Insurance contracts are interpreted on a case-by-case basis, with a view to reflecting the intentions of the parties
Heavy burden on insurance companies to clearly reflect their intentions in policy wording
Unequal bargaining power between insured and insurer
Limited negotiation with standard form contracts
Step one: the search for intention (Consolidated Bathurst Export v. Mutual Boiler)
Search for an interpretation which promotes or advances the true intent
Literal meaning should not be applied where to do so would bring about an unrealistic result
Holistic interpretation to achieve commercially reasonable outcome
Principles:
Undefined words should be given plain and ordinary meaning, but if there are two meanings then go with the one that is more reasonable in promoting the intention of the parties
Contract should be interpreted as a whole, with the presumed purpose of the reasonable protection of the insured
Objective of the contract should not be negated by a technical definition
Step two: if there are two reasonable but differing interpretations after step 1
Contra proferentem
Ambiguous terms are interpreted against the party who drafted the agreement (the insurer)
Does not apply to statutory conditions because they are not drafted by the insurer
Broad interpretation of coverage clauses/narrow interpretation of exclusion clauses
May apply to statutorily mandated provisions that are immune to contra p.
Fulfillment of the reasonable expectations of the parties
American approach is to resolve ambiguities by interpreting the contract in accordance with the insured’s reasonable expectations
Unclear whether this doctrine can apply where the contract terms are not ambiguous
Applies to both expectations of insurer and insured, but giving effect to the expectations of the insured may go against contra proferentem
Blurred distinction between reasonable expectations doctrine and the primary principle of interpreting a contract in accordance with intentions of parties
E.g. Reid Crowther Ltd. v. Simcoe & Erie General Ins Co (SCC 1993))
Different use of triggering words in different parts of the policy created ambiguity as to whether the policy was limited to claims or occurrences within coverage period
Public policy
Courts need to limit the degree to which they allow contextual or public policy considerations to influence their interpretation of insurance contracts
Jesuit Fathers of Upper Canada v. Guardian- public policy considerations do not and should not trump foundational principles of interpretation
Double endorsement requirement precluded claims due to circumstances known prior to commencement of coverage period- favoured insurer to insured’s detriment
May be more appropriate for the courts to use statutory authority or draw on estoppel to refuse to apply an unreasonable provision, rather than to interpret it in favour of the insured
Examples of interpretation pp. 149-150
Corbould v. BCAA Insurance Corp (BCSC 2010)
Facts: above ground oil storage tank leaked into ground and home, insurer denied coverage because policy excluded loss due to pollution or contamination and that the escape of fuel oil into the property is within the plain and ordinary meaning of contamination/pollution
Analysis: a reasonably informed person would consider a spill of 950L of heating oil to constitute contamination or pollution- there is no ambiguity
Parties’ intentions prevail- unnecessary to resort to reasonable expectations absent ambiguity
The only time that we should consider reasonable expectations of the parties as an independent tool absent ambiguity is if not doing so would render the whole contract useless (if the purpose of the contract was threatened)
Brissette Estate v. Wesbury Life Insurance (SCC)
Facts: couple had a life insurance policy but it didn’t say who would be the beneficiary if the death was caused by one of them
Issue: should insurance proceeds be payable for the benefit of the executor who murdered the insured?
Held: no matter how the policy is interpreted, finding in favour of the beneficiary would allow him to recover from the loss that he has caused- public policy was applied
Dissent saw this as an ambiguity because the policy did not provide for what should happen if the beneficiary causes the loss, so should interpret in insured’s favour
Loss Caused by Accident
Unless specifically stated otherwise, insurance contracts are interpreted as impliedly excluding coverage for expected losses (and inevitable wear and tear), but many losses are neither purposely caused nor entirely fortuitous
Continuum: purely fortuitous, blameless event – negligent act – grossly negligent – reckless act – action intended to cause loss
Evolution of definition of “accident”
Walkem: includes negligence of the insured
Contract provided coverage for accidents, but the damage was caused by collapsing cranes that were negligently repaired by the insured
SCC held that interpreting “accidents” to mean only wholly anticipated events would be unreasonably narrow
Stats: plain and ordinary meaning of “accident” includes gross negligence, but excludes recklessness or “a foolhardy venture from which personal injury could be foreseen as an almost inevitable consequence”
Insurer said that there should be a narrow construction where the focus of the policy is just to indemnify the specific insured- liberal construction is only applicable to policies that protect third parties
Court rejected this- the definition of accident is the same for accident and indemnity policies
The fact that the insured was grossly negligent does not mean she desired the outcome
Martin: the question of whether a loss was caused by an accident depends on the insured’s state of mind, not the activity undertaken by the insured
Insured’s death due to an overdose is still an accident even if he intended to inject himself, because he did not intend to cause his death
Engaging in risky behaviour does not mean that the resulting loss was intentional
Insured’s expectations or intentions should be ascertained from his subjective perspective, or from the perspective of a reasonable person in the insured’s position
If the insured expected the loss to occur then it is not an accident
Note that the finding in Martin is restricted to situations where the insured’s actions led to the loss- ONCA has held that death from natural causes is not an accident
Co-operators Life Insurance Co. v. Gibbens (SCC 2009)
Facts: insured had unprotected sex and contracted herpes, which caused a rare complication that resulted in total paralysis of his lower body
Issue: does the paraplegia constitute “bodily injury occasioned solely through external, violent and accidental means”?
