to disclose suspicion Fort may be attacked,
actually knows or could
that is just speculation and not fact.
know with reasonable
efforts.
 Insured does not have to
disclose future
speculation or opinions…
only past and present
FACTS
(1) A contract is not rendered void or voidable by reason of any misrepresentation, or any
failure to disclose on the part of the insured in the application or proposal for the
insurance or otherwise, unless the misrepresentation or failure to disclose is material to
the contract.
(2) The question of materiality is one of fact.
Therefore, must always consider whether the fact was:
(a) Material
(b) Within the insured’s knowledge
To determine whether disclosure duty breached.
Lecture
Test for Materiality
Issue
Is a
Material
Fact?
Where
Ontario
Metal
Products
Timing
Henwood
Example
Walsch
Ratio
“Reasonable Insurer Test”
Notes
- Q of fact, objectively
determined
If the fact is one which would have adversely affected a
- Not relevant what a
reasonable insurer’s decision to underwrite the risk at
reasonable insured would
the stated premium, either by charging more or
think is material
refusing coverage, it is a material fact.
- Also not all answers to
insurer’s Qs are necessarily
Facts: man says he did not go to doctor in five years,
material facts.
dies of cancer after insured. Turns out he did go to Dr.
- Not relevant if it would have
w with, got some “tonic” injections… wholly unrelated
lowered the premium, or had
to cancer. Would not have affected underwiting
no effect on the premium/
decision so therefore not a material fact. No breach of
decision to rpvodie coverage
disclosure duty.
or merely delayed formation
of K
- It is irrelevant if the cause of loss is related to the undisclosed facts. It is the time of K
formation that is relevant for determining whether a fact is material, would disclosure of
the fact have influenced the decision to underwrite?
- Man with many health issues, does not disclose them. Any reasonable insurer would not
have insured if even one of these health problems were disclosed. Therefore, failed to
29
disclose a material fact.
Extent of Insured’s Disclosure Duty
Issue
What is within the
insured’s
knowledge?
Rationale
Where
Lecture
Concerns
Lecture
Scope
Lecture
Lecture
Canadian
Indemnity v.
Johns-Manville
Taku
Pereira v.
Hamilton
Township
Ratio


Notes
Actual or constructive knowledge
Insured’s opinion regarding materiality of information irrelevant:
Walsh v Unum Provident
 Actual knowledge not easily ascertainable
 Insured cannot fail to make reasonable inquiries
 Insured’s subjective knowledge irrelevant; knowledge imputed to
insured if reasonable
 Prejudice to persons without actual information
 May be excused where reasonable person in applicant’s position
would not know information
Concerns
 Disclosure obligation not limited
to responses to specific questions
 Privacy: disclosing
asked
information unnecessary
for determining
 Volunteer information that may
insurability
impact insurability even if not
specifically asked
 Insured risks nullification
for innocent breaches
 Rationale: Unreasonable for
insurer to ask about every
 Unfair to applicants
condition
unaware of scope of
disclosure duty
 Class implications
Applicant to disclose fully and fairly only known facts
Excluded:
• Information known or knowable by insurer, e.g. common knowledge
within relevant industry
• Facts in public domain discoverable through research
 Test: Whether "a reasonably competent insurer" insuring risks in
operative industry would have known facts.
 Insurer offering protection re asbestos industry in early 1970s
should have known risk to human health
 Matters of public character and notoriety
 Misrepresentation re seating capacity constitutes breach of
disclosure duty
 Failure to disclose accident record not breach of duty of good faith;
information publicly available.
 Disclosure duty primarily on insured
 Insurer’s duty to make further inquiries narrowly construed
 Arises only in exceptional circumstances where necessary
30
3.
Limits on the Insurers’ Risk Control: Statutory Modifications
Where
BCIA s.
16
BCIA s.
17
General Insurance Contracts - BCIA, Pt 2
Ratio
Terms and conditions intended to bind insured must be in the policy
or in writing
Warranties of truth abolished, materiality required for nondisclosure or misrepresentation.
Notes


Insured’s duty cannot be expanded by
warranties
Misrepresentation must relate to
material facts
Property Insurance
Issue
Specific
disclosure
Where
BCIA s. 29
stat cond.
1
Taylor v.
London
Assurance
Ratio
If a person applying for insurance
falsely describes the property to the
prejudice of the insurer, or
misrepresents or fraudulently omits to
communicate any circumstance that is
material to be made known to the
insurer in order to enable it to judge
the risk to be undertaken, the contract
is void as to any property in relation to
which the misrepresentation or
omission is material.
Notes
Implications of Stat. Cond. 1:
 Omissions/non-disclosure and
misrepresentations distinguished
o Misrepresentation: customers’
intention irrelevant;
misrepresentation need not be
fraudulent
o Omissions/non-disclosure must be
fraudulent; requires subjective
awareness of materiality of facts
omitted
Insured not to:
 Falsely describe subject
property to insurer’s prejudice
 Misrepresent material facts, or
 Fraudulently omit material
facts
 Why? Accurate risk assessment
Failure to disclose fire in area and hence risk of fire to subject property; only general risk of
fire from dry weather conditions disclosed
Where insured omits to divulge information, only liable for breach of disclosure if the
omission amounts to fraud.
 Fraudulent omission requires intention to mislead
 Failure to disclose risk of fire not misrepresentation and not fraudulent omission,
therefore no breach of disclosure
Bowes
Conclusion:
BB
Court went on to comment on Misrep, but this probably not good law—sets high threshold
and appears to excuse innocent misrep. Use Bowes for misrep.
Statutory condition does NOT change the common-law with respect to the insured’s
misrepresentation of information. An insured is in breach of disclosure obligation if the
insured misrepresents a material fact even if the misrepresentation is unintentional.
“Taylor and Bowes suggest that, under Problems:
the statutory regime… the scope of an
1. Difficult to delineate between an omission
insured’s disclosure duty varies
and a misrep
depending on whether information is
2. Inappropriate for duty to be narrowed
withheld entirely or provided
solely for the omission of information but
inaccurately.”
not the misrepresentation of information.
31
Automobile Insurance
Issue
Special
Disclosure for
Car insurance
Where
Insurance
(V) Act, s.
75(a)
Meaning of
“knowingly”
Berkowits v.
MPIC
Allen v.
MPIC
Materiality
Ratio
Insured not to
(1) Falsely describes car to insurer’s
prejudice; or
(2) Knowingly misrepresent or fail to
disclose facts required to be stated on
the application
Notes
If they do, all claims of applicant/insured or
their dependent or someone claiming
through them is forfeited.


