Insurance Law – 344 – Adjin-Tettey
2011 Fall Outline (Midterm)
Asif Abdulla
INTRODUCTION
Definition:
“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 insurance may be exposed, or to pay a sum of money or other
thing of value on the happening of a certain event.
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Insured’s Perspective
o Premium is an admission fee to a pool of similar persons who have grouped risks together
o Premium dependent on degree of risk: Character of the insured matters – moral hazard issue; how
often are claims made; accident-prone?
Society/Insurer’s Perspective
o Loss distribution/spreading
o Risk prediction
o No correlation between premiums and recovery
o Random losses
Five Components of an Insurance K:
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; and
5. The happening of which is uncertain
Purpose of Insurance:
- Financial Protection
- Impersonal/individualistic society
o Alleviates pressure on family/friends when something goes wrong
NATURE OF INSURANCE CONTRACTS
Elements of an Insurance Contract:
1. Undertaking by one person – insurer
2. Promise of indemnity: compensate insured
a. Named and Unnamed insured
b. Personal Insurance – life, accident, sickness
i. Assured: purchaser; Insured: person who’s life is insured; Beneficiary: Receives benefit under
the policy
3. Agreed consideration for promise of indemnity: Premium
4. Loss or liability for insured event or subject matter, subject to policy limit
a. Indemnity vs. non-indemnity contracts
i. Indemnity – insurer is undertaking to cover the actual particular loss - Event must happen,
must be an assessment of loss, subject to limitations
ii. Non-indemnity – specific amount contingent on the happening of a particular event without
need to prove loss
5. Occurrence of event uncertain
Key Features:
1. Duty of utmost good faith
a. Exists on both parties – depends on the nature of the obligation
b. Open and frank communication
c. Maintaining the integrity of the system
d. Not to exploit vulnerabilities
2. Fortuity
a. Losses must be random – uncertain as to which insured will suffer which losses
3. Indemnity
a. Recovery limited to actual losses except in non-indemnity contracts
4. Consumer protection
a. Protect against vulnerability exploitation
5. Compensation
a. Ensures compensation, especially in 3P policies
b. Reasonable expectation that insurer will be there to cover losses
c. Doubts are resolved in favour of the insured
d. Must maintain financial stability
Ensuring Solvency
- Insurer’s solvency is essential to loss spreading
- Goes to the purpose of spreading the risk amongst a large class of persons
- Financial Institutions Act s. 77 – every insurance company licenced in BC, must maintain a determined amount
of reserves – relative to the amount liabilities
Reinsurance
- Insurers can transfer some risk to other insurance agencies
- Claims over a certain amount could activate another policy
o Usually multinational policies – spreads risk all over the world
- Legal consequences:
o No privity of K between insured and re-insurer
o Insured has no priority over other creditors: Re Northern Union Ins Co.
 Money paid by reinsurer to insurer specifically for insured’s claim, but since insurer was
bankrupt, the money paid became just part of the regular assets of the company for creditors
- Predominant in life insurance
Subscription Policy
- Separate insurance Ks with multiple insureres regarding same object for specific amounts
- Typical in property and casualty insurance
- Privity remains between the insured and each insurer
- Problem: multiplicity of claims processes
Wagering vs. Insurance
Insurance:
- Anterior risk: need for insurance for cushioning in the event of loss
- Exists on the basis of some pre-existing risk
- Must have an insurable interest in the object of the insurance k
Wagering:
- Risk arises from the speculation regarding outcome of an event
- Only a change in gain/loss if a bet is made, the anterior risk is not present
- Parties are otherwise neutral to happening of the event but for the wager
Position on Wagering:
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BCIA s. 6(1) – Wagering and gambling is prohibited
If k is considered to be a wager, then it is considered to be void
Rationale
o Public policy
o Moral Hazard!
In Effect:
- Insurance companies insure promotional events (hole-in-one tournaments / let it snow promotion)
o Minimal risk of moral hazard + increased premiums in the pool for other, more common risks?
REGULATION OF THE INSURANCE INDUSTRY
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Required to address power imbalance; potential exploitation of vulnerable parties; to ensure solvency of
insurers and to protect loss spreading goals of insurance
Ultimate goal: consumer protection and confidence in the insurance system
Formation and Operation of Insurance Companies
- These are all heavily regulated through legislation
Contents and Enforceability of Insurance Contracts
- Terms and conditions – generally standard form contracts – law must ensure they don’t exploit consumers
- Part 5 BCIA (s. 126(2)) – stat conditions for fire insurance
- Obligations of parties to insurance contract – who can sell insurance
- Qualifications and responsibilities of intermediaries – below
Jurisdiction for Regulation of Insurance
Provincial Jurisdiction – Property and Civil Rights (s. 92(13))
- Insurance k’s and the regulation of insurance industry
- Provincially and federally incorporated insurance companies operating within a province
o Canadian Indemnity Co v. British Columbia (1977 SCC)
 Fed corp; previously licenced to sell insurance in BC; unsuccessfully challenged provincial
statute regarding universal compulsory auto insurance in BC and monopoly to ICBC
 S. 92(13) gives province the right to regulate insurance in the province regardless of whether
or not the corporation was federally or provincially incorporated
- Prov incorporated companies are also subject to federal legislation on subjects within federal jurisdiction
o This has to do with Bankruptcy and insolvency matters
Regulation of Federally Incorporated Insurance Companies
- Chartered banks are federally incorporated but also provide insurance coverage
- Federal Banking Act amended to allow banks to provide their own insurance
o Question of licencing requirements in the province prior to providing insurance?
o Principle business is banking/financial services
o Insurance services are incidental
- Provincial regulation is inapplicable where insurance is incidental to the principle business of the federally
incorporated body
o Bank of Nova Scotia v. Canada (2003 BCCA) (“Optima” case)
 Bank hired credit brokers to sell insurance over the phone to credit customers
 Act allowed them to sell insurance at the same time as selling credit products, but here they
were retroactively selling insurance to previous customers
 Held:
 Workers were employees of the bank
 There is an exemption for insurance services that are incidental
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These incidental services are not limited by time, so does not matter that they were
sold after the credit product contract was already made, so long as it was linked to the
product which was the principle business of the corp
Chartered banks offering insurance products are not exempt from provincial licencing requirements
o Canadian Western Bank v. Alberta
 If they are going to be providing insurance, they must adhere to the provincial requirements
Charter of Rights and Freedoms
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Sometimes risk assessment involves looking at demographic patterns
Risk assessment is central to effective underwriting
Personal characteristics may be potentially discriminating? – s. 15 grounds
Charter is only applicable to government activities
Insurance k’s are private, so not subject to Charter scrutiny
Limited Application
- Public insurers
- Insurance legislation and regulations must be consistent with Charter values
o Miron v. Trudel
 Definition of spouse for the purposes of particular benefits covered marriage, so this common
law spouse was excluded
 Provision was struck down – was not consistent with Charter
- Constitutionality of regulations limited benefits for minor injuries
o Morrow v. Zhang – reversed at ABCA
 Legislation to limit recovery of certain benefits – to make it more affordable for everyone
 Number of people involved in MVAs – damages capped to not cover pain and suffering
 ABCA – this is a legitimate way for the province to control costs of insurance; everyone who
has a minimal injury is treated the same, so there is not inequity here
 Addresses the wide-spread aim of the legislation – to regulate costs
Discriminatory Practices by Insurers
- Discriminatory insurance practices exempt from application of human rights legislation if based on reasonable
and bona fide distinctions (BC Human Rights Code s. 8)
- Relevant Factors:
o Type of policy;
o Nature of the discriminatory practice – effect on complainants;
o Whether distinctions legitimate or unavoidable
- Nova Scotia Human Rights Commission v. Canada Life (1993 NSCA)
o Refused mortgage insurance due to physical and health condition – disability
o Nature of policy? Is it customarily available to general public?
