Issues with K Formation:

The Disclosure Duty

Content

Common-LawIssue Where RatioStarting point Carter v.

BoehmInsured only has duty to disclose all material facts w/n their sole knowledge. Insured does not have to disclose what insurer actually knows or could know with

reasonable efforts. Insured does not have to disclose future speculation or opinions… only past and

present FACTSWhy? Walsch Accurate information necessary for accurate risk assessment and informed

underwriting practices. Facts inaccessible to insurer Insurance is valuable to society, so we all have an obligation to keep it going

Effection of Non-disclosure

BCIA s. 17

(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.

General Insurance KsWhere Ratio NotesBCIA s. 16

Terms and conditions intended to bind insured must be in the policy or in writing

BCIA s. 17

Warranties of truth abolished, materiality required for non-disclosure or misrepresentation.

Insured’s duty cannot be expanded by warranties

Misrepresentation must relate to material facts

Property InsuranceIssue Where Ratio NotesSpecific disclosure for property insurance

BCIA s. 29 stat cond. 1

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.

Insured not to: Falsely describe subject property to

insurer’s prejudice Misrepresent material facts, or Fraudulently omit material facts Why? Accurate risk assessment

Implications of Stat. Cond. 1:

Omissions/non-disclosure and misrepresentations distinguishedo Misrepresentation: customers’

intention irrelevant; misrepresentation need not be fraudulent; an insured is in breach of disclosure obligation if the insured misrepresents a material fact even if the misrepresentation is unintentional. (Bowes)

o Omissions/non-disclosure must be fraudulent; requires subjective awareness of materiality of facts omitted (Taylor)

Problems 1. Difficult to delineate between an omission and a misrep2. Inappropriate for duty to be narrowed solely for the omission of information but not

the misrepresentation of information.

Auto InsuranceIssue Where Ratio NotesSpecial Disclosure for Car insurance

Insurance (V) Act, s. 75(a)

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

If they do, all claims of applicant/insured or their dependent or someone claiming through them is forfeited.

Meaning of “knowingly”

Berkowits v. MPIC

Requires deliberate conduct; “Knowingly” qualifies misrepresent

and failure to disclose

error re address not deliberate; No breach of disclosure duty

Sleigh v. Stevenson

intention to mislead not required; suffice insured knew facts to have been disclosed; distinguished innocent misrepresentation

Barsaloux Sleigh explained; knowledge of relevant information that makes statement untrue

Relevant question: Whether applicant knew at the time of insurance facts that would render statement untrue

Materiality Berkowits However before a claim can be denied, the false statement must also be material.Example Allen v.

MPICP 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-in-law in Manitoba who went to pay for insurance premium in person. Motorhome damaged while en route to Manitoba for visit.

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

Life and A & SIssue Where Ratio NotesParties Subject to Duty of Disclosure for life insurance and A &S

s. 51; s. 111

Disclosure duty binds applicant (customer—person taking out insurance, sometimes called assured) AND life insured (the person whose life is insured)

This is despite lack of privity of K between the life insured and the insurer.

Exceptions s. 52; 112 Duty does not apply to misstatement of age (only for life).

After 2 years, non-disclosure incontestable.

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.

Scope of Duty s. 51(1); s. 111(1)

Must disclose all material facts that have not been disclosed by the other person.

McLean v. Paul Revere

Medical history IS a material fact and must be disclosed.

Jail time, employment history and residence history NOT material facts.

Metcalfe Here hospitalizations and treatments for past drug use were held to be material facts… even though guy clean at the time he applied.

Consequence of non-disclosure

51(2); 111(2)

K voidable at option of insurer

McLean Consequence of non-disclosure is that K is voidable at option of insurer.51(3); 111(3)

Where misrep in relation to application for additional/new/ different insurance, just that part voidable by insurer.

Metcalfe 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 and non-disclosure provisions mandatory

s. 39(1); 94(1)

Duty provisions binding regardless of contractual terms—can’t vary by K.

Policy Adjin-Tettey

Applicant not required to undergo 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 toMust 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.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.

DurationIssue Where Ratio NotesDuration of Disclosure Duty

Lecture Depends on the type of insurance:

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&SSemi-Ongoing

- BCIA s. 101 stat cond. 3 must disclose change in occupation only

Auto: BCIVRBc reg 477/83, sched 10, s. 2(3)

- Changes in vheicle use and primary location when not in use must be disclosed.

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.

Consequences of Breach

BCIA s. 29 stat cond. 4(2)

Does NOT make entire policy voidable, rather contract is only void IN RELATION TO THE RISK that the material fact relates to.

Ex. house insurance, don’t disclose when you get a wood fire place, insurance void in relation to FIRE but not to break and enter.

Insurer’s options on Notification of Change

BCIA s. 29 stat cond. 4 (3)(a)

May unilaterally terminate K in accordance with stat cond. 5

BCIA s. 29 stat cond. 4 (3)(b)

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 Do nothing.

Breach?Consider was (a) fact inaccurate or not disclosed? (b) material and (c) within the insured’s knowledge to determine if disclosure duty breached, AND lastly (d) the insurer must establish prejudiceInaccurate or not disclosed information?

Ambiguous Q

Stewart If response to an ambiguous question is inaccurate, may not be breach of disclosure if answer reasonably responds to ambiguous Q.

Test: how a reasonably intelligent person in customer’s position would have understood the question

MacQuarrie 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 reasonable person would not consider sleep apnea a respiratory condition, answer therefore not inaccurate.

Intermediary inaccurately fills out application:

Part 2 Insurance

Newsholme Where an intermediary fills out a form for the applicant, they are acting as the insured’s agent and therefore any mistake made by the intermediary in recording the information attributable to the insured.

Sleigh If you sign the form w/o reviewing, it doesn’t matter—still bound by agent’s mistake.

Stone EXCEPTION: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.

Blanchette 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 principle will not apply. Not a breach of disclosure if agent makes mistake.

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.

Lecture 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.

Intermediary inaccurately fills out application:

Life and A&S

BCIA ss. 90; 139

PRESUMPTION that insurer’s employee, officer, or person soliciting insurance for insurer is NOT considered insured’s agent to latter’s prejudice

Walsch Rebutted Where:- Insured expected to have reviewed responses before signing- Document warns applicant about 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.

Is it a material fact? Ontario Metal Products

“Reasonable Insurer Test” (objective-insured’s subject belief irrelevant)

Onus on Insurer to establish materiality

If the fact is one which would have adversely affected a reasonable insurer’s decision to underwrite the risk at the stated premium, either by charging more or refusing coverage, it is a material fact.

Timing Henwood 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?Presumption Henwood 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.

*Insurer NOT required to adduce evidence of other insurers’ underwriting practices

Walsch While the presumption still exists, evidence of insurer’s underwriting practices ALONE is NOT sufficient to satisfy reasonable insurer test. Expert evidence required to establish reasonable insurer practice.

MacQuarrie Insurer should have called witness with knowledge of general insurance industry and not just the underwriter who made the initial decision.

Where insurer did NOT ask Q regarding info not disclosed

Sagl Just b/c insurer did not ask Q, doesn’t mean that info was not material.

However, failure to ask Q that a reasonable insurer would consider the answer to material means insurer does NOT consider info material and there is no breach for failure to disclose.

Thomas 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.

Is it within the insured’s knowledge?

Walsch Actual or constructive knowledge Insured’s opinion regarding materiality of information irrelevant

Johns-Manville 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

Pereira v. Hamilton Township

Disclosure duty primarily on insured Insurer’s duty to make further inquiries narrowly construed Arises only in exceptional circumstances where necessary

Prejudice to the Insurer?

Taylor 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)Nuvo Electronics

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 objective test and fails to prove prejudice, b/c insurer would have insured anyway.

Kehoe Where insurer’s practice is consistent with industry practice—then reasonableness of the practice is not questioned.

Note: CausationIssue Where Ratio NotesCausation Unnecessary for Breach

Henwood 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

Effects and Consequence of BreachIssue Where Ratio NotesCommon-law, Insurer’s options

Ellis Upon discovering breach of disclosure duty on the application form, the insurer has three options:

1. Repudiate the K on the basis of the breacho If the K is void ab intio, the

insurer has to return premiums (absent fraud (Venner)).

