46) Policy Consideration Brissette However, mindful of following policy concerns: K pre-supposes 2 sided relationship, but actually is a take it or leave it standard form K Limited/no negotiation between insured and insurer Unequal bargaining power Inequality concerns are not necessarily absent in negotiated or custom policies Potentially different understandings of scope/terms by insured and insurer, full of technical, legal jargon—hard to understand Therefore, require insurance companies to clearly set out their intention in the policy wording Test Consolidated Bathurst v. Mutual Boiler Principles of insurance contract interpretation are applied in accordance with the two step test from this case. STEP ONE: Consolidated Bathurst v. Mutual Boiler Apply general principles to find an interpretation of the K which reflects the true intentions of the parties at the time they entered into the K. If this can be done using the general principles, and there is no remaining ambiguity in the language. STOP HEREdon’t do step two. Undefined terms given there “plain, ordinary and popular” meaning, “such as the average policy holder of ordinary intelligence, as well as the insurer, would attach to it” (at 901) Use the plan and ordinary meaning of defined terms subject to parties’ intention as evidenced from the entire policy If a word has multiple meanings, choose the one that reasonably promotes parties’ intentions Holistic interpretation to achieve commercially reasonable let technical definition/interpretation result in coverage for predictable losses, avoid windfall to insurer or unanticipated recovery to insured Don’t interpret in a way that negates the overall objective of the K Critique: Fictional Terms and conditions are mandated by statute or regulations, e.g. auto, general insurance Ks, accident and sickness, fire coverage Limited scope of timing is really negotiated Commercially sensible interpretation often goes against insured’s interests. Corbould Policy excluded pollution. Underground oil-tank leaked did this fall under the meaning of pollution? HELD: yes, no ambiguity, plain and ordinary meaning of exclusion clause excludes damage by contamination/pollution. Thus, the parties intended to exclude pollution and the parties intentions prevail. Don’t apply reasonable expectations or principles under step two if no ambiguity!! STEP TWO Consolidated Bathurst v. Where the language is ambiguous, in that there are multiple reasonable meanings or i.e. where step one failed to find the answer
Mutual Boiler irreconcilable provisions, use tools of construction to determine meaning. Contra Proferentem Contra proferentem: Ambiguous terms are interepreted against the author of the K, the insurer Irrelevant if the forms were approved by a regulatory body Rationale: self-interest EXCEPTION: Statutory conditions Insurers did not write these Purpose of contra preferentum is to avoid self-interest, so that isn’t possible where party didn’t write them. Coverage/Exclusion Lloyd’s v. Chu Coverage Provisions Broadly Construed, Exclusions Narrowly Interpreted Similar rationale as contra preferentum **applies to both contract and statutory conditions*** Reasonable Expectations Corbould Determine the meaning of the ambigous term by reference to parties’ reasonable expectations at time of K Reasonable Expectations = what the parties would have rationally expected if they had addressed their minds to the definition of an ambiguous contract term in the context of the overall insurance product being purchased. Go beyond intentions evidenced by wording, and make presumptions based on the nature of the insurance K. Problematic: Whose reasonable expectations are paramount? Potential conflict undermining other interpretative principles Not withstanding the words, what did parties actually think—use extrinsic evidence Different than reasonable intentions at step one, which is what the parties must reasonable have envisioned or planned as evidenced by use of an unambiguous term in the context of the whole K Continuity of Judicial Interpretation Gibbens SCC 2009 Courts should ensure that similar insurance policies are construed similarly to provide certainty and predictably, which as a matter of policy is in the interests of insureds and insurers. Effect of Public Policy: Consumer Protection/ ProCoverage Jesuit Fathers SCC 2006 Cannot allow public policy concerns to trump foundational principles of interpretation. Just b/c insurance fills public service role of compensating innocent third parties, doesn’t mean coverage should always be found in interpretation. Vytlingham Example: Interpretation does not necessarily favour coverage no coverage from underinsured motorist protection when tortfeasor dropped stones on car, b/c tortfeasor not using their car to do so. Seems to bring the “reasonable expectations” into stage one… but Corbould says it is only for stage two. BCIA s. 32 Instead of bending interpretation to benefit the insured, use this section: Relief from unreasonable terms