 Offered to eligible bank customers; not service customarily provided to public within Human
Rights Act
 Therefore exempt from the legislation
o Was it relevant to assess applicant’s health and disability profile?
 Life insurer is entitled to assess risk based on health – service can be denied for those high risk
applicants
 Cannot limit insurance company’s ability to assess risk based on factors that are relevant to the
type of insurance sought
 This was made in good faith and reasonable – exemption is bona fide
Reasonable Bona Fide Distinction:
- Zurich Insurance Co v. Ontario Human Rights Commission (1992 SCC)
o Basis of the complaint:
o
o
o
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Held:
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Young men assessed at higher risk than others for auto insurance
Based on stats showing higher risk of accident
Claimed discriminatory because individuals not assessed on own merit
Sided with insurer – no reasonable alternatives – standard industry practice – there are stats to
demonstrate the higher accident rate of that group
Dissent: (LHD/McL)
 Stereotyping – just convenient to rely on the industry practice
 Insurer must be able to show a direct causal link between factors relied upon and the high
accident rate
Note:
 Customary/industry standards are not accepted as law in other areas
NATURE OF INSURANCE CONTRACTS
Indemnity and Non-Indemnity Contracts
Indemnity Principle
- Limits insured’s entitlement to actual losses on happening of insurance peril
- Rationale:
o Moral hazard
o Policy against rewarding people for being victims of a situation
- Subject to the intentions of contracting parties
o Freedom of contract still exists – parties can specifically contract out of the indemnity principle
o K can say that recovery can be more than actual loss
o Deductibles/caps are examples of where insured can recover less than loss
o Replacement cost endorsements are examples of where insured can recover more than loss
- Insurance k’s can be either indemnity contracts or non-indemnity contracts
- BCIA s. 1 – definitions
o 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
 Includes indemnity AND non-indemnity contracts!!
Indemnity vs. Non-Indemnity Insurance
- Indemnity – replacement of loss due to materialization of insured risk
o May actually be entitled to more or less than the actual losses
o Subrogation is automatic for indemnity contracts
 Insurer can step into shoes of the insured to go after a 3P that is at fault
o Requirements:
 Happening of insured peril
 Proof of loss
 Value of loss
o Basically, if designed to replace a specific loss, it is an indemnity contract, if not, it’s non-indemnity
- Non-Indemnity – Insured recovers predetermined amount on happening of insured peril
o No proof required
o All that is required is the happening of the insured peril
o Predetermined amount regardless of actual loss
o No right of subrogation – subject to terms of the contract
o Cumulation permitted as recovery is not to replace specific loss
Glynn v. Scottish Union & National Insurance Co Ltd
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Presumption of indemnity – all insurance contracts – s. 7 BCIA
S. 7(2) except for life insurance contracts
Every insurance contract should be construed as a contract of indemnity, which presumptively has a right to
subrogation
Death and Disability Benefits
- Glynn in obiter – insurance ks for payment of fixed sums on the happening of a specified event (life, accident
and sickness), generally are non-indemnity
- Mutual Life Assurance v. Tucker:
o Court distinguished Gibson – both types of Ks provide fixed amounts to insured, but when looking at
the specific terms and the overall scheme, it becomes clear in Gibson that the k was intended to be an
indemnity K, so the right of subrogation exists
o Tucker could be in a better position if able to recover tort damages and also benefit under the nonindemnity contract
 Without subrogation, insurer cannot subtract awards from other areas
- BC Insurance (vehicle) Regulations ss. 81-83
o Stat no fault benefit – if you get contract damages, they should be deducted from the stat benefit (even
if k damages given up, they should be reasonably assess and subtracted)
First and Third Party Insurance
- First party:
o Protects insured’s interests; benefits paid to insured
- Third party:
o Protects insured against liability to others
o Benefit paid to 3Ps based on insured’s liability to them
 May not be identified by name
o Duty to defend and indemnify insured
 Scalara – Intentional wrong-doing does not trigger duty to indemnify
 If there would be recovery under the policy, then there is a duty to defend on the part of the
insurer
- Liability Policies:
o Hybrid policies protect first and third parties
o Protects liability of insured; guaranteed source of recovery for victims
- Third party insurance is likely necessary in the absence of first part insurance for everyone
o If everyone had it, then there’d be no need for liability/3P insurance
CLASSIFICATION / INTERPRETATION OF INSURANCE CONTRACTS
Classification of Insurance Ks
- Object-defined
o Characterized by object of policy (automobile, boiler, etc)
- Peril-defined
o Characterized by insured risk (fire, accident, sickness, etc)
- Purpose:
o Specific terms, principles and requirements for particular insurance contracts
- Problems:
o In reality, most policies are multi-risk policies – combine first/third party insurance; combine various
perils/objects
o Problematic – various interpretations for insurance ks
 Different limitations for different types – so classification becomes an issue
Regulation:
- General Statute
o Governs all insurance contracts – BCIA
 Divisions within the general statute
 Part 2: general – all insurance unless specifically excepted
 Part 3: Life insurance
 Part 4: Accident and Sickness
 Part 5: Fire (stat conditions s. 126(2) apply to all fire contracts)
 Part 7: miscellaneous classes and subclasses
- Specific legislation for specific areas of insurance
o Insurance (Vehicle) Act; Insurance for Crops Act; etc
Fire Insurance Problems
- S. 119 BCIA – includes multi-risk policies – they are fire insurance, and fire insurance can also cover other
risks, so still governed as fire insurance
- Specific contracts excluded from fire insurance; aircraft, auto, boiler and machinery, inland transport, marine,
plate glass, sprinkler leakage, theft, rents/charges/loss of profits and nuclear risk
o S. 119(c) – part 5 is NOT applicable if fire incidental peril to coverage provided
o Question becomes whether fire was dominant or incidental risk covered by policy
Classification of Multi-Risk Policies
KP Pacific Holdings v. Guardian Insurance Co of Canada and Churchland v. Gore Mutual (SCC)
Background:
- Traditional approaches to resolve classification are inadequate – do not create certainty – denounced old
methods
- Ex post facto classification
o Wait and see
- Dominant-incidental risks
- Risks incidental
o If it happens to be multi-risk, incidental risks are not the classification scheme used
- Multi-risk policies are fire policies
Single Peril Policies:
- Not a problem – classification related directly to the risk
Multi-Peril Policies:
- Numerous risks including fire
- How to characterize the policy? Which part of the BCIA applies?
KP Pacific and Churchland:
- Both parties waited more than a year from time of the loss – so they would be statute barred under part 5; but
they wanted to be in part 2 where their claims would still be alive
- Lower courts classified policies as fire policies – no luck
- SCC held – Not fire policies – therefore part 2 applies
Holding:
- Absent specific legislative provisions to the contrary, multi-risk policies governed by the general part of the
legislation and not fire part even if fire is one of the risks covered
o So long as covers more than one thing – multi-risk – out of fire part and into general
Can Limitation Periods be Contracted Into Multi-Risk Policies?
