As we have previously discussed, the 2014 Supreme Court of Canada decision in Sattva Capital Corp. v. Creston Moly Corp. held that contractual interpretation is a question of mixed fact and law, and a first-instance interpretation of a contract is therefore to be given deference on appeal. But is a trial judge’s interpretation of an insurance contract to be reviewed on a standard of correctness given that “[t]hese contracts are generally widely used standard form agreements where appellate intervention is required so as to ensure consistency of result and certainty in the law”? The Supreme Court of Canada has granted leave to appeal an Alberta Court of Appeal decision, Ledcor Construction Limited, et al. v. Northbridge Indemnity Insurance Company, et al., that wrestles with this issue.

In its October 22, 2015 decision in Ontario Society for the Prevention of Cruelty to Animals v. Sovereign General Insurance Company, the Ontario Court of Appeal held that interpretation of insurance contracts is an “exercise involv[ing] the application of a legal principle of contractual interpretation in the context of insurance to the pleadings in issue, [therefore] a mixed question of fact and law is engaged.” Deference was thus owed to the Court below. For a unanimous Court of Appeal, Justice Pepall nonetheless highlighted uncertainty in the law in this area, explaining:

[32]      In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme Court abandoned the historical approach that maintained that contractual interpretation engaged a question of law. Rothstein J. addressed the issue in the context of the interpretation of a joint venture agreement that was the subject matter of a commercial arbitration. At para. 50, he wrote: “Contractual interpretation involves issues of mixed fact and law as it is an exercise in which principles of contractual interpretation are applied to the words of a written contract, considered in light of the factual matrix.”  As such, issues of contractual interpretation generally attract a deferential standard of review: para. 52. Rothstein J. explained that a central purpose of drawing a distinction between questions of law and those of mixed fact and law is to limit the intervention of appellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute: para. 51.

[33]      Rothstein J. recognized that an extricable question of law may be identified in disputes over contractual interpretation. Legal errors made in the course of contractual interpretation include: “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor”: para. 53. However, at para. 55, he added that courts should be cautious in identifying extricable questions of law in contractual interpretation disputes: “The close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from the interpretation process will be rare.”

[34]      In both Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2015 ABCA 121, 386 D.L.R. (4th) 482, leave to appeal granted [2015] S.C.C.A. No. 188, and Precision Plating Ltd. v. Axa Pacific Insurance Company, 2015 BCCA 277, [2015] B.C.W.L.D. 4112, appellate courts have held that the limited standard of review espoused in Sattva may not be applicable to the interpretation of insurance policies. These contracts are generally widely used standard form agreements where appellate intervention is required so as to ensure consistency of result and certainty in the law.

[35]      However, to reiterate, Rothstein J. stated that the circumstances in which a question of law can be extricated from the interpretation process will be rare. Rare, of course, does not mean non-existent. See for example 1298417 Ontario Ltd. v. Lakeshore (Town), 2014 ONCA 802.

[36]      Where, as here, the exercise involves the application of a legal principle of contractual interpretation in the context of insurance to the pleadings in issue, a mixed question of fact and law is engaged.

With deference owed to the application judge’s decision, Justice Pepall dismissed the appeal, and upheld the application judge’s order that the appellant insurance company had a duty to defend the respondent in actions alleging that it caused harm to three persons it had investigated. (The appellant had argued that it should not have a duty to defend as the respondent was accused of intentionally harming those persons.)