Excusing Insured’s Breach of Contract

Excusing Insured’s Breach of Contract

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  BCIA s. 13:
  
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    Without limiting section 24 of the Law and Equity Act, if
    
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      (a) there has been
      
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        (i)  imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or another matter or thing required to be done or omitted by the insured with respect to the loss, and
        
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        (ii)  a consequent forfeiture or avoidance of the insurance in whole or in part, or
        
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      (b) there has been a termination of the policy by a notice that was not received by the insured because of the insured's absence from the address to which the notice was addressed,
      
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      and the court considers it inequitable that the insurance should be forfeited or avoided on that ground or terminated, the court, on terms it considers just, may
      
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      (c) relieve against the forfeiture or avoidance, or
      
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      (d) if the application for relief is made within 90 days of the date of the mailing of the notice of termination, relieve against the termination.
      
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    Note that this section is applicable to accident and sickness insurance (s. 93)
    
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  Law & Equity Act s. 24- general power to grant relief against forfeiture
  
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    The court may relieve against all penalties and forfeitures, and in granting the relief may impose any terms as to costs, expenses, damages, compensations and all other matters that the court thinks fit
    
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  May not be fair to allow one contracting party to void an agreement by relying on a breach of contract if the breach is of a minor, technical nature or was previously condoned
  
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  Relief from forfeiture, waiver, and estoppel are typically applied to prevent an insurer from successfully relying on an insured’s breach of contract to deny coverage
  

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  Relief against forfeiture is an equitable doctrine which allows the court to excuse the insured’s breach in circumstances where the forfeiture of coverage would be unfair to the insured
  
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    Purpose of this doctrine is to prevent the insurer from denying a critical benefit to the insured on the basis of a technical breach which is not substantively prejudicial to the insurer
    
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  Court must decide on the facts of each case whether it should be granted-must be satisfied of two factors, both of which must be established by the insured:
  
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    (1) that the doctrine can by applied as a matter of law
    
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      this is a threshold to the second factor- unless the doctrine applies as a matter of law, court cannot apply its discretion to grant relief
      
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        but this is often applied in reverse: if the court has decided that the facts of the case do not merit the application of relief from forfeiture, there is no need for the court to determine whether the doctrine is available as a matter of law
        
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    (2) that the facts of the case merit the application of the doctrine
    
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  the legal threshold depends on three factors:
  
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    (1) the source of the court’s power to grant relief
    
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      currently authorized by statute, either by specific power to grant relief from forfeiture or by a general power to grant relief in a provincial justice statute (not restricted to the insurance context)
      
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    (2) the type of insurance involved
    
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      the specific ameliorative provision should be broadly interpreted (Falk Bros)
      
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        applies to ordinary contract terms as well as statutory conditions, so it applies to all types of insurance contracts unless the relevant insurance legislation expressly states otherwise
        
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        it is open to the courts to exercise wide latitude in interpreting statutory provisions in a manner favourable to the insured
        
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      the general relief power can apply to an insurance contract which is expressly excluded from the reach of the specific relief power
      
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        e.g. life insurance contracts are omitted from the specific relief power, but this does not implicitly reflect a legislative intention to prevent relief from forfeiture from applying to life insurance contracts at all
        
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      do the powers overlap such that an insurance contract may be subject to both sources of relief?
      
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        Remains an open question
        
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        Specific provision is both narrower (more restrictively defines the circumstance giving rise to relief) and broader (authorizes the court to provide relief against the consequences of breach of a statutory condition, whereas the general relief power has traditionally been held not to apply to obligations imposed by statute)
        
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    (3) the nature of the insured’s breach
    
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      specific relief power is only available where the insured’s breach constitutes imperfect compliance (as opposed to non-compliance) with a statutory condition or contract term and where the imperfect compliance relates to the insured loss
      
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      insured’s breach must be accidental and not prejudice the insurer (Pilotte v. Zurich- claim was filed 12 years after accident- even if relief from forfeiture was possible it would be inappropriate to exercise discretion because the delay prejudiced the insurer)
      
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      Examples:
      
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        Specific relief power is available where an insured has failed to provide the insurer with timely notice or proof of loss, but is not available to relieve an insured’s failure to commence litigation on the contract within the prescribed limitation period
        
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        Specific relief power does not apply to breaches which relate to preconditions for the existence of an insurance contract (e.g. not applicable to the insured’s failure to maintain valid vehicle registration/driver’s license as required by automobile insurance legislation)
        
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      If an insured’s breach does not fall within the requirements of the specific relief power, can the general relief power apply?
      