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.

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.

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 (McClean)

Where breach is of CHANGE

s. 32 BCIA Court has discretion to consider contractual terms and conditions and relieve insured of application where the condition is unreasonable or unjust.

Marche Court may exercise their discretion under s. 32 in relation to contractual OR statutory provisions.

Dissent: discretion only applicable to contractual condition.

Court will do so where:(1) an insured failed to disclose a

material change in risk,(2) but the change was temporary,(3) rectified before loss and(4) causally unrelated to the loss.

Distinguished: Henwood, where breach is ongoing or at beginning of K, K is void ab intio so nothing to relieve against b/c K never existed. However, where it is a material change in risk, K did exist, just subsequently breached, so Court can relieve against consequences.

- Unjust to deny coverage where material change in risk recified before loss and loss unrelated to temporary change

- Not reasonable to require disclsoure of temporary change in material risk, totally unrelated to the loss.

- Not realistic to expect people to call insurer and report every little tiny thing that happens with the property

Auto Insurance s. 75 BCIVA

The claim is invalidated and recovery is forfeited, for insured or any party claiming through insured.

General Insurance Ks

BCIA s. 29 cond. 4

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 & SicknessGeneral Rule BCIA s.

51(2); s. 111(2)

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.

s. 111(3); But if in relation to addition, increase or change, or in relation to that addition increase

s. 51(3) or change.Incontestability BCIA s.

52(2); s. 112(2)

Contract is not voidable for non-disclosure or misrep if K is ineffect for over 2 years during the life of the person.

A reinstatement, addition, increase or change restarts the incontestability period for the part that is reinstated, added, increased or changed.

Metcalfe 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.

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.Exception to Incontestability

BCIA s. 52(2); s. 112(2)

Exception: fraudulent omission or fraudulent misrep

K always voidable for fraud… no protection through incontestability.

McLean 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.

Facts: woman spent time in jail, non-disclosure of mental health issuesHeld: intention to mislead, therefore fraudulent misrep, and incontestability did not apply.

Walsh State of mind of insured is inferred from the surrounding circumstances.

Here impossible to believe that the ptf would 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.

Misstatement of Age

s. 52(1)(a) Incontestability does not apply to misstatements in age.s. 54(2); s. 115(1)

Where a misstatement is age is discovered, the benefits or premiums are adjusted to reflect the correct age.

If misstatement is fraudulent, you can void the K.

This is the only time the K is varied for breach of disclosure duty.

s. 54(3) However, in insured’s age exceeds the insurable age at the time of the formation of the K, the K is voidable w/n 5 years if insured is still alive and the K is voided w/n 60 days of discovering the misstatement.

If K is in place for more than 5 years, if the person dies before the misstatement is discovered, or if insurer takes no action w/n 60 days of discovering the misstatement = incontestable.

s. 115(3) If the commencement or termination of policy is affected by misstatement in age, correct age governs.

Public PolicyIssue Where RatioPublic Policy & subject matter

Oldfield Public policy trumps freedom of K if subject matter of insurance K contrary to public policy, K illegal and unenforceable.

Liability of IntermediariesIssue Where Ratio Notes

Intermediary Providing Insurance from Private InsurerBasis of Intermediary Liability

Fine’s Flowers

An intermediary’s liability to the insured is two-fold:

1. Tort: intermediary is not a mere salesperson, insured is entitled to rely on their expertise, and a higher standard of care is required (Hedley Byrne principle)

2. K: there is a K between the customer and the intermediary.

Concurring decision: difficult to ground liability in K because there is no direct consideration flowing from insured to agent (consideration comes as commission from insurer).

However, saying both K and tort allows court to give either expectation or reliance damages—probably why they majority wanted it

Scope of Duty Fine’s Flowers

Scope of duty depends on whether instructions were specific or vague. If instructions are VAGUE:

- Intermediary is an advisor- Must become familiar with customer’s

operation, determine their need and appropriate coverage

- Obtain appropriate coverage or advise of its unavailability or gaps

- Advise customer of available options

Ex: customer wanted “full coverage” insurance. Agent gets coverage, but doesn’t advise that policy does not cover “wear and tear”… in fact impossible to get insurance that covers this. Loss occurs due to wear and tear, agent liable b/c did not advise of gap in insurance.

Sandborn SPECIFIC:- No duty to learn about the customer’s

work and advise generally when specific coverage is requested.

- Must use reasonable skill and care to obtain required coverage

- Obtain requested coverage or advise of its unavailabilty or gaps

Ex: here agent satisfied their duty to communicate lack of requested coverage to insurer. Insured wanted transportation coverage, agent said they would look into it but that it probably didn’t exist.

Beck Estate

Once an ongoing relationship is established between insured and agent, the agent must assess changes in client’s needs and advise accordingly.

Now codified… by… ??

Employee of Public InsurerDuty Fletcher 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.

Liable for gaps in coverage where employee of public insurer did not inform insured of optional or additional coverage available.

Private Insurer does not have same duty.

Ostenda Private insurers are not liable for gaps in coverage even when they assess risks entailed in customer’s operations.

- Only the intermediary is required to inform customer of gaps in coverage

In the private insurance context, the duty to advise is only on the intermediary and not direclty on the insurer.

- 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.

Rationale Lecture Public Insurer: Private Insurer:Employees are not licensed agents or alleged experts

Intermediaries are licensed professionals

Work in institutional setting Provide professional and individualized services

No opportunity for private and individualized service to custmers… don’t’ get to know them

Opportunity to assess customer’s needs and advise accordingly

Fixed salary CommissionIf providing public insurance through private intermediary

Lecture - 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.

Insurance K is Valid: Now What Does it Mean?

What does the Policy Cover or Exclude? What does that word mean?Issue Where Ratio NotesOver-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 wordingTest Consolidated

Bathurst v. Mutual Boiler

Principles of insurance contract interpretation are applied in accordance with the two step test from this case.

STEP ONE: Consolidated Bathurst v. Mutual Boiler

Apply general principles to find an interpretation of the K which reflects the true intentions of the parties at the time they entered into the K.

If this can be done using the general principles, and there is no remaining ambiguity in the language, STOP HERE don’t do step two (Corbould)

- Undefined terms given there “plain, ordinary and popular” meaning, “such as the average policy holder of ordinary intelligence, as well as the insurer, would attach to it” (at 901)

- Use the plan and ordinary meaning of defined terms subject to parties’ intention as evidenced from the entire policy

- If a word has multiple meanings, choose the one that reasonably promotes parties’ intentions

- Holistic interpretation to achieve commercially reasonable outcome—don’t let technical 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 KSTEP TWO: Consolidated

Bathurst v. Mutual Boiler

Where the language is ambiguous, in that there are multiple reasonable meanings or irreconcilable provisions, use tools of construction to determine meaning.

i.e. where step one failed to find the answer

Contra Proferentem 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

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.Coverage/Exclusion Lloyd’s v. Chu Coverage Provisions Broadly Construed,

Exclusions Narrowly Interpreted- Similar rationale as contra

preferentum

**applies to both contract and statutory conditions***

Reasonable Expectations

Corbould Determine the meaning of the ambiguous 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.

Problematic:- Whose reasonable expectations are

paramount?- Potential conflict undermining other

interpretative principles

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

Note: lower courts have brought this into stage one, Vytlingham also appeared to do so.

Continuity of Judicial Interpretation

Gibbens SCC 2009

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.

Effect of Public Policy:

Consumer Protection/ ProCoverage

Jesuit Fathers SCC 2006

Cannot allow public policy concerns to trump foundational principles of interpretation.

Just b/c insurance fills public service role of compensating innocent third parties, doesn’t mean coverage should always be found in interpretation.

Vytlingham Example: Interpretation does not necessarily favour coverageno coverage from underinsured motorist protection when tortfeasor dropped stones on car, b/c tortfeasor not using their car to do so.

Seems to bring the “reasonable expectations” into stage one… but Corbould says it is only for stage two.

