Another year, another top ten. We have burned the midnight oil and scoured the various judicial districts of our vast country in order to identify that most elusive of creatures – the insurance coverage case.
Things were quiet at the Supreme Court of Canada this year, though the court did release its decision in Sattva Capital Corp. v. Creston Moly Corp., which raised the bar for those seeking appellate review of a judge’s interpretation of a contract. This decision is already having a significant impact on coverage appeals, making it more difficult for both insurers and insureds who lose at first instance to have that decision overturned.
Kozel v. The Personal Insurance Company (February 19, 2014, ONCA)
Auto insurance/relief from forfeiture
Kozel has dramatic implications, as it has greatly expanded a court’s ability to grant relief from forfeiture for an insured’s pre-loss conduct, a remedy previously unavailable based on the Supreme Court of Canada’s decision in Elance Steel.
Mrs. Kozel had automobile coverage with The Personal. She unintentionally failed to renew her driver’s license upon expiry. When she had an accident four months later, her insurer denied coverage. At first instance, Mrs. Kozel was successful in challenging the denial. The judge held that Ms. Kozel had acted with due diligence in failing to renew her licence. The Personal successfully appealed.
While the Court of Appeal disagreed that there had been due diligence, the court found coverage by granting relief from forfeiture. As Mrs. Kozel’s breach occurred prior to the loss, relief from forfeiture under the Insurance Act was unavailable. Instead, the Court looked to the general relief from forfeiture provision in s. 98 of the Courts of Justice Act, holding that this provision could be applied in the insurance context, and that relief could be granted for any pre-loss breach of the insured. The factors to consider when exercising this discretion were 1) the conduct of the insured 2) the gravity of the breach, and 3) the disparity between the value of the property forfeited and the damage caused by the breach. Applying this test to Mrs. Kozel’s case, the court found that 1) her breach was unintentional, 2) the gravity of the breach was minor as it did not impair Mrs. Kozel’s ability to operate a motor vehicle, and 3) there was a significant disparity between the breach and the forfeiture.
Schmitz v. Lombard General Insurance Company of Canada (February 4, 2014, ONCA)
Auto Insurance/Limitation period in OPCF 44R
Schmitz was involved in an auto accident and sued Lombard for underinsured coverage. Lombard took the position that the claim was out of time because Schmitz brought it outside the 12 month limitation period set out in s. 17 of the OPCF 44R. Schmitz argued the 2 year limitation period set out in s. 4 of the Limitations Act.
On a motion to determine the issue, the Court applied its decision in Markel Insurance Co. of Canada v. ING Insurance Co. of Canada, and that decision’s holding that an insured does not suffer a loss until after the insured seeks indemnity for an underinsured claim, and the claim is denied. Accordingly, the limitation period had not expired. The immediate impact of this decision is that there may effectively be no limitation period for underinsured motorist claims in Ontario.
Coburn v. Zorkin Insurance Brokers Inc. (February 26, 2014, BCCA)
The insurer denied coverage for a property loss as the house had been “vacant” for more than 30 days. The insured argued that he regularly visited the property to perform renovations during those 30 days. The policy defined vacancy as “[t]he occupant(s) has/have moved out with no intent to return or the dwelling does not contain furnishings or household equipment sufficient to make it habitable.” The B.C. Court of Appeal upheld the denial, holding that the insured’s regular attendance was immaterial – the property became vacant once the tenant left. The definition of vacancy was to be read disjunctively, such that if the property was vacant where the occupant had moved out with no intention to return or the dwelling did not contain furnishings or household equipment sufficient to make it habitable, it was “vacant”.
Hants Realty Ltd. v. Travelers Guarantee Co. of Canada (June 25, 2014, NSCA)
E&O Policy/Definition of “Claim”
Hants Realty sold a house, and the purchaser experienced problems getting running water to the property. The purchaser made a complaint to the Nova Scotia Real Estate Commission. Hants did not report the complaint to its errors and omissions carrier. When the realtor was sued several years later, the insurer took the position that the complaint to the commission constituted a “Claim” under the errors and omissions policy that ought to have been reported. “Claim” was defined as a “written demand for damages or non monetary relief… against an Insured for a Wrongful Act committed by the Insured.” The realtor sued and the insurer’s denial position was upheld. The Nova Scotia Court of Appeal held that substance, rather than form, was the determining factor. Though the initial claim was made to a commission which had no jurisdiction to award monetary damages, the insured was aware from the complaint itself that the purchaser would pursue a claim for damages.
Precision Plating Ltd. v. Axa Pacific Insurance Company (April 8, 2014, BCSC)
CGL Policy/Pollution Exclusion
Precision Plating was sued by a third party after a fire at its premises triggered the building’s sprinklers, resulting in an overflow of dangerous chemicals. Precision’s CGL carrier denied coverage, relying on the policy’s pollution exclusion. Precision successfully sued for coverage. The B.C. Supreme Court acknowledged that the definition of pollution in the policy included chemicals, soot and smoke. However, as damage from fire was clearly covered under the policy, and further, as virtually all damage from fire could fall within the definition of pollution, the insurer’s position ran contrary to the reasonable expectations of the parties.