where insured took calculated risk. was reasonably foreseeable, not unanticipated Rejected by SCC TEST in context of whether there is coverage Martin v. American International SCC 2003 Onus on insured to establish “accident” on b of p. Test for accidental loss depends on insured’s state of mind: Whether the insured subjectively intended the consequence of their actions. If person did not intend, then it is an accident. In other words, did insured expect the consequences? If court cannot determine intent using a solely subjective perspective, use subjective/objective test: what would a reasonable person in the insured’s circumstances have expected? Dr. addicted to pain meds Dies of drug overdose Insurer argued b/c Dr., and intentionally injected that amount, must have anticipated death and therefore not accidental Court rejects this argument Issue is not whether activity is dangerous or even if death likely, but whether insured intended or expected to die When “Accident” Triggering Event Progressive Homes v. Lombard SCC 2010 Duty to defend is triggered if facts alleged in pleadings, if true, would require insurer to indemnify insured. Not bound by labels chosen by plaintiff, true substance of their pleadings is examined. In this case, duty to defend if insured caused property damage by “accident”. Accident = Q is whether loss was intended or expected (fact dependent) Can include negligence Reckless or intentional conduct excluded Not limited to “sudden” losses, can be a loss that occurs gradually as long as unexpected or unintended Can include gradual deterioration from faulty workmanship, if faulty workmanship accidental. Liability insurance for home building company Claim brought against insured for faulty workmanship Pleadings alleged negligence Negligence falls under definition of accident Therefore, if facts in pleadings true, insurer would be required to indemnify and duty to defend is triggered. Accident in first party policy Stats v. Mutual of Omaha SCC 1978 There is no difference for the meaning of accident in third party claims vs. first party losses Negligent or grossly negligent conduct can constitute an “accident” while reckless conduct does not. Definition of accident the same for indemnity and accident policies b/c both have the same fundamental purpose—provide “cushioning against results of a risk” A person who realizes the danger of their actions and deliberately assumes the risk, this is recklessness Negligence is where person judged on reasonableness standard to
circumstances and not necessarily correlate with policy limits: Economic Mutual Multiple Liability Policies: Which insurer defends? primary insurer conducts claim, advise named insured to notify excess insurer if claim likely to exceed limit of primary policy. Excess insurer may request to be part of investigation and defence Excess insurer shares equally with primary insurer all costs associated with claim, regardless of final outcome of claim. If parties contest, whoever has the greater risk of loss gets to defend (usually will be primary but could be excess in certain circumstances) Auto: In V Act s. 79 Monenco When should duty to defend be assessed? Preliminary matter Straight forward, do at beginning, unless there are questions about the validity of K in the first place (i.e. breach of disclosure) However doesn’t mean it can always work this way. In scarela and Nichols, both were after insured brought claim for costs against insurer at end of litigation. Longo ONCA 200 When outstanding coverage issues Case by case basis Issue: should insurer have to defend 3rd party action, while there are ongoing validity of K issues with insured? Consider: Relative strength of positions asserted by the insurer and the insured The necessity and urgency to furnish the insured with a separate defence Also consider (Drane NBCA) Is breach of condition contested? On what basis? Serious dispute? Is ti reasonable to expect the q of breach of condition to be dealt with on expedited basis? Despite clear breach of stat cond., are there circumstances that militate in favour of relief from forfeiture Is estoppel invoked? What is the status of the main action against the insured? What is the nature of the conlifct between insured and insurer? Does the conflict between insured and insurer require separate and independent counsel to adequately represent the interests of the insured? Is insured capable of assuming costs of independent counsel until issue of breach of condition resolved?