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K in KP Pacific had a contractual term for the limitation period to be the same as that in Part 5
Section 3 BCIA – legislative protection for insured cannot be contracted out of in the insurance k
o Cannot be substituted for harsher terms
Section 22 limitation is much longer than the contracted limitation – so cannot be contracted for
Effects of KP and Churchland:
- Fire part limited to loss by fire alone
- Simplify classification of multi-risk policies; avoids uncertainty
- Reflects the reality of modern insurance policies
- Policies are not subject to multiple parts or different legislative regimes
Outside BC:
- Caselaw goes back and forth on application of KP, but always in favour of the insured
- Casey v. Federated Insurance (2004 MBQB)
o Multi-risk policy – loss from hailstorm, not fire
o Issue: was this a fire policy? – if not fire part not applicable, detrimental effect to insured
o Held: KP distinguished – policy covered loss by fire; fire policy; fire provisions acceptable
- Audeo Works Production v. Canadian Northern Shield Ins Co (2005 QB)
o Followed KP/Churchland
o Multi-risk policy covered equipment while in transit rather than just in warehouse
o Held: fire part not applicable because it was multi-risk – favourable to insured
 Note, this was truly multi-risk, whereas with Casey, dominantly fire
- Fenrich v. Wawanesa Mutual Ins Co (2005 ABCA)
o Policy likely characterized as fire where fire loss claim made under multi-risk policy
o Loss here was for flood, not from fire – since not from fire, no need to think about fire part
o Held: even if fire part did apply, court would not have followed KP – would have looked to the
dominant purpose of the policy
- Burry v. Co-Operators Gen Ins Co (2007 NFLDCA)
o KP followed – Multi-risk policies must be outside fire part – even though loss in this case was outside
the fire part
 Favoured insured in terms of limitation period
Freedom of Contract:
- Cannot contract terms that are harsher on the insured than the statutory provisions (BCIA s. 3 under part 2)
- Casey – legislation prohibits contractual variation of stat limitation period
- Fenrich – Contractual limitation period is permissible
- Burry – no indication parties intended to include contractual term regarding limitation
Other Fire Stat Provisions:
- Audio Works – all stat provisions specifically applicable to fire not applicable to multi-risk policies
Multi Risk Policies
- No specific provisions govern multi-risk policies
- Creates uncertainty – does not work as the SCC intended to receive uniform approach
- Courts should ensure that the entire fire part does not apply to MR policies because then it puts pressure on the
legislature to address this gap in legislation
Other Classification Problems
Section 122 – Extended Policies not Governed by Fire Part
- Fire insurance contract deemed to include coverage for specific risks
o Loss caused by fire from explosion or otherwise
 EXCLUDES: caused by certain factors
Coverage against fire caused by lightening
 EXCLUDES: certain electrical issues
o Excluded – contamination by radioactive material
Extended Polices can obtain insurance for excluded areas
All extended policies are outside the fire part
o CIBC v. Nickolievich (1977 MBCA)
 Extended policies are outside the fire part – they are not specifically excluded from the fire
part, but they are also not included
o Chiason v. Century Ins Co of Canada (1978 NBCA)
 Only the loss caused by excluded perils are outside the fire part
 Extended policies governed by the fire part where risk not specifically excluded
 Fire classification depends on whether fire is the dominant/incidental risk insured
After KP Pacific
o Now if we had a policy that covered fire policy but also extended coverage not included in fire
coverage under s. 122, the policy would likely be taken out of Part 5 entirely as it would be a multirisk policy
o
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Group and Individual Insurance
Group Insurance Contracts:
- Coverage for classes of individuals with common characteristics (employer, union, prof. association)
- Beneficiaries not identified by name in policy
- No privity of contract between insurer and beneficiaries (k is between insurer and sponsor)
o Direct claims against insured are permitted despite the lack of privity
o Special provision that allows claim even of not the contracting party
- Coverage is for direct benefit of beneficiaries
- Insurability of individual beneficiaries is not required – non-medical basis
- Not void for lack of insurable interest
- Open-ended contract – beneficiaries can include present and future members
Individual Insurance Contracts:
- Coverage for one or many individuals, named or unnamed
- Privity of contract exists – named insured’s have direct contractual relationship with insurer
- Proof of insurability is required
o Must prove a particular relationship with party in order to insure them
- Insurable interest in life insurance required
INSURABLE INTEREST
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Nexus between insured and the object of insurance
Relationship should be such that you would have an interest in the object continuing to exists and will suffer a
detriment from the loss of that object
Required for a valid insurance contract
Distinguishes insurance from a wager (BCIA s. 6)
Rationale
- Promotes indemnity principle (except life insurance – insurable interest is still required there though)
- Discourages wagering
- Avoids moral hazard
- Promotes public safety
Constitution Insurance Co of Canada v. Kosmopoulos (SCC)
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Sole owner of business, insured under personal name, not corp name; fire – claim – rejected because Kosmo
didn’t have insurable interest in the corp assets – he was not the owner, just a shareholder
Held: Valid insurable interest – Factual Expectation Test
o Pragmatic approach that looks at the actual relationship between the insured and object
o As sole shareholder, Kosmo was so place with respect to the assets of the business so as to have
benefit from their existence and prejudice from their destruction
Old Formalistic Approach (Macaura Principle)
o Focuses on property or contractual rights
o Legal or equitable interest required insurable interest in property
Factual Expectancy Test:
- Close relationship between insured and object of insurance
- Insured’s interest in object is legal, equitable or contractual
- Legal right not required – reasonable expectation of benefit from status quo and loss from risk is
sufficient
Implications:
- Relationship is fact-specific
- Flexible determination – possible extension to new property interests
- Tangible connection with property required – pecuniary interest
o Ownership/title is relevant but not determinative
o Presumption of insurable interest with legal title, but is rebuttable absent pecuniary interest
 Rider v. North Waterloo Farmers’ Mutual Ins (1991 ONGenDiv)
 Presumption was there, but P was a nominal owner with no real interest, so insurable
interest was rebutted
- Actual possession not required
o Laratta v. Peace Hills Gen Ins (1999 ABQB)
 Transfer of ownership not simultaneous with possession; insurable interest arose when
ownership transferred
 Despite not having possession yet of a purchased vehicle, insurance was already taken out on
it and was valid, as insured had every interest in the property despite not having possession of
it
- Shareholders?
o Depends on the nature of the interest in the property being insured
o How about unsecured creditors?
- Stolen property?
o Not if it’s known that the property is stolen
o If there is possession and belief that the item was validly purchased, then insurable
Statutory Modifications: Life, Accident and Sickness Insurance
Factual Expectancy Test and Non-Indemnity Contracts
- Factual expectation – risk of financial loss; non-indemnity k – no proof of loss
- Opportunity to profit; moral hazard
- Insurable interest is still required – BCIA s. 6 – otherwise it’s a wager
- Who’s life is insurable?
o Assured’s own life
 No insurance on someone else’s life without insurable interest
o Child/Grandchild
o Spouse
o Person you are wholly or partially dependent on or from whom you receive support or education
o Employee
o Pecuniary interest in life insured
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Rationale:
o Presumption of loss in these categories – no need for family to prove loss
o Likelihood of moral hazard is minimal
Contract would be void if insured is outside specified relationships under the BCIA
Exceptions:
o Not required for group insurance
o Insured consents in writing to be insured
o Insured under 16 years, parental consent required
Timing of Insurable Interest
Non-indemnity Contracts
- Must exist at the time of the formation of the contract
- Avoids betting on things that don’t exist yet in insurable interests
- Los of insurable interest after commencement of policy:
o Question of increased moral hazard?
o In some cases, it is agreed that policies continue (benefit of children after a breakdown)
- If there was no insurable interest at formation, the contract is void ab initio
o Premiums returned, except for where fraud is present
Chantiam v. Packall Packaging Inc (1998 ONCA)
- Ex employee of Packall, but Packall retained insurance policy on C’s life; C sought order to stop payments and
to have C take over the policy
- Held: insurable interest is only required at the commencement of the policy, subsequent loss of insurable
interest is irrelevant
o No contractual / statutory provision to counter this principle – but this could have been bargained for
by the insured at the commencement
- Note:
o In Manitoba, legislation exists to allow insured to terminate insurance on his/her life where insurable
interest no longer exists
Indemnity Contracts
- Must have insurable interest at the time of loss
o Doesn’t matter if the property wasn’t owned/insurable interest at the time of the k formation, just must
have insurable interest at the time of actual loss
- Recognizes commercially prudent practices – insuring revolving inventory, etc.