Requires deliberate conduct;
 error re address not deliberate; No
breach of disclosure duty
“Knowingly” qualifies misrepresent
and failure to disclose
P had relocated to US at time of renewing insurance for motorhome; misrepresented
primary residence in renewal application as being Manitoba; renewal documents
mailed to Manitoba and forwarded to her in US. Returned completed form to sister-inlaw in Manitoba who went to pay for insurance premium in person. Motorhome
damaged while en route to Manitoba for visit.
Sleigh v.
Stevenson
Barsaloux
Held: No have valid insurance at time of accident; insured knowingly and deliberately
made false declaration with intent to conceal primary residence to obtain favourable
insurance rates for residents. Insurance void ab initio; no relief against forfeiture
intention to mislead not required; suffice insured knew facts to have been disclosed;
distinguished innocent misrepresentation
Sleigh explained; knowledge of relevant information that makes statement untrue
Berkowits
Relevant question: Whether applicant knew at the time of insurance facts that would
render statement untrue
However before a claim can be denied, the false statement must also be material.
32
Life and Accident & Sickness Insurance
Issue
Parties Subject to
Duty of Disclosure
for life insurance
and A &S
Where
s. 51; s.
111
Exceptions
s. 52; 112
Ratio
Disclosure duty binds applicant
(customer—person taking out
insurance, sometimes called
assured) AND life insured (the
person whose life is insured)
Duty does not apply to
misstatement of age (only for
life).
After 2 years, non-disclosure
incontestable.
Scope of Duty
s. 51(1); s.
111(1)
McLean v.
Paul
Revere
Metcalfe
Consequence of
non-disclosure
Duty and nondisclosure
provisions
mandatory
Policy
51(2);
111(2)
McLean
51(3);
111(3)
Metcalfe
s. 39(1);
94(1)
AdjinTettey
Notes
This is despite lack of privity of K between the
life insured and the insurer.
113—incontestability period restarts on
reinstatement
53—Reciprocal duty on insurer—must disclose
facts material to K for insurance, if they don’t
insured has option to void K. Same
incontestability period though.
54—if misstatement in age, insurer MUST
increase or decrease insurance amount based on
correct age. If person older than permitted by K,
insurer can void K if insured life is still alive, and
if they do so w/n 60 days of finding out, w/n five
years of K formation.
Must disclose all material facts that have not been disclosed by the other person.
Medical history IS a material fact
and must be disclosed.
Jail time, employment history and residence
history NOT material facts.
Here hospitalizations and treatments for past drug use were held to be material
facts… even though guy clean at the time he applied.
K voidable at option of insurer
Consequence of non-disclosure is that K is voidable at option of insurer.
Where misrep in relation to application for additional/new/ different insurance, just
that part voidable by insurer.
Disclosure obligation arises when you are seeking increased coverage or other
changes as well. However, consequence of non-disclosure is to only render the
increased or different amount void, not original K.
Duty provisions binding regardless of contractual terms—can’t vary by K.
Applicant not required to under go genetic testing
- but are required to state family history
- if there is something genetic in there, insurer will assume the worst
- so people may be encouraged to get testing on the chance they don’t have
it, even if they don’t want to
Must disclose genetic testing undertaken
- insurer wants as accurate a rep of the risk as possible so they can make
appropriate underwriting decisions
- other insured don’t want to subsidize someone with a huge risk—unfair.
33
Concerns
- access to insurance is very important, affects employability, ability to
participate in life
- people may be hesitant to get testing if they know it can be used against
them, so health care costs because we miss out on proactively treating
people who don’t get tested
On the other hand
- we could just socialize the risk, and say hey anybody could have something
bad happen to them, could be me or you, so let’s all band together and we’ll
pay if any of us are unfortunate enough to suffer from a genetic condition.
Justification
- people that get tested and know they have a condition will go out and get
lots of insurance because they know they need it—esp. if they don’t have to
disclose
- life insurance is about providing for your family… does society really want to
subsidize and help your kids get rich when you die?
- Is genetic information any different from other health care information?
Argument about control but I think that’s dumb… you don’t really “control”
whether you contract a disease… no one even know what causes many of
them! I don’t think it is different.
34
4.
Material Change in Risk
Issue
Duration of
Disclosure Duty
Where
Lecture
Ratio
Depends on the type of insurance:
Notes
General insurance: Part 2, ONGOING
- BCIA s. 29 stat cond. 4, must provide written notice of changes to material risk w/n
insured’s knowledge of risk and control.
A&S
Semi-Ongoing
- BCIA s. 101 stat cond. 3 must disclose change in occupation only
Auto: BCIVR
Bc reg 477/83, sched 10, s. 2(3)
- Changes in vheicle use and primary location when not in use must be disclosed.
Consequences of
Breach
BCIA s. 29
stat cond.
4(2)
Insurer’s options on
Notification of
Change
BCIA s. 29
stat cond. 4
(3)(a)
BCIA s. 29
stat cond. 4
(3)(b)
Life: ONLY at the outset… NO ongoing duty, unless customer is seeking an increase in
amount, then you have to disclose changes at that time.
Does NOT make entire policy voidable,
Ex. house insurance, don’t disclose when you get a
rather contract is only void IN
wood fire place, insurance void in relation to FIRE
RELATION TO THE RISK that the
but not to break and enter.
material fact relates to.
May unilaterally terminate K in
accordance with stat cond. 5
May notify insured of increased
premium w/n 15 days
(can increase, statutory minimum)
Coverage continues until the end of this period per
stat. cond. 4(4), regardless of whether insured
chooses to pay—b/c 15 days is the unilateral
termination notice period.
If insured does not pay w/n period given, K
automatically terminates, no more notice need to
be given.
n/a
5.
Do nothing.
Proving Breach of Insured’s Disclosure Obligations
Issue
Burden of Proof
Where
Lecture
Ratio
Presumption that the insured complied with
their disclosure duty
Notes
Onus is on insurer to prove insured’s breach (did
not disclose material actual/constructive
knowledge) to its deteriment (prejudice).
Steps
Lecture
- Application form best source, show information on there is inaccurate
- Demonstrate inaccurate information material (test from Ontario Metal)
- Demonstrate information was within insured’s actual or constructive knowledge
- Last, prove breach caused insurer prejudice—prudent insurer test
Special Reasons for Inaccurate Information
Intermediary
Newsholme
Where an intermediary fills out a form for
SO if the insurance broker fucks up your form,
inaccurately fills
the applicant, they are acting as the insured’s you are fucked.
out application:
agent and therefore any mistake made by the
intermediary in recording the informations
Part 2 Insurance
attributable to the insured.
Sleigh
If you sign the form w/o reviewing, it
Newsholme principel illustrated:
doesn’t matter—still bound by agent’s
- Car insurance
mistake.
- Owned by mom
- Son tells agent that
- Agent writes it is owned by son
- Breach of disclosure duty.
Stone
EXCEPTION:
Here it was an actual employee of the insurer, and
35
Blanchette
Lecture
Intermediary
inaccurately fills
out application:
BCIA ss. 90;
139
Life and A&S
Walsch
Ambiguous
Questions
Stewart
MaccQuarrie
Contextualized approach to relive
unfairness, where agent has authority (actual
or apparent) from insurer to complete the
form for the insured, then a mistake of the
agent is NOT a breach of disclosure on the
part of the insured.
EXCEPTION:
Where there is NO opportunity for the
insured to review the accuracy of the
information, then the insured was not
negligent and the Newsholme princple will
not apply. Not a breach of disclosure if agent
makes mistake.
employees were required to fill out the forms for
applicants.
Court emphasizes power deferential, uneducated
woman without her partner there.
Here man filled application with some parts blank,
and signed at very bottom.
Wanted to add insurance, called agent, agent said
just tell me serial number of tractor and b/c you
already signed, don’t have to do anything else.
Agent filled in blank section wrong. Not a breach
of disclosure duty—had signed before so no
opportunity to review.
DISSENT: if you sign something in
advance, then you should be stuck with the
consequences when someone at your
direction fills it in for you.
POLICY problems:
- Customers reasonably expect that insurance agent works for insurer, not that they are the
customer’s agent.
- Doesn’t accurately reflet the intermediaries real role to call them agent of the customer,
they are trying to SELL and are the face of the insurer to the customer.
PRESUMPTION that insurer’s employee,
Reverses Newsholme, but only presumption so
officer, or person soliciting insurance for
you can rebutt this.
insurer is NOT considered insured’s agent to
latter’s prejudice
Rebutted Where:
Rationale: avoid insured blaming intermediary in
- Insured expected to have reviewed
cases of misrep and non-disclosure… ppl would
responses before signing
use this as a strategy to take advantage of a
- Document warns applicant about
clerical error in their favour otherwise.
importance of accuracy and
consequences of inaccuracy (in clear,
bold face, NOT fine print)
- Intermediary records inaccurate
information provided by applicant
- Regardless of whether insured actually
did review the information or not.
If response to an ambiguous question is
Here:
inaccurate, may not be breach of disclosure
if answer reasonably responds to ambiguous Average Canadian would not know that bowel,
Q.
colon and rectum are part of intestines.
Test: how a reasonably intelligent person in
customer’s position would have understood
the question
Applicant said “no” to Q about respiratory conditions. Suffered from sleep apnea, which is a
respiratory condition, technically.
Not a breach of disclosure duty b/c reasonble person would not consider sleep apnea a respiratory
condition, answer therefore not inaccurate.
36
6.
Proof of Materiality
Issue
Burden of Proof
Evidence
Where
Ontario
Metal
Henwood
Walsch
MacQuarrie
Where insurer
did NOT ask Q
regarding info
not disclosed
Sagl
Thomas
Prejudice to
Insurer
Taylor
Nuvo
Electronics
Kehoe
7.
Ratio
On insurer, reasonable insurer test.
Notes
Objective
There is a presumption that the insurer’s
actual practice is representative of a
reasonable insurer. So can use their own
evidence of materiality to satisfy reasonable
insurer test.
Subjective evidence to prove objective test… a
bit tricky.
Dissent: thinks we give insurer and their
employees too much credit, in hindsight of course
they will say they wouldn’t have insured if info
disclosed.
*Insurer NOT required to adduce evidence of
other insurers’ underwriting practices
While the presumption still exists, evidence
Problem is that now insured must also get expert
of insurer’s underwriting practices ALONE
to show reasonable practice is different (insured
is NOT sufficient to satisfy reasonable
in this case penalized for not doing so). May be
insurer test. Expert evidence required to
difficult to do in tight knit industry—will anyone
establish reasonable insurer practice.
testify for you to the deteriment of the industry?
Insurer should have called witness with knowledge of general insurance industry and not just the
underwriter who made the initial decision.
Just b/c insurer did not ask Q, doesn’t mean
Here: property insurance, agent didn’t ask
that info was not material.
whether there was a mortgage or who owned
property.
However, failure to ask Q that a reasonable
insurer would consider the answer to material Turned out lady’s husband’s name was on title,
means insurer does NOT consider info
and mutliple mortgages.
material and there is no breach for failure to
disclose.
Reasonable insurer would consider answers to Qs
material, therefore failure to ask Qs meant not
breach of disclosure.
Ex: man got secondary heating system (wood stove), change in material risk. Did not disclose, but
all the renewal forms had this Q crossed out b/c he didn’t have one when he first got insurance.
NOT a breach of disclosure duty b/c insured didn’t ask question, and reasonable insurer would
consider answer to Q material.
After you prove breach of disclosure of material fact, insurer must prove the breach induced the
insurer to enter the K, and therefore they suffered prejudice.
Test: what would a reasonable insurer have done? (Prudent insurer test)
Subjective underwriting practice of insurer relevant ONLY if it meant the insurer would have
GRANTED coverage even though reasonable insurer wouldn’t. In that case, overrides objetive
test and fails to prove prejudice, b/c insurer would have insured anyway.
Where insurer’s practice is consistent with industry practice—then reasonableness of the practice
is not questioned.
Effects and Consequences of Breach of the Insured’s Duty of Disclosure
Issue
Common-law,
Insurer’s options
Where
Ellis
Ratio
Upon discovering breach of disclosure duty on the
application form, the insurer has three options:
1. Repudiate the K on the basis of the breach
o If the K is void ab intio, the insurer
has to return premiums.
2. Treat the K as valid and subsisting despite
the breach
3. Treat the K as valid despite the breach, but
cancel the K in accordance with statutory
provisions authorizing unilateral
termination.
o No return of premiums.
37
Notes
Usually prefer to exercise their right of
unilateral termination when they discover.
That way no premiums are refunded.
However this won’t work if loss already
occurred… only if you discover breach
before loss.
Auto Insurance
General
Insurance Ks
General Rule
Incontestability
s. 75
BCIVA
BCIA s. 29
stat
condition 4
BCIA s.
51(2); s.
111(2)
s. 111(3);
s. 51(3)
BCIA s.
52(2); s.
112(2)
Metcalfe
Exception to
Inconstestability
BCIA s.
52(2); s.
112(2)
McLean
Walsh
Misstatement of
Age
s. 52(1)(a)
s. 54(2); s.
115(1)
s. 54(3)
The claim is invalidated and recovery is forfeited,
for insured or any party claiming through insured.
Contract is void vis-à-vis property/risk subject to
the breach. The insurer has to notify insured of
termination, and premiums are refunded (Ellis)
absent fraud (Venner).
Life/Accident & Sickness
Contract is voidable by the insurer
Insurer may choose to ignore it. Life is
treated differently b/c it is a long term K,
unlike property which may be renewed
yearly.
But if in relation to addition, increase or change, or in relation to that addition increase or change.
Contract is not voidable for non-disclosure or
misrep if K is ineffect for over 2 years during the
life of the person.
Example: man did not disclose drug addiction, b/c
he asked agent and agent said if it was over two
years ago you don’t have to disclose. No intention
to mislead, and therefore as breach happened over
two years ago, policy not voidable b/c
incontestable.
Exception: fraudulent omission or fradulent misrep
Where there is an intention to mislead, this is fraud.
Insurer must prove on B of P that insured
knowingly misled insurer (knowingly made false
representations) or was reckless.
A reinstatement, addition, increase or change
restarts the incontestability period for the
part that is reinstated, added, increased or
changed.
Rationale for Incontestability:
Timely and thorough review of applications,
reasonable expectations of insured and
beneficiaries:
- Duration of policices
- Avoid false sense of secutiry
- Enhance duty for insurers
- Protects insured for innocent or
negligent non-disclosure.
K always voidable for fraud… no protection
through incontestability.
Facts: woman spent time in jail, nondisclosure of mental health issues
Held: intention to mislead, therefore
fraudulent misrep, and incontestability did
not apply.
State of mind of insured is inferred from the
Here impossible to believe that the ptf would
surrounding circumstances.
have forgotten all of his numerous, recent
health condition issues. Maybe could believe
you would forget one thing from many year
sbefore, but not a significant number of
recent ommissions.
Incontestability does not apply to misstatements in age.
Where a misstatement is age is discovered, the
If misstatement is fraudulent, you can void
benefits or premiums are adjusted to reflect the
the K.
correct age.
This is the only time the K is varied for
breach of disclosure duty.
However, in insured’s age exceeds the insurable
If K is in place for more than 5 years, if the
age at the time of the formation of the K, the K is
person dies before the misstatement is
voidable w/n 5 years if insured is still alive and the
discovered, or if insurer takes no action w/n
K is voided w/n 60 days of discovering the
60 days of discovering the misstatement =
misstatement.
incontestable.
38
8.
Causation, Fairness and the Insured’s Duty of Disclosure
Issue
Causation Unnecessary
for Breach
Court’s ability to
relieve insured from
consequences of breach
of disclosure
9.
Where
Henwood
s. 32
BCIA
Marche
Ratio
Notes
Once there has been a breach of the disclosure duty, it is irrelevant whether that breach is
connected to the loss breach of disclosure duty voids the K ab initio
Court has discretion to consider contractual terms and conditions and relieve insured of
application where the condition is unreasonable or unjust.
Court may exercise their discretion under s. 32 in relation to
Dissent: discretion only
contractual OR statutory provisions.
applicable to contractual
condition.
Court will do so where:
- Unjust to deny coverage
(1) an insured failed to disclose a material change in risk,
where material change
(2) but the change was temporary,
in risk recified before
(3) rectified before loss and
loss and loss unrelated
(4) causally unrelated to the loss.
to temporary change
- Not reasonable to
Distinguished: Henwood, where breach is ongoing or at
require disclsoure of
beginning of K, K is void ab intio so nothing to relieve against
temporary change in
b/c K never existed. However, where it is a material change in
material risk, totally
risk, K did exist, just subsequently breached, so Court can
unrelated to the loss.
relieve against consequences.
- Not realistic to expect
people to call insurer
and report every little
tiny thing that happens
with the property
Legal Liability of Insurance Intermediaries
Issue
Where
Basis of
Intermediary
Liability
Fine’s
Flowers
Scope of Duty
Fine’s
Flowers
Sandborn
Beck
Estate
Ratio
Notes
Intermediary Providing Insurance from Private Insurer
An intermediary’s liability to the insured is twoConcurring decision: difficult to ground
