A. Introduction (1) Basic Insurance Theory

Definition: B.C.I.A., s.1- "insurance" means the undertaking by one person to indemnify (compensate) another person against

loss or liability for loss in respect of a certain risk or peril to which the object of the insurance may be exposed, or to pay a sum of money or other thing of value on the happening of a certain event.

Purpose of insurance: Economic and Social Context for Insurance Financial protection: Insurance is a way for people to protect their financial interests to ensure they don’t

go bankrupt when something goes wrong Impersonal/individualistic society: no longer rely on family and friends so formalizing financial

protection, a function of capitalistic society

Role of modern corporations & financial institutions Ability to collect and analyze information Accurate prediction of nature and probability of risks. Ex. no one will sell flood insurance to an area that

is prone to floods, supposed to be unpredictable and floods are predictable. Effective underwriting decisions about what to insure, when and how much Sophisticated banking and investment systems: Made it possible for insurance industry to be a viable

sector.

Government as InsurerWhy should governments be involved in provision of insurance services?

Part of social safety neto Adequate protection for specific risks, e.g. highway everyone’s protectedo Eliminating/reducing socio-economic inequalities, e.g. employment insuranceo Cost spreading re vital services, e.g. health insurance, affordable for all

Public vs. Private InsurersWhat risks should be insured by public insurers?Relevant factors include:

Nature of risk – often highly unpredictable Difficulties determining insurer’s ability to pay in event of loss Possibility of higher premiums: If too much uncertainty, then higher premiums charged which may

exceed the level of risk. This will be expensive and only affordable by the rich. Unemployment insurance is something that we want the poor to have, so don’t want the cost to be that high.

How is government able to provide effective insurance in these areas? Mandatory insurance: everyone pays into the system, so government more revenue. Single insurer: They can pool the risk together much more effectively Subsidization through general tax revenues

Elements of an Insurance Contract- (1) Undertaking by one person - insurer (promises indemnity)- (2) To indemnify another, Promise of indemnity: compensate insured

o Named and Unnamed insured, eg. Automobile; homeowner o Unnamed : basically is a group of people who are protected or can benefit from that

contract because they fit certain characteristics. For automobile insurance the unnamed is people who drive your car with your permission. Homeowner: protects the belongings inside the home.

o Personal Insurance – life, accident, sickness Assured: purchaser Insured: Person’s whose life is insured (assured and insured can be the same

person, pay your own life insurance). They would be different if your parents buy your life insurance

Beneficiary: Receives insurance money; assured or 3rd party- (3) Agreed consideration for promise of indemnity- premium

o Speaks to the price that the assured/insured has to pay for that promise of compensation - (4) From the loss or liability for insured event or subject matter, subject to policy limit

o Indemnity v. Non-Indemnity insurance contractso Indemnity : Undertaking to compensate you for your actual losses with the materialization

and proof of the insured risk. If no loss, then no coverage. Moral Hazard: we want to discourage the temptation to stage the loss.

o Non-Indemnity : contracts that provide for the payment of a specified amount in the contract upon the happening of a particular event, without the need to prove a loss. Life insurance: don’t put a dollar value on the life of a human being, so you can claim the stated amount.

- (5) Occurrence of event uncertaino If it is certain then cannot be the subject matter of an insurance contract.

Reflection on definition of insurance contract- Mechanisms to protect against risk- Insured’s Perspective: Loss shifting in exchange for rateable contribution –

premium/considerationo Premium determined based on degree and extent of risk:o Physical hazard: where is the building located, high crime area or vulnerable to fires. Will

determine whether it should be insured o Moral hazard: not the object but the person who is purchasing the insurance. What is your

character, what is your previous record? How often have you made claims? o Look at things like your age, gender, health status for life/personal insurances, tells us the

chances in relation to you. - Societal/Insurer’s Perspective:

o Loss distribution/spreading o Risk predictiono No correlation between premiums and recovery: pool our resources to help the

unfortunate few, spread pain of societyo Random losses – majority contribute to pay for losses of few. Should not be able to tell

who will suffer the loss. o Large number of insured’s: The risks should be independent of one another.

Insurance Law distinguished from General Contract LawPurpose of insurance contract: transfer of uncertain risk 1. Duty of utmost good faith (both parties)

Importance of open and frank communication Maintaining the integrity of the system Insurer not to exploit vulnerability of insured

2. Fortuity: random losses Random losses – uncertainty re which insured will suffer losses or when they will occur Excludes predictable losses, e.g. normal wear & tear

3. Indemnity Recovery limited to insured’s actual losses except in non-indemnity insurance contracts

Prevents moral hazard. Not supposed to benefit from an unfortunate event- Section 7 of the BCIA, the insured claims is governed by the indemnity principle. Sub 2 says except

life insurance where the value is based on a pre-determined amount. 4. Consumer Protection

Regulation and principles designed to protect consumers and general public5. Compensation

Ensure compensation for victims, especially in third party policies E.g. Automobile Insurance No-fault benefits: everyone is taken care of Protecting victim’s right to compensation even if insured in default BC Insurance (Vehicle) Act, s. 76 Victim’s right to enforce judgment directly against insurer – BCIA, s. 24

Ensuring Solvency and Meeting Insured’s Reasonable Expectations for Compensation

• Solvency of insurers essential to loss spreading • Regulation – e.g. Financial Institutions Act, 1996: Reserves

o Deals with financial solvency and health of the companies, companies in BC must maintain a certain amount of reserve against the liability

• Reinsurance: Helps spread the risk of loss, insurers transfer some risk to other insurers. If there are claims beyond a certain amount, then the reinsurer will step in to bail out the insurer.

o Reinsurers typically multinationals who have no relationship with the party. o Predominant arrangement for life insurance. o Legal consequences of re-insurance:

No privity of contract between insured and re-insurer. No relationship Insured has no priority over other creditors. Can’t bring an action against them, only

against the private insurer. Re Northern Union Ins. Co: Even though the money was paid out to the insurer on your

account, it does not give you right to sue for that money. NU had reinsured the risk and the reinsurer had paid them on account of BC Hydro’s claim. But since NU was in the bankruptcy proceedings, the money was part of NU general assets and so they had to join the line-up to get the money.