- Lack of insurable interest at the time of loss results in a failed claim – not void
o Premiums not refundable absent mistaken belief regarding object of insurance
Insuring Interests of Others
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Allowing persons with partial interest in property to take out policies against the entire property avoids
insurance duplication, simplified claims, and access to insurance
Keefer & Quebec Bank v. The Phoenix Insurance Co of Hartford
- Keefer selling property, buyer paid in instalments – Keefer keeping value of insurance on whole property
- Purchaser had assigned interest to the Bank (which is why the bank is with Keefer on this one)
- Held: Keefer can claim 100% of the property’s value, not just the beneficial interest
o There are preconditions for insuring the interests of others though below.
Requirements for Insuring Other’s Interests:
- 1. Insured has some insurable interest in the property
Need not be the entire property, but must have some reasonable expectation of benefit from the
continued existence of the property and stand to lose something if the risk occurs (factual expectancy
test)
2. Intention to insure interests of others – ie, the entire value of the property
o Must be actual intention to cover the entire value of the property
3. Permitted under terms of the contract
o K must specifically not say that interests of others cannot be insured
Disclosure
o Insured is under obligation to disclose any information that is material to the risk being insured
o Linked to duty of utmost good faith
o In Keefer, there was no obligation to disclose the partial interest, as it was not mentioned in the
contract, so the policy was valid provided there was an insurable interest
o
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Indemnity Principle is maintained:
- Full value of the loss is recoverable by the insured, but the amount beyond the insured’s loss is held in trust for
others
- So above, Keefer would have to pay back the part that was already paid to him by the purchaser
Statutory Condition 1 (s. 126(2)) - Misrepresentation
- 1. If any person applying for insurance falsely describes the property to the prejudice of the insurer, or
misrepresents or fraudulently omits to communicate any circumstance which is material to be made known to
the insurer in order to enable it to judge of the risk to be undertaken, the contract is void as to any property in
relation to which the misrepresentation or omission is material.
- Note:
o “Fraudulently omits” is a higher standard than simple misrepresentation
Statutory Condition 2 – Property of Others
- Unless otherwise specifically stated in the contract, the insurer is not liable for loss or damage to property
owned by any person other than the insured, unless the interest of the insured in it is stated in the contract.
- Note:
o Inconsistent with the Keefer application – the interest of the other owner was not stated in the contract
o This is often ignored or liberally interpreted
 Owner – libererally interpreted: partial interest sufficient
o Disclosure of limited interest in insured property not required
o Basically it’s read as “insurable interest” rather than 100% ownership, so even if the insured has an
insurable interest, then they are a valid “owner” as per this stat condition
Evergreen Manufacturing Corp v. Dominion of Canada Gen Ins Co
- Business premises leased by evergreen – lease agreement had insurance clause – so evergreen was obligated to
take out insurance on the building as the tenant
- Evergreen insured their own interests and the building – place burnt down – coverage rejected on the building
because insurer said it wasn’t theirs – no insurable interest
- Held:
o Insured can recover 100% - consider insured to be the landlord’s agent – landlord can then recover
from the tenant – held in trust for those who have suffered (owner)
- Stat condition 2 not applicable where there is an insurable interest
- Rationale
o Promotes equitable outcome
o Prevents insurer from declining to cover insurable interests where others have partial interest
- No privity of contract between others interests in the insured property
- Insured is indemnified against losses to others with interests in the property by the insurer, unless there is
prejudice to the insurer
o Maybe the other interest is someone they wouldn’t have insured
o Misrepresentation (stat condition 1) – material concealment (fraud)
Discussion Points:
- Inappropriate to interpret a clear condition like stat condition 2 for ownership
- Insurer should know when someone other than the owner has a relationship with the property
- If there is no separate meaning, then stat condition 2 is really just redundant
- Concern for moral and physical hazard – need to know who they are contracting with
o But in evergreen they do ensure that it would not prejudice the insurer
- Better for tenant to take out insurance rather than landlord
o Subrogation – if the insurance was taken by landlord, insurance paid to landlord, insurer could then
step into shoes of the landlord to go after the tenant if they caused it
Specific Problems Relating to Insurable Interets
Joint Ventures and Sub Contractors:
- Multiple persons working on project – eg construction site
- Single policy – builder’s risk policy – generally obtained by main builder, but provides protection against
everyone who works on the construction project
- Each party has insurable interest in the property
- If the loss is caused by a person with an insurable interest, then insurer satisfies the claim with no right of
subrogation
o Commonwealth Construction v. Imperial Oil
 Insurer is precluded from bringing a subrogation claim against the single person who caused
the loss – all parties have common insurable interest in the entire value of the property
- Rationale:
o Damage to property of others or entire site inevitable
o This avoids litigation between parties and the need of many smaller policies
o Simplified coverage for complicated projects – cost effective and simplified claims
o Consistent with principles of bailment – even without title, nevertheless have insurable interest in
property through special relationship with the property
o Guaranteed compensation to rebuild in event of loss
Extensions and Additions to Existing Structures:
- Insurable interest not limited to the extension project – extends to the entire building/property
o Medicine Hate College v. Starks Plumbing and Heating
 People working on an extension have an insurable interests in the entire property because it is
conceivable that the damage can easily spread to the entire building
 So no subrogated claims against the source of the loss for the cost of repairs to the existing
structure
Who has Insurable Interest in Construction Projects?
Candian Pacific v. Base-Fort Security
- Limited notion of insurable interest to persons who’s work is integral or necessary to the project
- That is, the persons without whose work, the project cannot get off the ground or be brought to successful
completion – collateral/incidental contributors are excluded
- Here, CP’s policy did not cover loss caused by BF because security services were not integral to the project –
beneficial but not integral
- So insurance paid to CP, and then subrogated claim brought against BF for causing the damage
o Note, here there was no insurance clause in the BF/CP K as was in all the others
- Notes:
o It was the insurer’s best interest to have the security there in the first place, without insurance to BF,
theft/loss would have been covered by the policy anyways to CP, but insurer would have no one to go
after. Here, BF’s presence was only for the protection of the insurance claims really
Family Interests
- Coverage for unnamed and named insured’s
o Described as part of a class of some particular characteristics (group coverage similar)
- Unnamed insured fit ceratin description outlined in policy, ie family members in homeowner’s policy
- Named and unnamed insured have insurable interest in property
- Rationale:
o Pro-consumer position – allows everyone in family to be protected, even if property doesn’t belong to
named insured
o Privity requires that only named insured can bring the claim for coverage of losses though
 Funds held in trust for those who lost them
o Reasonable expectation of the parties
o Protects unnamed insured from possible subrogation claim by insurer – because unnamed persons have
an insurable interest in the entire property
-
Issue: What about loss caused by an unnamed insured (intentional conduct)
o Excluded – general provisions disallow this
o Scott v. Wawanesa Ins (1989 SCC)
 Loss intentionally caused by child of family (unnamed insured)
 Held: Claim must be denied, because they are considered together, so claims are joint
 Dissent: Unless policy states otherwise, the interpretation of the unnamed insured interest
should be limited to their own property and not extended to the entire property – allowing
insured to claim all that is theirs, but not what is the son’s
 Note:
 Wouldn’t the dissent open the door to subrogation if the son unintentionally caused
damage to the entire house, but only held insurable interest in his own property?