fold:
liability in K because there is no direct
1. Tort: intermediary is not a mere
consideration flowing from insured to agent
salesperson, insured is entitled to rely on
(consideration comes as commission from
their expertise, and a higher standard of
insurer).
care is required (Hedley Byrne principle)
2. K: there is a K between the customer and
However, saying both K and tort allows court
the intermediary.
to give either expectation or reliance damages.
Scope of duty depends on whether instructions were Ex: customer wanted “full coverage”
specific or vauge. If instructions are VAGUE:
insurance. Agent gets coverage, but doesn’t
- Intermediary is an advisor
advise that policy does not cover “wear and
- Must become familiar with customer’s
tear”… in fact impossible to get insurance that
operation, determine their need and
covers this. Loss occurs due to wear and tear,
appropriate coverage
agent liable b/c did not advise of gap in
- Obtain appropriate coverage or advise of
insurance.
its unavailability or gaps
- Advise customer of available options
SPECIFIC:
Ex: here agent satisfied their duty to
- No duty to learn about the customer’s
communicate lack of requested coverage to
work and advise generally when specific
insurer. Insured wanted transportation
coverage is requested.
coverage, agent said they would look into it
- Must use reasonable skill and care to
but that it probably didn’t exist.
obtain required coverage
- Obtain requested coverage or advise of its
unavailabilty or gaps
Once an ongoing relationship is established
Now codified… by… ??
between insured and agent, the agent must assess
39
Duty
Fletcher
Private Insurer
does not have
same duty.
Ostenda
changes in client’s needs and advise accordingly.
Employee of Public Insurer
Public insurers are obligated to provide information
regarding optional or additional coverage. It is
foreseeable that customers will rely on information
about available options to make informed choices,
and this is reasonable. Public insurer is not to
assume too much about customer’s knowledge.
Private insurers are not liable for gaps in coverage
even when they assess risks entailed in customer’s
operations.
In the private insurance context, the duty to advise
is only on the intermediary and not direclty on the
insurer.
Rationale
If providing
public insurance
through private
intermediary
Lecture
Lecture
Public Insurer:
Employees are not licensed agents or alleged
experts
Work in institutional setting
Liable for gaps in coverage where employee
of public insurer did not inform insured of
optional or additional coverage available.
-
Only the intermediary is required to
inform customer of gaps in coverage
- Where insurer is independently
assessing risks, directly visits
customer, this is just for underwriting
purposes
- Insurer is not assessing in order to
advise
- Even where the provide risk
assessment reports to insured, this is
just to reduce risk and not to provide
advice re: gaps in coverage.
- POLICY: don’t want to duplicate
services provided by broker in
insurer’s services, as this will cost
insured more.
- Note here that insurer specifically
disclaimed their liability in their risk
assessment reports.
Private Insurer:
Intermediaries are licensed professionals
Provide professional and individualized
services
No opportunity for private and individualized
Opportunity to assess customer’s needs and
service to custmers… don’t’ get to know them
advise accordingly
Fixed salary
Commission
- Depending on the context, rules for public insurer or liability for private intermediary may
apply.
- Is there an opportunity for personalized relationship?
- If yes—private agent liability
- If no—likely public insurer duty must just tell you the checklist info.
40
VI.
SELECTED ISSUES IN INTERPRETING INSURANCE POLICIES
1.
Policy Interpretation,
ISSUE: What does policy cover or exclude? What does that word mean?
Sub-issue
Where
Ratio
Notes
Over-Arching Goal
Katsikonouris
The over-arching goal when interpreting insurance contracts is to “seek the
interpretation which most fairly reflects what can reasonably be supposed to
have been the intention of the parties when entering into the contract” (para.
46)
Policy Consideration Brissette
However, mindful of following policy concerns:
- K pre-supposes 2 sided relationship, but actually is a take it or leave it
standard form K
- Limited/no negotiation between insured and insurer
- Unequal bargaining power
- Inequality concerns are not necessarily absent in negotiated or custom
policies
- Potentially different understandings of scope/terms by insured and
insurer, full of technical, legal jargon—hard to understand
- Therefore, require insurance companies to clearly set out their intention
in the policy wording
Test
Consolidated
Principles of insurance contract interpretation are applied in accordance with
Bathurst v.
the two step test from this case.
Mutual Boiler
STEP ONE:
Consolidated
Apply general principles to find an
If this can be done using the
Bathurst v.
interpretation of the K which reflects the
general principles, and there is no
Mutual Boiler true intentions of the parties at the time
remaining ambiguity in the
they entered into the K.
language.
STOP HEREdon’t do step two.
- Undefined terms given there “plain,
Critique:
ordinary and popular” meaning, “such
- Fictional
as the average policy holder of
- Terms and conditions are
ordinary intelligence, as well as the
mandated by statute or
insurer, would attach to it” (at 901)
regulations, e.g. auto,
- Use the plan and ordinary meaning of
general insurance Ks,
defined terms subject to parties’
accident and sickness, fire
intention as evidenced from the entire
coverage
policy
- Limited scope of pre- If a word has multiple meanings,
contractual negotiation—
choose the one that reasonably
only timing is really
promotes parties’ intentions
negotiated
- Holistic interpretation to achieve
- Commercially sensible
commercially reasonable outcome—
interpretation often goes
don’t let technical
against insured’s interests.
definition/interpretation result in
coverage for predictable losses, avoid
windfall to insurer or unanticipated
recovery to insured
- Don’t interpret in a way that negates
the overall objective of the K
Corbould
Policy excluded pollution. Underground
Thus, the parties intended to
oil-tank leaked did this fall under the
exclude pollution and the parties
41
STEP TWO
Consolidated
Bathurst v.
Mutual Boiler
Contra Proferentem
Coverage/Exclusion
Lloyd’s v. Chu
Reasonable
Expectations
Corbould
meaning of pollution?
intentions prevail.
HELD: yes, no ambiguity, plain and
ordinary meaning of exclusion clause
excludes damage by
contamination/pollution.
Where the language is ambiguous, in that
there are multiple reasonable meanings or
irreconcilable provisions, use tools of
construction to determine meaning.
Contra proferentem:
- Ambiguous terms are interepreted
against the author of the K, the
insurer
- Irrelevant if the forms were
approved by a regulatory body
- Rationale: self-interest
Don’t apply reasonable
expectations or principles under
step two if no ambiguity!!
Coverage Provisions Broadly Construed,
Exclusions Narrowly Interpreted
- Similar rationale as contra
preferentum
Determine the meaning of the ambigous
term by reference to parties’ reasonable
expectations at time of K
Reasonable Expectations = what the
parties would have rationally expected if
they had addressed their minds to the
definition of an ambiguous contract term
in the context of the overall insurance
product being purchased. Go beyond
intentions evidenced by wording, and
make presumptions based on the nature
of the insurance K.
Continuity of
Judicial
Interpretation
Effect of Public
Policy:
Consumer
Protection/
ProCoverage
Gibbens SCC
2009
Jesuit Fathers
SCC 2006
Vytlingham
i.e. where step one failed to find
the answer
EXCEPTION:
Statutory conditions
- Insurers did not write
these
- Purpose of contra
preferentum is to avoid
self-interest, so that isn’t
possible where party didn’t
write them.
**applies to both contract and
statutory conditions***
Not withstanding the words, what
did parties actually think—use
extrinsic evidence
Different than reasonable
intentions at step one, which is
what the parties must reasonable
have envisioned or planned as
evidenced by use of an
unambiguous term in the context
of the whole K
Problematic:
- Whose reasonable expectations
are paramount?
- Potential conflict undermining
other interpretative principles
Courts should ensure that similar insurance policies are construed similarly to
provide certainty and predictably, which as a matter of policy is in the interests
of insureds and insurers.
Cannot allow public policy concerns to
Just b/c insurance fills public
trump foundational principles of
service role of compensating
interpretation.
innocent third parties, doesn’t
mean coverage should always be
found in interpretation.
Example: Interpretation does not
Seems to bring the “reasonable
42
BCIA s. 32
BCIA s. 13 &
14
EXAMPLES
Excel Cleaning
SCC 1954
necessarily favour coverage
expectations” into stage one… but
no coverage from underinsured
Corbould says it is only for stage
motorist protection when tortfeasor
two.
dropped stones on car, b/c tortfeasor not
using their car to do so.
Instead of bending interpretation to benefit the insured, use this section:
Relief from unreasonable terms
Or this section:
Waiver and estoppel (see claims process)
Contractors liability insurance for “on location” cleaning service exclusion for
property in the “care, custody, or control of the insured”
Issue: did this exclude damage caused by insured to a client’s wall to wall
carpet?
Held: 3-no, plain and ordinary meaning, purpose of k as a whole, contra
proferentem
Bathurst v.
Mutual Boiler
Dissent: 2-yes, plain and ordinary meaning excluded
Facts: K excludes loss arising from
Dissent: plain and ordinary
“depletion, deterioration, corrosion, or
meaning of policy wording
erosion of material”
excluded the loss.
Issue: whether loss occassioned by
corrosion of heat exchangers is
recoverable
Held: corrosion itself is not covered,
consequential loss of $ from closing
business to repair was.
McClelland
SCC 1981
Rsns: b/c any other interpretation would
mean no coverage the second there was
corrosion, which would result in
nullification of K
Facts: life K, premiums paid for Jan. 23rd
start date, but policy delivered Feb. 28th
Dissent: intentions of parties from
wording of K demonstrated Feb.
28th start date.
Issue: relevant date for calculation of two
year suicide clause in life K
Scott v.
Wawanesa
SCC 1989
Held: Intentions of parties from wording
of K demonstrated Jan 23rd start date.
Facts: insured home damaged by fire
deliberately set by 15 yr old son. Exclusion
for loss from “willfull act of the Insured”,
“insured” included named insured,
residents of household, and anyone under
21 in care of insured.
43
Dissent: ambiguous, applied contra
proferentem and would have
allowed coverage.
Issue: was son an insured?
Katsikonouris
SCC 1990
Brissette
Estate v.
Wesbury SCC
1992
CNR v. Royal
Sun Alliance
SCC 2008
Held: yes, therefore b/c willful act of son,
exclusion clause applied.
Issue: Meaning of standard mortgage K clause, excluding coverage where
insured breaches policy.
Held: meaning ambiguous, on plain and ordinary reading, insurer required to
pay mortgagee notwithstanding any policy breach by insured
Facts: beneficiary murdered life insured,
DISSENT: K was ambiguous, did not
so barred on public policy from receiving
say what would happen if
beneficiary killed the life insured,
Issue: what should happen to benefit if
so must resolve in favour of the
beneficiary barred on public policy from
insured. Contra proferentem
receiving? Should it go to estate of life
insured?
Held: Policy clear that was to pay out to
spouse, this intention not affected by
intervention of public policy, proceeds not
payable b/c could not be paid w/n terms
of K.
Builders Risk Policy for losses from failure
of customized tunnel boring machine.
Exclusion for losses relating to faulty or
improper design and inherent vice.
Held: Exclusion does not cover loss caused
by a design which conformed to the state
of the art standard, as was the case here.
44
Dissent: exclusion captured losses
caused by design which did not
withstand foreseeable risks, here
risk was foreseeable—so excluded
regardless of whether state of the
art.
2.
Loss Caused by Accident
Issue: Was the loss caused by “accident”?
Deliberately caused losses (Husak) or inevitable wear and tear (Gaunt) are impliedly excluded in every insurance K,
b/c purpose of insurance is to protect against fortuitous loss
Issue
Where
Ratio
Notes
Generally
Generally, the SCC has given “accident” a liberal and broad interpretation.
What
Gibbens SCC
Average Insured Test: “accident” is an
Interpretation principles and the word
constitutes
2009
ordinary word and should be interpreted accident:
fortuitous or
the in ordinary language as it would be
- “accident” should be given its
accidental
understood by the average person
ordinary meaning
loss?
applying for insurance.
- Generous interpretation should be
- Contextual approach
given to accident unless restricted
- “an unlooked for mishap or
by policy
occurrence”
- If ambiguous, use contra
- Includes negligent conduct
proferentem and construe against
- Unexpected loss required, but not
insurer
sufficient to establish accident
- If ambiguous, give effect to
- Does not include loss from natural
reasonable expectations of parties
processes in the ordinary course of
- There should be continuity of
events
interpretation
Walkem
“Accident” includes event caused by
- Insured negligently repairs cranes,
Machinery SCC
negligence of insured so long as insured
which collapsed and injured people
1976
did not anticipate the particular
- Insurer said this was no accidental
outcome, and even includes situations
b/c negligent conduct means loss
where insured took calculated risk.
was reasonably foreseeable, not
unanticipated
- Rejected by SCC
TEST in context Martin v.
Onus on insured to establish “accident”
- Dr. addicted to pain meds
of whether
American
on b of p.
- Dies of drug overdose
there is
International
Test for accidental loss depends on
- Insurer argued b/c Dr., and
coverage
SCC 2003
insured’s state of mind:
intentionally injected that amount,
must have anticipated death and
1. Whether the insured subjectively
therefore not accidental
intended the consequence of their
- Court rejects this argument
actions. If person did not intend,
- Issue is not whether activity is
then it is an accident.
dangerous or even if death likely,
- In other words, did insured
but whether insured intended or
expect the consequences?
expected to die
2. If court cannot determine intent
using a solely subjective perspective,
use subjective/objective test: what
would a reasonable person in the
insured’s circumstances have
expected?
When
Progressive
Duty to defend is triggered if facts
- Liability insurance for home
“Accident”
Homes v.
alleged in pleadings, if true, would
building company
Triggering
Lombard SCC
require insurer to indemnify insured. Not - Claim brought against insured for
Event
2010
bound by labels chosen by plaintiff, true
faulty workmanship
substance of their pleadings is examined. - Pleadings alleged negligence
- Negligence falls under definition of
In this case, duty to defend if insured
accident
45
caused property damage by “accident”.
Accident in
first party
policy
Stats v. Mutual
of Omaha SCC
1978
Accident = Q is whether loss was
intended or expected (fact dependent)
- Can include negligence
- Reckless or intentional conduct
excluded
- Not limited to “sudden” losses, can
be a loss that occurs gradually as
long as unexpected or unintended
- Can include gradual deterioration
from faulty workmanship, if faulty
workmanship accidental.
There is no difference for the meaning of
accident in third party claims vs. first
party losses
Negligent or grossly negligent conduct
can constitute an “accident” while
reckless conduct does not.
-
Therefore, if facts in pleadings
true, insurer would be required to
indemnify and duty to defend is
triggered.
-
Definition of accident the same for
indemnity and accident policies b/c
both have the same fundamental
purpose—provide “cushioning
against results of a risk”
A person who realizes the danger
of their actions and deliberately
assumes the risk, this is
recklessness
Negligence is where person judged
on reasonableness standard to
have acted dangerously, but they
themselves may never have
thought they were acting
negligently
Policy: accident and sickness
policies should not be converted
into comprehensive health
insurance policies (commercially
reasonable interpretation of
accident excludes disease in the
ordinary course of events)
Limited range of coverage for
specific diseases
If not on the list, then must be an
accident to be covered
Here: rare complication from
herpes, paralysis, not covered by A
& S policy b/c not on list and not
an ‘accident’
Insured’s injury proceeded from
natural causes and in the ordinary
way, even if rare result
-
-
Excluded: Loss
from Natural
Causes
Gibbens
Over-view
Framework
Nelson ABQB
o
Accident does NOT include loss from natural causes.
o Accident is an ordinary word that
should be interpreted the way an
ordinary person seeking insurance
would understand.
o Unexpected loss per se insufficient
to constitute “accident”.
Distinguishes Martin: Martin did not
do away with “accidental means”,
that just was not at issue in that
case.
o Also requires “mishap or untoward
event”, which means something that
would not normally follow the
course of events
o Rare health complications are
included in “normally” following the
course of events
Accident Includes:
1. Prior external force or impact on insured’s body resulting in bodily injury or
death
- Triggering event fortuitous
46
- Examples: slip and fall, falling off a horse
- Any complications which follow are covered
- Very obviously an accident, so few cases on this one
2. Voluntary movement causing unexpected injury/loss peculiar to insured
- Normal activities causing unexpected injury/loss
- Ex: person violently swings golf club, hernia results
- Ex: person plays basketball, twists neck and suffers stroke and paralysis
- Action deliberate, but bodily injury which arose was fortuitous and
unexpected as it was a result of bodily malfunction peculiar to the insured
3. Deliberate conduct causing injury due to miscalculation of consequences
- Example: Martin—drug overdose unintended, miscalculation of amount
- Key: was action of insured intended to cause injury or death?
Accident Excludes:
4. Injury from natural processes within body in ordinary course of events
- Gibbens: paralysis due to natural processes within insured’s body during
normal activity
- Wang: death from rare childbirth complication not accident
- Unexpected loss not necessarily accidental
- Natural diseases only covered if result from accident, they are not
accidents in and of themselves.
