Insurance Law can

Policy Interpretation

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  Policy interpretation arises in two situations
  
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    Give client a coverage opinion – whether peril or loss is covered by terms of the policy
    
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    Duty to defend – when third party brings a claim against you, insurer provides indemnity to third party. Insurance company’s duty to defend insured is separate from duty to indemnify.
    
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      When determining if insurance company owed client duty to defend, start with pleadings (Monenco and Commonwealth Insurance Company [2001] SCC). Must see whether any allegations are covered under terms of the policy
      
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      When insurer has liability policy and look at duty to defend, they are required to examine where facts alleged in pleadings, if proven to be true, would require insured to indemnify insured for the claim. Duty triggered by mere possibility that claim could succeed.
      
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  Progressive Homes [2010] SCC: great summary of policy interpretation at paras 21-24
  

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  Weird random issue: standard mortgage clause
  
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    It forms a separate contract with the mortgagee (bank). Universal rule is that mortgagee has coverage even is loss is excluded
    
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    This is because standard mortgage clause w.r.t. bank supersedes policy terms including exclusions in policy that are in conflict with the standard mortgage clause
    
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      This is usually made explicit in words of the mortgage clause
      
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    Purpose is to indemnify bank if anything happens to the property, bank has no control over what insured does
    
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    Only exception to standard mortgage clause is where bank is aware of insured’s wrongful act
    
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      E.g. bank is aware that insured has a grow-op and receives monthly mortgage, bank may not be able to recover if house burns down
      

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  Two threshold issues before getting into policy interpretation
  

1. 
   If you’re dealing with a third party policy, is the policy a claims made or occurrence based policy?
   

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  Occurrence based policy: must first see what dates are alleged in lawsuit, events must have occurred during policy period
  
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  Claims made policy: must find out when the claim was first made against the insured. When did insured first learn of the claim, and when did insured first give notice of claim to insurer.
  
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    E.g. If a potential third party decides to sue, like a lawyer’s insurance fund, that a party has made default judgment against you. You have an obligation to report that to lawyer’s insurance fund. No claim against you right now, but there is a potential that your client can’t put forward defences.
    
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  If insured reports potential claim during appropriate time, policy will provide coverage even if third party doesn’t bring their claim until after expiry of the coverage – tail coverage
  

2. 
   Whether the loss falls within the grant of coverage
   

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  Look at policy, declaration pages and endorsements
  
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  Onus is on insured to demonstrate that claim falls within the grant of coverage
  
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    Is the person claiming under policy an insured person?
    
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      Policy will have named and unnamed insured like you and people in your household in a homeowner’s policy. Unnamed may be able to recover under the policy
      
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  If the issue is damage to property, have two different types of policies
  
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    Specified perils policy: must ask if property damage was caused by one of the insured perils. At this stage, onus on insured to demonstrate that loss caused by a specified peril and not an exclusion
    
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    All risk/all perils policy: a policy where everything is covered; and perils are defined through exclusions. Onus is on insurer that excluded peril caused the loss.
    

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  Offer and Acceptance
  
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    Contract is based on agreement, both parties must be of one mind
    
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      At minimum, must have agreement about the definition of risk (subject matter of insurance and perils), duration of risk, the premium and amount of insurance
      
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      This agreement must be express or reasonably inferred from the circumstances
      
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    Usually customer makes offer, insurer accepts or rejects it
    
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    If acceptance contains new terms, this is a counter-offer, no contract until customer accepts the revised terms
    
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  Consideration
  
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    Customer’s main obligation under contract is to pay the premium
    
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    Under statute, where a policy has been delivered, the contract is binding as if the premium had been paid
    
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      This doesn’t apply to life insurance
      
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    Acceptance of an offer may be signified in writing or orally
    
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    An insurer cannot unilaterally create a contract and impose on the customer the obligation to pay a premium by issuing a policy
    

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  Renewal can be the substitution of a new contract rather than an extension of the old one
  
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  Where insurance contract merely requires unilateral action of customer for it to be extended, typically insurer who makes offer and customer accepts
  
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  There are some circumstances where insurer may bind itself to continuing cover without customer signifying acceptance
  
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    Patterson: if an insurer in fact issues a policy or document that can be construed as a policy under the Insurance Act, the insurer cannot avoid liability on the ground that there was no contract
    
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      There is a provision in the Act which provides that a contract of insurance is binding on the insurer on delivery of a policy even if no premium has been paid
      
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      Policy in this context means documentation signifying insurer’s intent to assume obligations, even unilaterally
      

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  A contract to end the contract of insurance is marked by an exchange of value
  
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    Insurer gets excused from carrying the risk, and customer gets his/her money back
    

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  Continuing insurer assumes liability under the retiring insurer’s contracts of insurance
  

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  Unfairness
  
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  Reasonable expectations
  
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  Extrinsic evidence/commercial context
  
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  Ambiguous v. complicated
  

1. 
   Is there ambiguity?
   

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  Goal of policy interpretation is to give effect to plain meaning of provision by reading it in context of the whole policy
  
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  Catsikinorous [1990] SCC: policies should be interpreted same way average person applying for insurance would understand them (pg 1043)
  
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  If language remains ambiguous despite reading contract as a whole, go on to next step
  

2. 
   Resolve ambiguity
   

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  Look at general rules of policy construction
  
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    Reasonable expectations: courts should prefer interpretation consistent with reasonable expectation of parties as long as it is supported by text of the policy. Reasonable expectations assessed at time parties entered into insurance contract. Test for reasonable expectations is objective
    
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    Unrealistic result: court should avoid interpretation that gives rise to this, or would not have been in contemplation of parties at time when policy concluded
    
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    Consistency: courts should strive to ensure that similar insurance policies are construed consistently
    
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      Jackson [2012] BCCA: w.r.t. eligibility provisions, court looked at broader commercial context involving large pension plans and other benefit schemes. Even though provisions complex, not ambiguous
      

3. 
   Contra proferentem
   

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  Policy construed in favour of the insured
  
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  Coverage provisions interpreted broadly, exclusion provision interpreted narrowly
  

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  For insured to advance claim for insurance proceeds, insured must prove on a BofP , i) that he is an eligible insured under the policy, ii) loss was caused by insured peril
  
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  Once insured proves above, then onus shifts to insurer to prove that insured’s claim is excluded from coverage due to policy terms
  
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  If exclusion clause deemed applicable to claim, onus shifts back to insured to establish that loss falls within an exception to the exclusion either under policy provisions, statutory terms or case law
  

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  ***There is no higher threshold than proving something on BofP, this is the only standard that applies in insurance cases/civil actions
  
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    No higher evidentiary burden for cases of arson or fraud