• Subscription Policy: When Insured has large risk to be insured it is not realistic for a single insurer. So separate insurance contracts with multiple insurers for same object for specific amounts

o Typical in property & casualty insuranceo Privity of contract between insured and each insurer. Direct K with each insurer who is liable for

specific amounts. o Potential Problem: Multiple claims for loss, have to deal with multiple companies

(2) Distinguishing Insurance from Wagering

Insurance: Anterior risk: need for insurance for cushioning in event of loss which will happen regardless of

coverage. Insurable interest in object of insurance. You are interested in object’s continued existence, risks

prejudice from loss or destruction. Wagering:

Risk arises from speculation of outcome of event. You are betting on something happening, the outcome would not affect your financial situation. You stand to lose or gain something only if you place the bet. Prior to speculating risk, neutral

Purpose: Windfall, to get money into your pocket

Current position on Wagering Wagering and gaming prohibited: B.C.IA., s. 6

o Wagering contract: Insured has no insurable interest in subject matter of contract, s. 6(2) [this is how we know, you would have otherwise remained neutral]

If the contract is determined to be a wager, it is void Rationale for prohibition of wagering and gaming contracts:

o Public Policy: it is seen as antisocial and useless enterprise. o Moral hazard: if you have no interest in the subject matter of the insurance, you are more likely

to create the loss. The temptation to fake the loss is higher.

Is Insurance truly distinguishable from Wagering? Does insurance industry support some form of wagering? Insurance companies willingly insure promotional events. Like the “Let it Snow” promotion launched

by itravel2000. Funded by weather insurance. Is this abuse of purpose of insurance? Do you agree with public sentiments against promotion? Is there risk of moral hazard in weather-dependent promotions? There is no way to fix the weather, still

the element of uncertainty and the company cannot do anything about it actually happening. Since no moral hazard, it is not considered a wager.

3. Regulation of the Insurance Industry

Why regulate the insurance industry? Power imbalance: protect the consumer, from large corporations. Potential exploitation of vulnerable party Solvency of insurers and protecting loss spreading goals of insurance (proper reserves) Ultimate goal: consumer protection and confidence in insurance system

To ensure that the fundamental risk-spreading objective is achieved, Canadian Law regulates insurance in two ways1. Legislation controls formation and operation of insurance companies to ensure solvency2. Insurance law regulates the content and enforceability of insurance contracts

How is insurance industry regulated? Formation and operation of insurance companies. They are regulated by laws, rules, etc Contents and enforceability of insurance contracts

o Terms and conditionso Obligations of parties to insurance contracto Qualifications and responsibilities of intermediaries

Contracts are standard form contracts drawn up by the insurance industry. Courts ensure that the interest of the insured is protected in terms of the form of the contract and the substance.

Part 5, Section 126(2) which sets out the statutory conditions in relation to fire insurance. Insurer cannot alter terms to the determent of the insured, or make terms more onerous

Purpose of contracto Clarify the terms on which it is madeo The terms and conditions should set out the rights of the partieso Regulation also tries to keep a handle on who can sell insurance. Keep tabs on who is selling

what, also have ones that keep track of the intermediaries

Sources of Insurance Law Common law (including equity): Lord Mansfeld developed based on the law of merchant Legislation: codifying and expanding the common law.

Continuing Importance of Common Law

Jurisdiction for Regulating Insurance IndustryDivision of powers: Constitution Act

Provincial Jurisdiction: property and civil rights: s. 92(13): Insurance contracts and regulation of insurance industry

Federal Jurisdiction: exclusive authority to legislate with respect to incorporation of national insurance companies

Provincially and federally incorporated insurance Companies operating in province - Canadian Indemnity Co. v. British Columbia (A.G.) (1977 SCC): o Facts: federally incorporated insurance companies selling car insurance challenged provincial statute

for universal compulsory auto insurance in BC and monopoly for ICBC to provide auto insurance. They sought a declaration that law interfered with their capacity to provide and carry on their business, which they were federally incorporated to do

o Decision: It is entirely up to the province to regulate what type of business an insurance company can carry on regardless of federal or provincial. While the federal government can regulate the status of the companies, provincial can regulate the companies insurance operations

Provincially incorporated companies subject to federal legislation on subject within federal jurisdiction, e.g. bankruptcy and insolvency – Ontario (A.G.) v. Policy Holders of WentworIth Ins Co Priority rules in federal Winding Up Act supersedes priority provisions in Provincial Insurance Act. o Within its own areas of legislative jurisdiction the federal government can pass laws which

incidentally impact upon the provincial insurance companies insurance operations and the federal takes priority