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        Dominant view is that the general relief power does not apply to a wider range of breaches than the specific power- general power does not apply to a breach which the court characterizes as non-compliance with a condition precedent to the contract
        
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  Under what circumstances should relief from forfeiture be granted?
  
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    Two factors relevant to specific power:
    
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      (1) has the insurer been prejudiced by the imperfect compliance?
      
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      (2) would it be equitable to hold the insured to strict compliance with the relevant legislation?
      
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    Three relevant factors where the general relief power applies:
    
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      (1) the conduct of the claimant- was it reasonable in the circumstances?
      
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      (2) the gravity of the breaches- was the object of the right of forfeiture essentially to secure the payment of money?
      
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      (3) the disparity between the value of the property forfeited and the damage caused by the breach
      
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    a court should only grant relief in the circumstances where it would be more fair to relieve the insured from the consequences of its breach than to hold the insured strictly accountable for the breach
    
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    insured seeking relief must come to court with clean hands- relief will not be granted where the insured intentionally or maliciously breached an obligation, where the insured’s unreasonable conduct led to the breach, or where the insured liked about the circumstances giving rise to the breach
    
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  the relief from forfeiture section of provincial insurance legislation extends to matters other than statutory conditions- it can apply to contractual terms as well (National Juice Co v. Dominion Insurance Ltd)
  
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  judge cannot relieve the contractual limitation period (National Juice)
  
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  no relief from forfeiture for fraud even absent prejudice to the insurer
  

Jackson v. Canadian Northern Shield

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  Plaintiffs constructed a barn and greenhouse, installed an auxiliary woodstove in the outbuildings and did not disclose the stove to the insurer
  
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  insurer denied liability when the building was destroyed by fire- installation of the woodstove is a material change and the insured failed to give notice to the insurer
  
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  relief from forfeiture requires imperfect compliance with a statutory condition
  
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    but can not apply here because this was failure to comply (by giving prompt notice of the installation of the woodstove) rather than imperfect compliance
    
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    party seeking relief must show (1) there has been imperfect compliance, (2) this imperfect compliance pertained either to a statutory condition as to the proof of loss or to a thing required to be done by the insured about the loss, (3) a consequent forfeiture or avoidance of the insurance occurred, and (4) it is inequitable that the insurance be forfeited or terminated
    

Waiver and Estoppel- Common Law

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  Waiver under the common law:
  
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    Applies to alleviate an insured from its strict contractual obligations where there is, on the part of the insurer, “something said or done whereby the performance or observance of the condition or warranty need not be carried out, made nor proved”
    
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    Amounts to a purposeful decision, on the part of the insurer, not to hold the insured to a particular contractual obligation- it is an intentional alteration of a contract term which can occur before or after the contract term is breached
    

Saskatchewan River Bungalows v. Maritime Life Assurance Co (SCC 1994)

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  Facts: life insurance policy was issued on the life of Mr. Fikowski- insurance premiums were payable by Saskatchewan River Bungalows, but Connie Fikowski was named beneficiary
  
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    Premiums were payable annually, contract expressly provided for a 31-day grace period for every premium due date
    
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    Policy provided for reinstatement within three years of a lapse, subject to evidence of insurability and the payment of all outstanding premiums plus interest
    
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    They were usually late on payments and the policy lapsed twice- the first time, Maritime reinstated it in accordance with the policy terms, but the second time they reinstated it without any evidence of insurability
    