Automobile Insurance
- Vehicle registered and insured by person other than true owner – generally done to attract lower rates
- If done just to get a cheaper rate and the insured is just a nominal owner, then no insurable interest
- Insurable interest exists if the arrangement is legitimate – funds held in trust for actual owner
MAKING AN INSURANCE CONTRACT
-
-
Contract is broader than policy
o Contract may incorporate policy
o Policy only contains the terms and conditions that govern the contract
Policy:
o Creates no legal obligation per se – receiving policy alone does not mean contract is formed
o Policy does not necessarily evidence the terms agreed to in the contract
o Davie v. Pallisner
 Generally the effective date of coverage is the next day – here damage occurred the evening
the contract was formed – insurer refused coverage
 Held: Intention of the parties was for contract to start the next day – no coverage
Contract:
o Insurer agrees to indemnify insured for a special risk
o Does not have to be written – s.1 of the BCIA – particularly with interim coverage, which is generally
an oral agreement
o Statutory requirements for life/accident/sickness to be written contracts
Nature of Insurance
Limitations on Freedom of Contract
- Stat Conditions in the BCIA (accident/sickness and fire)
o Parties are generally free to include whatever limitations and conditions they agree to, but certain types
of contracts have express stat limitations
o Ie. cannot be altered to the detriment of the insured
- Unreasonable conditions will not bind insured – s. 129
- Government approval may be required for standard form contracts
Essentials of a Valid Insurance Contract
- Definition of Risk
- Duration of Risk
- Premium
- Insurance Amount
-
-
Satisfaction is a question of fact
Davison v. Global Gen Ins Co (1964 ONHC)
o Offer not accepted, no contract terms, no insurance contract
o Did not agree on premium price – insurer sent over offer, but insured ignored it, and took out policy
with another insurer (global)
o Loss suffered, and global insurance triggered, but global sought recovery from initial company
o Held: no valid k between initial insurer and insured – no acceptance of premium
McCunn v. CIBC (2001 ONCA)
o Bank continued with withdrawals after expiry of term
o Held: no k because no express agreement between bank and insured – act resulting from oversight is
insufficient to form the contract
Duration of Insurance Contract
Interim Coverage
- Provides immediate protection pending review
- Duration is less than full term – doesn’t oblige insurer to issue full policy
- Exists until superceded by full policy
- Legally terminable by either party
- Premium is adjusted accordingly – less than full charge
- Coverage amount is less than contract amount
- Special terms for full coverage not applicable absent insured’s agreement
o 0712914 BC v. Aviva Insurance co of Canada (2007 BCSC)
 Insurer introduces term that they want included in full coverage – only insurance if there’s an
active alarm system; robbery occurs, no alarm
 Held: This is not a standard term in the policy, but is something the insurer introduced, insured
did not consent to it being in the K so they were blind sided
- Can insurer limit scope of full coverage inconsistently with interim coverage?
o Inconsistency between terms/scope of interim coverage and subsequent policy issued
o Held: no unilateral variation of coverage without notice to insured
o Takeaway: insurer cannot go above the insured and change the contract without insured’s agreement
Duration of Interim Coverage
- When full coverage is issued, interim coverage terminates
- Can be terminated by either side at any time
- If not terminated, expires as stated
- Reasonable time
o Situation: full policy not issued, interim not terminated
o Reasonable time for insured to assess request
o
Kostiuk v. Union Acceptance Corp (1967 SKQB)
 5 months was beyond reasonable time for interim coverage
Payment of Premium
- Not essential for the formation of a valid contract
- BCIA 14 – if insured hasn’t paid premium, insurer can still be on the hook for the policy
- Exception for life insurance – BCIA 38(1) – not effective until premium is paid – policy delivered – and no
changes occur regarding the insurability of the life insured between the payment and delivery
Terminating Insurance Contract
-
-
1. By specific date or event – as set out in the K
2. Mutual agreement of the parties
o No prescribed form to agree to terminate
o Ellis v. London Canada Ins Co (1954 SCC)
 Policy returned at insurer’s request, premium refunded, mutual agreement to terminate
 Held: Mutually agreed upon termination, insurer requested return of policy, insured complied
and accepted the refund – that is sufficient
3. Unilateral termination by the Insured or Insurer
o No CL right to do so
o Must either be expressly permitted by the contract or the statute
 Accident and Sickness – s. 89 stat condition 5 and 6
 Fire – s. 126 stat condition 5
 Auto – Insurance (Vehicle) Regulation, stat cond 10
o Termination by Insured
 Notify insurer – notice to agent by registered mail
 Registered mail to head office or chief agent in province
 Termination effective upon receipt of notification
 Refund of unused premium upon surrender of policy
o Termination by Insurer
 Can terminate without reason – duty of good faith applies though
 Termination notice to last known address
 Refund unused premium
 Effective after reasonable statutory period (5-15 days
 Allows insured to obtain replacement insurance
Renewing Insurance Contracts
- Extends duration upon paying premium beyond period contemplated by the K
- Process depends on the structure of the original contract
Continuous Policy
- Auto right of renewal
- Usually life insurance – continues until death
- Procedure in original contract
- Extends original contract duration, no new contract
- Unilateral renewal process
Non-Continuous Policy
- No auto right of renewal
- Must have mutual consent
- Discretion to accept or decline renewal
- Paying premium within state period constitutes acceptance
- Renewal creates a new contract
However, if insured/insurer changes a key term, should be brought to attention of other party (must?
Onus on insured to read?)
Renewal Procedure:
- 1 step Renewal Process
o Renewal request with certificate of insurance – process set out in the policy
o Premium paid, binding contract formed
- 2 step Renewal Process
o Insurer mails renewal offer;
o Premium paid
o Insurer mails certificate of insurance, binding contract is formed
- Patterson v. Gallant (1994 SCC)
o 2 step non-continuous renewal process
o Renewal notice did not go with certificate of insurance, insured did not pay, no receipt of certificate –
loss occurs
o Court held: no coverage as no valid insurance in place
 If an offer to renew is extended, but not accepted by insured, the insurer does not have to give
notice of the termination
o
Grace Period:
- Period between expiry and due date for renewal premium
- Contract presumed effective upon payment within grace period
- Loss within grace period is covered provided premium is paid within specified time
- Discretionary to have a grace period
o Exception – Life insurance – mandatory 30 day grace period (including holidays)
 But if the last day falls on a Sunday, then next business day is when payment is due
Reinstatement of Lapsed Policy
- Failure to renew or contract is terminated
- Reinstatement can occur at the discretion of both parties
- Life Insurance – stat obligation to renew
o Reinstatement within 2 years of lapsing
o Payment of overdue premiums, interests and other debts – interest cannot exceed 6%
- Commencement – no retroactive reinstatement unless otherwise stated
o Parker v. Constitution Ins Co of Canada (1983 ONHC) – policy lapsed and loss occurred before
reinstatement went through. No coverage.
DUTY OF GOOD FAITH AND OBLIGATION OF FULL DISCLOSURE
Utmost Good Faith
- Duty of disclosure – forthright communication between parties regarding risk – applicant has an obligation to
make full and frank disclosure regarding proposed risk, without even being asked
- Duty of disclosure overrides caveat emptor
- Material facts must be disclosed by insured/customer
o Anything that will help insurer make an underwriting decision, whether to accept proposal, and if so,
on what terms
- Rationale:
o Accurate risk assessment
o Availability of information
Carter v. Boehm – Lord Mansfield’s Conception of Disclosure Duty
-
-
Insurance on a fort; Insured knows it could be attacked, and it is attacked.