Regulation of federally incorporated Companies providing insurance Chartered banks federally incorporated Principal business – financial services Insurance services incidental, helps support the main function Provincial regulation inapplicable where insurance incidental business: Bank of Nova Scotia v. Canada

(Superintendent of Financial Institutions)o Facts: The bank hired telemarketers to sell insurance over the phone, not licensed. Province said

telemarketers are exempt from licensing under FIA S. 171(3) if credit insurance is incidental to principle function. Government argued the exemption only applies if you are selling insurance at the time they are signing up for credit not after the fact.

o Decision: Banks exempt from provincial insurance act licensing requirements because the banks insurance operations were only incidental to ordinary bank operations, not limited in terms of time

Chartered Banks offering insurance products not exempt from provincial licensing requirements - Canadian Western Bank v. Alberta

o SCC: Banks should are bound by provincial licensing requirements. SCC understands the need for bank to obtain collateral for loans, but insurance is only one way of securing loans. It is your choice to be in this business of selling insurance, not the business of your company to sell insurance so not exempt.

o The SCC did not follow the Bank of Nova Scotia case but distinguished based on the wording of the BC Legislation, Financial Institution Act. In Nova Scotia it was a temporal issue, said it was incidental because being sold at a different time.

Insurance Regulation and Canadian Charter of Rights and Freedoms Risk assessment central to effective underwriting Relevance of personal characteristics, e.g. gender, age, marital status, family status, health status for risk

assessment.

Potentially discriminatory? They all line up with section 15. To what extent can insurance regulation or provision of insurance be subject to Charter scrutiny? Charter applicable to governmental activities: as a general rule, insurance is a private contract between

individuals so the Charter would not be applicable. Limited applicability of Charter in Insurance Regulation

Public insurer: if you are governmental entity, then the Charter does apply Insurance legislation and regulation must be consistent with Charter values - Miron v. Trudel

o Definition of the spouse for benefit was being married he was common law partner so was excluded. Successfully challenged under Section 15(1) because it discriminated against him in a way that could not be justified under section 1.

Constitutionality of Regulations limiting insurance benefits for minor injuries: Morrow v. Zhang Note: Morrow reversed: leave to appeal to SCC refused; see also Hartling v. Nova Scotia, (A.G.) 2009, leave to appeal to SCC refused

o Facts: There was a minor injury cap and compensation for pain and suffering was limited. The claimants were women and they said discrimination because they suffer more of these types of non-pecuniary losses. If not for cap, would have gotten more so brought actions under S. 7 and 15(1)

o Decision: There was a legitimate purpose and it has nothing to do with your gender. All accident victims are subject to the same type of regulations and so no discrimination. Is a legitimate way for the province to control costs

Discriminatory Practices by Insurers Insurance companies provide public service; subject to human rights legislation Can insurers rely on personal characteristics to make underwriting decisions? Discriminatory insurance practices and policies exempt from application of human rights legislation if

based on reasonable and bona fide distinctions. See BC Human Rights Code, s. 8; Ontario Human Rights Code, s. 22

Relevant factors:o Type of policy o Nature of discriminatory practice o Whether distinctions legitimate or unavoidable:

Nova Scotia Human Rights Commission v. Canada Life o Facts: Complainant refused mortgage insurance due to his physical health condition. Bank

provided group insurance through Canada Life but husband was refused coverage because above average risk, had to pay higher premiums. He challenged the provisions as being discrimination based on disability

o Issue: does this practice constitute discrimination based on the human rights codeso Decision: Policy offered to eligible bank customers; not service customarily provided to public

within Human Rights Act; exempt from legislation. A life insurer is entitled to assess risk based on applicant’s health and can deny service to unreasonably high risk applicants. It was not an irrelevant distinction. The practice was in good faith, the insurer needed to make this distinction to decide whether to provide this service. Exemption is bona fide

What constitutes reasonable and bona fide distinction?Zurich Insurance Co. v. Ontario Human Rights Commission (1992 S.C.C.)

Basis of complaint: Generally single young men, under 25 were more likely to get into car accidents compared to women in that age group or men who were married or older. So the insurance industry as a practice charged those men a higher rate of car insurance

o Here the complaints said this was discriminatory as no basis for the discrimination

SCC: There were no reasonable alternatives, it was the standard industry practice. There was evidence and not fair for this company to go out and do research to find another way. The distinction being made here is in good faith

Dissent: It was convenient for you to rely on this industry practice, no evidence that there is no practical alternative to the insurance industry.

o You should be able to show a direct causal link between the factors and the high accident rate. The high accident rate can be explained by other factors

o They propose a two part test for reasonable and bona fide grounds: subjective and objective elements to it

Do you find reference to standard industry practice as evidence of reasonable practice convincing? o The industry practice can be inappropriate, they are looking out for their own profit margin. So

to allow the courts to look at the industry practice may be problematico Courts generally will still ask the question if a customary standard is reasonable. So why are we

not doing it in respect of the insurance industry?BC Human Rights Code

Section 8(1): Talks about reasonable and bona fide reasons Section 8(2): do not contravene if the discrimination is on the basis of sex, physical or mental disability

or age in relation to premiums or benefits for life or health insuranceo Legislature recognizes that for these types of K you have to pay attention to these factors when

making the decision. Ontario Human Rights Code

- They have a much broader basis for discrimination, also includes automobile.