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    SRB sent a cheque that was not received, then received a premium due notice that asked for a higher premium than the amount they had already sent, so they sent another cheque for the difference but the main cheque still hadn’t arrived
    
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    MLA sent a letter advising Connie, but she didn’t send in any more payment- SRB had closed its hotel for the winter and did not regularly pick up its mail
    
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    MLA then sent a notice of policy lapse inviting SRB to apply for reinstatement
    
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      When SRB tried to reinstate they were refused because Mr Fikowski was terminally ill- Maritime denied payment upon his death because the policy had lapsed
      
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      SRB argued that the policy remained in effect because MLA had, by its conduct, waived the right to timely premium payment
      
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  Analysis:
  
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    Court established the two-part waiver test: in order to find that an insurer has waived its right to strict performance of the contract by the insured, evidence must establish that the insurer had:
    
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      (1) A full knowledge of rights; and
      
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      (2) an unequivocal and conscious intention to abandon them
      
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        this may be proven by express words or may be implied by action
        
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    the waiver test does not require any reliance by the insured on the insurer’s decision to forego its contractual right
    
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      but once waiver is established, the insured’s reliance on the waiver is relevant to the insurer’s ability to retract the waiver- can be retracted if reasonable notice is given to the party in whose favour it operates, but reasonable notice is not required where there is no reliance
      
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  Held: for Maritime. The policy had lapsed before Mr. Fikowski’s death.
  
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    There was a waiver (the letter that said that the policy was technically out of force) but this waiver was retracted when the notice of policy lapse was sent. Since SRB became aware of the waiver and the retraction at the same time, there was no reliance and so Maritime was not required to give any notice of its intention to lapse the policy.
    

Estoppel under the common law

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  Equitable doctrine which essentially prohibits a party from acting inconsistently with representations it has made, where it would be unfair to do so
  
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  Prevents an insurer from denying coverage on the basis of an insured’s breach of contract where:
  
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    An insurer represents to the insured that the contract term will not be enforced; and
    
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    The insured relies on this representation to its detriment
    
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  Two main types of estoppel:
  
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    Promissory estoppel: where the insurer makes a representation (promise) about a future state of affairs
    
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    Estoppel by representation: Where the insurer makes a representation of fact to the insured (e.g. advising the insured that coverage is provided for a particular loss, accepting premiums after due date, reinstatement within 2 years of policy lapse without proof of good health and insurability, providing defence absent obligation to do so)
    

Maracle v. Travellers Indemnity Co

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  Promissory estoppel
  
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  Building owned by Maracle and insured by Travellers was destroyed by fire- insurer and insured were unable to agree as to the value of the building on the date of the loss
  
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  Insurer sent a letter to Maracle setting out the terms of a “without prejudice” settlement offer
  
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    Maracle did not respond to this offer and issued a statement of claim, but it was not filed within one year of the loss as required by the insurance contract
    
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    Maracle argued that the insurer was estopped from relying on the limitation period because it had already admitted liability for the claim
    
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  Analysis:
  
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    In order for promissory estoppel to apply, the party relying on the doctrine must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on
    
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    The use of “without prejudice” is commonly understood to mean that if there is no settlement, the party making the offer is free to assert all its rights, unaffected by anything stated or done in the negotiations
    
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  Held: Travellers did not represent to the insured that the limitation period would not be enforced
  

McConnell v. Aviva Insurance Co

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  Estoppel by representation
  
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  Edith McConnell applied to enforce a judgment she had obtained against the employees of a moving company which was issued under a cargo insurance policy issued by Aviva
  
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  Aviva responded to the claim by filing a defence on behalf of the moving company and its employees, then advised the two employees of the lawsuit- but one employee was unreachable, and they lost contact with the other after he failed to attend examinations for discovery
  
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    Aviva argued that the two employees were not insured persons, McConnell argued that Aviva should be estopped from claiming that the two employees were not insured because Aviva had represented that coverage existed when it defended the individuals
    