Held: person died while swimming b/c had congenital heart condition. Natural
process within body, therefore not accident and not covered.
3.
Loss Caused by Intentional/Criminal Acts
Issue: Can insured recover for loss caused by their own intentional or criminal conduct?
Issue
Where
Ratio
Notes
Common-law
Lecture
At common-law, if loss caused by
Rationale: public policy against
intentional or criminal act of
benefiting from crime.
insured, this is a complete bar to
recovery.
Statutory Modifications BCIA s. 5
Loss or damage from criminal
Same in ON - insurance act s. 118
conduct per se not bar to indemnity,
unless insured (or other person
Policy:
with insured’s consent) intended to
- Preserves freedom to K
bring about loss or damage
- Innocent third parties entitled to
recover
Additionally: recovery still subject
- Preserves fortuity
to policy terms—can expressly
excluded criminal conduct
What constitutes
Eichmanis
- Criminal acts not limited to
Here: criminal negligence causing
criminal conduct?
those intended to cause harm, bodily harm…insured convicted. ON so
applicable to offences that do s. 118 not necessarily excluded, but
not require mens rea.
policy expressly excluded criminal acts.
- Any breach of Criminal Code =
criminal act.
No coverage.
- Criminal conviction is not
required, however conviction
is prima facie proof of a
criminal act.
- criminal act must have caused
47
Definition of
“intentionally Caused
loss”
BB pg. 171
RDF v. Cooperators
MBCA 2004
Saindon SCC
1976
Scalera/
Sansalone
SCC 2000
Emeneau
NSCA 2002
Proving intention
Martin
Critique of
Intentional/Criminal
injury exclusion
Lecture
Erik
Knutsen:
the loss for exclusion to apply.
Summary of below case law:
Intentionally caused loss is a deliberate act committed by an insured with the
intention of causing some degree of harm or loss.
o Deliberate conduct intended to Here deliberate conduct, but no
cause particular loss/outcome
intention to cause harm, boy started
o Intent to injure or cause harm
fire on school property, school burned
required
down. Exclusion did NOT apply b/c
o NOT deliberate conduct causing damages were unforeseen physical
unintended loss
consequences.
Loss is “intentionally caused” where an insured takes action with the purpose
of causing some loss or harm, even if insured does not intend the extent of the
loss actually incurred.
o Intent to injure presumed for inherently harmful conduct, e.g. sexual
assault
o However, intentional exclusion does NOT apply to all losses caused by
deliberate acts b/c this would exclude almost every act of negligence
o General intent to cause harm
Here insured attempted suicide, in
triggers exclusion
process burned house down. Exclusion
o Actual extent or type of harm
applied b/c attempting harm—even if
caused not relevant.
not burning house down.
o First: determine Insured’s subjective intent—did they intend to cause
harm/ loss?
o If can’t determine subjective intent, use: Subjective-objective test—would
reasonable person in insured’s circumstances have intended to cause
harm/ loss?
o Inconsistent interpretive principles, liberal construction of coverage and
exclusion clauses
o Human dimension: effect of exclusion on 3rd parties, see Scalera,
Sansalone, Eichmans
“Why insurers should rethink criminal conduct exclusions”
1. insurers exclude "criminal" behaviour from coverage to motivate
policyholders to avoid definite, unfortuitous losses.
- But crimes can happen by accident
- By excluding all criminal acts regardless of intent, overlook
fundamental principle of fortuity and reason for exclusion in the
first place
2. removing liability insurance coverage for "criminal" behaviour removes
a primary source of compensation for accident victims.
- Liability insurance is the compensatory backbone of tort system
Therefore, criminal exclusion should be limited where insured intended harm
or injury, as avoidance of unfortuitous losses is the purpose of the exclusion
and we should maximize availability of liability insurance for innocent third
parties.
48
4.
Automobile Insurance
Who is Covered?
Issue
Who is
covered?
Where
Ins V Reg
447/83 s. 63
Ratio
Notes
Liberal interpretation of who is covered by the policy…. Only 9important in third party
b/c that is when other people are injured.
(a) a person named as an owner in an owner's certificate,
(b) an individual who, with the consent of the owner or while a member of the owner's
household, uses or operates the vehicle described in the owner's certificate,
(c) where the owner is deceased, the personal representative of the owner or a person
having, with the consent of the personal representative, custody of the vehicle until the
grant of letters probate or of administration to the personal representative, and
(d) where the owner is not an individual,
(i) an officer, employee or partner of the owner for whose regular use the vehicle
described in the owner's certificate is provided, or
(ii) a member of the household of an officer, employee or partner of the owner,
who, with the consent of the owner, uses or operates the vehicle described in the
owner's certificate.
Who is
excluded?
Ins V Reg s. 63
Ins V Act s.
75(b)
Therefore, people using vehicle without insured’s permission is excluded.
Claim of insured or person claiming through them forfeited if
(b) the insured violates a term or condition of or commits a fraud in relation to the plan
or the optional insurance contract
Terms and Conditions:
An insured shall not operate a vehicle for which coverage is provided under section 49
or 49.3 (1) (a) and (c), Part 6 or 7, or Division 2 of Part 10
(a) if the insured is not authorized and qualified by law to operate the vehicle,
(b) for an illicit or prohibited trade or transportation,
(c) to escape or avoid arrest or other similar police action, or
(d) in a race or speed test.
(1) The insurer is not liable to an insured who breaches this condition or a subcondition
of this condition.
Ins V Reg
447/83 s. 55(3);
Schedule 10 s.
3(1), (2),(3),(7)
(2) An insured must not operate a vehicle for which coverage is provided under this
contract
(a) if the insured is not authorized and qualified by law to operate the vehicle,
(b) for an illicit or prohibited trade or transportation,
(c) to escape or avoid arrest or other similar police action, or
(d) in a race or speed test.
(3) An insured does not contravene subcondition (2) merely because the insured
operates a vehicle in contravention of a restriction or condition imposed on his or her
driver's licence by section 30.06 (2), 30.07 (1) or (3), 30.071 (1), 30.072 (1) (a) or (b),
30.08 (1), 30.10 (2) or (4) or 30.11 (1) of the Motor Vehicle Act Regulations, B.C. Reg.
26/58.
“permit”
Wawanesa v.
SC Construction
(7) An insured named in this contract must not permit the vehicle described in this
contract to be operated by a person or for a purpose that breaches this condition or a
subcondition of this condition or would breach this condition or subcondition of this
condition if the person were an insured.
Question of FACT:
Here: held NOT unreasonable for
Test:
insured employer to assume
49
Whether reasonable person would have known
person was unauthorized or operated vehicle
in breach of coverage conditions
employee was licensed driver.
Loss Arsing from “Use or Operation” of a Motor Vehicle
Issue
Basis of
Recovery
Where
BCIVA s.7(1)
Ratio
(1) … 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
Notes
Different statutes have
different wording, so the
principles may be applied
differently in other provinces.
(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,
(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
(c) to whom insurance money is payable, if loss or
damage to a vehicle results
Meaning of
“use or
operation”
of vehicle
Amos SCC
1995
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.
Two Part Test:
Same for both no-fault benefits and indemnity claims
(1) Purpose Test: Did accident arise from wellknown and ordinary activity normally associated
with use of motor vehicle?
- purpose of activity giving rise to loss or
damage
- normal or ordinary use of vehicle at time
of loss or injury
- easy to satisfy ex of what would NOT
satisfy would be using vehicle for storage.
- just has to be well-known and ordinary
way to use the specific type of vehicle:
Whipple—injured doing headstand
against pole in limo party bus, satisfied
purpose test—this is well-known and
ordinary use of using party bus.
- Driving vehicle off-road a well-known
activity re: vehicles: Pender v. Squires
- Ordinary and well-known use to use it for
instruction in the operation of a vehicle:
V-Twin Motorcycle School v ICBC—
Pushing motorcycle during driving lesson
satisfies
50
Insured injured when vehicle
surrounded by attackers with
intent to break into car and
attack him. ICBC denied claim
HELD: insured injured while
driving, therefore claim
allowed.
Application:
(1) He was driving van when
assault occurred and
therefore was using
vehicle for its ordinary
purpose
(2) The van was more than
just the site of the
shooting b/c the shooting
resulted from the
attackers’ attempts to
gain entry into the van.
-
-
Step Two:
No fault
Amos
Martin ONCA
2013
Step Two:
Indemnity
Vytlingam
Irrelevant if conduct illegal, dangerous, or
subjectively why the vehicle is being
used—all that is relevant is if the vehicle is
being used as a vehicle: Vytlingam—
rejected insurer’s argument to deny
indemnity where vehicle used for criminal
purpose; Whipple—insured’s negligence
not a factor in determining “accident” for
first party statutory benefits; Russo—
transporting shooters to restaurant with
their weapons satisfied purpose test:
irrelevant why subjectively they were
being transported, transportation wellknown and ordinary use of vehicle.
For no-fault, it is the insured’s use of their
own vehicle that must pass purpose test
(Amos). For indemnity, it is the
tortfeasor’s use of their vehicle which
must pass the purpose test (Vytlingham)
(2) Causation Test: Is there a sufficient causal
relationship between insured’s injuries and
ownership, use or operation of motor vehicle?
Must be more than merely incidental or
fortuitous. Degree of connection depends on
whether no-fault or indemnity claim.
Connection between injury and use or operation of car
need not be direct.
o Sufficient for injury to arise from tortious
conduct, but need not involve negligent use of
vehicle
o However vehicle use must be more than
fortuitous
Modified Amos test b/c of wording of Ontario statute:
- Cause of injury must be normal risk associated
with use or operation of vehicle
- Not enough for vehicle used as site for causing
injury
- Need vehicle as direct cause of injury
Requirements:
- Tortfeasor at fault as a motorist
- Requires unbroken chain between use of
vehicle and injury/loss
- More demanding than no-fault benefits
- Higher threshold than “but for” test, this
would cast too wide a net
**Do not let sympathy for victim sway judgment to
provide coverage!!***
51
Focus on use of claimant’s
vehicle: did injury arise out of
the use or operation of their
own vehicle?
This is because an insured
reasonably expects coverage
will apply when they are using
their vehicle.
Example of how the wording of
the statute is KEY.
Indemnity insurance is a claim
based on underinsured
motorist protectionwhere
insured’s injury results from of
underinsured motorists’
tortious use of their vehicle
Here the focus is on the
tortfeasor’s car: was it
implicated in the loss or injury?
Lumbermens
v. Herbison
Russo v. John
Doe
Martin 2013
ONCA
This is consistent with parties’
Held: failed causation b/c tortfeasor’s act of throwing
reasonable expectations when
boulders off over-pass was intervening act from
getting underinsured motorist
driving, and broke chain of causation.
coverage.
Hunter drove car to hunting site, proceeded to shoot person in hunting party
accidentally.
Held: tortfeasor not at a fault as a motorist, car not involved in bringing about the harm,
chain of causation broken by act of shooting, no indemnity.
Drive by shooting injured insured; suspect vehicle underinsured
Held: coverage denied, injury was not from driving, shooting intervening act
independent of use or operation of vehicle.
Other than injury to foot, assault did not result from
Decision also consistent with
assailant’s conduct as motorists; independent of use
parties’ reasonable
or operation of vehicle and therefore intervening acts; expectations.
vehicle involvement only ancillary.
52
VII. PUBLIC POLICY RESTRICTIONS
Issue
Public
Policy &
subject
matter
Public
Policy &
Causation
When is
public
policy
used?
Where
Lecture
Ratio
Notes
Public policy trumps freedom of K  if subject matter of insurance K contrary to public
policy, K illegal and unenforceable.
Lecture
Where the way the loss occurs is contrary to public policyclaim denied, but contract
remains valid
Oldfield
Criminal
Forfeiture
BCIA s. 5
Independent of the contract
Examples of when K silent on what
Presumed to reflect social values
should happen, and public policy used
Not subject to parties’ intentions
to resolve:
Trumps K
- Oldfield: drug trafficking
Resort to public policy only necessary where
- Goulet: car bomb
contract silent on an issue or where subject- Brissette: murder
matter or claim against public policy
- Renders K unenforceable NOT void.
Reverses CL presumption:
Loss caused by criminal act only void if expressly excluded in policy.
Insurance K for illegal or criminal activites (subject A criminal should not be permitted to
matter) unenforceable as against public policy
profit from their crime, therefore if
insured’s illegal act caused loss, insured
not able to collect on insurance: against
public policy.
CL position on criminal forfeiture problematic, b/c barring indemnification of insured/wrong
doer excludes compensation for third parties—therefore often modified by statute (see
below)
- Victims of drunk driving cannot recover
- Claim of co-insured barred if co-insured’s wrong-doing caused loss
o Scott v. Wawanesa: son unamed insured, intentionally burns down house,
policy terms precluded parents from recovery b/c son was “insured”
o Beck Estate: estranged husband burns down house, murders wife, commits
suicide. Wife’s estate precluded from recovery b/c they were joint insureds.
Only applies if insured doesn’t die and is just disabled… CANNOT use if life insured died.
K was silent on what happened if death of life
Claim unaffected by insured’s criminal
insured was result of insured’s own criminal
activity b/c:
conduct.
- Beneficiary did not participate
in criminal act
Q: should innocent beneficiaries and 3rd parties be
- Payment not for benefit of
denied coverage where life insured’s death was
guilty insured (not going
result of criminal conduct?
through estate, going directly
to beneficiary)
Held: If beneficiaries totally innocent, they can
recover life insurance proceeds even where death If beneficiary not named, will go
through life insured’s estate. If named
was result of life insured’s criminal conduct—not
will go directly to beneficiary and not
contrary to public policy AS LONG AS NOT
through estate.
CLAIMING THROUGH CRIMINAL’S ESTATE.
Oldfield
BB p. 186
Life
Insurance
BCIA s. 5
Oldfield
-
[Note: Major J. in Oldfield expressed
concern that innocent beneficiaries are
53
Brisette
Auto
Insurance
General
Insurance
Property
Insurance
Life
Insurance:
Death by
Suicide
s.76(6)(c)
treated differently depending on
whether they are named or unnamed]
Cannot recover if insurance proceeds must first go No recovery where
to criminal’s estate and then get disbursed—b/c
claimant/beneficiary intentionally
this is benefiting criminal
caused the loss (estate is beneficiary
where beneficiary unnamed)
Third party claim unaffected by insured’s criminal activity
BCIA s. 5
Reverses CL presumption:
Loss caused by criminal act only void if expressly excluded, or if criminal act intended to
bring about loss (by insured or on insured’s instructions).
BCIA s. 35 Where loss or damage to insured property is
(1) Despite section 5, if a contract
caused by an insured under the policy, the
contains a term or condition excluding
intentional/criminal conduct exlusion is limited to coverage for loss or damage to
the persons implicated in wrongoing (or
property caused by a criminal or
presecribed by regulation)(1(a)(b)(c))—innocent
intentional act or omission of an
co-insured will be indemnified for their
insured or any other person, the
proporationate share in the property (2). Nature
exclusion applies only to the claim of a
of innocent co-insured’s interest in the property
person
irrelevant.
(a) whose act or omission caused the
loss or damage,
Limited to property damage or loss; does not
(b) who abetted or colluded in the
include indemnification for bodily injury or death.
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.
(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.
(3) A person whose coverage under a
contract would be excluded but for
subsection (1) must comply with any
requirements prescribed by regulation.
BC Ins Reg, Only an innocent co-insured who is a natural person can recover under s. 35
403/2012
s. 7(1)
BC Ins Reg, Innocent insured has obligation to co-operate with insurer in investigating claim
403/2012
s. 7(2)
Husak
At common-law: No payment of life insurance if
*Common-law suicide forfeiture
SKCA 1969 death by suicide
applies absent express terms to the
contrary—if K is silent, then no
Rationale: contractual interpretation, suicide not
recovery for suicide. Statute makes it
54
BCIA s.
56(1)
Lecture
within scope of insured risk. Consistent with
intentional injury exclusion. Contrary to public
policy to include coverage for this;
decriminalization irrelevant.
Statutory Modification:
Contractual terms for recovery where insured
commits suicide is lawful and enforceable
Typical Life Insurance K:
- Black out period of usually 2 years where
payments for death by suicide are
excluded or reduced
- Implied term that life insurance will pay
out for death by suicide if suicide occurs
after black out period
- Reinstatement restarts any blackout
period: s. 56(2)
55
enforceable only, not a mandatory part
of insurance K*
Permits coverage for loss arising out of
suicide ONLY—does not require it.
Black out period is given in hope that
people won’t just go get insurance and
then kill themselves, if you have to wait
two years you will probably change
your mind.
VIII. CLAIMS PROCESS
1.
Introduction
BB, p. 193
- Several steps must be followed before an insured can expect to recover benefits under an insurance K
1. Insured must advise the insurer of the loss and of the claim
2. Insurer must investigate, verify and respond
- Different rights and duties are used to facilitate this process
- Imposed by common-law, by statute or by contract
- This all applies only after an insurance K has been properly formed (have a valid K)
o Post-loss Obligations of the insured
 Duties to provide notice of loss;
 Provide proof of loss;
 Cooperate with insurer
 Fulfill all obligation to good faith standard
