Chapter 7 – The Form & Content of Insurance Contracts

Chapter 8 – Interpretation of Policies and Related Coverage Issues

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  What the Parties Intended
  
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    Intention is the first point of reference in interpreting insurance contracts
    
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    But to seek meaning of provisions in terms of parties’ intention is to pursue fiction
    
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    There are two broad categories of cases
    
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      Where issue turns genuinely on what parties intended
      
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      Those where intention cannot realistically be found, leading court to apply its idea of a fair commercial result
      
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  Limits of the “Literal” Approach
  
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    The words used are so clear that the parties must have meant to achieve the meaning they so clearly capture
    
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    Should remember that literal approach is subordinate to intentions of parties approach in the sense that words in policies should not be given their literal meaning if doing so would fly in the face of parties’ intentions gleaned from document as a whole
    
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    Literal interpretation gives way to meanings that better reflect intent when a phrase can be used as a term of art
    
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      General rule is that ordinary meaning is preferred over technical one
      
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  Presumed Intention
  
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    Courts favour interpretation which gives effect to a viable commercial arrangement over one that nullifies it (on assumption that this is what parties would’ve intended had they turned their minds to it upon entering contract)
    
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      Policy should be read as a whole
      
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      No cover for loss which is not fortuitous
      
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      Courts tend to avoid forfeiture of cover if possible
      
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  Ambiguities
  
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    Ambiguities can arise in at least two ways
    
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      Form of words might reasonably bear two meanings in sense that it is fairly arguable that given set of facts does/doesn’t fit into it
      
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      Where two or more provisions in same contract, each clear in itself, are irreconcilable
      
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    Whether an ambiguity exists is a question of fact
    
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    When ambiguity defined, resolved in two ways: contra proferentem or reasonable expectation
    
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  Contra Proferentem
  
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    “Words of a contract are to be construed more strongly against the person offering them”
    
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    Relative sophistication, bargaining power of parties markedly unequal, opp to modify text lies mostly with insurers – appropriate that ambiguities in terms are resolved against them
    
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    Arguable that this rule should also apply to legislated terms (does not in BC currently) since representatives of insurance industry as whole are involved in drafting insurance legislation
    
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  Reasonable Expectation
  
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    Resolving meaning of contract by courts determining and applying the “reasonable expectation” of the parties
    
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    Brissette v Wetbury Life Insurance Co [1992] SCC: life policy held jointly by husband and wife, survivor to receive proceeds, husband murdered wife. Issue was whether contract could be interpreted to require payment of insured sum to the estate – no. Sopinka laid out four point guide to interpretation of insurance contracts (affirmed approach of Consolidated Bathurst)
    

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   True intent of parties is to be gleaned from the whole contract
   
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   Where two or more meanings possible, court is to select that which most reasonably promotes intent of the parties
   
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   Ambiguities are to be construed against the insurer
   
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   Court should avoid an interpretation which will either give a windfall to the insurer or an unanticipated recovery to the insured
   

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  Reid Crowther v Simcoe [1993] SCC: general interpretation of insurance policies include, not limited to: i) contra proferentum, ii) coverage provisions construed broadly and exclusion clauses narrowly, iii) where policy ambiguous, give effect to reasonable expectation of parties
  
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    Case resolved w.r.t. customer’s perspective, but doesn’t really affect past ratios
    
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    Seems court is taking principled approach to ‘reasonable expectations’ rule
    
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  Rectification
  
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    Sometimes this is applied when intention is gleaned from reading of the policy as whole
    
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    Sometimes applied when there is evidence, external to policy that shows agreement was on terms different from those contained in the policy
    

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  Proximate Cause
  
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    If the cause established fits the description of an insured peril, insured will be indemnified, but if it constitutes an excluded peril, there will be no indemnity
    
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    A particular causal factor is characterised relative to other factors as the dominant or effective cause
    
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    More than one cause can be said to be proximate
    
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  Types of Multiple Causation
  
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    Two types of cases where multiple factors operate:
    
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      Chain of causation where occurrence of factor sets off series of incidents, eventually resulting in the loss which is the subject of the claim
      
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      Where two or more independent causes contribute to the loss and where the loss cannot, as a practical matter, be apportioned among the various contributing factors
      
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  Chain of Causation
  
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    If insured peril is the originating factor, test of proximity is whether the loss was the direct result of that peril
    
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    Drumbolus v Home Insurance Co [1916] ONSC: insured claimed under policy covering loss by “fire.” Fire started in basement of store, firemen dismantled furnace to stop fire, caused pipes to damage store. Court held that damage was direct and immediate result of fire so policy applied.
    
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      Test for directness is whether, once the originating cause has operated, there has been no new intervening cause
      
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      Actions by firemen were not treated as intervention detracting from directness since those actions were reasonably needed to control the fire
      
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      General rule is that any action taken to control or avoid consequences of an insured peril will not be regarded as an intervening cause
      
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    E.g. Glen Falls: fire started in insured’s car radio while driving, insured drove off role and into tree to try and put out fire, car totally destroyed by fire. Car insured against fire but not collision. Primary cause of damage was original fire, so policy applied to cover entire loss
    
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    Generally accepted that intervening cause must be human intervention if it is to negate the proximity of the originating cause
    
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      E.g. Roth v South Easthope: barn partially damaged by lightning, then destroyed by high winds. Court held lightning was proximate cause of whole loss, even though not established whether wind would have damaged the barn in the absence of lightning
      
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    Where the insured peril is not the originating cause of the chain of events leading to the loss, may be more difficult to establish that it is the effective cause
    
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    Wr.t. insurer’s liability, this arises when customer incurs liability to third party
    
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      Causation may be established even where there is some further human intervention in the chain connecting negligence to loss
      
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      Mere fact that there is an intervention, even if not in an attempt to minimise loss, doesn’t defeat customer’s claim against its insurer
      
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  Independent Contributing Causes
  
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    Where death results from a combination of disease and external causes, does accident policy provide coverage?
    
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      If it is found that the disease was merely “a condition in which the accident operated,” the accident is regarded as the proximate and sole cause of the resulting death or injury
      
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        Meyer v Allstate Insurance [1981] Man CA: there is coverage where one accidentally stubs toe and develops gangrene due to pre-existing diseases. Court held that diseases although “active”, were not effective cause of the loss of the toe. They were merely conditions upon which the accident operated
        
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        Wadsworth: person insured under accident policy suffered from seizure. During seizure, tipped a lantern which started a fire, the fire caused injuries from which insured died. No coverage since seizure, not fire was proximate cause of death, and there was clause limiting liability in case of injury/death caused by “fits” applied
        
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      If the disease is a cooperating cause, in the sense that it actually contributed to the injury as opposed merely to being taken advantage of by the accident, it cannot be regarded as the sole cause
      
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    Without specific language in policy to contrary, accident remains sole cause of loss, even when loss includes medical consequences other than the immediate trauma
    
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    Insurer is not relieved of all or any liability because plaintiff happens to have unusual susceptibility to the kind of loss suffered
    
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  Fortuity