B. NATURE OF INSURANCE CONTRACTS

1. Indemnity and Non-Indemnity Insurance Contracts

Indemnity Principle Limits insured’s entitlement to actual losses on happening of insured peril

o Codified in Insurance Act – Section 7(1)o Exception - Section 7(2), life is non-indemnity

Rationale for limiting recovery to value of loss: Prevent moral hazard and put back in same position as but for happening of event.

Indemnity principle subject to intentions of contracting parties: can K out of it Not all insurance contracts governed by indemnity principle Classification: Insurance contracts may be classified as indemnity or non-indemnity Replacement Cost Endorsement: get the cost for replacing the object, may be more then value if TV/car

is old Definition of insurance in B.C.I.A. s. 1, includes indemnity and non-indemnity insurance contracts

Indemnity Insurance - Replacement of loss due to materialization of insured risk Insured may be entitled to more or less than actual losses When might insured recover less than value of actual loss? If you have to pay deductible When can insured’s entitlement exceed value of actual loss? If replacement cost endorsement

Non-Indemnity Insurance – Insured recovers predetermined amount on happening of insured peril. No proof of financial loss

INDEMNITY INSURANCE NON-INDEMNITY INSURANCEPurpose: Replace loss on happening of insured risk

Purpose: Provide sum of money on happening of specified event

Amount recovered – limited to actual loss, subject to parties’ intentions

Amount recovered: Predetermined regardless of actual pecuniary loss, if any

Requirements:1. Happening of insured peril2. Proof of loss3. Value of loss

Exception: Valued Policies – predetermined value of property in event of loss or destruction. Need proof of loss, used in relation to items that fluctuate in value.

Requirements:1. Happening of insured peril, for e.g. death of insured

No cumulation

Subrogation unless right specifically excluded. Once insurer satisfies insured loss, the insurer can obtain the right to subrogation. If you receive money from the 3rd party, have to turn it over to insurer. This right is automatic, follows from the insurance contract as an indemnity contract.

Cumulation: multiple life insurance claims

Assumption is no subrogation. Unless parties include such a term. No right of subrogation subject to terms of contract - Mutual Life v. Tucker: not intended to replace the actual loss, only in relation to the end income. Some employees may have actually earned more due to overtime. Was never intended to replace the actual loss, even if more or less actual loss.

Glynn v. Scottish Union & National Insurance Co Ltd Facts: Got into a car accident and was paid out by the drivers insurance. Then he brought a claim against

his own insurer. Decision: Since the contract did not provide the right of subrogation, the victim argued that it was not a

contract of indemnity. The court said every K should be assumed to be one of indemnity, unless otherwise specified.

Determining Nature or Type of Insurance Terms of contract not formal designation/categorization by parties Exception – Subject matter of insurance not capable of financial quantification, e.g. life

Presumption of Indemnity Subrogation a corollary of indemnity principle All insurance contracts (Section 7 BCIA) are contracts of indemnity, except the life insurances contracts

(section 7(2)). If you want to exclude this, state expressly in K

Characterizing Death and Disability Benefits Glynn: insurance contracts for payment of fixed sums on the happening of a specified event, e.g., life

and accident & sickness (disability), generally non-indemnity Does this suggest all personal accident insurance contracts are non-indemnity? Disability insurance often for fixed amounts payable upon happening of specified event. Are such

contracts necessarily non-indemnity? Compare Gibson v. Sun Life Assurance of Canada and Mutual Life Assurance v. Tucker

o In Gibson the court said it was an indemnity contract as it was intended to provide a form of income replacement.

o Tucker was distinguished in Gibson. In that case, court stated the test to determine whether the policy was one of indemnity was whether proof of the amount of loss was necessary in addition to proof of the occurrence of the risk insured. Here there was no right of subrogation because the insured had not been fully indemnified for loss. Even if it was an indemnity contract, no right of

subrogation because insured was not made whole through the actions of the tortfeasor and subrogation for partial indemnity must be provided for in the policy.

Was not meant to make the D whole, merely provide him with a pre-determined weekly income during disability

o Overall scheme it becomes clear in Gibson, the K was intended to be an indemnity contract where the right of subrogation arises. Based on income

Note: Contract may be indemnity and non-indemnityo You get fixed amount on the happening of an event, this is the non-indemnity part and then given

your wages and losses, the indemnity part

Avoiding Windfall for Insured re No-Fault Benefits in Automobile Insurance- If you have non-indemnity with no subrogation, you get your insurance plus 100% of the tort damages.

This is from Tucker, the windfall- See Ont. Insurance Act, s. 267(1): if you have already gotten insurance damages, this is subtracted from

the tort damages, this is to prevent the windfall. - BC Insurance (Vehicle) Regulations, ss. 81-83

First and Third Party InsuranceFirst Party

Protects insured’s interests: property, financial interest, or the interest of their family members Benefits paid to insured

Third Party or Liability Insurance Protects insured against liability to others. Person suffering the primary loss will be a third party. If

insured found liable, then insurance will pay damages to a third party. Payment triggered by insured’s liability to 3rd party Benefits paid to 3rd party Beneficiaries not identified by name Duty to defend and indemnify insured

o Scalera: He had a homeowner’s insurance policy and wanted insurance to defend him if claim was successful. The insurer brought an action seeking a declaration that they had no duty to defend because this was an intentional wrongdoing, against policy. If the nature of the claim is such that it cannot trigger the duty to indemnify, then there is no duty to defend the insured.