o Ability of court to relive an insured from consequences of a breach of these obligations
 Relief against forfeiture
 Waiver
 Estoppel
o Insurer’s obligation to respond to claim
o Legal principles in assigning value
o Insured’s ability to sue insurer for coverage under policy
2.
Obligations of an Insured Making a Claim
Notice of Loss
Issue
Obligation
Where
Marcoux
Rationale
Marcoux
SCC 1948
Triggering Event
Marcoux
Length of time
to notify after
triggering event
BCIA s. 29
stat cond. 6
BCIA s. 101
stat cond. 5
Ratio
Insured is obligated to give insurer timely
notification of loss and their intention to make a
claim
Avoids prejudice to insurer re: investigation and
defence:
- Timely investigation
- Determine grounds to contest any claim, if
any
Preserves insurer’s salvage interest
Subjective/Objective Assessment: Actual date of
loss or when reasonable person in the position of
the insured would have reason to believe claim
possible.
General insurance Ks:
(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,
(a) immediately give notice in writing to the insurer
Accident and Sickness:
(1) The insured or a person insured, or a beneficiary
entitled to make a claim, or the agent of any of
them, must
(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
56
Notes
Insured’s subjective belief
irrelevant.
Where gives time limit, easy to
know.
Meaning of “immediately” or
“promptly”
- No hard and fast rules
(Ford Credit Canada ABAB
1984)
- Have regard to all the
circumstances, no
precedent is conclusive
(hogan, ABQB 1983)
- Use the ordinary and
reasonable understanding
Bc Ins. V.
Rg: Sched
10, cond. 4,
5 and 6
Consequence of
breach
Marcoux
Bissett
1987 BCSC
Filiatrault
BCSC 1981
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
Auto:
4 If this contract provides third party liability
insurance coverage, the insured must
(a) promptly give the insurer written notice,
with all available particulars, of
(i) any accident involving death, injury,
damage or loss in which the insured or a
vehicle owned or operated by the insured
has been involved,
(ii) any claim made in respect of the
accident, and
(iii) any other insurance held by the insured
providing coverage for the accident
5 (1) If loss of or damage to the vehicle insured
under this contract occurs, the insured must, if the
loss or damage is covered by this contract,
(a) on the occurrence of loss or damage
(i) promptly notify the insurer of the loss or
damage, and
(ii) file a written statement with the insurer
setting out all available information on the
manner in which the loss or damage
occurred
6 (1) If required by the insurer, the insured must,
on the occurrence of loss or damage for which
coverage is provided by this contract, deliver to the
insurer within 90 days after the occurrence of the
loss or damage a statutory declaration stating, to
the best of the insured's knowledge and belief, the
place, time, cause and amount of the loss or
damage, the interest of the insured and of all others
in the vehicle, the encumbrances on the vehicle, all
other insurance, whether valid or not, covering the
vehicle and that the loss or damage did not occur
through any willful act or neglect, procurement,
means or connivance of the insured.
Claim forfeited
However, if the failure to notify did not cause the
insurer any prejudice, then the claim will not be
forfeited.
Insurer bear burden of proving on b of p that
insured failed to comply with notice obligation.
57
-
of the requirement
(Demitri BCSC 1996)
Immediately more
stringent than promptly
(Ford Credit ABQB 1984)
Essentially, use construction
tools.
Because rationale for obligation
is that if insured does not notify
it prejudices the insurer i.e.
can’t investigate. So if not
prejudiced, there is no reason to
forfeit the claim.
Proof of Loss
Issue
Insured’s
Obligation
Where
BB p. 200
BCIA s. 29
stat cond.
6
BCIA s. 101
stat conds.
5
Ins. V Reg
s. 73
Rationale
BB p. 200
Burden of Proof
Johnston
ONCA 1908
Dimaria
OnSCJ
2003
What information
needs to be
provided?
BCIA s. 29
stat cond 6
(1)(b)
Ratio
Notes
Insured must give sufficient evidence of occurrence and value of loss within specified
time.
See: clause in policy or statutory obligation
General Insurance
(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,
(b) deliver as soon as practicable to the insurer a proof of loss in respect of the
loss or damage to the insured property…
Accident and Sickness
(1)
The insured or a person insured, or a beneficiary entitled to make a claim, or
the agent of any of them, 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
(1) An insured shall
(a) promptly give the corporation written notice, with all available particulars, of
(i) any accident involving death, injury, damage or loss in which he or a vehicle
owned or operated by him has been involved,
(ii) any claim made in respect of the accident, and
(iii) any other insurance held by him providing coverage for the accident
- Prevent fraud
- Provide details of claim, b/c that is w/n insured’s knowledge and not w/n
insurers (Johnston)
- Allow insurer to assess (Prairie City Oil) and validate (Cedar Hut) claim ASAP
and w/o court proceedings
Obligation to provide proof of loss distinct from Notice: “only written”
obligation to provide notice of loss.
Proof: “verify information”
Insured must establish on b of p the occurrence of an insured loss and the value of
that loss.
Information in insured’s actual or constructive knowledge regarding the loss:
- When
- How
- Extent of loss
- Availability of other insurance
(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,
(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 willful 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
58
Sufficiency of
Information
Manner of Proof
JR Mooney
Nixon SCC
1894
Hendry
SCC 1913
BCIA s. 29
stat cond
6(1)
BCIA s. 101
stat cond
5(1)(c)
Time frame for
compliance
BB 202
Consequences of
Breach
Marcoux
BCIA s. 101
stat cond.
5(2)
Ins (v) reg
s. 73(2)
Insurer’s
Obligation
BCIA s. 27
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
Determined on basis of reasonableness, need such details as are reasonably
practicable.
Proof of loss insufficient where insured failed to make inquiries of clerk and
bookkeeper of store inventory destroyed by fire.
Proof of loss sufficient where insured provided copies of last stock taking records
predating fire and copies of invoices for goods purchased since stock taking.
(b) Verified by Statutory declaration
(c) if required by the insurer, give a complete inventory of undamaged property
showing in detail quantities and cost of that property, and
(d) if required by the insurer and if practicable,
(i) produce books of account and inventory lists,
(ii) furnish invoices and other vouchers verified by statutory declaration, and
(iii) furnish a copy of the written portion of any other relevant contract.
Medical certificate:
(1) The insured or a person insured, or a beneficiary entitled to make a claim, or the
agent of any of them, must…
(c)if so required by the insurer, furnish a satisfactory certificate as to the cause or
nature of the accident, sickness or disability for which claim is made under the
contract and, in the case of sickness or disability, its duration.
Look to clause in contract, or statutory
Generally, proof several years after
provision.
event is NOT “as soon as
practicable”: K & R Landscaping
Use contract interpretation tools to determine
meaning of vague words i.e. “immediately” or
“promptly”
Claim forfeited, although contract remains valid.
A&S
Failure to give notice of claim or furnish proof of claim within the time required by this
condition does not invalidate the claim if
(a) the notice or proof is given or furnished as soon as reasonably possible, and in
no event later than one year after the date of the accident or the date a claim
arises under the contract on account of sickness or disability, and it is shown that it
was not reasonably possible to give the notice or furnish the proof in the time
required by this condition, or
(b) in the case of the death of the person insured, if a declaration of presumption
of death is necessary, the notice or proof is given or furnished no later than one
year after the date a court makes the declaration.
AUTO
Dut to provide proof of loss section
The corporation is not liable to an insured who,
to the prejudice of the corporation, fails to
comply with this section
(1) Immediately on receipt of a request, and in
Section 23(2):
any event no later than 60 days after receiving
An action must not be brought for
a notice of loss, an insurer must furnish to the
the recovery of money payable
insured or person to whom insurance money is
under a contract of insurance until
payable forms on which the proof of loss
the expiration of 60 days after
required under the contract may be made.
proof, in accordance with the
59
(2) If an insurer does not comply with subsection
(1), section 23 (2) is not available to the insurer
as a defence to an action brought for the
recovery of insurance money payable under the
contract.
(3) If, within 30 days after a notice of loss is
given, the insurer has adjusted the loss
acceptably to the person to whom the insurance
money is payable, the insurer need not comply
with subsection (1).
BCIA s. 101
stat cond.
6
contract
(a) of the loss, or
(b) of the happening of the
event on which the insurance
money is to become payable
(4) means that the insurer can still
challenge the validity of the K, or
say that claim not within scope of
coverage despite having provided
the forms.
(4) An insurer, by reason only that the insurer
furnishes forms on which to make the proof of
loss, must not be taken to have admitted that a
valid contract is in force or that the loss in
question falls within the insurance provided by
the contract.
The insurer must furnish forms for proof of claim within 15 days after receiving notice
of claim, but if the claimant has not received the forms within that time the claimant
may submit his or her proof of claim in the form of a written statement of the cause
or nature of the accident, sickness or disability giving rise to the claim and of the
extent of the loss.
Duty to Cooperate
Issue
Obligation on
Insured
For subrogated
claim
For liability
insurance
Where
Somersall SCC
2002
Re Canada
3000 (OnSCJ
2003)
Ins V Reg s. 73
Scope
Consequence
of breach
Reid (1980 ON
HCJ)
Sumner Co and
Fraser (SCC
1960)
Ratio
Notes
Insured is obliged to assist the insurer with
Usually written expressly into
their investigation
policy
Contractual provision to cooperate in pursuit of subrogated action, interpreted as
requiring “little more than [the insured’s] actual participation as a witness”
- Insured not to assume liability in 3rd party Usually written expressly into
action
policy, but there is also this duty
- Assist the insurer in defending the 3rd
at common-law (impliedly
party claim
expressed in this case)
- Provide necessary information for
settlement
- Duty to cooperate is a condition
precedent to receiving indemnification
(1) An insured shall…
(c) cooperate with the corporation in the investigation, settlement or defence
of a claim or action,
(d) except at his own cost, assume no liability and settle no claim
As an express term of K, obligation to cooperate is subject to interpretation
principles, and is “a pragmatic question to be determined in each case in the light of
the particular facts and circumstances”
Generally, duty of co-operation defined as a duty to: “assist willing and to the best
of his judgment and ability”
If insured’s breach was material and
Insurer can refuse to defend or
substantial in relation to the claim advanced
indemnify.
against them, they forfeit their claim. (must be
60
Examples of
Breach
Thompson
(ONCA 2006)
Oberg BCSC
1930
Marchand SCC
1924
Kansa (ONCA
1996)
Satter (SKQB
1993)
Walters (BCCA
1935)
Adamson (SCC
1938)
more than trivial)
Insured failed to respond to letters and other communications by insurer seeking
additional information about incident giving rise to a lawsuit against the insured
Insured investigated and settled claim brought against him without involving
insurance company
Insured paid the judgment ona claim while insurance company was still deciding
whether to appeal
Insured failed to keep insurer informed about the status of a lawsuit against the
insured and various offers to settle made by third party claimant
Insured intentionally failed to attend hearings, provide evidence or assist in
obtaining witnesses in the course of a lawsuit commenced against the insured.
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
Fraud by Insured
Issue
Governing
Principles
Where
Ratio
Insureds’ obligations post loss are informed
by a duty of good faith.
Proving Fraud
Holland NSCA
1978/
Brandiferri
Holland NSCA
1978
Onus is on the insurer to establish fraud on
balance of probabilities
Brown BCCA
2004
Presumptions
Consequences
of Fraud
Ghaffari ONCA
1996
Stebbing UK
1917
BCIA s. 29 stat
cond 7
Ins V Act s. 75
Brandiferri (ON
SCJ 2012)
Swan Hills
Lecture
Notes
Means; no willful concealment of
material information or
misrepresentation
Technically b of p, but in practice
need a lot of evidence to establish
fraud.
Inadvertence, omission or mistake
not sufficient evidence of fraud
Insured knowingly, without honest belief in
representations, or recklessly made false
representations (positive assertions or
omissions)
Insurer must prove that fraud was material to the claim, in that it was capable of
misleading the insurer by affecting the insurer’s management or payment of the
claim.
If value of claim grossly over-valued, there is a Rebut: by demonstrating an
presumption of fraud.
honest mistake.
At common-law, insured’s fraud in advancing a claim entitles the insurer to avoid
all obligation under the K
Claim forfeited, but contract remains valid.
*insurer may choose to exercise
unilateral termination though*
Claim forfeited, but contract remains valid.
Amount of fraudulent claim irrelevant, even if fraud only in relation to one small
part of claim, whole claim forfeit
No relief against forfeiture due to fraud, and i.e. fraud in relation to contents of
if fraud only relates to one part of claim,
building, coverage for building
doesn’t matter whole claim void.
itself also forfeit.
Punitive damages may be awarded to the insurer against the insured.
61
3.
Excusing Insured’s Breach of Contract
Introduction
Three doctrines which allow a contracting party’s technical breach to be excused, in order to avoid harsh or unfairness in
the strict application of contract principles:
1. Relief from
o Distinct and separate doctrine
forfeiture
o Has unique statutory provisions
o Focuses on whether there was actual prejudice to the insurer
2. Waiver
o Arguments are made that these are a single concept
o Common foundation is that a party should not be allowed to go back on a
3. Estoppel
choice when it would be unfair to the other party to do so
o Technically elements are different, but facts usually give rise to both or
neither.
o However, prevailing way to treat them is as two separate concepts, but
closely related.
Usually applied to relieve the insured from their breach, although technically can be applied to relieve insurer as well
(note that stat provisions however may only refer to insured!)
62
Relief against Forfeiture and Termination
Issue
Relief against
Forfeiture and
Termination
Where
Falk Bros.
(1989 SCC)
Test
Falk Bros
1. Legal
Threshold
BCIA s. 13
Falk Brothers
LEA s. 24
Pluzak
Ratio
Notes
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.
Prevent insurer from denying coverage on the basis of a technical breach which is
not substantively prejudicial to the insurer.
Insured must satisfy court on b of p:
Practically courts often start
1. As a matter of law, relief against forfeiture with (2), and if facts don’t
can be applied to the case at bar; and
merit relief, then do not
2. The facts of the case merit the application bother figuring out whether
of relief against forfeiture
relief can apply.
Without limiting section 24 of the Law and Equity
This incorporates s. 24 of LEA
Act, if
so it applies to insurance Ks as
(a) there has been
well.
(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.
There must be imperfect compliance with post-loss Must be “imperfect”
obligations:
compliance not NO
- Not limited to timely notifications or proof compliance.
of loss
- Includes all post-loss obligations i.e. duty
to co-operate and protect insurer’s salvage
interests
The court may relieve against all penalties and
Important b/c BCIA s. 13 only
forfeitures, and in granting the relief may impose
applies to stat conditions. So
any terms as to costs, expenses, damages,
for life insurance, which has
compensations and all other matters that the
no stat conditions, use this
court thinks fit.
provision
Generally, relief under this section is not broader
SO: There must have been a
than the specific relief provision in s. 13. Still only
valid insurance K in place,
63
applies to post-loss breaches, in relation to postloss obligations.
Conditions for the
BB p. 221
exercise of the
Court’s discretion
Cedar Hut
1985 SKQB
SK River
Bungalows
Rayko BCSC
1986
Pilotte
If K not valid due to nonpayment of premiums, court
cannot grant relief from
forfeiture, this is not post-loss
breach.
Essentially, a court should only grant relief from
forfeiture where it would be more fair to relieve
the insured form the consequences of its breach
than to hold the insured strictly accountable for
the breach.
If SPECIFIC relief power, two Factors to consider:
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
obligation?
If the GENERAL relief power, three factors to
consider:
1. The conduct of the claimant: was the
conduct of the plaintiff 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? And
3. The disparity between the value of the
property forfeited and the damage caused
by the breach: was the disparity
substantial?
- No relief where insured’s delay
substantially impaired insurer’s ability to
investigate or mitigate the loss.
- Insured’s breach must be unintentional
and cause no prejudice to the insurer
- Insured must have “clean hands”
-
Sk Bungalow
Richards
ABQB 1993
Weatherbie
Excluded from
relief of forfeiture
Jackson
National
Juice
No relief where insured’s unreasonable
conduct led to the breach
- No relief where insured intentionally or
maliciously breached an obligation
- No relief where insured lied about the
circumstances giving rise to the breach
Pre-loss breaches, pre-loss non-compliance also,
there must “imperfect” compliance not NO
compliance.
Cannot give relief of forfeiture for expired
limitation period (either statutory or contractual)
-
Claim filed 12 years after
accident
Even if relief from
forfeiture possible,
inappropriate to exercise
discretion
Delay caused prejudice to
insurer
Here, breach of stat. cond. 4
no relief of forfeiture
Ex. Section 23 BCIA
*note limitation period
64
DIFFERENT than notification
period*
Limitation: time of initiating