BCIA s. 32 Instead of bending interpretation to benefit the insured, use this section:Relief from unreasonable terms

BCIA s. 13 & 14 Or this section:Waiver and estoppel (see claims process)

EXAMPLES Excel Cleaning SCC 1954

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

Dissent: 2-yes, plain and ordinary meaning excludedBathurst v. Mutual Boiler

Facts: K excludes loss arising from “depletion, deterioration, corrosion, or

Dissent: plain and ordinary meaning of policy wording

erosion of material”Issue: whether loss occasioned by corrosion of heat exchangers is recoverableHeld: corrosion itself is not covered, consequential loss of $ from closing business to repair was.Rsns: b/c any other interpretation would mean no coverage the second there was corrosion, which would result in nullification of K

excluded the loss.

McClelland SCC 1981

Facts: life K, premiums paid for Jan. 23rd start date, but policy delivered Feb. 28th

Issue: relevant date for calculation of two year suicide clause in life KHeld: Intentions of parties from wording of K demonstrated Jan 23rd start date.

Dissent: intentions of parties from wording of K demonstrated Feb. 28th start date.

Scott v. Wawanesa SCC 1989

Facts: insured home damaged by fire deliberately set by 15 yr old son. Exclusion for loss from “willful act of the Insured”, “insured” included named insured, residents of household, and anyone under 21 in care of insured.Issue: was son an insured?Held: yes, therefore b/c willful act of son, exclusion clause applied.

Dissent: ambiguous, applied contra proferentem and would have allowed coverage.

Katsikonouris SCC 1990

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

Brissette SCC 1992

Facts: beneficiary murdered life insured, so barred on public policy from receiving

Issue: what should happen to benefit if beneficiary barred on public policy from 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.

DISSENT: K was ambiguous, did not say what would happen if beneficiary killed the life insured, so must resolve in favour of the insured. Contra proferentem

CNR v. Royal Sun Alliance SCC 2008

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.

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.

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 lossIssue Where Ratio NotesWhat constitutes fortuitous or accidental loss?

Gibbens SCC 2009

Average Insured Test: “accident” is an ordinary word and should be interpreted the in ordinary language as it would be understood by the average person applying for insurance.

- Contextual approach- “an unlooked for mishap or

occurrence”- Includes negligent conduct- Unexpected loss required, but not

sufficient to establish accident- Does not include loss from natural

processes in the ordinary course of events

- Interpretation principles and the word accident:

- “accident” should be given its ordinary meaning

- Generous interpretation should be given to accident unless restricted by policy

- If ambiguous, use contra proferentem and construe against insurer

- If ambiguous, give effect to reasonable expectations of parties

- There should be continuity of interpretation

Progressive v. Lombard

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.Stats v. Mutual of Omaha SCC 1978

There is no difference for the meaning of accident in third party claims vs. first party losses

Recklessness: A person who realizes the danger of their actions and deliberately assumes the risk

Negligence: person judged on reasonableness standard to have acted dangerously, but they themselves may never have thought they were acting negligently

TEST in context of whether there is coverage

Martin v. American International SCC 2003

Onus on insured to establish “accident” on b of p.Test for accidental loss depends on insured’s state of mind:

Whether the insured subjectively intended the consequence of their actions. If person did not intend, then it is an accident.

- In other words, did insured expect the consequences?- 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?

Excluded: Loss from Natural Causes

Gibbens Accident does NOT include loss from natural causes.

Rare health complications are included in “normally” following the course of events

Over-view Framework

Nelson ABQB Accident Includes:1. Prior external force or impact on insured’s body resulting in bodily injury or

death- Triggering event fortuitous

- 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 insured3. 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.

Was loss caused by intentional or criminal conduct?this is always impliedly excluded, b/c purpose of insurance is to protect against fortuitous loss (Husak) and public policy concerns meant criminal conduct automatically excluded at CLIssue Where Ratio NotesCommon-law Lecture At common-law, if loss caused by

intentional or criminal act of insured, this is a complete bar to recovery.

Rationale: public policy against benefiting from crime.

Statutory Modifications BCIA s. 5 Loss or damage from criminal conduct per se not bar to indemnity, unless insured (or other person with insured’s consent) intended to bring about loss or damage

Additionally: recovery still subject to policy terms—can expressly excluded criminal conduct

Same in ON - insurance act s. 118

Policy:- Preserves freedom to K- Innocent third parties entitled to

recover- Preserves fortuity

What constitutes criminal conduct?

Eichmanis - Criminal acts not limited to those intended to cause harm, applicable to offences that do not require mens rea.

- Any breach of Criminal Code = criminal act.

- Criminal conviction is not required, however conviction is prima facie proof of a criminal act.

- criminal act must have caused the loss for exclusion to apply.

Here: criminal negligence causing bodily harm…insured convicted. ON so s. 118 not necessarily excluded, but policy expressly excluded criminal acts.

No coverage.

Definition of “intentionally Caused loss”

BB pg. 171

- Intentionally caused loss is a deliberate act committed by an insured with the intention of causing some degree of harm or loss, even if insured does not intend the extent of the loss actually incurred. (Saindon; Scalera; Emeneau; RDF)

- NOT deliberate conduct causing unintended harm or loss (RDF)- Presumption of intention to harm for inherently harmful conduct i.e.

sexual assault (Scalera)- General intent to harm triggers exclusion (Emeneau)

Proving intention Martin 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?

Critique of Intentional/Criminal injury exclusion

Lecture o Inconsistent interpretive principles, liberal construction of coverage and exclusion clauses

o Human dimension: effect of exclusion on 3rd parties, see Scalera, Sansalone, Eichmans

o RDF: boy started fire on school property, school burns down, exclusion does not apply b/c damages were unforeseen physical consequence and not intended

o Emeneau: Insured attempted suicide, in process burned house down. Exclusion applied b/c attempting harm—even if not burning house down.

Erik ARTICLE

Knutsen: “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.

Consequence of Finding Criminal Conduct: Public PolicyIssue Where Ratio NotesPublic Policy

Lecture Where the way the loss occurs is contrary to public policyclaim denied, but contract remains valid

When is public policy used?

Oldfield - Independent of the contract- Presumed to reflect social values- Not subject to parties’ intentions- Trumps K- Resort to public policy only necessary where

contract silent on an issue or where subject-matter or claim against public policy

- Renders K unenforceable NOT void.

Examples of when K silent on what should happen, and public policy used to resolve:- Oldfield: drug trafficking- Goulet: car bomb- Brissette: murder

Criminal Forfeiture

BCIA s. 5 Reverses CL presumption:Loss caused by criminal act only void if expressly excluded in policy or intentional.

Oldfield Accident caused by criminal conduct means claim forfeited as against public policyBB p. 186 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 unnamed 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.

Life Insurance

BCIA s. 5 Only applies if insured doesn’t die and is just disabled… CANNOT use if life insured diedOldfield K was silent on what happened if death of life

insured was result of insured’s own criminal conduct.

Q: should innocent beneficiaries and 3rd parties be denied coverage where life insured’s death was result of criminal conduct?

Held: If beneficiaries totally innocent, they can recover life insurance proceeds even where death was result of life insured’s criminal conduct—not contrary to public policy AS LONG AS NOT CLAIMING THROUGH CRIMINAL’S ESTATE.

Claim unaffected by insured’s criminal activity b/c:

- Beneficiary did not participate in criminal act

- Payment not for benefit of guilty insured (not going through estate, going directly to beneficiary)

If beneficiary not named, will go through life insured’s estate. If named will go directly to beneficiary and not through estate.

[Note: Major J. in Oldfield expressed concern that innocent beneficiaries are treated differently depending on whether they are named or unnamed]

Brisette Cannot recover if insurance proceeds must first go to criminal’s estate and then get disbursed—b/c this is benefiting criminal

Auto Insurance

s.76(6)(c) BCIVA

Third party claim unaffected by insured’s criminal activity (this is particularly for drunk driving, otherwise you would never be able to recover under CL if injured by drunk driver)

General Insurance

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).

Property Insurance

BCIA s. 35 Where loss or damage to insured property is caused by an insured under the policy, the

(1) Despite section 5, if a contract contains a term or condition excluding

intentional/criminal conduct exclusion is limited to the persons implicated in wrongdoing (or prescribed by regulation)(1(a)(b)(c))—innocent co-insured will be indemnified for their proportionate share in the property (2). Nature of innocent co-insured’s interest in the property irrelevant.

