The Court of Appeal has allowed an insurer’s appeal asserting the one-year limitation period in an all-risk property policy. The decision highlights how important it is for insurance contracts – and especially limitation period provisions in them – to have clear language.

In Boyce v. The Co-operators General Insurance Company, the Boyces owned and operated a woman’s fashion boutique. Their business had been insured by Co-operators for a number of years. On October 30, 2010, Ms. Boyce arrived at the store to discover a foul odour emanating from the entrance area. The business had to be closed for a time, substantial clean-up costs were incurred, and a great deal of inventory could not be salvaged. The Boyces contacted Co-operators immediately. Co-operators took the position that the smell was caused by a skunk and that any damage was not covered by the policy. The Boyces claimed that the business had been vandalized, a peril covered by the policy.

The Boyces filed a proof of loss claim in December 2010 and commenced an action by Statement of Claim issued in February 2012, more than one year, but less than two years after the incident.

Co-operators moved for summary judgment, claiming that the action was time barred by a one-year limitation period. Co-operators first relied on the one-year statutory limitation period in s. 148 of the Insurance Act. For ease of reference, section 148 of the Insurance Act (Statutory Conditions for fire policies) contains 15 conditions that must form part of any fire policy. Condition 14 contains a one-year limitation period for bringing an action:

14. Every action or proceeding against the insurer for the recovery of a claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.

The motion judge held that Statutory Condition 14 didn’t apply because the Boyces’ multi-peril policy could not be classified as “fire insurance”. Co-operators did not appeal this finding.

At the motion Co-operators also relied upon the one-year limitation period contained in the actual policy, which stated:

Conditions

The Statutory Conditions apply to the peril of fire and as modified or supplemented by forms or endorsements attached apply as Policy Conditions to all other perils insured by this policy.
Statutory Conditions
14. Action
Every action or proceeding against the insurer for recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year* next after the loss or damage occurs.
* Two years in province of Manitoba and Yukon Territory

However, the motion judge held that the provision in the policy limiting coverage to claims made within one year of the loss did not override the statutory two-year limitation period set out in s. 4 of the Limitations Act, 2002. In so holding, the motion judge held that the term in the policy lacked the specific language necessary to override the statutory limitation period and that in any event, the contract of insurance was not a “business agreement” as required under s. 22(5) of the Limitations Act, 2002 if a contract purports to override the two-year limitation period.

Co-operators appealed the decision on the motion judge’s holding that the contract of insurance did not contain an enforceable one-year limitation period. The Court of Appeal stated that the appeal raised three questions:

  1. Is there a term in the contract of insurance that provides for a one-year limitation period?
  2. If there is a term in the contract imposing a one-year time limit on claims, is that term capable of overriding the otherwise applicable two-year limitation period set out in the Limitations Act, 2002?
  3. Is the contract of insurance a “business agreement” as defined in s. 22(6) of the Limitations Act, 2002?

On first question, the Court of Appeal found that the limitation provision in the contract could not have been any clearer. Accordingly, they agreed with the insurer that the contract did contain a one-year limitation period.

On the second question, the motion judge held that an agreement purporting to vary the statutory limitation period is enforceable under s. 22 of the Limitations Act, 2002 only if it contains specific (rigorous) requirements set out by the motion judge. The Court of Appeal disagreed, holding that nothing in the language of s. 22 offers any support for imposing these requirements. The only limitation in s. 22(5) is found in the definition of “business agreement”. No other limitation appears, expressly or by implication, and certainly no content related requirements appear in s. 22(5).

Importantly, the Court of Appeal provided the following guidance:

A court faced with a contractual term that purports to shorten a statutory limitation period must consider whether that provision in “clear language” describes a limitation period, identifies the scope of the application of that limitation period, and excludes the operation of other limitation periods. A term in a contract which meets those requirements will be sufficient for s. 22 purposes, assuming, of course, it meets any of the other requirements specifically identified in s. 22.

Finally, on the third question the Court of Appeal noted that “business agreement” is defined in s. 22(6) of the Limitations Act, 2002 as an agreement made by parties, none of whom is a consumer as defined in the Consumer Protection Act, 2002. That Act defines “consumer” as:

“Consumer” means an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes.

The motion judge concluded that the insurance contract was not a “business agreement” under s. 22(5) for two reasons: First, he described the contract as a “peace of mind” contract. The Court of Appeal rejected that basis, holding that although its characterization as a “peace of mind” contract was appropriate, it did not have any effect on whether the insurance contract falls within the meaning of “business agreement” for the purposes of s. 22(5) of the Limitations Act, 2002. That determination is made solely by reference to the definition of “consumer” in the Consumer Protection Act, 2002.

Second, the motion judge concluded that because insurance contracts were not covered by the Consumer Protection Act, 2002, they could not be business agreements under s. 22(5). The Court of Appeal disagreed and held that the scope of the Consumer Protection Act, 2002 was irrelevant. The only relevance of the Consumer Protection Act, 2002 flows from the incorporation of the definition of “consumer” from that Act into s. 22(5) of the Limitations Act, 2002.

Accordingly, the Court of Appeal allowed the insurer’s appeal and held that the plaintiffs’ claims for this loss was barred, as they had commenced the action after the one-year limitation period prescribed in the policy.

It is apparent that what saved the insurer in this case was the clear language used to describe the one-year limitation period provision in the contract. This may be a good time for insurers to review their policies to ensure they also describe terms and conditions using clear language.

Finally, this decision leaves open a possible finding that a limitation period in a home policy (for example), which purports to override the statutory two-year limitation period, might be invalid, since a home policy would likely fail to meet the definition of a “business agreement” under the Limitations Act, 2002.

See Boyce v. The Co-Operators General Insurance Company, 2013 ONCA 298