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What general rules, requirements and procedures govern the conclusion of (re)insurance contracts in your jurisdiction?
The conclusion of a (re)insurance contact is largely governed by the common law rules of contract formation in the province (other than Quebec) or territory within which the contract is entered into. In the province of Quebec, the conclusion of a (re)insurance contact is governed by the rule of contract formation under the Civil Code of Quebec. In addition, the insurance legislation in each of the provinces and territories contains certain requirements that must be satisfied in order for a contract of insurance to be valid, including that all the terms and conditions of the contract be set out in full and that there be an insurable interest.
All provinces and territories have electronic commerce legislation of general application (unless an activity is expressly excluded or if subject to other legal provisions that prohibit or regulate the use of electronic information or electronic documents). In general, insurance contracts can be executed by electronic means; however, many provincial and territorial insurance statutes impose exclusions on the scope of electronic commerce (eg, delivery of certain notices, declarations and other documents). All electronic commerce legislation provides that no one can be compelled to use, provide or accept information or a document in an electronic form – consent is required.
Are (re)insurance contracts subject to any mandatory/prohibited provisions?
Depending on the province or territory, as well as the nature of the insurance contract (eg, accident and sickness, life, hail), certain statutory conditions must be included in a contact of insurance. These conditions impose obligations on both the insurer and the insured (eg, termination of a contract, providing notice, material change, dispute resolution, determining when a loss is payable)
The Office of the Superintendent of Financial Institutions (OSFI) Guideline B-3 Sound Reinsurance Practices provides that the terms and conditions of a reinsurance contract should provide clarity and certainty on reinsurance coverage and that funds will be available to cover policyholder claims in the event of either the cedant’s or reinsurer’s insolvency. In this regard, reinsurance contracts should include an insolvency clause, and particular attention should be paid to the appropriate use of set-off or cut-through clauses, the structure of ‘funds withheld’ arrangements and other types of terms or conditions that may frustrate the scheme of priorities under the Winding-Up and Restructuring Act.
Can any terms be implied into (re)insurance contracts (eg, a duty of good faith)?
Under common law in Canada, both insurer and insured are subject to a duty of utmost good faith to one another. This manifests itself, for example, in the insured being required to disclose all matters to the insurer that are relevant to the risk even when the insurer does not ask (or risk having the policy voided where there has been a failure to disclose something material), and in the insurer being required to investigate every claim with an open mind and without unreasonable delay, or risk being subject to an award of punitive damages for bad faith. As for implied terms, insurance policies are contracts and as such are subject to the same legal principles as apply to other forms of contract (subject to certain principles of interpretation that courts have developed specifically for insurance contracts). Under Canadian common law, terms can be implied into contracts on the basis of:
- presumed intention;
- custom or usage;
- business efficacy; or
- whether an officious bystander would have suggested such a term at the time that the parties were negotiating their contract.
What standard or common contractual terms are in use?
Please see the answer to the question above (“Are(re)insurance contracts subject to any mandatory/prohibited provisions?”).
What is the state of development in your jurisdiction with regard to the use of ‘smart’ contracts (ie, blockchain based) for (re)insurance purposes? Are any other types of financial technology commonly used in the conclusion of (re)insurance contracts?
The use of smart contracts continues to be the subject of increased attention, especially within the (re)insurance sector. However, no particular legal or regulatory response with respect to its use has been signalled by OSFI or provincial/territorial regulators.
What rules and procedures govern breach of contract (for both (re)insurer and insured)?
An insured whose claim has been denied and who is unable to persuade the insurer to reverse its position may commence legal proceedings against the insurer. If the policy provides for arbitration of disputes, the proceedings will commence with a notice of arbitration. If there is no arbitration clause, the proceedings will typically begin with the issuance of an ‘originating process’ in the provincial superior court. The originating process (known as a ‘statement of claim’ in most provinces) will be served on the insurer, which will then serve and file a statement of defence to the claim. The statement of claim sets out the material facts on which the plaintiff relies, as well as the nature of the relief claimed. The statement of defence contains the defendant’s version of the facts and any affirmative defences. The plaintiff may submit a reply and typically the proceedings (known as an ‘action’) will then proceed through production of documents by each side, out-of-court examinations for discovery, mediation and then (barring a settlement) trial. If the insurer is of the opinion that other parties should share in liability to the plaintiff, may be liable to the insurer for an independent claim for relief or should be bound by a determination of an issue arising between the insured and the insurer, the insurer may commence a third-party claim (if such other party is not already a party to the action) or a cross-claim (if such other party is already a party to the action). In most circumstances a third-party claim will proceed in tandem with the main action and will be tried together with, or immediately after, the main action.
In some cases involving a liability policy, there may be a preliminary issue as to whether the insurer is under a duty to defend the insured against claims in an underlying action. In such cases, the insured may bring a motion within the action to have that issue summarily determined, or may bring separate proceedings (known in some provinces as an ‘application’) for that purpose. The issue of the duty to defend lends itself in many cases to summary determination because the duty is determined based on whether the pleadings in the underlying action allege acts or omissions that fall within the policy coverage, and generally speaking extrinsic evidence (outside of documents that are referred to in the pleadings) is not admissible. Summary proceedings may also be employed to determine issues of allocation of defence costs among multiple insurers or between insured and insurer (eg, where there is coverage under policies over a period of years involving multiple insurers or years in which the insured did not have coverage).
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