Limited to property damage or loss; does not include indemnification for bodily injury or death.

coverage for loss or damage to property caused by a criminal or intentional act or omission of an insured or any other person, the exclusion applies only to the claim of a person

(a) whose act or omission caused the loss or damage,(b) who abetted or colluded in the act or omission,(c) who

(i) consented to the act or omission, and(ii) knew or ought to have known that the act or omission would cause the loss or damage, or

(d) who is in a class prescribed by regulation.

(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.

Reg, s. 7(1)

Only an innocent co-insured who is a natural person can recover under s. 35

Reg, s. 7(2)

Innocent insured has obligation to co-operate with insurer in investigating claim

Life Insurance: Death by Suicide

Husak SKCA 1969

At common-law: No payment of life insurance if death by suicide

Rationale: contractual interpretation, suicide not within scope of insured risk. Consistent with intentional injury exclusion. Contrary to public policy to include coverage for this; decriminalization irrelevant.

*Common-law suicide forfeiture applies absent express terms to the contrary—if K is silent, then no recovery for suicide. Statute makes it enforceable only, not a mandatory part of insurance K*

BCIA s. 56(1)

Statutory Modification:

Contractual terms for recovery where insured commits suicide is lawful and enforceable

Permits coverage for loss arising out of suicide ONLY—does not require it.

Lecture 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)

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.

Auto:

Who is Covered?Issue Where Ratio NotesWho is covered? Ins V Reg

447/83 s. 63Statute and regulations create liberal interpretation of who is covered by the policy. This definition is specifically for third party liability, but that is the only time we really care about who is covered anyway.

(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 Therefore, people using vehicle without insured’s permission is excluded.Ins V Act s. 75(b)

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

Ins V Reg 447/83 s. 55(3);

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.

Schedule 10 s. 3(1), (2),(3),(7)

(1) The insurer is not liable to an insured who breaches this condition or a sub-condition of this condition.(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.

(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.

Determining whether insured “permitted” operation of vehicle in breach of condition

Wawanesa v. SC Construction

Question of FACT:Test: Whether reasonable person would have known person was unauthorized or operated vehicle in breach of

Here: held NOT unreasonable for insured employer to assume employee was licensed driver.

coverage conditions

Loss Arising from “use or operation” of motor vehicleIssue Where Ratio NotesBasis of Recovery

BCIVA s.7(1) (1) … insurer has to pay out to all insureds whether named or unnamed:

(a) first party benefits are payable if bodily injury is sustained or death results,(b) third party liability insurance money is payable, if bodily injury to, or the death of another or others, or damage to property, for which insured is legally liable(c) to whom insurance money is payable, if loss or damage to a vehicle results

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.

Meaning of “use or operation” of vehicle

Amos SCC 1995

Two Part Test: Same for both no-fault benefits and indemnity claims

(1) Purpose Test: Did accident arise from well-known 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

- 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 well-known 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.

Step Two: No fault

Amos 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

o Essentially, the vehicle brought you

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.

to the harm you suffered—doesn’t need to be direct connection.

Martin ONCA 2013

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

Example of how the wording of the statute is KEY.

Step Two: Indemnity

Vytlingam 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!!***

Indemnity insurance is a claim based on underinsured motorist protectionwhere 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? This is consistent with parties’ reasonable expectations when getting underinsured motorist coverage.

Lumbermens v. Herbison

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.

Russo v. John Doe

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.

Martin 2013 ONCA

Other than injury to foot, assault did not result from assailant’s conduct as motorists; independent of use or operation of vehicle and therefore intervening acts; vehicle involvement only ancillary.

Decision also consistent with parties’ reasonable expectations.

Issues in the Claims ProcessSeveral 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 Duties to provide notice of loss; Provide proof of loss; Cooperate with insurer Fulfill all obligation to good faith standard BUT Court can relieve from consequence of breach

- Relief against forfeiture- Waiver- Estoppel

2. Insurer must investigate, verify and respond Duty of good faith Duty to Defend Duty to Settle within Policy Limits

Duties of Insured

Notice of LossIssue Where Ratio NotesObligation Marcoux Insured is obligated to give insurer timely notification of loss and their intention

to make a claimRationale Marcoux SCC

1948Avoids prejudice to insurer re: investigation and defence:

- Timely investigation- Determine grounds to contest any claim, if any- Preserves insurer’s salvage interest

Triggering Event Marcoux Subjective/Objective Assessment: Actual date of loss or when reasonable person in the position of the insured would have reason to believe claim possible.

Length of time to notify after triggering event

BCIA s. 29 stat cond. 6

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

Where gives time limit, easy to know.

Meaning of “immediately” or “promptly”- No hard and fast rules (Ford

Credit Canada ABQB 1984)- Have regard to all the

circumstances, no precedent is conclusive (hogan, ABQB 1983)

- Use the ordinary and reasonable understanding of the requirement (Demitri BCSC 1996)

- Immediately more stringent than promptly (Ford Credit ABQB 1984)

Essentially, use construction tools see what does policy mean section

BCIA s. 101 stat cond. 5

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 agent of the insurer in the province,

not later than 30 days after the date a claim arises under the contract on account of an accident, sickness or disability

Bc Ins. V. Rg: Sched 10, cond. 4, 5

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

Onus Filiatrault BCSC 1981

Insurer bears burden of proving on b of p that insured failed to comply with notice obligation.

Consequence of breach

Marcoux Claim forfeitedBissett 1987 BCSC

However, if the failure to notify did not cause the insurer any prejudice, then the claim will not be forfeited.

Proof of LossIssue Where Ratio NotesInsured’s Obligation

BB p. 200 Insured must give sufficient evidence of occurrence and value of loss within specified time.

See: clause in policy or statutory obligationBCIA s. 29 stat cond. 6

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…

BCIA s. 101 stat conds. 5

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

Ins. V Reg s. 73

(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

Rationale BB p. 200 - 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 proceedingsJohnston ONCA 1908

Obligation to provide proof of loss distinct from obligation to provide notice of loss.

Notice: “only written”Proof: “verify information”

Burden of Proof Dimaria OnSCJ 2003

Insured must establish on b of p the occurrence of an insured loss and the value of that loss.

What information needs to be provided?

Information in insured’s actual or constructive knowledge regarding the loss:- When- How- Extent of loss- Availability of other insurance

BCIA s. 29 stat cond 6 (1)(b)

(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 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

Sufficiency of Information

JR Mooney Determined on basis of reasonableness, need such details as are reasonably practicable.

Nixon SCC 1894

Proof of loss insufficient where insured failed to make inquiries of clerk and bookkeeper of store inventory destroyed by fire.

Hendry SCC 1913

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.

Manner of Proof BCIA s. 29 stat cond 6(1)

(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.

BCIA s. 101 stat cond 5(1)(c)

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.

Time frame for compliance

BB 202 Look to clause in contract, or statutory provision.

Use contract interpretation tools to determine meaning of vague words i.e. “immediately” or “promptly”

Generally, proof several years after event is NOT “as soon as practicable”: K & R Landscaping

Consequences of Breach

Marcoux Claim forfeited, although contract remains valid.BCIA s. 101 stat cond. 5(2)

A & SFailure 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.

Ins (v) reg s. 73(2)

AUTO: forfeit claim if prejudices insurerThe corporation is not liable to an insured who, to the prejudice of the corporation, fails to comply with this [Duty to provide proof of loss] section

Duty to CooperateIssue Where Ratio NotesObligation on Insured

Lecture Insured is obliged to assist the insurer with their investigation

Usually written expressly into policy

For subrogated claim

Somersall SCC 2002

Contractual provision to cooperate in pursuit of subrogated action, interpreted as requiring “little more than [the insured’s] actual participation as a witness”

For liability insurance

Re Canada 3000 (OnSCJ 2003)

- Insured not to assume liability in 3rd party action

- Assist the insurer in defending the 3rd party claim

- Provide necessary information for settlement

- Duty to cooperate is a condition precedent to receiving indemnification

Usually written expressly into policy, but there is also this duty at common-law (impliedly expressed in this case)

Ins V Reg s. 73 (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

Scope Reid (1980 ON HCJ)

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”

Sumner Co and Fraser (SCC 1960)

Generally, duty of co-operation defined as a duty to: “assist willing and to the best of his judgment and ability”

Consequence of breach

If insured’s breach was material and substantial in relation to the claim advanced against them, they forfeit their claim. (must be more than trivial)

Insurer can refuse to defend or indemnify.