an action against the insurer
Notification: time for notifying
insurer there has been a loss.
BCIA s. 32
LEA s. 24
However, for these problems, court could
potentially give relief under s. 32
Or under s. 24 LEA??
Waiver and Estoppel
Issue
Applicability
Where
BCIA s. 14
BCIA s. 38
BCIA s. 93
BC Ins V Act s.
85
Waiver
SK River
Bungalows
Ratio
Notes
(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 (waiver)
(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. (estoppel)
Section 14 applies to contracts of life insurance.
Sections 13 and 14 apply to contracts of accident and sickness insurance.
(1) An insurer may for a particular case waive a term or condition of the plan or an
optional insurance contract.
(2) A term or condition of the plan or an optional insurance contract is not waived by
the insurer in whole or in part unless the waiver is in writing and signed by a person
authorized for that purpose by the insurer.
(1) Insurer had full knowledge of their
Purpose:
rights; and
- Relieve insured from strict
(2) Unequivocally and consciously
contractual obligations
communicated to insured an
- Alters K subject to terms specified
intention to abandon rights.
in written notice
- Detrimental reliance by insured
Looking for whether one party
NOT required (however if there is
communicated a clear intention to waive a
detrimental reliance, go to
right to the other party.
estoppel, where retraction isn’t
- At cl can be express or implied (stat.
effective)
modification s. 14(1)(a) must be
writing now, if not in writing, try to
prove estoppel—need detrimental
reliance)
- Can waive obligation before or after
breach by insured.
However, insurer is entitled to retract waiver—if there has been reliance by insured,
then must give reasonable notice in order to retract. If no reliance, can retract
without notice.
65
Estoppel
Pannenbecker
ABCA 1978
McConnell
Maracle
Travellers
Avoiding
Waiver and
Estoppel
Lecture
BCIA s. 14(2)
BCIA s. 27(4)
Ins V Act s.
85(3)
BB. p. 235-237
A representation of insurer, by words or conduct, regarding existing facts or future
intention not to enforce contractual right. Requires detrimental reliance by insured.
Estoppel by Representation:
- Accepting premiums after due
date
Representation about a fact.
- Reinstatement w/n 2 years of
policy lapsing w/o proof of good
health and insurability
- Providing defence absent
obligation to do so
Promissory Estoppel:
If decided today see: Ins. Reg
Arises when insurer makes a representation
403/2012—s. 4, insured must give
(promise) about a future state of affairs.
notice to self-rep of limitation period
Here, letter admitting liability did NOT give
rise to promise that limitation period would
not be enforced. Action statute barred.
Insurer’s Dilemma:
- Insurer suspects breach or K void
- Breach or invalidity yet to be established
- Insurer risks breach of duty for failure to respond/defend
- Potential prejudice for lack or no timely response
(2) Neither the insurer nor the insured is
This also applies to life (s. 38) and A
deemed to have waived any term or
& S (s. 93): these sections say s. 14
condition of a contract by reason only of
applies.
(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.
An insurer, by reason only that the insurer furnishes forms on which to make the
proof of loss, must not be taken to have admitted that a valid contract is in force or
that the loss in question falls within the insurance provided by the contract.
Neither the insurer nor the insured waives any term or condition of the plan or an
optional insurance contract by any act relating to the appraisal of the amount of loss
or to the delivery and completion of proofs or to the investigation or adjustment of
any claim under the plan or an optional insurance contract.
Insurance Industry Practice:
Effect:
- Reservation of rights/non-waiver
- Pre-empts claims of waiver
agreement
and estoppel
o Insurer responds to claim/defend
b/c purpose is to preserve insurer's option
without prejudice
to later deny coverage, documents are no
- Reservation of right
longer effective once the insurer has
o Unilateral communication by insurer denied coverage: Matthews, BCSC 1956
to insured
o Insured’s consent not required
o Unequivocally communicated to
insured
- Non-waiver agreement
66
o
Application
Examples
Mathews BCSC
167
Williams ON
co. ct. 1966
Parrott SCC
1921
Caldwell SCC
1883
Duplisea SCC
1979
Reierson SCC
1977
Haines SCC
1911
Maracle SCC
1991
Young SCC
1892
Marcoux SCC
1948
Paul v. umis
BCCA 2012
4.
Mutual agreement between insurer
and insured
o Liability insurance: parties can agree
on parameters of defence,
indemnification arrangement if not
duty to defend and indemnify
Note: non-waiver agreement will be considered strictly against insurer and liberally in
favour of insured.
Note: non-waiver agreement will not be enforced if the terms or relevance of
agreement was misrepresented to insured or otherwise misunderstood by insured.
Insurer was barred from relying on the insured’s breach of coverage condition
stipulated in the policy where the insurer continued to defend the insured under a
liability policy after learning of the breach.
Insurer could not rely on the insured’s failure to file a proof of loss within the
required time frame where the insurer refused to provide the insured with a copy of
the policy, needed by the insured to complete the proof of loss.
Insurer could not rely on the insured’s failure to pay policy premiums on time where
the insurer received a deposited a premium check received from the insured after
the payment due date.
Insurer did not forfeit right to rely on lack of timely premium payment where, upon
receiving a check within the agreed payment period, insurer requested replacement
check and the replacement check was not provided until after the insured’s death.
Having made an unconditional tender of partial payment to the beneficiary under a
life insurance policy, an insurer was precluded from avoiding the policy on the basis
that it had not been provided with notice of the insured’s death within the time
period prescribed by the policy.
Insurer who entered into settlement negotiations with an insured without promising
that the limitation period would not be enforced was not precluded from later relying
on the limitation period.
Accepting proofs of death under an insurance policy without immediately raising the
fact that the notice of death policy requirements had been breached did not prevent
an insurer from later relying on the breach of notice.
The insurer’s investigation of a loss on a “without prejudice” basis did not preclude
the insurer from denying coverage on the basis of the insured’s failure to provide
notice of the loss.
Insurer who reinstated life insurance policy w/o proof of insurability did not waive
right to refuse when it turned out insured was already dead. Waiver requires
knowledge of rights, insurer did not know insured was dead so no waiver. Estoppel
did not apply b/c no reliance, insured was already dead so not losing opportunity to
get different insurance.
Insurer’s Obligation to Respond to Claims in Good Faith
Issue
The duty
Where Ratio
Notes
Whiten Insurer owes a reciprocal obligation of good faith:
 Mutual reliance and vulnerability
 Insured particularly vulnerable at time of loos/claims
 Insurer to further purpose of insurance—peace of mind
 Timely response to claims
 Duty of good faith response broader than duty to pay
67
Triggered
Standard of Duty
Consequences of
breach of good faith
duty
Even if no breach of
good faith duty,
there may be
consequences
 Insurer is not to exploit the insured’s vulnerability.
Fidler
The duty of good faith is triggered as
Distinguish duty to pay: satisfactory proof of
soon as insurer advances claim under
loss, compliance with post-loss obligations.
contract, regardless of whether K
provides coverage for the loss claimed.
Either or both duties triggered in a
particular situation
Fidler
KEY: Act reasonably. If unreasonable,
At a minimum, insured must:
will be in breach.
- Investigate and asses the claim
objectively and on proper grounds
Denial of benefits not necessarily a
- Act with reasonable diligence
breach of the duty of good faith
during each step of the claims
response
process to see claim resolved in
- Denial of benefits must be
timely way; and
reasonable
- If no reasonable grounds for
- Balance and reasonable
denying coverage or payment
assessment of merits of claim
exists, pay the claim on a timely
- Insurer not to strategically
basis.
exploit insured’s vulnerability
- Refusal based on reasonable
interpretation of insured’s
contractual duties
- Insurer need not be correct re
decision to dispute or deny
payment
- Denial of claim that ultimately
succeeds per se not bad faith
- Depends on circumstances
- May be liable EVEN IF denial of
coverage is correct
Whiten Pay claim if denial of coverage
incorrect.
Punitive Damages
Example: Blanco
- Unfounded allegation of arson;
- Unreasonable denial of disability
manipulation of evidence
benefits for 10 years, with
- Good faith duty breached
knowledge of insured’s financial
- Breach constitutes
and emotional vulnerability
independently actionable
- Punitive damages awarded against
wrong for punitive damages
insurer for same agent’s conduct
before, yet no change in behavior
- 4.5 million punitive award
Fidler
Possibility of aggravated/ mental
Here: pure contract principles
distress damages:
- Insured bargains for “peace of
- Requires reasonable
mind”, part of the consideration the
foreseeability of mental distress
insured gives in exchange for the
at time of K
premium
- If you breach this reasonable
expectation of peace of mind, in
contemplation of the parties at time
of K, insured entitled to mental
distress damages.
68
69
5.
Insurer’s Duty to Defend under Liability Insurance Policy
Issue
Duty to
Defend
When does
duty arise?
Where
BB. p. 245
Ratio
Liability insurance designed to protect against
3rd party claims. By express terms, policies
include two separate duties (1) to defend and
(2) to indemnify. Scope of duties dependent on
wording of K, and one or other may be excluded
by K.
Great West
Steel
However, a clause in a liability policy providing
that “no action shall lie against the insurer until
the amount of the insured’s obligation to pay
has been finally determined by judgment” only
applies to duty to indemnify, NOT duty to
defend.
“Pleadings Rule”
Nichols
SCC 1990
Duty to defend arises when the third party
pleadings disclose a cause of action with the
scope of the policy.
Thus duty to defend wider than the duty to
indemnify, b/c merits of claim irrelevant: only
pleadings matter.
Test for
Pleadings
Rule
Scalera
What matters is the “true nature of the claim”
and not the labels used in pleadings.
Court wants to avoid people drafting pleadings
just to trigger duty.
Test: Determining if duty to indemnify exists, in
order to trigger duty to defend:
1. Are allegations against insured properly
pleaded
o Not considering merits of claim
o Could the legal assertions be
supported by those factual
allegations?
2. Multiple claims: are some claims
entirely derivative in nature
o A claim is derivative of another
if it arises from the same actions
and causes the same harm
o If both negligence and
intentional tort arise from same
actions and cause same harm,
negligence is derivative and
70
Notes
- Benefits insured b/c litigation costs
are huge
- Common for defence costs to be
excluded from policy limits
- Benefits insurer b/c they want
control of defence if ultimately
they are on the hook for judgment
- Use same test for triggering duty to
defend.
- Two separate duties.
- If facts alleged true, would insurer
have to indemnify?
- Actual outcome irrelevant
- If obligated to indemnify, then
must defend. If not obligated, no
duty to defend.
- Just need mere possibility that
claim might succeed
- Just one ground of action
covered—ok if there are others not
covered
- No duty to defend excluded claims,
regardless of outcome
subsumed into intentional tort
for purposes of determining if
exclusion clause applies (i.e. no
indemnification for intentional
tort, only negligence)
3. Are any properly pleaded non-derivative
claims within scope of coverage to
trigger duty to defend
o Apply pleadings rule here.
Type of
Evidence to
Use in test
Monenco
SCC 2001
Issues
Wi-Lan
ABCA 2005
Nichols
Hanis
Summary: must be properly plead, nonderivative of excluded ground, within scope of
coverage to trigger duty.
In applying the Pleadings Rule as part of the
Scalera 3-step test, to determine the
“substance” and “true nature” of the claim, a
court can use extrinsic evidence expressly
referred to in pleadings, but not to prematurely
resolve underlying issue.
(a) Limits to statement of claim and not
defence
o What constitutes “pleadings’?
o Duty to defend does not depend at all
on filing a statement of defence, and if
you made that the triggering doc it
wouldn’t work
o If you consider defence this might
amount to considering merits of claim,
which is contrary to pleadings rule
o Limited this way b/c otherwise insurer
could frame defence to exclude
coverage-contrary to good faith
obligation
(b) Severability of claims
o No duty to defend uncovered claims
o Insurer’s liability limited to defence
cost for covered claims
o Problem: control of litigation
(c) Inter-related claims
o Severability impossible
o Defence of covered claims benefit
uncovered claims
o Should insurer be liable for entire
defence cost for covered claim even if
defence benefits uncovered claim?
o Allocation depends on contractual
obligation as per policy terms; not fair
and equitable allocation between
covered and uncovered claims
o Defence costs for covered and
uncovered often indistinguishable,
71
Duty triggered if inference of coverage
reasonable from the pleadings, even
where no clear duty to defend arises
from pleadings. Insured entitled to the
benefit of doubt.
While SCC has not directly commented
on this, in Nichols and Scalera did refer
to a “statement of claim”… otherwise
SCC is always just saying “pleadings”
Potentially consider defence if
pleadings include admissions of facts
(Wi-Lan ABCA)
Sommerfield: negligence claim not
derivative of sexual assault claim…
duty to defend for negligence.
Apportion costs of defence, insurer to
pay 20%.
Broadhurst
& Ball
(d)
Economic
Mutual
(e)
Monenco
(f)
Longo
ONCA 200
(g)
bases of liability may be
indistinguishable, no apportionment—
insured liable for entire defence cost in
accordance with K terms, irrelevant if
this benefits uncovered claims
o If distinguishable, then insurer’s
liability limited to defence cost for
covered claims.
Multiple liability policies
o Allegations against insured covered by
multiple policies
o Concurrent duty to defend
o Each insurer contributes to defence
costs; irrelevant policy primary or
excess
o Irrelevant duty to indemnify under
excess may not be triggered
o No contract re: apportionment of
defence costs between insurers
o Apportionment must be fair and just in
circumstances and not necessarily
correlate with policy limits:
Multiple Liability Policies: Which insurer
defends?
o primary insurer conducts claim,
advise named insured to notify
excess insurer if claim likely to
exceed limit of primary policy.
o Excess insurer may request to be
part of investigation and defence
o Excess insurer shares equally with
primary insurer all costs associated
with claim, regardless of final
outcome of claim.
o If parties contest, whoever has the
greater risk of loss gets to defend
(usually will be primary but could
be excess in certain circumstances)
When should duty to defend be assessed?
o Preliminary matter
o Straight forward, do at beginning,
unless there are questions about
the validity of K in the first place
(i.e. breach of disclosure)
When outstanding coverage issues
o Case by case basis
o Issue: should insurer have to
defend 3rd party action, while there
are ongoing validity of K issues with
insured?
o Consider:
72
Auto:
In V. Act: s. 79(5)
Auto:
In V Act s. 79
However doesn’t mean it can always
work this way. In scarela and Nichols,
both were after insured brought claim
for costs against insurer at end of
litigation.
Also consider (Drane NBCA)
- Is breach of condition
contested? On what basis?
Serious dispute?
- Is ti reasonable to expect the q
of breach of condition to be
dealt with on expedited basis?
o
o
Relative strength of positions
asserted by the insurer and the
insured
The necessity and urgency to
furnish the insured with a separate
defence
-
-
-
-
Remedy for
Breach
Lecture
Lecture
1. Declaration: insurer required to defend
2. Breach of K: insurer liable for defence
cost and indemnification
-
-
73
Despite clear breach of stat
cond., are there circumstances
that militate in favour of relief
from forfeiture
Is estoppel invoked?
What is the status of the main
action against the insured?
What is the nature of the
conlifct between insured and
insurer?
Does the conflict between
insured and insurer require
separate and independent
counsel to adequately
represent the interests of the
insured?
Is insured capable of assuming
costs of independent counsel
until issue of breach of
condition resolved?
Note insurer cannot resist
indemnification b/c it did not
control proceedings
While condition precedent for
indemnification is that the
insured is not to accept
liability or settle before
liability determined, if insurer
unreasonably refuses to
defend, then they are not
entitled to deny
indemnification for reasonable
settlements—insurer deemed
to have waived right to insist
on compliance with
contractual conditions:
Stevenson SCC 1956
6.
Duty to Settle within Policy Limits
Issue
Duty
Where
Shea
Rationale
Lecture
3rd party claim within
policy limit
3rd party claim exceeds
policy limit
Shea
3rd party judgment
against insured
exceeds policy limit
Consequences of
insurer’s breach
Fredrikson
Tripartite Relationship
AdjinTettey
Dillon
Ratio
Notes
In keeping with the duty of utmost
Insurer must give consideration to both
good faith, insurer has a duty to
their financial interests and the
attempt to settle within policy limits.
insured’s financial interests.
Insurer controls defence and settlement negotiations
- Ensures insured does not jeopardize insurer’s interest
- Insurer appoints counsel, conducts litigation, settlement etc.
- Therefore good faith and fair dealings required in defence and
settlement
- Insured not at risk of financial *although insured may have other
liability to 3rd party
interests, such as reputational interests,
- Only insurer’s financial
at stake*
interest at stake
- Duty easily fulfilled
- Insurers and insured’s
Includes an offer to pay policy limits in
financial interests at stake
exchange for release of liability!
- Insurer must make reasonable
efforts to settle within policy
limits
- Insurer not to unreasonably
refuse settlement offer within
policy limit
- Not an automatic breach of good faith duty to settle over policy limit
- Insurer only required to act fairly and openly
Liable for entire judgment amount