Analysis: “accident” involves something fortuitous and unexpected, as opposed to something proceeding from natural causes- should be given its ordinary meaning
Just because an outcome is unexpected does not establish the existence of an accident within the scope of the policy (Wang)
Held: “accident” does not include ailments proceeding from natural causes
The bodily injury proceeded from natural causes in this case, since the transmission followed the normal method by which sexually transmitted diseases replicate
Onus is on the claimant to show that the loss is covered by the policy
Once the claimant establishes a prima facie case that the injury was caused by an accident, the burden shifts to the insurer to show that it was not an accident
Average insured test: “accident” is an ordinary word- should be construed as it would be understood by the average person applying for insurance, not as it might be perceived by persons well versed in insurance law- should be given its plan and ordinary meaning
Progressive Homes Ltd. v. Lombard General Insurance Co (SCC 2010)
Facts: Progressive homes was hired as a general contractor, negligently built housing complexes, actions were brought against Progressive
Insurance policies required Lombard to defend and indemnify Progressive when Progressive is legally obligated to pay damages because of property damage caused by an occurrence or accident
Lombard argues that interpreting “accident” broadly would effectively make Commercial General Liability policies into guarantees of the quality of the work done by the insured
Court rejects this position- performance bonds ensure that work is brought to completion, whereas CGL policies only cover damage to the insured’s own work once completed
Analysis:
An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured’s claim
Duty to defend is not dependent on the insured actually being liable
It is generally advisable to interpret the policy in the order of: coverage, exclusions, and then exceptions
Onus is on Progressive to show that the pleadings fall within the initial grant of coverage, which covers property damage caused by an accident
Once this is shown, the onus shifts to Lombard to show that the coverage is precluded by an exclusion clause
“accident” should apply when an event causes property damage neither expected nor intended by the insured- need not be a sudden event and can result from continuous or repeated exposure to conditions
whether defective workmanship is an accident is case specific
property damage is not limited to damage to the property of a third party- can include damage to the building that Progressive constructed
Held: for Progressive. Lombard’s duty to defend is triggered.
Nelson v. Industrial-Alliance Pacific Life Insurance (ABQB 2010)
Facts: Insured died while swimming- medical experts concluded that he likely had an arrythmia (irregular heartbeat) that was the immediate cause of his death
Analysis: was his death an accident? Applied principles from Gibbens
Care must be taken not to convert an accidental benefits policy into a general health, disability, or life insurance policy
Circumstances giving rise to claims on accident benefits polcies:
Antecedent mishaps external to the person of the insured (e.g. car accident, slip and fall, bodily injury or death caused by illness that is a consequence of a mishap or untoward event external to the insured)
Antecedent mishaps internal to the person of the insured (e.g. deliberate acts of ordinary living that lead to an unforeseen or unexpected injury, that is a fortuitous and unexpected result of a bodily malfunction peculiar to the insured
Antecedent mishaps due to miscalculation by the insured (e.g. insured has a mistaken belief about circumstances, fails to perform an action in a timely manner or undertake a necessary check, or simply miscalculates the effects)
Disease or illness of the insured- does not constitute an accident if it arises from processes that occur naturally within the body in the ordinary course of events
Accident occurs where:
A prior unexpected mishap or occurrence external to the insured’s body causes bodily injury or death
A disease or illness attributed to a prior unanticipated mishap or occurrence external to the insured’s body causes bodily injury or death
E.g. Kolbuc- West Nile was unforeseen
A prior unanticipated mishap or occurrence due to a deliberate action of the insured results in bodily injury or death due to a bodily malfunction peculiar to the insured
A deliberate action on the part of the insured causes bodily injury or death due to the insured’s miscalculation or mistaken belief about his or her circumstances
e.g. Martin- drug overdose
Accident does not occur where disease or illness resulting from natural causes or bodily infirmity in the ordinary course of events causes bodily injury or death
E.g. Gibbens (paralysis due to natural processes within the insured’s body), Wang (amniotic fluid embolism natural with child birth), Nelson (death from swimming not caused by mishap)
If the loss was caused by disease from natural causes, then it is not accidental
Held: there was no mishap or trauma that triggered the bodily malfunction- swimming is a natural and common event
