In 2017, there were a number of Canadian court rulings that will have an impact on the landscape of insurance litigation in the years ahead. Here is a run through of some of those key decisions, and a few lessons insurers can draw from them.
In this landmark case, the Supreme Court of Canada held that future Canada Pension Plan (CPP) benefits couldn’t be deducted from the amount an insurer must pay out under a standard form contract that indemnifies insureds for any shortfall in the payment of a judgment for damages against an underinsured person who committed a tort. The insurer was arguing that its policy allowed amounts recoverable under "any policy of insurance providing disability benefits" to be deducted from any amount payable by the insurer. It took the position that CPP benefits constituted a "policy of insurance." But an insurer cannot rely on its specialized knowledge of jurisprudence to advance an interpretation that goes beyond the clear words of the policy, the Supreme Court ruled. An average person applying for additional insurance coverage would understand a "policy of insurance" to mean an optional, private insurance contract and not a mandatory statutory scheme such as the CPP.
A Supreme Court of Canada ruling in which the top court confirmed that the exclusion for participation of the insured to any indictable offence, in a life insurance policy, does not apply to hybrid offences – namely those the Crown may choose to prosecute either as a summary conviction offence or as an indictable offence. In Quebec, insurers may not draft a general exclusion stating that indemnity will be removed for violation by the insured of any law. However, insurers are allowed to assert broad exclusions for indictable offences. Here, the insured died while fleeing the police in a high-speed chase, which is a hybrid offence. The Supreme Court confirmed that the exclusion, as drafted, should be construed narrowly and applied only to more important offences that may be prosecuted only as indictable offences. The Quebec Court of Appeal had recognized that an insurer can exclude hybrid offences from coverage but must do so explicitly.
The Quebec Court of Appeal refused to grant leave to appeal in a decision that denied indemnity to the insured of an all-risk policy. The insured was a company specialized in the sale of hessians and canopies. A client defrauded it by paying for its merchandise with a falsified certified cheque. Coverage was for "all risks of direct physical loss or damage to the property insured from any external cause". The Court of Appeal agreed with the trial court that fraud was not a covered risk under theft of merchandise considering. The insured voluntarily agreed to hand the merchandise over to the client, and so it wasn’t the merchandise that was lost but rather the money that the insured received in exchange that could not be collected. Loss of money was specifically excluded from coverage.
The Ontario Court of Appeal ruled that an insurer's duty of good faith does not require it to notify the insured of the applicable limitation period when discontinuing insurance benefits. The insured in this case had bought disability insurance and received benefits for a 2007 accident until 2011. In 2012, he was told that he no longer qualified for benefits under the policy. He took legal action in April 2015, but the lawsuit was dismissed by summary judgment as being time-barred. The Court of Appeal declined to extend the duty of good faith to require an insurer to disclose the existence of a limitation period on grounds that such information was outside the parameters of an insurance policy. Worth noting is that both British Columbia and Alberta require insurers by law to give written notice of applicable statutory limitation periods when denying a claim. A similar requirement in Ontario would conflict with the Ontario Limitations Act by making the insurer's notice, as opposed to the discoverability of the underlying claim, the starting point of a limitation period. The case is pending determination of an application for leave to appeal to the Supreme Court.
In a case that involved a Halifax pub destroyed by fire, a Nova Scotia Court of Appeal ruled the property’s owners couldn’t claim insurance because they misrepresented that the building was made of stone and equipped with sprinklers. The insurer had voided the policy and denied coverage accordingly, and later the insured sued the broker for negligence. At trial, the court found the broker to be 50% contributorily negligent, but the Nova Scotia Court of Appeal allowed the broker's appeal on grounds that the Errors and Omissions endorsement did not discharge the insured's obligation to truthfully answer queries in the insurance application. It found that brokers are entitled to rely on the insured's ability to represent basic information correctly without further investigation.