Examples of Breach

Thompson (ONCA 2006)

Insured failed to respond to letters and other communications by insurer seeking additional information about incident giving rise to a lawsuit against the insured

Oberg BCSC 1930

Insured investigated and settled claim brought against him without involving insurance company

Marchand SCC 1924

Insured paid the judgment on a claim while insurance company was still deciding whether to appeal

Kansa (ONCA 1996)

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

Satter (SKQB 1993)

Insured intentionally failed to attend hearings, provide evidence or assist in obtaining witnesses in the course of a lawsuit commenced against the insured.

Walters (BCCA 1935)

Insured promoted the action brought against him by a third party claimant

Adamson (SCC 1938)

Insured lied to the insurer about the circumstances of the accident for the first two or three months following the accident

Fraud by InsuredIssue Where Ratio NotesGoverning Principles

Lecture Insureds’ obligations post loss are informed by a duty of good faith.

Means; no willful concealment of material information or misrepresentation

Proving Fraud Holland NSCA 1978/ Brandiferri

Onus is on the insurer to establish fraud on balance of probabilities

Technically b of p, but in practice need a lot of evidence to establish fraud.

Holland NSCA 1978

Insured knowingly, without honest belief in representations, or recklessly made false representations (positive assertions or omissions)

Inadvertence, omission or mistake not sufficient evidence of fraud

Brown BCCA 2004

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.

Presumptions Ghaffari ONCA 1996

If value of claim grossly over-valued, there is a presumption of fraud.

Rebut: by demonstrating an honest mistake.

Consequences of Fraud

Stebbing UK 1917

At common-law, insured’s fraud in advancing a claim entitles the insurer to avoid all obligation under the K

BCIA s. 29 stat cond 7

Claim forfeited, but contract remains valid. *insurer may choose to exercise unilateral termination though*

Ins V Act s. 75 Claim forfeited, but contract remains valid.Brandiferri (ON SCJ 2012)

Amount of fraudulent claim irrelevant, even if fraud only in relation to one small part of claim, whole claim forfeit

Swan Hills No relief against forfeiture due to fraud, and if fraud only relates to one part of claim, doesn’t matter whole claim void.

i.e. fraud in relation to contents of building, coverage for building itself also forfeit.

Lecture Punitive damages may be awarded to the insurer against the insured.

Excusing Insured’s BreachThree 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 forfeiture

o Distinct and separate doctrineo Has unique statutory provisionso Focuses on whether there was actual prejudice to the insurer

2. Waiver o Arguments are made that these are a single concepto Common foundation is that a party should not be allowed to go back on a

choice when it would be unfair to the other party to do soo 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.

3. Estoppel

Relief Against Forfeiture and TerminationIssue Where Ratio NotesRelief against Forfeiture and Termination

Falk Bros. (1989 SCC)

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.

Test Falk Bros Insured must satisfy court on b of p:1. As a matter of law, relief against forfeiture can be applied to the case at bar;

and2. The facts of the case merit the application of relief against forfeiture

1. Legal Threshold

BCIA s. 13 Without limiting section 24 of the Law and Equity Act, if

(a) there has been(i) imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or another matter or thing required to be done or omitted by the insured with respect to the loss, and(ii) a consequent forfeiture or avoidance of the insurance in whole or in part, or

(b) there has been a termination of the policy by a notice that was not received by the insured because of the insured's absence from the address to which the notice was addressed,

and the court considers it inequitable that the insurance should be forfeited or avoided on that ground or terminated, the court, on terms it considers just, may

(c) relieve against the forfeiture or avoidance, or(d) if the application for relief is made within 90 days of the date of the mailing of the notice of termination, relieve against the termination.

This incorporates s. 24 of LEA so it applies to insurance Ks as well.

Falk Brothers There must be imperfect compliance with post-loss obligations:

- Not limited to timely notifications or proof of loss

Must be “imperfect” compliance not NO compliance.

- Includes all post-loss obligations i.e. duty to co-operate and protect insurer’s salvage interests

LEA s. 24 The court may relieve against all penalties and forfeitures, and in granting the relief may impose any terms as to costs, expenses, damages, compensations and all other matters that the court thinks fit.

Important b/c BCIA s. 13 only applies to stat conditions. So for life insurance, which has no stat conditions, use this provision

Pluzak Generally, relief under this section is not broader than the specific relief provision in s. 13. Still only applies to post-loss breaches, in relation to post-loss obligations.

SO: There must have been a valid insurance K in place,If K not valid due to non-payment of premiums, court cannot grant relief from forfeiture, this is not post-loss breach.

2. Merit Application

BB p. 221 Essentially, a court should only grant relief from forfeiture where it would be more fair to relieve the insured from the consequences of its breach than to hold the insured strictly accountable for the breach.

Cedar Hut 1985 SKQB

If SPECIFIC relief power, under s. 13 BCIA 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?SK River Bungalows

If the GENERAL relief power under s. 24 LEA, 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? And3. The disparity between the value of the property forfeited and the damage

caused by the breach: was the disparity substantial?Examples Rayko BCSC

1986No relief where insured’s delay substantially impaired insurer’s ability to investigate or mitigate the loss.

Pilotte - Insured’s breach must be unintentional and cause no prejudice to the insurer

- Insured must have “clean hands”

- Claim filed 12 years after accident

- Even if relief from forfeiture possible, inappropriate to exercise discretion

- Delay caused prejudice to insurer

Sk Bungalow No relief where insured’s unreasonable conduct led to the breachRichards No relief where insured intentionally or maliciously breached an obligationWeatherbie No relief where insured lied about the circumstances giving rise to the breach

Excluded from relief of forfeiture

Jackson Pre-loss breaches, pre-loss non-compliance also, there must “imperfect” compliance not NO compliance.

Here, breach of stat. cond. 4 no relief of forfeiture

National Juice

Cannot give relief of forfeiture for expired limitation period (either statutory or contractual)

Ex. Section 23 BCIA*note limitation period 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 However, for these problems, court could potentially give relief under s. 32LEA s. 24 Or under s. 24 LEA??

Waiver and EstoppelIssue Where Ratio NotesApplicability BCIA s. 14 (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)

BCIA s. 38 Section 14 applies to contracts of life insurance.BCIA s. 93 Sections 13 and 14 apply to contracts of accident and sickness insurance.BC Ins V Act s. 85

(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.

Waiver SK River Bungalows

(1) Insurer had full knowledge of their rights; and(2) Unequivocally and consciously communicated to insured an intention to

abandon rights.Looking for whether one party communicated a clear intention to waive a right to the other party.

- At cl can be express or implied (stat. 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.- Detrimental reliance by insured NOT required

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. (once right has “crystalized” due to waiver, it converts to estoppel b/c there is reliance and you can no longer retract)

Estoppel Pannenbecker ABCA 1978

A representation of insurer, by words or conduct, regarding existing facts or future intention not to enforce contractual right. Requires detrimental reliance by insured.

McConnell Estoppel by Representation =

Representation about a fact.

- Accepting premiums after due date- Reinstatement w/n 2 years of

policy lapsing w/o proof of good health and insurability

- Providing defence absent obligation to do so

Maracle Travellers

Promissory Estoppel =Arises when insurer makes a representation (promise) about a future state of affairs.

Here, letter admitting liability did NOT give rise to promise that limitation period would not be enforced. Action statute barred.

If decided today see: Ins. Reg 403/2012—s. 4, insured must give notice to self-rep of limitation period

Avoiding Waiver and

Lecture Insurer’s Dilemma:- Insurer suspects breach or K void

Estoppel - 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

BCIA s. 14(2) (2) Neither the insurer nor the insured is deemed to have waived any term or condition of a contract by reason only of

(a) the insurer's or insured's participation in a dispute resolution process under section 12,(b) the delivery and completion of a proof of loss, or(c) the investigation or adjustment of any claim under the contract.