Here:
-
3rd party claimed $100,000
Limit $50,000
Settlement offer: $45
Insurer declined, countered
with $40
- Judgment against insured for
78$
- Insurer liable for all.
Third party claims against insured under liability insurance policy
Insurer appoints, instructs, and pays counsel
Counsel to defend insured in 3rd party liability claim
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
Are there concerns with the insured’s appointment of independent
counsel?
74
75
IX. OVERLAPPING POLICIES AND OTHER CONSEQUENCES OF INDEMNITY
Issue
What is an
overlapping
policy?
Where
Family
Insurance
NOT overlapping
Clarke ONCA
1925
Indemnity still
applies
Effect of full
indemnification
on co-insured
Doctrine of
Equitable
Contribution
Halwell
ONCA 2002
McKenzie
ONCA 2007
Family
Insurance
Family
Insurance
Continental
v. Prudential
Difference
between
contribution and
subrogation
Cameco
Corp
Determining
Proportionate
Share
BCIA s. 30(1)
Ratio
Notes
1. Same object of insurance/ subject
Overlapping policies are not affected
matter
by:
2. Same insurable interest
- Different wording
3. Same risk
- Different policy limits
4. Same insured
- Different scope of coverage
5. All policies effective at time of loss
6. No policy excludes contribution
7. Only for indemnity policies
Not overlapping policy if same subject
Here: property insurance on house,
matter but different insureds and different
and mortgage insurance on
interests
mortgage for same house.
Same insured, but one policy excluded loss = not overlapping policy
Same insured, but policies protected different interests; policies that provide
primary and excess coverage do not overlap.
Insured’s recovery from co-insurers is limited to actual loss, subject to policy limits
Co-insurer are not relieved of contractual duty to pay for insured loss: Contribution
Applies
Insurer(s) who indemnify insured are entitled to reimbursement by co-insurers who
are also liable for the loss (i.e. have an overlapping policy)
- Equitable not contractual right
- Claim warranted as a matter of fairness
- Claim defeated if unfair to allow contribution (i.e. based on insurer’s
conduct—clean hands principle)
- Flexible approach to ensure fairness
Subrogation:
Contribution:
- Insured entitled to compensation
- Overlapping policies for loss
from 3rd party
- Loss satisfied by one or more
- Insurer first satisfies insured’s loss
insurers
- Insurer can then bring action against
- Insurer seeks contribution
tortfeasor in insured’s name
from co-insurers who are
- Insurer entitled to amount
also liable for same loss in its
recovered up to indemnity amount…
own right
insured gets any remaining balance.
- Insurer recovers amount
- Purpose: prevents windfall to
exceeding its proportionate
insured (indemnity principle)
share
- Purpose: avoid windfall for
co-insurers
- Non-paying co-insurers are
not relieved of
indemnification obligation
just b/c another insurer has
already paid out
Insurers can agree to a contribution
A number of companies have signed
allocation formula, which differs than what
onto Insurance Bureau’s “Agreement
imposed by statute.
of Guiding Principles” which
76
determine contribution rules.
Commonlaw
Maximum Liability Lecture
Two approaches:
1. Maximum Liability
2. Independent liability
Insurer’s contribution assessed by reference
to policy limit in insurance contract relative
to overall coverage in all policies subject to
policy limit.
Insurer A – policy limit: $30,000
Insurer B– policy limit: $170,000
Total coverage:
$200,000
Insurer A’s contribution:
$30,000 X 100 = 15%
$200,000
Independent
Liability
Lecture
Insurer B’s contribution:
$170,000 X
100
= 85%
$200,000
Each insurer pays 50% or equal amount of
total loss up to policy limit
Insurer A: Policy Limit - $100,000
Insurer B: Policy Limit - $500,000
Scenario One
Value of loss:
$100,000
Insurer A pays 15% of $100,000 =
$15,000
Insurer B pays 85% of $100,000 =
$85,000
Scenario Two
Value of loss:
$220,000
Insurer A pays 15% of loss up to
policy limit = $30,000
Insurer B pays 85% of loss up to
policy limit = $ 170,000
Scenario One:
Value of Loss: $160,000
Insurer A’s Liability:
$80,000 (50% of loss up to policy
limit)
Insurer B’s Liability:
$80,000 (50% of loss up to policy
limit)
Scenario Two
Value of Loss:
$200,000
Insurer A’s Liability:
$100,000 (50% of loss up to policy
limit)
Insurer B’s Liability:
$100,000 (50% of loss up to policy
limit)
Scenario Three
Value of Loss:
$240,000
Insurer A’s Liability:
$100,000 (50% of loss up to policy
limit)
Insurer B’s Liability:
$140,000 (50% of loss up to policy
77
limit)
Which method to
use?
Family
Insurance
Hayden
BC Ins V Act
s. 80(3)
Use independent liability method for
determining contribution of overlapping
liability policies
Use maximum liability method for
determining contribution for property
insurance, and independent liability method
for determining contribution in liability
insurance.
Rationale:
 Property insurance:
o Correlation b/n premiums
and policy limit
o Premium by reference to
value of property
o Correlation b/n policy limit
and property value
 Liability insurance
o No correlation b/n premium
and risks or policy limit
o Policy limits arbitrary
o Hayden: Policy 1: Premium
£6, policy limit £100,000;
Policy 2: Premium £5, policy
limit £10,000
 Parties’ reasonable expectations
Statute Mandates Independent Liability Method
(3) In this section, "rateable proportion" means
(a) if there are 2 insurers liable and the certificate or policy specifies the same limit,
each of the insurers is liable to share equally in any liability, expense, loss or
damage,
(b) if there are 2 insurers liable and the certificate or policy specifies different limits,
the insurers are liable to share equally up to the limit of the smaller limit, or
Recovery under
Overlapping
Policies
Family
Insurance
BCIA s. 30
BC Ins V Act
s. 80(1)
(c) if there are more than 2 insurers liable, paragraphs (a) and (b) apply with the
necessary changes and so far as applicable.
At common-law, insured entitled to 100%
Effect: joint liability
recovery from any one insurer—leave
insurers to sort out contribution
(1) If, on the happening of loss or damage,
Effect: several liability
there is in force more than one contract
- Insured must get rateable
covering the loss or damage, the insurers
proportion of loss from each
under the respective contracts are each
insurer
liable to the insured for their rateable
proportion of the loss, unless it is otherwise
expressly agreed in writing between the
insurers.
(1) If there is an optional insurance contract Effect: several liability
and any other vehicle insurance, including
insurance under the plan or another
optional insurance contract, none of which
is excess to the others, that insures against
the same loss or liability, an insurer is liable
only for its rateable proportion of any loss,
78
Avoiding
Overlapping
Policies
Exclusionary
Clause
Lecture
Primary and
Excess Policies
McKenzie
Temple SCC
1901
BCIA s. 30(6)
Ins V Reg s.
104
Ins V Reg
447/83 s.
149(1)
Ins V Reg
447/83 s.
175(1)
Ins V Reg
447/83 s.
150.1
Family
Insurance
liability or damage.
Two Ways:
1. Primary and excess policies—“other insurance” clause
2. Exclusionary clauses
Clause in K that says coverage excluded if
Effect: insurer excused from
loss covered by another policy
indemnification in event of
overlapping policies
If BOTH or ALL policies have this exclusion clause, they are INOPERATIVE: each policy
is primary, insurers liable for rateable portion under overlapping policy law.
Where one insurance policy is the primary, and the other is the excess, the primary
policy pays out until it is exhausted and the excess policy only pays any remaining
necessary indemnification above the primary policy.
30 (1) If, on the happening of loss or
- items specifically identified in one
damage, there is in force more than one
policy, and not identified but
contract covering the loss or damage, the
covered in another policy, the policy
insurers under the respective contracts are
which specifically identifies the item
each liable to the insured for their rateable
will be the primary coverage: not
proportion of the loss, unless it is otherwise overlapping.
expressly agreed in writing between the
insurers.
Irrelevant if one of all policies
…
contain “other insurance” clauses:
(6) Despite subsection (1), insurance on
30(2)
identified articles is a first loss insurance as
against all other insurance.
(1) If benefits
If you have your own car with
(a) are provided under this Part and
insurance, but are driving your
evidenced by an owner's certificate in
friend’s car when an accident occurs,
respect of a vehicle involved in an accident,
your friend’s insurance is primary
and
and your own insurance is excess.
(b) are also provided under this Part and
evidenced by an owner's certificate in
respect of a vehicle not involved in the
accident, or by a driver's certificate,
the benefits described in paragraph (a) are
primary and the benefits described in
paragraph (b) are available only to the
extent that the amount of those benefits
exceeds the amount of benefits described in
paragraph (a).
Basic compulsory policy is primary; optional coverage is excess
Loss from nuclear energy hazard covered by nuclear energy hazard policy; auto
policy excess
Garage vehicle policy primary; auto policy excess
An insurance K may have an “other
insurance” clause, which converts a primary
policy into an excess policy.
79
However if not all policies have an
“other insurance” clause, they will
operate and that policy will be the
excess policy.
Mckenzie
If BOTH or ALL policies have an “other
insurance” clause, they become inoperative This exception only applies where to
and both policies are treated as primary
give effect to all clauses would leave
policies.
the insured w/o coverage.
Example:
Boating accident:
3 policies (a) boat owner policy (b) homeowner policy with “other insurance” clause
and (c) personal liability policy for “excess” coverage.
Everyone agrees boat owner policy is primary. It pays out until it is
exhausted but insured is not fully indemnified.
- Issue: are homeowner and personal liability policies overlapping? Or is one
excess and the other primary?
- Held: excess/primary
- Rsns: home owner policy states it is excess only if there is another primary,
while the personal liability policy is intended to ONLY be excess.
- This is not conflicting so as to make “other insurance” inoperable and the
policies be overlapping
- Since there is not another primary insurance policy, “other insurance”
clause in homeowners’ policy not triggered.
- In absence of that clause, clear that homeowner’s policy intended to be
primary.
Homeowner’s policy is primary and personal liability is excess.
-
80
X.
SUBROGATION
Issue
Step One
What
Purposes
Operation
Exceptions
Where
Ratio
Notes
See II Nature of insurance: indemnity or non-indemnity?? Determine if K indemnity. If not, stop, no
subrogation issue.
Remember, all this below can be modified by K, need express and clear terms to do so: Somersall
Castellain
Subrogation allows the insurer to step into the shoes of the insured and entitles the
insurer to enforce the insured’s right against a third party in contract or tort or other
legal/equitable right accrued to the insured regarding the insured loss.
Glynn v Scottish Subrogation automatically flows from the Insured’s combined recovery from 3rd
Union
indemnity principle: insured not entitled to party and insurer not to exceed actual
recover more than actual loss from insurer loss.
and third party responsible for loss.
Somersall v.
1. Preserves indemnity principle; minimizes moral hazards
Friedman SCC
2. Promotes legal accountability of 3rd party liable for insured’s loss
2000
Wellington
1. Insurer indemnifies insured; insurer
- Insurer must have indemnified
rd
sues 3 party in insured’s name;
insured to be entitled to
insured entitled to any excess
subrogation!
recovery beyond insurer’s
indemnification
Glynn
2. 3rd party fully compensates insured; insured not entitled to recovery from
insurer
Catellian v.
3. Insured indemnified by insurer and 3rd party-insured reimburses insurer
Preston 1881 UK
amount exceeding total loss.
Eaton Co, SCC
4. Insurer not better placed against 3rd
If insured can’t sue 3rd party, neither
1978
party than insured.
can insurer.
- Insurer has all rights as insured,
Here: insured assumed risk of loss in
and subject to all defences that 3rd tenancy agreement, insurer bound by
party could bring against insured.
that.
Wellington
No subrogation right where payment not
This case: payment for public relations
intended to fulfill insurer’s contractual
purpose
duty i.e. voluntary payment or payment
for loss excluded from coverage.
Imperial Oil SCC
Triggering
Subrogation
Zurich v Ison
HOWEVER, insurer’s right of subrogation is
unaffected if payment honestly intended
as indemnification under the policy.
No right of subrogation against insured
under same policy, named or unnamed.
At common-law, insurer’s right of
subrogation is triggered upon full
indemnification: no right of subrogation
unless and until insured’s losses re: subject
matter of insurance fully satisfied.
Full indemnification includes uninsured
losses relating to subject matter of
insurance ex: lost profits, deductibles,
lawyer fees
81
Capacity in which insured acting at
time of loss irrelevant: Condo Corp.
2007 ABCA
This still applies to indemnity Ks
(BCIA: A &S) that do not have a
subrogation clause in the K (i.e. can
be overridden by K)
Remember, no subrogation for life
insurance b/c that is NOT indemnity!!
Confederation
Life v Causton
BCCA 1989
Willumsen 1975
General
Insurance
Auto
Control of
litigation
BCIA s. 36(1) &
(2)
BC Ins V Act s.
84(1) & (2)
Cahoon SCC
2002
Farrell
Truedell
Irrelevant if there is non-recovery for
losses unrelated to subject matter of
insurance; only care about full indemnity
for subject matter of insurance.
Full indemnity INCLUDES:
No reimbursement for insurer unless
- Recovery for reasonable cost of
NET recovery from 3rd party exceeds
action or settlement of 3rd party
insured’s actual loss.
claim
Example:
- Building insured
- Damage to building and shortfall in purchase price under K for sale
- No subrogation right until full indemnity for building
- Whether shortfall in land value recovered irrelevant to subrogation right of
insurer.
(1) Subrogation arises upon
(2) where only partially indemnified,
indemnification (full or partial), or
and net recovery from 3rd party action
assumption of liability for insured loss
less than insured’s loss, the insurer’s
pursuant to insurer’s contractual
recovery is proportionate to the
obligation.
percentage of loss paid
Control of litigation is significant b/c
Canadian law provides that a single cause
of action exists for all of the damages
caused by a third party
At CL, insurer controls litigation once
subrogation arises (i.e. after full
indemnity).
Insured obliged to pursue 3rd party claim
diligently and in good faith. Claim against
3rd party should NOT be limited to
difference b/n loss and insurance amount.
Insured must claim full amount possible
from 3rd party.
82
Example:
- Policy Limit: $150,000
- Value of loss: $200,000
- Insurance amount: $150,000
(75% of loss)
- Insured’s liability: $50,000
(25% of loss)
- Net amount from 3rd party
action: $120,000
- Insured receives 25% of
$120,000: $30,000
- Insurer receives 75% of
$120,000: $90,00
- Insured’s total recovery:
$180,000
even if those damages are comprised
of both insured and uninsured losses:
Malcolm v. Carr, ABQB 1997
Problem for insurer, b/c what if
insured doesn’t care enough, or settles
for way less? Solution: duty of good
faith.
NO presumption of bad faith where
insurer settles for less.
Ex bad faith: Davis 1938 NSSC.. insured
only sought difference between
insurance and loss, and did so w/o
telling insurer, but had good claim and
Willumsen
Ins V Act, s.
84(2)(3)
Farrell BCCA
1989
Zurich v. Ison
Effect of
Settlement on
Subrogation
Cleveland ON
1965
Somersall v
Friedman SCC
2002
Ins V Act s. 84(6)
Dwyer 2002
NLCA
Test:
could have recovered all from 3rd
Did insured claim less than what they
party.
honestly and in good faith believed was
wise to accept in the circumstances?
Insurer has burden of proving on b of p that insured breached standard of diligence
and good faith.
Auto:
(2) Insurer has carriage of litigation where there is loss or damage to vehicle or use
(3) All other losses, where parties disagree, court makes order it considers
reasonable regarding parties’ interests
BCIA s. 36 is SILENT regarding conduct of
If legislature wanted it otherwise they
litigation. Only alters pre-conditions for
would have said so, as they did in Auto
exercise of subrogation rights. Therefore,
context.
common-law position remains and insured
retains control of litigation until fully
Insurers are free to change this in K if
indemnified, at which point insurer has
they want.
control.
Potentially, if insurer’s interest significantly exceeds insured’s, it may be appropriate
to give insurer control though.
However, statutory modification to control of litigation does not alter insured’s duty
to act in good faith when insured has control of litigation!
Insured is free to enter into agreements
This case: K said subrogation arose
with 3rd party tortfeasor regarding limits of when claim made under endorsement.
recovery, without consulting insurer,
Insurer entered into agreement before
where the insurer’s entitlement to
claim made, so no subrogation yet.
subrogation has not yet arisen.
Agreement binds insurer.
Auto:
Generally interpreted as:
A settlement or release does not restrict
- Insurer can disregard
the rights of the insured or the insurer
settlement with 3rd party if it
under this section unless the insured or
prejudices its subrogation
the insurer, as the case may be, agreed.
interests
- Encourages parties to
communicate and protect
each other’s interests
- Insured or insurer can pursue
3rd party for losses
notwithstanding settlement or
release by one party.
Weird interpretation of s. 84(6) Auto
No other courts have followed this
context:
ruling.
- Single action rule unaffected,
matter res judicata b/n insured
and 3rd party
- Unfair to 3rd party if insurer can
disregard release or settlement
- This section only codifies insurer’s
right of action against INSURED if
the insured disregards the
insurer’s subrogation interest in
settlement.
83
Duty to
Cooperate
XI.
Somersall
Don’t forget, an insured has a duty to cooperate with or assist insurer in advancing
subrogation claim: see part IX above
VALUATION
Issue
When does a
problem arise?
Where
BB p.
265
Ratio
Valuation simple for:
- Life insurance (non-indemnity, give
what policy says)
- Liability (pay whatever the judgment is
up to policy limits)
Valuation Difficult for;
- Property insurance, b/c it requires the
measure of the property’s worth on the
date of loss.
Notes
Valuation Questions:
1. Type of policy: Valued or Open?
2. Valuation method in K: is there one?
3. Extent of loss: total or partial destruction? To
what extent has value diminished?
4. Any statutory or contract terms affecting
extent of insured’s recovery? i.e. deductibles,
sue and labour
5. Dispute Resolution
Valued vs. Open Policies
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
b/c premiums were determined on this basis.
- Indemnity policy: still need to prove risk
materialized and loss suffered.
- Makes it easy to determine value, however if only
partially destroyed then it becomes trickier.
Issue
Is policy
valued or
open?
Open Policy
- No predetermined value; stated policy limit
- Recovery for value at time of loss subject to policy
limit
Where
Freesman
Ratio
Whether policy is valued or open is determined by
applying standard interpretation principles to the wording
of the insurance K
Re Art
Gallery of
Toronto
Inclusion of assigned value for policy is necessary, but not
sufficient to establish valued policy: consider intentions of
parties with reference to wording of policy as a whole.
Notes
- Policy identified ring and stated
“insured for X amount”
- In another part said “insured for
replacement value, but not for more
than shown in coverage summary”
- Not valued, no intention to
predetermine value of loss, just
setting policy limit.
- Policy gave insured value of
paintings
- Said “amounts are agreed to be the
values” for “purposes of insurance”
- Held: valued policy
Method of Valuation
Method of Valuation
Valued
Re Art
Policy:
Gallery of
Partial Loss
Toronto
Open Policy
BB p. 268
Step 1: Determine percentage of depreciation due to
partial loss
- Based on value of item at time of loss, and the
insured value, how much has it depreciated?
Here:
Step 1: diminution 1.045 K to 631, 900
= 413, 900 (39.5% depreciation
*difference x 100/ original value*)
Step 2: Apply depreciation factor to predetermined
amount
Where policy is “open” i.e. amount not pre-determined
but valued at date of loss, the wording of policy
determines method by which loss is valued.
Step 2: valued policy is 640,000, get
39.5% of that: $252, 800
Default position is Actual Cash Value
(ACV)
84
Payment will either be on basis of ACV or
Replacement Cost.
1.
What
ACV
ACV means “intrinsic value of the physical property to the insured at the time of the
Leger
loss…in other words the value which has been taken from the property of the insured”
Ins V Reg
s. 1(1)
How
Leger
"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
How to calculate the intrinsic value of the property?
o
o
o
o
Replacement cost less depreciation: the cost of buying or making a replacement for
the insured item, with a deduction for the degree to which the new item is “better”
than the insured item;
Market value: the dollar amount which a purchaser would have reasonably expected
to pay for the insured item in its depreciated condition prior to the loss;
Tax assessment value: the dollar amount assigned to the insured item for tax
purposes
Rental value: the present value of the net revenue which the insured property could
have generated in rental value from the date of loss forward for its remaining
“lifetime”
o
Cornhill
What to do
with proceeds
Datatech
Investment value: the capitalized value of income generated from the date of loss forward for
the lifetime of the property.
There is no one correct method to determine ACV, case-by-case basis, taking into account all
relevant circumstances and conditions relevant to insured property value at the time of loss,
including:
- Extent to which property may have already depreciated from its original value at the time of
the loss- Kinnaird
- The use being made of the insured property- Ottawa River Whitewater
- Uniqueness of insured property Ghaffari
Replacement not required for ACV
2. Replacement Cost
Definition Barke The lower of the cost to repair or the cost to replace, without deduction for depreciation.
There must be a clause in the policy saying it is a replacement cost valuation otherwise go with ACV (default)
Method
- Repair Cost less Enhanced Value
- Replacement Cost with or without deduction for enhanced value (based on K terms)
- Statutory exercise of optional repair or replacement by insurer
Repair Cost less Enhanced Value
When to use
 Repairs possible