Do the insurer and the insured have the right to obtain privileged documents from each other to debate insurance coverage under an Executive Protection Policy. That was the central issue in this complex case. The insured, Domtar, bought shares from Weston. The deal included a penalty clause in Weston’s favour, if ever Domtar were to be taken over by a third party. Eight years later, Domtar merged with Weyerhaeuser and a dispute arose between Domtar and Weston with respect to Weston's entitlement to the penalty. The dispute was settled for $50M and Domtar claimed this amount to its insurer, alleging that there had been a professional error in the merger that resulted in the additional payment to Weston. The insurer sought to have access to legal opinions Domtar had received pertaining to the merger. It also sought the settlement documents exchanged between Domtar and Weston. The Court of Appeal recognized that such documents were privileged but, by claiming against its insurer, the insured implicitly waived the attached privilege. What’s more, the insurer has the right to know all circumstances surrounding the insured's loss to be able to assess whether the consequences of the merger were the result of an error or an informed business decision. As for Domtar's documentary discovery requests, the court allowed it to have access to generic documents from the insurer on the interpretation of coverage (i.e. unrelated to another insured's file) available under the policy.
In deciding whether the plaintiff's disability was covered under the terms of the insurance policy, the British Columbia Supreme Court held that disability claims have unique characteristics that set them apart from other personal harm cases. Once coverage has been established and the court orders future benefits, these are paid out periodically instead of in a lump sum. This allows disability insureds to pay for their future care needs. The risk is that disability plaintiffs will see their future benefits terminated even after a court has reinstated them. This forces them to take legal action again, retain counsel, persevere in litigation, and proceed to trial to receive the undiscounted value of the future periodic benefits to which they are entitled. In this case, the court awarded the plaintiff special costs for her efforts in having to enforce the contract throughout litigation.
Here, the defendant insurer sought to dismiss the insured's claim for property damage due to a house fire. The insurer cited the policy's exclusion clause for property damage caused by any intentional or criminal act by an insured person under the policy. The insured was the victim in an attempted murder in which her husband doused her with gasoline and lit her on fire. The crime led to their home being destroyed. Though the Ontario Superior Court of Justice held that the exclusion clause applied, it slammed the insurer's corporate conduct as "less than admirable" and "unfair to its innocent customers." What’s more, it noted, while other provinces had legislated to protect innocent co-insureds against the intentional act exclusion, Ontario insurers continued to capitalize on and compound the injuries suffered by victims of domestic violence in Ontario. Proposed amendments to the Ontario Insurance Act have since been introduced to limit the ability of insurance contracts to prevent an innocent co-insured's recovery for damage to property caused by another insured.
A company running a seniors' residence made a claim against its broker and its insurers following a damaging fire. The policy limit was set to $1.8M for the replacement of the building. A chartered appraiser mandated by the broker, as a complimentary service, had determined the amount. After the fire reconstruction costs were pegged at $3.5M. The insured sought the difference between this amount and the insurance limit from the broker. The court held that the broker's role is not to appraise property and neither to guarantee an appraisal. Its duty is to inform and advise the insured and in this regard, the broker has an obligation of means and not one of results. Moreover, the court held that following a loss, the broker as a certain duty to assist the insured in its claim but is in no way responsible for the insurer's claim handling or for the claims adjuster's actions. It dismissed the claim against the broker. As for the insurer, the court held that the insured did not undertake to repair or reconstruct the building as required by the policy and the case law. Therefore it could not seek the full amount of the replacement cost but rather the depreciated value.
This case is an application of defence costs apportionment between an insurer and an insured in Quebec. A municipality filed a Wellington motion against its E&O insurer, MMQ, to force the insurerto take up its defense against a claim instituted by a real estate developer. The developer and the municipality collaborated on a construction project in which the latter represented that it would obtain a crucial parcel of land to advance the project. But the landowner refused to cede the necessary parcel of land. The developer sought compensatory damages against the municipality, claiming significant damages due to its inability to obtain the parcel of land. It also sought an order from the court declaring the municipality the true owner of the parcel. MMQ denied coverage and refused to defend the municipality in this action, which filed the Wellington motion. The Court determined that a portion of the claim ─ compensatory damages ─ might be potentially covered while the rest (namely the declaratory order) was not covered. Even though both claims had common factual elements, the work and evidence needed to defend the compensatory damages claim was clearly different from the work needed to defend the declaratory claim. Therefore, the court ruled that MMQ would only have to cover defence costs relating to the compensatory damages claim.