This also applies to life (s. 38) and A & S (s. 93): these sections say s. 14 applies.

BCIA s. 27(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.

Ins V Act s. 85(3)

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.

BB. p. 235-237 Insurance Industry Practice:- Reservation of rights/non-waiver

agreemento Insurer responds to claim/defend

without prejudice- Reservation of right

o Unilateral communication by insurer to insured

o Insured’s consent not requiredo Unequivocally communicated to

insured- Non-waiver agreement

o 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

Effect:- Pre-empts claims of waiver and

estoppel

b/c purpose is to preserve insurer's option to later deny coverage, documents are no longer effective once the insurer has denied coverage: Matthews, BCSC 1956

Mathews BCSC 167

Note: non-waiver agreement will be considered strictly against insurer and liberally in favour of insured.

Williams ON co. ct. 1966

Note: non-waiver agreement will not be enforced if the terms or relevance of agreement was misrepresented to insured or otherwise misunderstood by insured.

Application Examples

Parrott SCC 1921

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.

Caldwell SCC 1883

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.

Duplisea SCC 1979

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.

Reierson SCC Insurer did not forfeit right to rely on lack of timely premium payment where, upon

1977 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.

Haines SCC 1911

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.

Maracle SCC 1991

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.

Young SCC 1892

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.

Marcoux SCC 1948

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.

Paul v. umis BCCA 2012

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.

Duties of Insurer

After Receiving Notice of LossInsurer’s Obligation

BCIA s. 27

(1) Immediately on receipt of a request, and in any event no later than 60 days after receiving a notice of loss, an insurer must furnish to the insured or person to whom insurance money is payable forms on which the proof of loss required under the contract may be made.

(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).

(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.

Section 23(2):An action must not be brought for the recovery of money payable under a contract of insurance until the expiration of 60 days after proof, in accordance with the 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.

BCIA s. 101 stat cond. 6

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.

Respond to Claims in Good FaithIssue Where Ratio Notes

The duty 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 Insurer is not to exploit the insured’s vulnerability.

Triggered Fidler The duty of good faith is triggered as soon as insurer advances claim under contract, regardless of whether K provides coverage for the loss claimed.

Distinguish duty to pay: satisfactory proof of loss, compliance with post-loss obligations.

Either or both duties triggered in a particular situation

Standard of Duty Fidler KEY: Act reasonably. If unreasonable, will be in breach.

Denial of benefits not necessarily a breach of the duty of good faith response

- Denial of benefits must be reasonable

- Balance and reasonable assessment of merits of claim

- Insurer not to strategically 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

At a minimum, insured must:- Investigate and asses the claim

objectively and on proper grounds- Act with reasonable diligence

during each step of the claims process to see claim resolved in timely way; and

- If no reasonable grounds for denying coverage or payment exists, pay the claim on a timely basis.

Consequences of breach of good faith duty

Whiten Pay claim if denial of coverage incorrect.Punitive Damages

- Unfounded allegation of arson; manipulation of evidence

- Good faith duty breached- Breach constitutes

independently actionable wrong for punitive damages

Example: Blanco- Unreasonable denial of disability

benefits for 10 years, with knowledge of insured’s financial and emotional vulnerability

- Punitive damages awarded against insurer for same agent’s conduct before, yet no change in behavior

- 4.5 million punitive awardEven if no breach of good faith duty, there may be consequences

Fidler Possibility of aggravated/ mental distress damages:

- Requires reasonable foreseeability of mental distress at time of K

Here: pure contract principles- Insured bargains for “peace of

mind”, part of the consideration the insured gives in exchange for the 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.

Duty to DefendIssue Where Ratio Notes

Duty to Defend

BB. p. 245 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.

- 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

Great West Steel

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.

When does duty arise?

Nichols SCC 1990

“Pleadings Rule”

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.

- 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

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 claimo Could the legal assertions be supported by those factual allegations?

2. Multiple claims: are some claims entirely derivative in natureo A claim is derivative of another if it arises from the same actions and

causes the same harmo If both negligence and intentional tort arise from same actions and cause

same harm, negligence is derivative and 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.

Summary: must be properly plead, non-derivative of excluded ground, within scope of coverage to trigger duty.

Type of Evidence to Use in test

Monenco SCC 2001

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

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

referred to in pleadings, but not to prematurely resolve underlying issue.

of doubt.

Issues Wi-Lan ABCA 2005

(a) Limits to statement of claim and not defenceo What constitutes “pleadings’?o Duty to defend does not depend at all on filing a statement of defence, only on

the pleadingso 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”o Potentially consider defence if pleadings include admissions of facts (Wi-Lan

ABCA)Nichols (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

Sommerfield: negligence claim not derivative of sexual assault claim… duty to defend for negligence. Apportion costs of defence, insurer to pay 20%.

Hanis (c) Inter-related claimso Severability impossibleo Defence of covered claims benefit uncovered claimso 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 claimso Defence costs for covered and uncovered often indistinguishable, 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.

Broadhurst & Ball

(d) Multiple liability policieso Allegations against insured covered

by multiple policieso Concurrent duty to defendo 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:

Auto:In V. Act: s. 79(5)If insurance is provided to the insured under more than one optional insurance contract or under the plan and one or more optional insurance contracts and one or more of them are excess insurance, the insurers must, as between themselves, contribute to the payment of costs, expenses, interest and reimbursement in accordance with their respective liabilities for

(a) damages awarded against the insured, or

(b) the amount payable under a settlement made on behalf of the insured.

Economic Mutual

(e) Multiple Liability Policies: Which insurer defends?

o primary insurer conducts claim, advise named insured to notify excess insurer if claim likely to

Auto:In V Act s. 79(1) The insured or an insurer may apply to the court and the court must give directions it considers proper with respect

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)

to the performance of the obligation to defend in the name and on behalf of the insured if

(a) a person is insured under more than one optional insurance contract evidenced by vehicle liability policies or under the plan and one or more optional insurance contracts evidenced by vehicle liability policies, and

(b) a question arises between an insurer and the insured or between the insurers as to which insurer must undertake the obligation to defend.

Monenco (f) When should duty to defend be assessed?o Preliminary mattero Straight forward, do at beginning, unless there are questions about the

validity of K in the first place (i.e. breach of disclosure)o 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.

Longo ONCA 200

(g) When outstanding coverage issueso Case by case basiso Issue: should insurer have to

defend 3rd party action, while there are ongoing validity of K issues with insured?Consider:

o Relative strength of positions asserted by the insurer and the insured

o The necessity and urgency to furnish the insured with a separate defence

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?

- 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?

Remedy for Breach

Lecture 1. Declaration: insurer required to defendLecture 2. Breach of K: insurer liable for defence cost and indemnification

- 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

Duty to Settle Within Policy LimitsIssue Where Ratio NotesDuty Shea In keeping with the duty of utmost good

faith, insurer has a duty to attempt to settle within policy limits.

Insurer must give consideration to both their financial interests and the insured’s financial interests.

Rationale Lecture 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

settlement3rd party claim within policy limit

- Insured not at risk of financial liability to 3rd party

- Only insurer’s financial interest at stake

- Duty easily fulfilled

*although insured may have other interests, such as reputational interests, at stake*

3rd party claim exceeds policy limit

Shea - Insurers and insured’s financial interests at stake

- Insurer must make reasonable efforts to settle within policy limits

- Insurer not to unreasonably refuse settlement offer within policy limit

Includes an offer to pay policy limits in exchange for release of liability!

3rd party judgment against insured exceeds policy limit

Fredrikson - Not an automatic breach of good faith duty to settle over policy limit- Insurer only required to act fairly and openly

Consequences of insurer’s breach

Dillon Liable for entire judgment amountHere:

- 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.

Tripartite Relationship Adjin-Tettey

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?

Issue: Overlapping PoliciesIssue Where Ratio NotesWhat is an overlapping policy?

Family Insurance

1. Same object of insurance/ subject matter

2. Same insurable interest3. Same risk4. Same insured5. All policies effective at time of loss6. No policy excludes contribution7. Only for indemnity policies

Overlapping policies are not affected by:

- Different wording- Different policy limits- Different scope of

coverage

NOT overlapping Clarke ONCA 1925

Not overlapping policy if same subject matter but different insureds and different interests

Here: property insurance on house, and mortgage insurance on mortgage for same house.