Insurer argues that insured breached disclosure duty given knowledge of the potential attack
Held:
o In favour of insured.
o This was not a breach because the obligation is to disclose matters of fact, past and present, rather than
opinions/speculation
o There was no actual knowledge of the attack, only concerns of it
o Insurer could have discovered the state of lax security if effort was put into it
o Possibility of attack is something insurer ought to have known – therefore no obligation to disclose –
insured must disclose only that which the insurer has no way of knowing
Outstanding Issues:
o What constitutes a “material fact”
o Meaning of information within “Insured’s knowledge”
1. Test for Materiality – Mutual Life Ins Co NY v. Ontario Metal Products
- Reasonable insurer test:
o Would reasonable insurer, on a fair consideration of evidence, have acted differently but for nondisclosure of facts in question?
o Materiality is a question of fact – objectively determined
o Irrelevant whether insurer asked question or considered the question relevant
o Would disclosure have affected insurer’s decision?
- In Ontario Metal:
o Was coverage provided when it likely would have been declined if disclosure given?
o Insured was medicated on substance undisclosed to insurer
o Held: Held in favour of beneficiary – disclosure of this information would not have influences a
reasonable insurer to deny coverage, so failure to disclose should be neither here nor there
Time for Determining Materiality
- At the time of contract formation
- There is no link between the cause of the loss and the disclosure in question –only concerned with whether a
reasonable insurer would have denied coverage, or provided different terms, with the full disclosure
- Henwood v. Prudential Ins co of America
o Insured’s depression considered relevant even when it was unrelated to her death
o Disclosure of the depression would have caused a reasonable insurer to exclude coverage, change
rates, etc – the K would have been totally different
 There likely would have been some policy, but not this one, this was a breach at the time of
formation – therefore the K is void ab initio
2. Facts Within the Insured’s Knowledge
- Actual or constructive knowledge
o Actual knowledge and that which can reasonably have been known
o Wilful ignorance is not an excuse for not “knowing” of a condition
o This recognizes that there’s no way to know what people actually know
- Insured need not know how information will affect insurability
o Upto insurer to determine what issues are material to the K
Canadian Indemnity Co v. Candian Johns-Manville Co (1990 SCC)
- Applicant to disclose fully and fairly only known facts
- Exclusions:
o Information known or knowable by insurer (common knowledge within relevant industry)
o Facts in public domain discoverable through research

o
If providing insurance to a particular industry, then insurer has the responsibility of knowing
the particulars of that industry
Test: Whether “a reasonably competent insurer” insuring risks in operative industry would have known
facts
Coronation Ins v. Taku
- T had been insured before by the same insurer and had accidents with them in the past
- New policy, did not disclose accidents - pilot
- Held:
o There was a clear misrepresentation about seating capacity – insurer needs to be aware of this fact:
there was an obligation to disclose – this was a breach – voids the K
o On the issue of past accidents, not a breach of disclosure duty, because the particular company should
have known past accidents as he was covered with them in the past when the accidents occurred
 Also, company’s accident record was available, some digging would turn it up
 So no Carter duty to disclose the information
 This enhanced duty on the insurer is because it was a 3P dependency issue
 Requires heightened responsibility on the part of the insurer to take adequate care of
those covered by the policy (unnamed)
Implications of Canadian Johns-Manville and Taku:
- Narrow duty for insured in information age – limited scope of disclosure duty
- Expertise in relevant areas – insurer must be aware of its coverage areas
- Insurers to stay informed in areas of service
- Cost to insurer and insured
o Information is in the public domain – which is problematic for insurers
- Off-loading governmental responsibility
Limited Scope of Insurer’s Duty to Investigate
- Greater scope may undermine insured’s disclosure duty
- Pereira v. Hamilton Township Farmer’s Mutual Fire Insurance Co (ONCA)
o Insured should not have such a limited scope of disclosure duty – this in effect creates a duty of
investigation on the insurer which renders disclosure duty irrelevant
 Duty is primarily focused on insured – must no misrepresent anything material
 Duty of due-dilligence still exists on insurers
o Here, mushroom farm, policy involved a shut down provision for where the farm was no longer up and
running; but fact that farm was not up and running at the time of formation was not disclosed
 No need for the insurer to second guess the status of the farm
 Here, disclosure duty cannot be negated by failure of due diligence of the insurer
 Insurer should be able to rely on the statement of the insured, unless there is cause for further
inquiry from the information provided
- Disclosure duty is primarily on the insured
- Insurer’s duty to make further inquiries arises only in exceptional circumstances where necessary
Contractual Variation of Disclosure Duty: Warranties
Warranties
- Equivalent of condition in ordinary commercial contract
- Requires strict compliance regardless of materiality
o So insurers started putting these in to get around the materiality requirement
- Insurer would be able to void contract if breached
- Limits insurer’s risk exposure
- Future conduct of the insured becomes irrelevant
-
Gives discretion to the insurer to basically nullify policy where they want to
Limits on Insurer’s Risk Control: Statutory Modifications
- Ensures that contracts cannot be altered to the detriment of the insured
General Insurance Policies:
- BCIA S. 12 – terms and conditions intended to bind insured to be in writing
o Cannot rely on anything not specifically stated in the contract – all impacts must be in writing
- BCIA s. 13 – Warranties of truth abolished; materiality required for non-disclosure or misrepresentation
o K’s can only be voided for misrepresentation or failure to disclose only if the failure to disclose related
to a materially relevant fact – using the material fact test
Fire Insurance:
- S. 126(2) Stat Condition 1
o Insured not to falsely describe subject property to insurer’s prejudice
o Misrepresent material facts
o Fraudulently omit material facts
- Insured’s duty cannot be expanded by warranties
o Misrepresentations – intention irrelevant – need not be fraudulent
o Omissions – required fraudulent act – requires subjective awareness of materiality of facts omitted
- Taylor v. London Assurance Corp (1935 SCC)
o Failure to disclose fire in area that was approaching – risk of fire to subject property; property burned
next day; policy was taken out by wife
o Held:
 The fire was nearby was a material fact – had they known they wouldn’t have insured the
property
 But was this an omission or a misrepresentation?