Stewart v. TD General Insurance Company (March 4, 2014, Ont. Div. Ct)
Homeowner’s Policy/Marijuana Plants
Is marijuana covered under a homeowner’s insurance policy? According to the Ontario Divisional Court, the answer is no. The insureds legally kept 11 marijuana plants at their home for medicinal use. The pot had a value of $50,000. When the plants were stolen, TD agreed to pay the $1,000 per plant limit for “landscaping”, but denied that the plants qualified for the increased limit available for “personal property” as they were not “usual to the ownership or maintenance of a dwelling.” Both the motions judge and the Ontario Divisional Court sided with TD’s position. While the plants were usual to the insured’s dwelling, they were not usual to an average dwelling, as less than one third of one percent of Canadians were authorized to grow medical marijuana.
O’Byrne v. Farmers’ Mutual Insurance Co. (July 11, 2014, ONCA)
“All-risks” Policy/Pollution Exclusion
A residential tenant put a piece of cardboard into his furnace to bypass the thermostat. The furnace failed while the tenant was away, and an oil leak caused damage to commercial tenants on the lower levels. The insurer denied coverage on the basis of the pollution and the mechanical breakdown exclusions in the policy. The court rejected the application of the pollution exclusion, as the plain wording of that exclusion required that another operative exclusion be engaged in order to trigger it. The court also held that the loss was not caused by “mechanical breakdown,” as the loss was not the result of an internal problem or defect in the furnace, which was the intended target of the exclusion, but instead, was caused by human intervention.
Acciona Infrastructure Canada Inc. v. Allianz Global Risks US Insurance Company (August 19, 2014, BCSC)
Builder’s Risk/Faulty Workmanship Exclusion
Acciona represents the first time that a court has interpreted the faulty design/workmanship exclusion in the context of a builder’s risk policy. The project at issue was a large hospital. Problems arose with the project, including widespread cracking once the concrete set. It was determined that, during construction, the formwork and reshoring for the concrete was improperly performed. The insured, Acciona, incurred $14 million in additional repairs, which it submitted to Allianz for coverage under the builder’s risk policy on the basis that the cracking in the concrete qualified as “damage” which was not excluded. Allianz denied the claim, taking the position that the loss fell within the exclusion for “faulty workmanship or design.”
In considering the exclusion, the court drew a distinction between the faulty workmanship (the improper formwork and reshoring) and the resulting damage (the cracked concrete). While the exclusion applied to the cost of correcting the improper formwork and reshoring, the cost to repair the cracked concrete was resultant damage, which was not excluded. The court also rejected the insurer’s position that the damage had to be “accidental” in order to trigger coverage, rejecting the long understood principle of fortuity which lies at the heart of insurance coverage.
Willoughby v. Pilot Insurance Company (January 7, 2014, ONSC)
Homeowner’s Policy/Determination of “Replacement Cost”
The insureds’ home was destroyed by fire. The homeowner’s coverage with Pilot included a “Guaranteed Replacement Cost” endorsement. While the endorsement made no reference to the replacement occurring at the same location, other provisions of the policy required the house to be rebuilt at the same location in order to be eligible for replacement cost. The insureds elected to purchase a new home in another location rather than rebuild their home. They then sought the Guaranteed Replacement Cost coverage from Pilot. Pilot’s position was that the claim was limited to actual cash value (ACV). Pilot’s position was upheld.
In reading the contract as a whole, the clear intention of the policy was to provide coverage for replacement of the home in the same location. While the insured could elect to relocate, the amount payable in that case would be limited to ACV. The intent of the replacement cost coverage, including the “Guaranteed Replacement Cost” endorsement, was to a make up the shortfall between the basic coverage and actual replacement cost, provided that the home was rebuilt in the same location as the original.
Intact Insurance Company v. Virdi (April 14, 2014, ONSC)
CGL Policy/Description of insured business limiting coverage
Harjit Virdi owned two unrelated companies, Multilamps and American Industrial Machines Inc. (“AIM”). Multilamps was an importer and manufacturer of lampshades, while AIM sold heavy machinery. The two shared some common warehouse space, but only Multilamps had insurance – a CGL policy with Intact. A claim was made by a party that was injured at the warehouse while using a forklift to transport lathes used in AIM’s business. AIM sought coverage under the Multilamps policy. Intact denied coverage to AIM, arguing that the injury arose out of AIM’s business, which it did not insure. Multilamps argued that the incident arose on property of which Multilamps was an occupier, and as such, the Multilamps policy provided liability coverage for “occupiers.” The court upheld the denial. The allegations did not arise out of Multilamps’ business operations, but rather, out of the business operations of an unrelated company.
Chris Dunn is a partner and Josiah MacQuarrie is an associate with Dutton Brock LLP. Both specialize in insurance litigation. Dutton Brock LLP is a member of Canadian Defence Lawyers (CDL), the only national organization representing the interests of civil defence lawyers. It offers broad opportunities to unite the defence bar over common issues, as well as providing accredited continuing legal education.