Value of Liability policies Insured gets protection from liability Claimant/Victim had guaranteed source of compensation Contract can provide First & Third party benefits, e.g. "No-fault" automobile insurance. E.g. see

definition of “insured” in Insurance (Vehicle) Regulation

First Party v Liability Insurance

Some critics argue first party insurance superior to liability insurance First party one good if everyone has their own protection, but not all can afford. Arguments against first party: Unless the coverage is broad enough to cover all accidents it is useless,

impossible to anticipate ahead of time every possible injury that one can get. Are there any equity concerns? Not realistic for everyone to have first party

(2) Classification of Insurance Contracts

1. Object-defined – characterized by object of policy. E.g. aircraft, automobile, life, etc

2. Peril-defined – characterized by insured risk. E.g. accident & sickness, fire, hail, liability

Regulating different classes of insurance General Statute Divisions within General Statute Specific Statute

Regulatory regime varies by jurisdiction - ExamplesBritish Columbia OntarioGeneral statute with divisions & Specific statutes for some classes

General statute with divisions & Specific statute

Specific legislation for specified classes: Insurance (Vehicle) Act Insurance for Crops Act Insurance (Marine) Act

Specific legislation for specified class:Marine Insurance Act

General with divisions: BC Insurance Act – covers all other classes of ins.Pt. 2: General – all insurance unless specifically excepted Pt. 3: Life Pt. 4: accident & sickness Pt. 5: Fire, Section 126(2) statutory conditions that apply to every fire insurance K Pt. 7: miscellaneous classes and subclasses of ins. incl. livestock

General with divisions – covers all other categories of insurance

Accident & sickness – Pt. VIIAutomobile – Pt. VIFire - Pt. IVLife – Pt. VLife stock – Pt. VIII

All classes not included in other categories – Pt. III

Purpose of Classification of Insurance Contracts Specific terms, principles and requirements for particular insurance contracts For example, in part 5, section 126(2) of fire part of BCIA apply to every fire insurance contract.

Do classes of insurance in various statutes reflect reality of modern insurance practices?

Norm: multi-risk policies: Combine first and third party insurance Fire plus some other object and/or risk, for e.g. comprehensive homeowners’ policy for theft, property

loss/damage, vandalism, fire, flood, etc

Problems with current classification Interpretation of Insurance contracts - different terms and conditions, e.g. Limitation period: BCIA, s,

22; s. 126, stat. cond. 14 Typical problem of what limitation period applies: Eg. Fire, one year after accident, stat cond 14 or 1

year after proof of loss, S. 22 Why? Rarely insured separately

Fire Insurance: B.C.I.A., s. 119 Does s. 119 adequately address potential problems with multi-risk policies? 

Part 5 – fire part – applicable to fire contracts plus other risks, i.e. multi-risk policies Specific contracts excluded from fire insurance – aircraft, automobile, boiler and machinery, inland

transportation, marine, plate glass, sprinkler leakage, theft, rents/charges/loss of profits and nuclear risks insurance

Part 5 inapplicable if fire incidental peril to coverage provided – s. 119(c). But this is not easy to determine because most risks are equally covered under the K.

Classifying multi-risk policies

Why traditional approaches inadequate, see KP Pacific, para. 14 – 16 (don’t create certainty and don’t solve the problems)

Ex post facto classification: Wait and see what happens and then depending on the source of loss, we apply those principles. If it is loss by fire then fire insurance and Part 5 applies, if theft then general insurance and out of part 5.

Dominant- incidental risks: need to rank risks and this is not a sure way of classifying the contract, can lead to confusion. Not a realistic way to do this, creates uncertainty

Risks incidental: all risks are incidental and so go into Part 2. Multi-risk policies fire policies: so long as they include protection from fire, should be called a fire

policy and stay in part 5 In KP and Churchland, court said all these approaches are unsatisfactory and they attack the provinces

for not providing proper legislation

Single peril insurance policies No problem in classification where fire exclusive risk covered & claim relates to damage or loss by fire.

But multi-risk policies norm in modern times

Multi-peril insurance policies: Policy covers numerous risks including fire. Loss from fire or other perils covered. Characterization of policy? Which part of legislation applies? Is it fire insurance or is fire merely an incidental coverage?

KP Pacific Holdings Ltd. v. Guardian Insurance Co. of Canada and Churchland v. Gore Mutual Insurance Co. (2003) SCC

Absent specific legislative provisions to the contrary, multi-risks policies governed by general part of legislation and not fire part even if fire one of risks covered.

KP Pacific- Facts: claimed loss from fire and went to court one year after the filing of proof of loss. This was after

the one year loss date and therefore the company said the claim was barred under the fire insurance act. - Decision: this policy was a multi-peril policy and therefore does not fit into a specific category rather is

governed by Part 2, general. - Issues: Can limitation period in fire part be incorporated in multi-risk policies as contractual term? - Here, the contract incorporated the one year limitation period from the fire part so it was a contractual

term rather than the statutory term. So even if fell under Part 2, the limitation period was overridden by freedom of contract.

- Court’s response: Section 3 BCIA says the protections provided by the legislation cannot be substituted for harsher terms. Cannot include stricter terms to the detriment of the insured

- Do KP Pacific and Churchland adequately address problem of classification and regulation of multi-risks policies?

o Chief Justice said the provinces need to go to work and deal with this problem. o No indication that what was being said in these cases was intended to change the laws across the

country. So does the decision here impact other jurisdictions. Churchland

- Facts: the house was broken into and an action was brought one year after the break-in but before loss of proof claim. Company said that under the fire insurance act the claim was barred.