Halwell ONCA 2002

Same insured, but one policy excluded loss = not overlapping policy

McKenzie ONCA 2007

Same insured, but policies protected different interests; policies that provide primary and excess coverage do not overlap.

Indemnity still applies

Family Insurance

Insured’s recovery from co-insurers is limited to actual loss, subject to policy limits

Effect of full indemnification on co-insured

Family Insurance

Co-insurer are not relieved of contractual duty to pay for insured loss: Contribution Applies

Doctrine of Equitable Contribution

Continental v. Prudential

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

Difference between contribution and subrogation

Cameco Corp

Subrogation:- Insured entitled to compensation from

3rd party- Insurer first satisfies insured’s loss- Insurer can then bring action against

tortfeasor in insured’s name- Insurer entitled to amount recovered up

to indemnity amount… insured gets any remaining balance.

- Purpose: prevents windfall to insured (indemnity principle)

Contribution:- Overlapping policies for

loss- Loss satisfied by one or

more insurers- Insurer seeks

contribution from co-insurers who are also liable for same loss in its own right

- Insurer recovers amount exceeding its proportionate 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

Determining Proportionate

BCIA s. 30(1) Insurers can agree to a contribution allocation formula, which differs than what imposed by

A number of companies have signed onto Insurance Bureau’s

Share statute. “Agreement of Guiding Principles” which determine contribution rules.

Common-law

Two approaches:1. Maximum Liability2. Independent liability

Which method to use?

Family Insurance

Use independent liability method for determining contribution of overlapping liability policies

Each insurer pays 50% or equal amount of total loss up to their policy limit. Those with higher policy limits will therefore have to pay more if equal share of loss is greater than the one with the lowest limit.

Insurer A: Policy Limit - $100,000Insurer B: Policy Limit - $500,000

Hayden Use maximum liability method for determining contribution for property insurance.

Insurer’s contribution assessed by reference to policy limit in insurance contract relative to overall coverage in all policies subject to policy limit. Determine total coverage of available by adding up policies limits of insurers, and then determine each insurer’s percentage of the total coverage available based on their individual policy limit. Each insurer pays their percentage of the loss up to the policy limit.

ExampleInsurer A – policy limit: $30,000Insurer B– policy limit: $170,000Total coverage: $200,000

Insurer A’s contribution:$30,000 X 100 = 15% $200,000

Insurer B’s contribution:$170,000 X 100 = 85%$200,000

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 insuranceo No correlation b/n

premium and risks or policy limit

o Policy limits arbitraryo Hayden: Policy 1:

Premium £6, policy limit £100,000; Policy 2: Premium £5, policy limit £10,000

Parties’ reasonable expectations

BC Ins V Act s. 80(3)

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

(c) if there are more than 2 insurers liable, paragraphs (a) and (b) apply with the necessary changes and so far as applicable.

Recovery under Overlapping Policies

Family Insurance

At common-law, insured entitled to 100% recovery from any one insurer—leave insurers to sort out contribution

Effect: joint liability

BCIA s. 30 (1) If, on the happening of loss or damage, there is in force more than one contract covering the loss or damage, the insurers under the respective contracts are each liable to the insured for their rateable proportion of the loss, unless it is otherwise expressly agreed in writing between the insurers.

Effect: several liability- Insured must get

rateable proportion of loss from each insurer

BC Ins V Act s. 80(1)

(1) If there is an optional insurance contract 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, liability or damage.

Effect: several liability

Avoiding Overlapping Policies

Lecture Two Ways:1. Primary and excess policies—“other insurance” clause (McKenzie)2. Exclusionary clauses (Temple)

Exclusionary Clause

Temple SCC 1901

Clause in K that says coverage excluded if loss covered by another policy

Effect: insurer excused from 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.

Primary and Excess Policies

McKenzie 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.

BCIA s. 30(6) items specifically identified in one policy, and not identified but covered in another policy, the policy which specifically identifies the item will be the primary coverage and the general will be excess.

Irrelevant if one of all policies contain “other insurance” clauses: 30(2)Ins V Reg s. 104

The insurance of the car involved in the accident will be primary, and the driver’s insurance (if they have their own, different policy) will be excess.

Ins V Reg 447/83 s. 149(1)

Basic compulsory policy is primary; optional coverage is excess

Ins V Reg 447/83 s. 175(1)

Loss from nuclear energy hazard covered by nuclear energy hazard policy; auto policy excess

Ins V Reg 447/83 s. 150.1

Garage vehicle policy primary; auto policy excess

Family Insurance

An insurance K may have an “other insurance” clause, which converts a primary policy into an excess policy.

If BOTH or ALL policies have an “other insurance” clause, they become inoperative and both policies are treated as primary policies.

However if not all policies have an “other insurance” clause, they will operate and that policy will be the excess policy.

This exception only applies where to give effect to all clauses would leave the insured w/o coverage.

Mckenzie 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.

Issue: SubrogationIssue Where Ratio NotesRemember, all this below can be modified by K, need express and clear terms to do so: SomersallWhat 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 Union

Subrogation automatically flows from the indemnity principle: insured not entitled to recover more than actual loss from insurer and third party responsible for loss.

Insured’s combined recovery from 3rd party and insurer not to exceed actual loss.

Indemnity TEST: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 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 non-indemnity.

o If insured has to prove loss, this is indemnity K b/c don’t have to do that in non-indemnity.

Purposes Somersall v. Friedman SCC 2000

1. Preserves indemnity principle; minimizes moral hazards2. Promotes legal accountability of 3rd party liable for insured’s loss

Operation Wellington 1. Insurer indemnifies insured; insurer sues 3rd party in insured’s name; insured entitled to any excess recovery beyond insurer’s indemnification

- Insurer must have indemnified insured to be entitled to subrogation!

Glynn 2. 3rd party fully compensates insured; insured not entitled to recovery from insurer

Catellian v. Preston 1881 UK

3. Insured indemnified by insurer and 3rd party--insured reimburses insurer amount exceeding total loss.

Eaton Co, SCC 1978

4. Insurer not better placed against 3rd party than insured.- Insurer has all rights as insured, and

subject to all defences that 3rd party could bring against insured.

If insured can’t sue 3rd party, neither can insurer.Here: insured assumed risk of loss in tenancy agreement, insurer bound by that.

Exceptions Wellington No subrogation right where payment not intended to fulfill insurer’s contractual duty i.e. voluntary payment or payment for loss excluded from coverage.

HOWEVER, insurer’s right of subrogation is unaffected if payment honestly intended as indemnification under the policy.

This case: payment for public relations purpose

Imperial Oil SCC No right of subrogation against insured under same policy, named or unnamed.

Capacity in which insured acting at time of loss irrelevant: Condo Corp. 2007 ABCA

Triggering Subrogation

Zurich v Ison 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

Irrelevant if there is non-recovery for losses unrelated to subject matter of insurance; only care about full indemnity for subject matter of insurance.

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

Full indemnity INCLUDES:- Recovery for reasonable cost of action

or settlement of 3rd party claim

No reimbursement for insurer unless NET recovery from 3rd party exceeds insured’s actual loss.

Willumsen 1975 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.

General Insurance

BCIA s. 36 (1) Subrogation arises upon indemnification (full or partial), or assumption of liability for insured loss pursuant to insurer’s contractual obligation.

(2) where only partially indemnified, and net recovery from 3rd party action less than insured’s loss, the insurer’s recovery is proportionate to the percentage of loss paid

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

Auto BC Ins V Act s. 84

Control of litigation

Cahoon SCC 2002

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

even if those damages are comprised of both insured and uninsured losses: Malcolm v. Carr, ABQB 1997

Farrell At CL, insurer controls litigation once subrogation arises (i.e. after full indemnity).

Problem for insurer, b/c what if insured doesn’t care enough, or settles for way less? Solution: duty of good faith.

Truedell 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.

Test:Did insured claim less than what they honestly and in good faith believed was wise to accept in the circumstances?

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 could have recovered all from 3rd party.

Willumsen Insurer has burden of proving on b of p that insured breached standard of diligence and good faith.