 Insurer must prove that the insured was aware of the fact in question
 Must demonstrate that the insured was subjectively aware of the negative impact it would have
on the insured’s policy
o Fraudulent omission requires intention to mislead
 Breach of duty of good faith
o Misrepresentation requires a statement calculated to mislead insurer and reliance on that statement to
the insurer’s detriment
o Failure to disclose the risk of the fire was not misrepresentation and not fraudulent omission
 Nothing to suggest intention to mislead insurer
 No evidence of detrimental reliance
- Misrepresentation vs. Nondisclosure
o Serious consequences for misrepresentation rather than omission
o Omission must be considered fraudulent to void the contract – insurer must show that insured’s
conduct intended to mislead and there must be detrimental reliance
o Concerns:
 Narrow scope of insured’s disclosure duty regarding omissions/non-disclosure
 Distinction between disclosure duty misrepresentations and omissions is arbitrary – potentially
undermines insured’s disclosure duty
 Misrep not easily discernible from omissions
Auto Insurance:
- S. 75 BC Insurance (Vehicle) Act – Insured not to: falsely describe car to insurer’s prejudice; OR knowingly
misrepresent or fail to disclose facts required to be stated on the application
- Meaning of “Knowingly”
o Sleigh v. Stevenson (1943 ONCA)
 Knowingly – does not require intention to mislead
 So long as insured knew facts that were to be disclosed – breach

-
Applicant signed insurance form prepared by agent without reading – agent misreported
information from son
 Held: she signed the form and thereby attested to it’s truth, and the facts she knew were
different, so this was a breach
o Barsaloux v. ICBC (2010 BCSC)
 Knowledge of the relevant information and that information differing makes statement untrue
 Test: whether applicant knew at the time of insurance facts that would render the statement
untrue
 Question as to who would be the principle operator of the vehicle
 Here, the disclosure duty was not breached because although the insured knew about the other
driver on the vehicle, insured was unaware that if the other driver were the principle driver,
that it would effect the insurance
 No breach
o Berkowits v. Manitoba Public Insurance Corp
 Requires deliberate conduct; error regarding address not deliberate – no breach
 Applicant didn’t provide correct address; insurance for truck to be used around farm, aware
that rural address would provide better premium than city address, but he lived in the city –
used his farm address to register the truck and apply for insurance
 Trial Court: simple error on part of the applicant – no breach
 Knowingly means deliberate conduct to mislead insurer
 Differs from Sleigh – where simple knowledge difference from disclosure is all that is
required
Does not make any mention to materiality
o Berkowits – requires materiality
o Not making materiality a requirement would be a step backwards, so it is likely read in
 Must still be able to influence a reasonable insurer to deny the policy (or contract differently)
Life / Accident and Sickness Insurance (Personal Insurance Contracts):
- Misrepresentation and non-disclosure provisions binding regardless of contractual terms – BCIA
- Where assured buys policy on insured’s life, disclosure duty applies to both of them
- Material facts known and not disclosed by other person
- Notify insurer of changes in insurability between time of application and policy delivery
- McLean v. Paul Revere Life Insurance Co (accident and sickness)
o Medical history relevant; consultations with psychiatrists and psychologists
o Psych evals done in the context of criminal proceedings
o Consults were material – should have been disclosed, even though consults occurred not based on any
symptoms
o K void for failure to disclose material facts
- Metcalfe v. Manufacturers Life Insurance Co (life)
o Hospitalization and treatments for drug use – not disclosed
o Insured clean for 6 years before the policy, but relapsed and died after policy active
o Held:
 Prior drug use was material for the issuance of the life insurance policy, BUT
 Saved based on the statutory provisions for life insurance
 Even if there is a breach of disclosure duty, after 2 years, it cannot be voidable
UNLESS there was fraudulent breach of duty
 Incontestibility principle
 If it were within the first two years, it would have been sufficient to void the K absent
fraud, but because it was after, now needs fraud, not present
Genetic Discrimination Debate
- Family history does not provide certainty in whether or not a person will take on a particular ailment
- Applicant not required to undergo genetic testing, but are they really in effect not required?
Based on family history there’s a problem, and the only way to get insurance now is to undergo the
testing…
o Some people don’t want to know these things
Purpose of disclosure
o Insurer’s perspective
 When joining the pool, insurer’s should be able to assess the amount of risk you’re bringing to
the pool
Potential concerns
o Access to insurance
 Genetic information is avail without genetic testing – not required
o Effect on access to other social goods
o Health and quality of life – health care costs
o
-
-
Material Change in Risk
- Duration of disclosure duty
o Depends on the insurance
o Auto/fire – continuing duty
-
-
Fire: written notice of material change to risk within insured’s knowledge and control
o Once insurer notified, they must let insured knowif they want to terminate or change terms of the
contract
 Insured then has 15 days from receipt of that notice to agree to the new terms or contract will
lapse (advanced premiums returned)
Auto: Changes in use of vehicle and primary location when vehicle not in use
Purpose: to reassess the risk and insurability; appropriate premium; terminate contract, etc
Proving Breach of Insured’s Disclosure Duty
- Compliance with formation of insurance contract is presumed
- Insurer to prove insured’s breach to its detriment
- Evidence for rebutting presumption of compliance
o Inaccurate information in written application
o Easiest way to prove breach is to show written statement of the application along with eveidence of the
truth of the situation
Role of Insurance Agent
- Depending on facts, the same intermediary can be considered an agent of either party (not both at the same
time)
Newsholme Bros v. Road Transport
- Insured signed completed form; intermediary presumed customer’s agent
- Applicant did not read the form but signed anyways
- Presumed to have knowledge of the form when signing it – bound to the contents
- Held: breach of disclosure duty
Exceptions to Newsholme Principle
- Stone v. Reliane Mutual Insurance Society Ltd
o Agent working for insurer, not insured; stone was a company employee who approached a couple to
reinstate their policy – completes form and directs them to “sign here”
o Held:
 Unreasonable to attribute the intermediary’s error to the insured rather than the insurer
 Insured could reasonably believe that because they dealt with insurer before, presumably they
already knew of claim history

-
Notes that insured made a mistake by not reading the form but negated by her lack of
education – completely relied on Stone
Blanchette
o Authority to fill forms and finalize coverage – customer had no opportunity to review information
o Held: intermediary gave customer the impression that with a quote and payment for that quote, you
have interim coverage – no opportunity to review information
Concerns:
- How would customers feel about intermediary being considered their agent regarding disclosure duty?
- The agent wants to make a sale, and is never really working for you
Life, Accident and Sickness
- Presumption against agency
- Intermediary is presumed insured’s agent to insured’s prejudice – BCIA
o Presumption here is that regardless of whether the intermediary is an independent salesperson, an
employee of the insured, or whatever, the presumption is not to think of the agent as working for the
insured.
Ambiguous Questions
- Objective Test – how reasonably intelligent person in customer’s position would have understood the question
o Stewart v. Canada Life Assurance 1999, aff’d 2000 ONCA
Proof of Materiality
- Only entitled to void if the breach relates to a material fact
- Onus is on the insurer to prove the info was material and the’d do it different had they known about this
information (not given coverage or contracted for different terms)
- Question is whether the reasonable insurer would have acted similarly knowing the information?
- However, presumption of materiality
o Based on insurance common practices unless contradicted by the insured
o If insurer tells court that they would have been influenced differently with the information, then the
court will basically assume that this insurer speaks for the reasonable practice
 No requirement to adduce evidence to show what other insurers would have done
 Onus shifts to insured to show that insurer’s practice is inconsistent with practices of
reasonable insurers
- Recall Henwood:
o Only evidence of reasonable practice came from executives of insurance company
o No link between depression and MVA causing death, but her depression was not disclosed
o Insurer stated they would have insured, but under different terms
o Court held that there was no reason to believe that a reasonable insurer would have acted differently
 Majority was comfortable allowing members of the insurer speak for the standard practices of
that company
 Dissent feels that the customer is not well protected by shiftin onus because evidence shows
that employees didn’t actually know what the practice of other insurance companies were
Prejudice to the Insurer
- Proof of breach of disclosure duty per se is legally insignificant
o If the effect of the breach is neutral in the risk assessment then doesn’t actually make a difference –
there must be some prejudice to the insurer
Subjective Materiality
- Where there’s a reasonable basis to actually find out what this actual insurer would have done, then there’s no
reason to rely on what the objective insurer would have done
-
Must be reasonably certain evidence of this
Evidence of actual practices would take precedence over reasonable insurer practices
Nuvo Electronics Inc v. London Assurance
- No material non-disclosure; insurer would have not acted differently; reasonable insurer conduct irrelevant
- Prior claim that the insured didn’t disclose
- Court held that there is no breach here, but if there was, there would have been no prejudice and insurer
wouldn’t have been induced into provided protection when it otherwise wouldn’t have
o Evidence showed that this information does not usually make a difference to the insurer’s practices
Effects and Consequences of Breach of Insured’s Disclosure Duty
- 1. Repudiate Contract
o void ab initio
o Insurer realeased from contractual obligation; notify insured of termination; premiums refunded absent
fraud
- 2. Ignore breach
o treat the contract as valid
- 3. Unilateral Termination
o This would allow insurer to keep part of the premiums; obligation is only to return the unused
premiums; for a 12 month k, if unilateral term at 11, they only lose 1 month of premium
Statutory Modifications
Life; Accident and Sickness
- Contract is voidable
Incontestability
- Contract (including reinstatement) not voidable after 2 years unless breach fraudulent
- Actual fraud required; insured knowing misled insurer or was reckless
o McLean v. Paul Rever Life Insurance Co
 Criminal context psych assessment – not disclosed to insurer of accident and sickness policy
 Contract over 2 years; breach was fraudulent
 Insured knowingly provided false information
 Contract voided
 There was fraud here because insured hid the facts from insurer
o Metcalfe v. Manufacturers Life Insurance Co
 Hospitalization and drug treatment not disclosed
 Held: incontestability – not voidable
 The facts were material, but after 2 years, statute kicks in
 Unreasonable to rely on his agent the way he did, but this did not amount to fraud
 He was willing to provide the information, so no fraud
- Rationale:
o Timely and Thorough review of applications
o Reasonable expectations of insured and beneficiaries
Misstatement of Age
- No nullification – doesn’t entitle insurer to void k if this was the only problem, but insurer is given some
options
- Benefits or premiums can be adjusted
Fire: Severability
- Contract void vis-à-vis property/risk subject to breach
- The entire K is not voided, rather the aspect of the risk property that is causing the problem in light of the new
info is signalled out and severed
o
Eg. Insured says property is used in one way and has low risk of fire, not true, the k is voided in
relation to that risk or subject property, and the rest of the K lives on
Auto:
- Contract invalidated; recovery forfeited – s. 75 Insurance (Vehicle) Act
- When claim is forfeited for breach of disclosure, it extends to everyone who is claiming through the insured’s
policy, or on their behalf
- This only affects the insured; it does not effect the other person they hit in the MVA.