- Decision: the limitation period in Part 2 is applicable and the insured’s claim is not statue barred. The insurance Act is based on the assumption that insurance policies can be neatly classified and divided into categories based on their exclusive primary subject matter. This assumption is no longer tenable

Effect of KP Pacific and Churchland Fire part limited to loss by fire Simplify classification of multi-risk policies; avoid uncertainty in ex post facto and dominant-incidental Reflect reality of modern insurance policies Single policy not subject to multiple parts or different regimes

Effect of KP and Churchland and Outstanding Questions

1. Applicability of KP Pacific to classification of multi-risk policies outside BC? The applicability is inconsistent, different interpretations of the case All 4 cases took different approaches but they all rule in favour of the insured. Follow consumer

protection in different ways

Casey v. Federated Insurance (2004, Man Q.B.) Multi-risk policy; loss from hailstorm Held: KP Pacific distinguished; policy covered loss by fire so it’s a fire policy and fire provisions

applicableo Dominant and Incidental risk: Predominantly a fire policy

Rationale: If fire part not applied, insured out of time. Noticed damage 7 years later and the fire part limitation does not being until you reasonably discover damage.

Audio Works Production v. Canadian Northern Shield Ins. Co (2005, Man QB): Followed KP & Churchland Facts: the company rented out audio equipment which was insured in storage and in transit so it is a

multi-risk policy. Decision: Multi-risk policy including loss by fire not fire policy so fire provisions not applicable.

Outcome of this interpretation did favour the insured. Casey distinguished by saying in that there it was predominantly a fire policy in a way that Audio works

was not. They still used the dominant and incidental risk approach.

Fenrich v. Wawanesa Mutual Ins. Co (2005, Alta. CA): Applicability of KP in Alta unanswered claim not fire claim Facts: The damage was from flood, not fire and so it was a multi-risk policy. Decision: (1) Not loss by fire (2) so it is simply regulated by the contractual provisions. The contract did

reproduce Part 5 conditions, but because the claim is not a fire claim, we have taken ourselves out of the statue. So we don’t have to deal with KP Pacific and would not have, followed dominant and incidental classifications

Burry v. Co-operators Gen. Ins Co (2007, Nfld. C.A.) KP applicable; apparent differences in wording BC and Newfoundland legislation irrelevant Facts: multi-risk policy loss caused by fire, but once the court determined that it was multi-risk, the

claim should be taken out of the fire act and therefore this act was no longer applicable. No evidence of the intention of the parties that they wanted to make this a term of the contract. We

cannot in good conscious make this a term that binds the accused.

2. Freedom of ContractCan parties incorporate limitation period in fire part in multi-risk policies by agreement?

KP: B.C.I.A. s. 3(a) under Part 2 prohibits contractual terms harsher than applicable section of statute What about were the statutory provision where statute silent on issue; or is contractual variation

permissible only if expressly permitted by statute? No clear answer yet Casey: Man Insurance Act prohibits contractual variation of statutory limitation period

Fenrich: Contractual limitation period permissible Burry: No indication parties intended to include contractual term re limitation period

3. Applicability of other fire statutory provisions to multi-risk policies:- Is KP and Churchland principle limited to limitation periods or does it include other fire statutory

provisions? Audio Works: All statutory provisions specifically applicable to fire not applicable to multi-risk policies.

o This approach is consistent with the KP rationale. There is no reason that we should only leave the fire part when it has to do with limitations.

What provisions govern multi-risk policies?• No specific provisions re multi-risk polices • Billingsley respond to this concern by saying that should not abandon the Audio works provision which

says that everything should be taken out of the fire part. This will put pressure on the jurisdictions to bring the legislation into the modern time

Other Classification Problems: Extended Fire Policies

Do KP & Churchland preclude possibility of single insurance policy being governed by multiple parts of the legislation? See BCIA, s. 122S. 122: Extended policies not governed by fire partFire Insurance contract deemed to include coverage for specific risks:

Loss caused by fire from explosion or otherwise o Excludes loss by fire caused by certain factors. E.g.s, Application of heat to goods; riot, civil

commotion, war, invasion, act of foreign enemy, hostilities, whether war be declared or not, civil war, rebellion, revolution, insurrection or military power

Coverage against fire caused by lighteningo Excludes “destruction or loss due to electrical devices or appliances caused by lightning or other

electrical currents unless fire originates outside the article itself, and only for the destruction or damage occurring from the fire.” S. 122(1)(b)

Excluded: loss or injury caused by contamination by radioactive material excluded unless parties otherwise expressly agree. s. 122(2)

Parties can include coverage for loss caused by excepted perils through extended policieso extended insurance not governed by fire part s. 122(4)

Are extended policies governed by Fire part where peril not expressly excluded by s. 122? C.I.B.C. v. Nickolievich [1977] 5 W.W.R. 397 (Man. C.A.):

o All extended policies outside fire parto Irrelevant loss caused by risk not specifically excluded by Acto So long as the policy covered a risk, not included as fire policy in the statue, it is an extended

policy and outside the act. Chiasson v Century Ins. Co of Canada (1978), 86 D.L.R. (3d) 342 (NBCA):

o Only loss caused by excluded perils outside fire part If risk not specifically excluded, then the policy could still be part of fire part. So how do

we know if it is part of fire or not? They use the dominant and incidental risk part. o Extended policies governed by fire part where risk not specifically excludedo Fire classification depends on whether fire is dominant or incidental risk insured.