Ins V Act, s. 84(2)(3)

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

Farrell BCCA 1989

BCIA s. 36 is SILENT regarding conduct of litigation. Only alters pre-conditions for exercise of subrogation rights. Therefore, CL position remains and insured retains control of litigation until fully indemnified, at which point insurer has control.

If legislature wanted it otherwise they would have said so, as they did in Auto context.

Insurers are free to change this in K if they want.

Zurich v. Ison

Potentially, if insurer’s interest significantly exceeds insured’s, it may be appropriate to give insurer control though.

Cleveland ON 1965

However, statutory modification to control of litigation does not alter insured’s duty to act in good faith when insured has control of litigation!

Effect of Settlement on Subrogation

Somersall v Friedman SCC 2002

Insured is free to enter into agreements with 3rd party tortfeasor regarding limits of recovery, without consulting insurer, where the insurer’s entitlement to

This case: K said subrogation arose when claim made under endorsement. Insurer entered into agreement before claim made, so no subrogation yet. Agreement

subrogation has not yet arisen. binds insurer.AUTO Ins V Act s.

84(6)Auto:A settlement or release does not restrict the rights of the insured or the insurer under this section unless the insured or the insurer, as the case may be, agreed.

Generally interpreted as:- Insurer can disregard settlement

with 3rd party if it prejudices its subrogation 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.

Dwyer 2002 NLCA

Weird interpretation of s. 84(6) Auto context:

- 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.

No other courts have followed this ruling.

Duty to Cooperate

Somersall Don’t forget, an insured has a duty to cooperate with or assist insurer in advancing subrogation claim: duty to cooperate above.

Issue: What is the Value of the Insured’s Loss?Issue Where Ratio NotesWhen does a problem arise?

BB p. 265

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.

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 PoliciesValued Policy Open 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.

- No predetermined value; stated policy limit- Recovery for value at time of loss subject to

policy limit

Issue Where Ratio NotesIs policy valued or open?

Freesman Whether policy is valued or open is determined by applying standard interpretation principles to the wording of the insurance K

- 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.

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.

- Policy gave insured value of paintings

- Said “amounts are agreed to be the values” for “purposes of insurance”

- Held: valued policy

Method of ValuationMethod of ValuationValued Policy: Partial Loss

Re Art Gallery of Toronto

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?

Step 2: Apply depreciation factor to predetermined amount

Here:Step 1: diminution 1.045 K to 631, 900 = 413, 900 (39.5% depreciation *difference x 100/ original value*)

Step 2: valued policy is 640,000, get 39.5% of that: $252, 800

Open Policy

BB p. 268 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.

Payment will either be either repair or replacement, replacement is based on ACV OR statutory repair/replacement by insurer

Default position is Actual Cash Value (ACV)

How should you be indemnified?Definition Barke The lower of the cost to repair or the cost to replace, without deduction for depreciation.

Method o Repair Cost less Enhanced Valueo Replacement Cost with or without deduction for enhanced value (based on K terms) and

based on ACVo Statutory exercise of optional repair or replacement by insurer

1. Repair Cost less Enhanced ValueWhen to use Repairs possible

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 bettermento Onus on insurer to prove increased value for insured after repairs

2. Replacement CostWhen to use Repairs impossible or impractical

Replacement cost with or without deduction for enhanced value (based on contract terms), subject to policy limit

Determining Replacement Cost: ACV

Leger ACV means “intrinsic value of the physical property to the insured at the time of the loss…in other words the value which has been taken from the property of the insured”

Ins V Reg s. 1(1)

"actual cash value" means the average market price a purchaser would have paid for an insured vehicle or other insured property immediately before loss or damage occurs to the vehicle or other property

Method to calculate ACV

Leger How to calculate the intrinsic value of the property?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;

o 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;

o Tax assessment value: the dollar amount assigned to the insured item for tax purposes

o 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 Investment value: the capitalized value of income generated from the date of loss forward for the lifetime of the property.

Cornhill 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

What to do with proceeds

Datatech Replacement not required for ACV

Rising Replacement Cost and Inflation

ACV may be less than replacement cost—esp. for technology that goes obsolete quite quickly

Solution: Insured may purchase Optional Loss Settlement Clause or “Replacement Cost Endorsement”

Have to specifically purchase it: default is just ACV replacement 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

Process for OLSC or RCE

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 Recover replacement costs up to the policy limits! Terms in original K/ policy still apply. 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

Generally the practice is for the insurer to pay the ACV, and then once you submit receipts they give you the difference up to the policy limit, however this is not ENTITLEMENT of the insured… in reality all insured is entitled to is to reimbursement up to policy limits after replacing the item under an RCE: Carlyle

3. Statutory Optional Repair or Replacement by InsurerWhat BCIA, s. 29

stat. cond.13(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 process initiated under s. 12

(2) Work must begin within 45 days after receiving proof of loss, Insurer must proceed with due diligence to complete work within reasonable time

Lecture Exercising option creates new contract Insurer obliged to complete work even if cost exceeds policy limit Insurer not entitled to deductions for betterment Must be at a minimum something of comparable quality, insured gets input for

reasonable design choices

Optional Repair Clauses Replacement Cost EndorsementStat. condition: part of all contracts under BCIA Part 2 Contractual termInsurer exercises optionWork to commence within 45 days from proof of loss; proceed with due diligence; complete work within reasonable time

Insured exercises option

Option creates new contractRepair/ replacement cost may exceed policy limit

Insurer’s obligation limited to replacement cost subject to policy limit

For both ACV and Replacement ValuationFuture ContingenciesWhat to do with them

Leger Regardless of whether ACV or replacement, proper valuation of property on the date of loss should not take into account possible future events

Commercial Union

Something is a future contingency if it is uncertain. Things that will certainly happen that will 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 LossIssue Where RatioConstructive Total Loss

Property not worth restoring; Partial loss deemed constructive total loss

Test: Will reasonable person without insurance consider property worth restoring?

Consequence Full indemnity of property valueBCIA s. 29 stat cond. 9; BC Ins V Reg, sched. 10, stat. Cond. 5(9)

Insured abandons remains of insured property, insurer acquires salvage rights

Who decides if constructive total loss?

BCIA s. 29 stat cond 10(b)(ii) Insurer’s consent required for abandonment, insurer cannot unilateral abandon damaged property and claim constructive total loss.

Terms Affecting RecoveryIssue Where RatioDeductible 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 occurrenceDavid Polowin

Deductible does not affect insurer’s salvage rights

Ins V Reg Sced. 10 stat cond 5(9)

Deductible does not affect insurer’s salvage rights

Rationale David Polowin

Consumer choice:o Inverse relationship between deductible amount and premiumso 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 losso Incentive for responsible behavior re insured loss/propertyo Promotes public safety

Administrative efficiency, lower costs and affordability for consumersEffect Detrimental to insured’s interests

Recovery less than actual loss `Relief BCIA s. 31 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.”

Sue and Labour BCIA s. 29 stat cond 9

Insured has duty to take steps to prevent further damage to property after initial loss

Policy Insured best placed to protect property Minimize insurer’s liability Maximize insurer’s salvage rights Effect: Insurer not liable for preventable damage

Effect BCIA s. 29 stat cond 9(2)

Where cost reasonably incurred to prevent further losses, insurer liable for prorated cost to protect property

Three conditions for insured to recover sue and labour costs

Triple Five 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:

Triple Five 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.

Benson & Hedges

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”

Examples Office Garages

Damage to insured building: $8,000 Clean-up cost: $27,000 Property value: $900,000 Insured value: $813,000 Clean-up cost reasonable

Benson & Hedges

o Explosion in bottling tanko Insured incurs expense to investigate cause of explosion and fixed problemo Explosion due to poor workmanshipo Insured incurs further expense to inspect other tanks; defect discovered

and fixedo Insurer disputes expenditureso 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 ValuationIssue Where Ratio NotesProcess BCIA s. 12 (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 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

No right to dispute resolution until:(a) Specific demand made in writing

Proof of loss has been delivered to insurerIns Reg s. 3 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

Effect s. 14(2) Participation in DR does not constitute waiverRationale Lecture Access to justice: limit reliance on judicial/adversarial system for resolving disputes

Decentralizes decision-making authorityQ: 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.