Replacement Cost
When to use
Cheaper to repair compared to replacement
Recovery limited to repair cost
Repairs enhance property value; deduction for betterment; prevents over-indemnification
No presumption of betterment
o Improved quality of property after repairs not indicative of betterment
o Onus on insurer to prove increased value for insured after repairs


Rising
Replacement
Cost and


Repairs impossible or impractical
Replacement cost with or without deduction for enhanced value (based on contract terms),
subject to policy limit
ACV less than replacement cost
Solution: Insured may purchase Optional Loss Settlement Clause or “Replacement Cost
85
Inflation



Process for
OLSC or RCE



Endorsement”
Protects insured against depreciation
o Option for repair or replacement cost without deduction for depreciation/betterment
Optional Loss Settlement Clause/ Replacement Cost Endorsement exceeds ACV; must be purchased
separately
Notify insurer of intention to claim actual replacement cost otherwise ACV: Malainy
This election gives rise to a remedy not in the policy but on the new or substituted contract arising from
the election: Malainy
Actual replacement or repair with like materials within reasonable time: Malainy v The Canadian
Indemnity Co
Subject to contract terms, insured not required to keep replaced property: can go out and replace,
and then return items and still send receipts and get money from insurance company for replacement:
Barke
Optional Repair or Replacement by Insurer
What BCIA, s. 29
(1) Insurer may repair, rebuild or replace lost or damaged insured property, MUST notify insured of
intention to do so within 30 days after receiving proof of loss BUT can’t do if dispute resolution
stat. cond.13
process initiated under s. 12
(2) Work must begin within 45 days after receiving proof of loss, Insurer must proceed with

Lecture


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
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
Future Contingencies For both ACV and Replacement Valuation
What to do
Leger
Regardless of whether ACV or replacement, proper valuation of property on the date
with them
of loss should not take into account possible future events
Commercial
Something is a future contingency if it is uncertain. Things that will certainly happen that will
Union
affect the value of the loss are taken into account as these are NOT future contingencies.
Example
Cyrand
demolition permit obtained; eviction notices issued; property still valuable; valued at
time of loss; impending demolition ignored—future contingency
Datatech
Potential demolition of property pursuant to sales agreement at time of fire ignored
in assessing RCE; fire destroyed insured’s options to have preserved property value
Commercial
Union
Demolition inevitable, therefore property had no value at time of loss.
Extent of Loss
Issue
Constructive Total
Loss
Where
Ratio


Consequence
Who decides if
BCIA s. 29 stat cond. 9; BC Ins V
Reg, sched. 10, stat. Cond. 5(9)
BCIA s. 29 stat cond 10(b)(ii)
Property not worth restoring; Partial loss deemed
constructive total loss
Test: Will reasonable person without insurance consider
property worth restoring?
Full indemnity of property value
Insured abandons remains of insured property, insurer acquires
salvage rights
Insurer’s consent required for abandonment, insurer cannot
86
unilateral abandon damaged property and claim constructive total
loss.
constructive total loss?
Terms Affecting Recovery
Issue
Deductible
Rationale
Where


David
Polowin
Ins V Reg
Sced. 10 stat
cond 5(9)
David
Polowin
Effect
Relief
Sue and Labour
BCIA s. 31
BCIA s. 29
stat cond 9
Three conditions
for insured to
recover sue and
labour costs
BCIA s. 29
cond 9(2)
Triple Five
Triple Five
Benson &
Hedges
Examples



Amount of loss insured agrees to bear before seeking indemnification
Insurer’s obligation to pay triggered only where loss/damage exceeds deductible
amount
Liability/ 3rd party policies: Deductible applicable to each claim not occurrence
Deductible does not affect insurer’s salvage rights
Deductible does not affect insurer’s salvage rights

Consumer choice:
o Inverse relationship between deductible amount and premiums
o Promotes affordability of insurance
 Opportunity for high risk consumers to obtain insurance
 Minimizes likelihood of loss and moral hazard
o Insured self-insurer for part of loss
o Incentive for responsible behavior re insured loss/property
o Promotes public safety
 Administrative efficiency, lower costs and affordability for consumers
 Detrimental to insured’s interests
 Recovery less than actual loss `
Insured to be alerted contract contains clause(s) limiting insurer’s liability, including
deductibles: "This policy contains a clause which may limit the amount payable" and, unless
these words are so printed or stamped [on first page in conspicuous bold type], the clause is
not binding on the insured.”
Insured has duty to take steps to prevent further damage to property after initial loss



Policy
Effect
Ratio
Office
Garages
Insured best placed to protect property
Minimize insurer’s liability
Maximize insurer’s salvage rights
Effect: Insurer not liable for preventable damage

Where cost reasonably incurred to prevent further losses, insurer liable for prorated cost to
protect property
1. Costs must relate to a loss falling w/n policy coverage. Insurer no responsible
for costs incurred by the insured in preventing loss which is not covered by
the relevant policy:
2. The expenses must be reasonable. In this context, 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.
3. The costs must have been incurred to prevent further damage from a
materialized risk. The insurer is liable for mitigation expenses, not the costs
associated with general preventative measures called “anticipatory risk”




Damage to insured building: $8,000
Clean-up cost: $27,000
Property value: $900,000
Insured value: $813,000
87
Benson &
Hedges

Clean-up cost reasonable
o
o
o
o
Explosion in bottling tank
Insured incurs expense to investigate cause of explosion and fixed problem
Explosion due to poor workmanship
Insured incurs further expense to inspect other tanks; defect discovered and
fixed
Insurer disputes expenditures
o
o
Held: fixing other tanks NOT sue and labour, anticipatory risk. Investigating cause
and fixing problem with tank that exploded was sue and labour though.
Disputes Over Valuation
Issue
Process
Where
BCIA s.
12
Ratio
(2) applies to matters under stat cond 11 in s. 29 [value of property,
value of property saved, nature and extent of replacement or repairs
required, adequacy of repairs, amount of loss or damages]
(3) either party may demand dispute resolution in writing AFTER
proof of loss has been delievered
(4) w/n 7 days after receiving or giving demand, they must each
appoint a representative and w/n 15 days after that, the 2 reps must
appoint an umpire
(6) Representatives determine disputed matters and/or submit
Notes
See act for more information on
appointing reps and umpires and
who these people can be
differences to umpire
(7) Each party pays own representative and shares cost of
umpire
(9) May be subject to special costs for failing to appoint a
representative
s. 29 stat
cond. 11
Ins Reg s.
3
Effect
Rationale
s. 14(2)
Lecture
No right to dispute resolution until:
(a) Specific demand made in writing
Proof of loss has been delivered to insurer

Insurer must notify insured of DR process
o Within 10 days after insurer determines dispute under s. 12 exists
 Within 70 days after proof of loss if no determination on matter under s 12
Participation in DR does not constitute waiver
 Access to justice: limit reliance on judicial/adversarial system for resolving disputes
 Decentralizes decision-making authority
Q: Comment on the appropriateness of non-judicial dispute resolution in the insurance
context
 This is an inherently unequal relationship
 And forces insured to pay for ADR, if insurer decides they want to go
 This happens a lot in commercial Ks, parties agree to that.
88