How should classification of extended policies be resolved in light of KP Pacific and Churchland?

- It is likely that the courts will prefer that we take all these things outside part 5, so long as they can be classified as multi-risk. They did not say only the excluded items or extended policies. Any multi-risk can potentially take it out.

(3) Group and Individual Insurance Group Insurance Contracts

Coverage for classes of individuals with common characteristics, e.g. employer, members of trade union or professional association

Groups not specific individuals; beneficiaries not identified by name in policy No privity of contract between insurer and beneficiaries – Contract b/n insurer and sponsor, e.g.

employer, union or association Coverage is for direct benefit of beneficiaries not nominal insured Direct claims against insurer permitted despite lack of privity b/n beneficiary and insurer. Insurability of individual beneficiaries not required; policies written on a non-medical basis Contract not void for lack of insurable interest by insured, for e.g. BCIA s. 36(2)(a) – life; s. 95(2) –

accident and sickness Contract is open ended – beneficiaries include present & future members

Individual Insurance Contracts

Coverage for one or many individuals, named or unnamed Privity of contract – Named insureds have direct contractual r/ship with insurer Proof of insurability required. Insurable interest in life insured required.

Q: Are there potential equity implications re eligibility for group insurance compared to individual insurance contracts?

- Exam type questions

(C) INSURABLE INTEREST

What is Insurable Interest? - Nexus b/n insured and object of insurance - There should be a reason why you are interested in insuring a certain property, or person. - Loss or destruction of that interest triggers insurance payment- Insurable interest is required for valid insurance contract- Distinguishes insurance contract from wager: BCIA, s. 6

Rationale for Insurable Interest Promotes indemnity principle – Recovery limited to value of insured’s interest, BCIA, s. 7(1)

o Exception: Life insurance BCIA, s. 7(2). The value of your loss is stated amount Discourages wagering: If the requisite relationship does not exist, you cannot insure it. Avoids moral hazard: prevent intentional destruction Promotes public safety

(1) Character of Insurable InterestConstitution Insurance Co. of Canada v. Kosmopoulos (SM)

- Facts: the company was incorporated but when he changed his status, it was not changed in the insurance contract. He tried to claim a loss by fire, the company said that he did not have an insured interest.

- Insured’s argument:

- (1) Piercing corporate veil: Since he was the sole director, the corporate veil should be lifted to allow him to make the claim

o Argued against formalistic approach (Macaura), only get insurable interest when you have a direct legal interest. Wanted pragmatic approach, can see that an interest with the company exists and he has been prejudiced by the loss

o The court did not agree with this, you incorporated the company to get the benefits of incorporation, so you cannot ask us now to lift the veil to benefit you

- (2) Bailee: He stated that he was bailee of the property. But in this case the bailee and the bailor would be the same person, so how can this argument have any weight.

- (3) Factual Expectancy Test - SCC’s responses: - Factual expectation test (Lucena Principle):

o Close r/ship b/n insured and object of insuranceo Insured’s interest in insured object legal, equitable or contractualo Legal right not required – reasonable expectation of benefit from continued existence of subject

matter and detriment from loss of risk sufficient o Requires that an insured have pecuniary interest in subject matter, must be real property or

presently vested in the insured, not established by legal title alone, can be defeated by grounds of public policy in certain circumstances.

o The burden of proving insurable interest is on the insured on a balance of probabilities. There was a presumption in finding in favour of insurable interest but this is no longer necessary.

- Rejected Formalistic approach (Macaura principle):o Focuses on property or contractual rights, too narrowo Insists on legal or equitable interests required for insurable interest in propertyo No problem where insured has legal or equitable interest in propertyo Shareholders cannot insure corporate property; irrelevant insured sole shareholdero Unsecured creditors unable to insure debtor’s property unless used as security

Implications of factual expectancy test R/ship b/n insured and property is fact-specific and so uncertain in advance Flexible determination; possible extension to new property interests Tangible connection with property required, e.g. pecuniary interest,

o Ownership/Legal title relevant but not determinativeo Presumption of insurable interest rebuttable absent pecuniary interest in property – Rider v. North

Waterloo Farmers’ Mutual Ins. Co, [1991]: P obtained title to property from brother; did not pay anything for transfer. Though P had title, did not have insurable interest in property. Don’t have the tangible connection and you don’t risk any loss if you don’t spend your own

money. Despite being an owner, you have a rebuttable presumption of insurable interest. Actual possession not required; ownership and risk passed to insured - Laratta v. Peace Hills Gen. Ins.

1999: Transfer of ownership not simultaneous with possession; Insurable interest arose when ownership transferred

o Facts: there had to be work done on the car, the car was delivered one day earlier and it was damaged. Insurer denied recovery because she did not have possession.

o She did have interest in the property, although possession had yet to pass she had become the legal owner

Do shareholders have insurable interest in Co’s assets? How about unsecured creditors re debtor’s property? o As a practical matter, it may never get to them if there are secured creditors ahead of them. So really

up to the insurance company about whether they want to insure the property or not. o Dissent in Kosmopolous: concerned the SCC should not open up the field

Stolen property

o You cannot insure it, if you know that it is stolen even if you have paid for it. Also if you turn a blind eye, could have asked questions but chose not to, then you are still liable.