Causation, Fairness and Insured’s Disclosure Duty
Marche v. Halifax Ins Co (SCC)
- Can court use its discretion to relieve insured of the effects of stat cond 4?
- S. 129(b) gives courts discretion to disregard unreasonable condition or term
- Here, place was left vacant – should have been disclosed – no longer vacant, fire burns it down
- Majority
o S. 129 not limited to contractual conditions – also applicable to unreasonable stat conditions
o Unjust to deny coverage where material change in risk is rectified before loss and the loss was
unrelated to the temporary change to begin with
 Note: this can be distinguished from cases where disclosure duty would render a contract void
ab initio – here no issues at formation, and the breach is rectified prior to the loss
- Dissent
o Discretion only application to contractual conditions
o Breach in question was a stat condition, hence inapplicable
o Disclosure duty strictly should be enforced – need not be causally linked to losss
- Notes:
o Dissent is predictable at least
o If there is a breach, then the contract is void right then and there, why is it ok if it’s rectified?
o Dissent is more in tune with the purpose of insurance
LEGAL LIABILITY OF INSURANCE AGENTS AND BROKERS
Typical Scenario
- Intermediary’s fault results in lack or inadequate coverage
- Intermediary is personally liable for this action
- Rationale:
o Professionals not mere salespersons – trained in area of insurance
o Insured entitled to rely on that expertise
o Higher standards of careful and prudent conduct
 Generally an extensive relationship – based on longterm trust and agent likely knows the needs
of the insured quite well
Basis of Intermediary’s Liability
Agency Law
- Ostensible authority to conclude contracts and detrimental reliance
o If ostensible authority, then insurer can still be responsible to insured – but insurer can go after the
intermediary
Contract
- Fines Flowers v. General Accident Assurance
o Intermediary was supposed to provide full coverage for the insured – received commission for services
rendered
o Policy ended up not covering certain aspects, but they were considered “wear and tare” and are not
covered by any policy
o A separate contract is formed between insured and agent, than the insurance contract
 Service in exchange for commission from insurer
o Here, no agreement on meaning of “full coverage”
 Loss not covered under any policies
 Parties may not have had meeting of the minds – disagreement over what constitutes “full
coverage”
Torts:
- Tort liability can be limited in the contract
- Expectation of reasonable care implied against insurance agent
- Agent liable for losses from failure of due care
Equity:
- Breach of fiduciary duty
- Suggested in Fines Flowers, but not typically used
Scope of Intermediary’s Duty
- Depends on nature of service product sought
Full Coverage
- Instructions may be specific of vague
- Intermediary is to obtain appropriate coverage or advice of its unavailability / gaps
- Advise customer of available option
o In addition to getting the insured what they want, they must advise of all the options and where gaps
remain
- Rationale:
o Intermediary is a professional with specialized knowledge
 Results in a high standard of care
o Reasonable reliance on intermediary’s expertise for coverage
o No opportunity for alternative protection
- Fines Flowers v. Gen Accident Assurance
o Customer’s instruction was to provide full coverage
o Obligation – to get them everything tha was commercially available, but also to advise them of the
gaps to give them opportunity to account for those gaps
Special Coverage
- Reasonable skill and care to obtain required coverage
- Obtain requested coverage or advise of unavailability / gaps
- Sandborn Wholesale Ltd v. Pottruff & Smith Insurance Brokers Inc
o Customer asked for a specific insurance policy- stock that remained on premiss was not part of the
coverage provided – he had asked for transportation insurance only
o Intermediary came to location to sign paperwork and mentioned that inventory was not covered as part
of the policy – insured asked if it was available, intermediary responded would have to look into it –
insured told him not to worry and that he didn’t want it
o Held:
 Request was for transportation insurance, which was provided and the intermediary advised of
the gap, but insured didn’t act on it
Ongoing Duty
- Convey information between insured and insurer
- Asses changes in client’s needs and advise accordingly
- Even if advice was adequate when given, but client situation changes over time giving rise to different needs,
there is an obligation on intermediary to assess client’s new situation and advise accordingly – including
advising of new gaps and how to protect against them
- Beck Estates
o Breakdown of relationship of woman and man; woman used same brokerage firm for her policies
before and after breakdown
o They saw her change of address and the sole tenant’s policy on her new place
o They knew of the change in relationship status, so they knew the risk of her maintaining the joint
home-owners’s policy on the marital home that she and husband had owned but now only he lived in
 Intermediary should have advised her of the risk – acts of one insured can effect the other
 Intentional loss caused by the ex husband on the home – so she was unable to claim for the
loss
o Insurer still provided some settlement out of good faith, so this case was against the intermediary in the
amount of difference between the settlement amount and the value of the home
o Note: BCIA 28.6 would have changed the outcome of this case
Unsolicited Information
- Provision of optional/additional coverage
Fletcher v. Manitoba Public Insurance Co
- Insured asked for full-insurance, employee only discussed basic coverage with client
- Accident – other driver at fault – their insurance didn’t cover total damages, insured’s insurance didn’t cover
short-fall coverage
o This was an available option, but this information was not given to insured
- Held:
o Insurer cannot count on customer’s knowledge, this information should have been provided by the
intermediary to the customer
o Public vs. private insurance agents – there is a difference – below
- MPIC was found liable
o Providers of auto insurance routinely provide info to customers
o Foreseeable that customers will rely on information regarding available options to make informed
choices and reasonable reliance by customers
o Public insurer not to assume too much regarding customer’s knowledge
Scope of Duty: Private Insurance Agents v. Public Insurers
Private:
- Information about available coverage and what meets customer’s needs – including gaps in coverage
Public:
- Accurate information about available coverage, including optional coverage
o Not the same level of expectation as from private insurance agents
o But still high enough to require employee in Fletcher to provide information about options available
Rationale:
- Private agents are licenced professionals; individualized service; opportunity to assess customer’s needs and
advise accordingly; work on commission
- Public agents are not licenced or experts; work in institutionalized settings; no opportunity for private
/individualized service; fixed salary
Defences
- There may be room for contributory negligence – insured may be obliged to exercise due care to ensure
necessary coverage requested
o So if they have a disregard for their own personal situation, and took action below that of a reasonable
person in their own situation, they could be contributoriliy negligent
- Obligation to read information provided by the intermediary
o CIA Inspection Inc v. Dan Lawrie Insurance Brokers