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  Held: the two employees were not insured under the policy, and Aviva was not estopped from raising this defence with regard to the claim against the employee that they had never reached, but full estoppel by representation was applied with regard to the employee that they had successfully contacted
  
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    Because the one employee (Mallette) knew of the lawsuit and Aviva’s involvement, it was reasonable to infer that he would have understood that Aviva was taking care of his defence because he was covered by the policy
    

Waiver and Estoppel: Modification by Statute and Contract

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  BCIA s. 14:
  
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    (1) The obligation of an insured to comply with a requirement under a contract is excused to the extent that
    
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      (a) the insurer has given notice in writing that the insured's compliance with the requirement is excused in whole or in part, subject to the terms specified in the notice, if any, or
      
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      (b) the insurer's conduct reasonably causes the insured to believe that the insured's compliance with the requirement is excused in whole or in part, and the insured acts on that belief to the insured's detriment.
      
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    (2) Neither the insurer nor the insured is deemed to have waived any term or condition of a contract by reason only of
    
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      (a) the insurer's or insured's participation in a dispute resolution process under section 12,
      
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      (b) the delivery and completion of a proof of loss, or
      
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      (c) the investigation or adjustment of any claim under the contract.
      
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    Note that this provision is applicable to general insurance, life insurance (s. 38) and accident & sickness insurance (s. 93)
    
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  Waiver requirements:
  
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    (1) insurer knowingly abandons rights
    
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    (2) unequivocally and consciously communicates to insured; written notice excusing insured’s compliance
    
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    (3) unfair for insurer to retract promise of abandonment
    
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      insurer entitled to retract waiver without notice, but notice required after reliance
      
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    note that statutory modifications require that the waiver is stated in writing and signed by a person authorized for the purpose of the insurer
    

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  under common aw, a waiver can take any form as long as it demonstrates an insurer’s clear intention to give up the right to enforce an insured’s contractual obligation
  
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    but s. 14 of the BCIA says that the waiver must be stated in writing
    
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      insurer’s written notice to insured signals intention not to enforce contractual right
      
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    written documents relating to the insurer’s investigation and adjustment of the loss are not by themselves sufficient to demonstrate waiver
    
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  waiver and estoppel are broader than relief from forfeiture
  
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    no distinction between imperfect and non-compliance
    
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    not limited to post-loss technical or minor breaches- applies to any contractual requirement
    
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    substantive legal doctrines- not discretionary
    
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    prejudice to insurer is relevant
    
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  examples of waiver and estoppel p. 220-221
  
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  documents used by insurers to pre-empt arguments of waiver and estoppel- provide the insured with written notice of a coverage concern and written confirmation that the insurer is not intending, by its subsequent actions, to forfeit its right to withhold coverage
  
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    reservation of rights agreement:
    
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      insurer unilaterally and unequivocally informs the insured of the insurer’s intention to preserve its right to deny coverage
      
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      insured’s consent is not required
      
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    non-waiver agreement:
    
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      the insurer and the insured mutually acknowledge and agree to the insurer’s reservation of rights
      
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      will not be enforced if the terms or relevance of the agreement were misrepresented by the insurer or otherwise misunderstood by the insured
      
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      liability insurance: parties can agree on parameters of defence, indemnification arrangement if no duty to defend and indemnify etc
      
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    in order to be effective, such documents must clearly set out the rights which are reserved to the insurer
    
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      documents are no longer effective once the insurer has denied coverage
      

Paul v. Cumis Life

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  insured failed to pay premiums and policy lapsed- insured died, his wife reinstated the policy without telling the insurer that he had died
  
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  held:
  
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    no question of waiver arises- a valid waiver requires complete knowledge of, and a conscious intention to abandon, one’s rights- this was not present here because the insurer was not aware that the insured had already died
    
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    no estoppel either- she suffered no loss by reason of relying on what was said by the representative
    
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      insurer’s conduct did not deprive claimant from obtaining insurance- no insurable risk or life to be insured at the time of the alleged representation
      

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