Driven by criticism from the courts, insurers and consumers alike, British Columbia sought to review and enhance the Insurance Act, RSBC 1996, c. 226 (the “Former Act”). This statute was replaced with a completely new and modernized act, the Insurance Act, SBC 2012, c. 37 (the “New Act”), which came into force on July 1, 2012. Although it is not meant to be exhaustive, this bulletin outlines some of the more fundamental changes arising from the New Act.
- Structural reform
The Former Act contained distinct categories for Life Insurance, Accident and Sickness Insurance, and Fire Insurance alongside broader General Provisions. Under the New Act, the Fire Insurance category has been eliminated, its previous application essentially subsumed within the General Insurance Provisions. Those parts of the New Act which relate to Life Insurance and Accident and Sickness Insurance remain in place.
As a result of the above changes, essentially all forms of property and liability policies are now governed by the General Insurance Provisions. Along with the removal of the Fire Insurance category, the New Act also makes it clear that the only allowable exclusions relating to damage by fire are those prescribed by the Insurance Regulation, B.C. Reg. 213/2011 (the “Regulations”). While terrorism is an addition to the permitted fire damage exclusions (for non-residential property only), damage by fire due to earthquake remains off the list. The New Act also prohibits exclusions for loss or damage by fire that occurs when the insured property is vacant for a period of less than 30 days.
- Statutory conditions required in both property and liability policies
The new General Insurance Provisions include the statutory conditions that were found in the previous Fire Insurance category. Specifically, an insured must promptly give notice in writing to the insurer of a change that is “material to the risk” covered by the policy and “within the control and knowledge of the insured”. Otherwise, the insurance contract can be voided. This change imports conditions into liability policies that were originally envisioned in relation to property insurance. While the Courts have considered material changes in the context of property policies, it remains to be seen how they will apply the general test as it relates to liability policies.
- Proportionate contribution applied to both property and liability policies
Similar to the changes relating to the statutory conditions, the General Insurance Provisions also carry forward the proportionate contributions clause from the previous Fire Insurance category so that it now applies to liability policies. Under the Former Act, if multiple fire policies covered the same interest, the insurers were each liable for their rateable proportions of the loss, unless it was otherwise expressly agreed in writing between the insurers. It remains to be seen whether the courts will apply the type of analysis developed in the context of fire insurance coverage for determining priority of overlapping policies in the context of liability policies.
- Clear limitation periods
Limitation periods have also been clarified under the New Act. They are summarized as follows:
Click here to view table.
The Regulations also require insurers to give notice to those insured before the expiry of their limitation periods. An insurer must give written notice to an insured stating the applicable limitation period either: (1) within five business days after denying liability for all or part of a claim, or (2) at the oneyear anniversary of receiving notice of the claim, if the claim has not been settled or denied with notice having been given at the time of the denial. These notice requirements are not applicable, however, if the insured is represented by legal counsel. A failure by the insurer to give notice will result in a suspension of the limitation period of a maximum period of six years.
Furthermore, the New Act also adopts s. 7 of the current Limitation Act, RSBC 1996, c. 266, a provision that allows for the postponement of limitation periods for people under a legal disability (i.e. a minor or an incapacitated person). Presumably, the postponement of limitation periods will continue to exist under the New Act when the new Limitation Act, SBC 2012, c. 13, is brought into force on June 1, 2013.
The New Act also explicitly modifies the limitation period for property loss, so that the trigger event is the date that the insured discovered the loss. Similar discoverability rules apply to Life Insurance and Accident and Sickness Insurance.
- Unjust conditions may be unenforceable
Under the old Fire Insurance category, if a contract contained a condition that was material to the risk, it would not be binding on the insured if it was found to be “unjust or unreasonable” by the courts. The essence of this rule has made its way into the General Insurance Provisions of the New Act, and now applies to any contract, excluding Life and Accident and Sickness. Similarly, this rule does not apply to the fire exclusions set out by the Regulations.
Arguably the majority of the conditions and exclusions found in a given policy are material to the risk (otherwise an insurer would not include them). With this rule applying to a wider variety of policy types, more litigation challenging coverage denials may arise on the basis that a term that gave rise to the denial was unjust or unreasonable. Seemingly, any significant element of an insurance policy is fair game for such a challenge and it remains to be seen how this provision in the New Act will be interpreted and applied by the courts.
- Coverage for innocent co-insureds
Prior to the New Act, the criminal acts of one insured that caused a loss could exclude other insureds from their shared coverage, even if the innocent parties had no involvement in the criminal acts. This is no longer the case. Now, such an exclusion can only apply to the claim of a person: (a) whose act or omission caused the loss; (b) who abetted or colluded; or (c) who consented and knew the act or omission would cause loss.
In order to receive coverage, the innocent party is required to “cooperate” with the insurer in respect of the investigation of the loss, such as submit to an examination under oath if requested by the insurer. Moreover, the innocent party can only recover their “proportionate interest” in the lost or damaged property. Only time will tell how “proportionate interest” should be interpreted and calculated in any given case.
- Dispute Resolution
While the Former Act provided for an “appraisal” process for disputes respecting quantum or valuation of losses under a fire policy or resulting business interruption claims, the New Act has expanded this concept into an internal dispute resolution process that can be required upon written demand by either the insured or the insurer where a disagreement arises over the following matters:
- the value of the insured property,
- the value of the property saved,
- the nature and extent of the repairs or replacements required or, if made, their adequacy, or
- the amount of the loss or damage.
In addition to the above matters, the dispute resolution process can also apply to “another condition of the contract”, which suggests that the process is not limited to property policies but can be available to liability policies as well.
The Regulations also require an insurer to give written notice to an insured informing them of the availability of the dispute resolution process. Notice must be provided within 10 days after the insurer determines that a dispute has arisen, or within 70 days after the insured submits a proof of loss where the insurer has not yet made a decision about the claim.
Changes to the former Insurance Act have been made in order to better reflect modern insurance practices. Significant changes, such as requiring statutory conditions to be included in a broader range of policies and clarifying the applicable limitation periods, will likely bring more certainty and consistency to the insurance industry. Nevertheless, litigation will likely be required to clarify the scope of some of the other changes arising from the New Act. For example, it remains to be seen how priority between overlapping liability policies will be determined, how the proportionate interest in the lost or damaged property of an innocent party will be calculated, and what factors a court will consider in determining whether a policy condition is unjust and non-binding on an insured.