Statutory Modifications: Life, Accident & Sickness Insurance

Potential tension b/n factual expectation test and non-Indemnity Insurance Contracts- Factual expectation: risk of financial loss. Not a precondition of non-indemnity clause. - Non-indemnity insurance: No proof of loss - Opportunity to profit: Don’t have to prove any loss so people could make profit- Potential for moral hazard- Insurable interest required – B.C.I.A., s. 6: Provincial statutes identify relationships which give rise to an

insurable interest in the life insurance context.

Whose life can you insure? Life Insurance (BCIA, s. 37); Accident & Sickness (BCIA, s. 94)- Assured’s own life s. 37; s.94, Child or grandchild, s. 37(a); s. 94(a), Spouse, s. 37(b); s. 94(b), Person

you are wholly or partially dependent on or from whom you receive support or education, s. 37(c); s. 94(c), Employee, s. 37 (d); 94(d), Pecuniary interest in life insured, s. 37 (e); 94(e)

Insurable interest presumed in specified relationships. No other proof required - Glynn: it is distasteful and inappropriate for grieving families to prove loss before they can collect any

money from life insurance.

Rationale: Presumption of loss Likelihood of Moral hazard minimized: generally people will not kills their loved ones Contract void if insured outside specified relationships, BCIA, - Life s. 36(1); Accident & sickness s.

95(1) Exceptions: Insurable interest not required for group insurance, BCIA, s. 36(2)(a); s. 95(2)(a), Insured

consents in writing to be insured, BCIA, s. 36 (2)(b); s. 95(2)(b), Insured under 16 years; parental consent required, BCIA, s. 36(3); s. 95(3)

(2) Timing of Insurable Interest

Non-Indemnity Insurance Contract B.C.I.A., s. 36 (life): Insurable interest has to exist at the time of the contract. Rationale? Prevents insured from using insurance as wagering Loss of insurable interests after commencement of policy, policy continues

o E.g. r/ship breakdown; cessation of employment r/ship It is not contrary to public policy, in relationship breakdown they will continue the policy and it will be

part of the separation agreement. Becomes part of the assets as it could benefit the children Is it wager if insurable interest ceases? No. Are there concerns about moral hazards? Terminating Policy - Manitoba Ins. Act, s. 155(4): “A person whose life is insured may, where insurable

interest no longer exists, apply to the court for an order requiring the insurer to immediately terminate the policy and pay over to the policy owner any value that exists in the policy.”

This is not automatic, need court order. Other jurisdiction’s don’t have this Consequences of lack of II: Contract void ab initio (for the beginning) and premiums returned absent

fraudChantiam v. Packall Packaging Inc. (1998)

Facts: it was an Ex-employee/competitor. Upon relationship breakdown the former employee became a competitor. The company still had a life insurance policy on him and he wanted to pay the company and take over the policy.

Decision: Insurable interest at commencement of policy; the subsequent loss of insurable interest irrelevant. Does not render a policy a wager

No provision in the K or statue to help him terminate the policy.

Indemnity Insurance Contract Irrelevant that you had no insurable interest at the time of K or that your interest lapsed and then you

regained it, but you must have it at the time of loss. Rationale: Commercially prudent, especially in changing inventory or nature of interests, allows people

to insure things that haven’t come into being. For example while the goods are in transit something can go wrong, also have farmers that have crop insurance before the seed even went down in case of a flood or storm, etc.

Consequence of lack of Insurable Interest: Contract not void but claim fails, Premiums not refundable absent mistaken belief about object of insurance, e.g.ownership of property

(2) Insuring interests of others - Insured has partial interest in property but can insure the whole thing, realty - Practical Reasons:- Efficiency – avoids duplication. - Simplified claim process – insurer deals with only one party as opposed to many people dealing with the

same multiple insurance. - Access to Insurance – those unable to obtain insurance protected

Requirements for insuring other interestsKeefer & the Quebec Bank v. The Phoenix Insurance Co of Hartford

- Facts: K was selling his property to another party, he had paid instalments. The property had burned down. K is allowed to claim 100% of the loss because he was entitled to insure the whole property and not just a portion.

- Factors: - (1) Insured has some insurable interest in property: reasonable expectation of benefit and stand to lose

something if it was damaged. He was beneficial owner- (2) Intention to insure interests of others, i.e. entire value of property: the insured must have deliberately

set out to insure the whole of the property. K said that he will continue to take out insurance, he wanted to take care of the whole thing

- (3) Permitted under terms of contract: Here there was nothing in the contract that said he could not insure the risk of others.

- Consistency with indemnity principle: Full value of loss recovered but amount beyond insured’s loss held in trust for others. Like in Keefer had to give the buyer the amount he paid into the property.

Disclosure- Is there an obligation to disclose this partial interest at the time of K to the insurer?- Duty of Utmost Good Faith: Insured to disclose circumstances material to risk - Rationale: Determination of insurability and/or premium- Keefer: No obligation to disclose limited interest subject to contractual terms; policy was valid provided

that the insured has insurable interest in property.

Disclosure of Other Interests: Fire Insurance- Specific obligation to disclose other interests: BCIA, s. 126(2), stat. Cond. 2:- Unless otherwise specifically stated in the contract, the insurer is not liable for loss or damage to

property owned by any person other than the insured, unless the interest of the insured therein is stated in the contract

- Similar provision in effect at time of Keefer: Didn’t not say that statutory condition 2 is irrelevant, but that his partial interest in property was not a material risk that needed to be disclosed.

Relevance of Stat Cond. 2Meaning of “owned”

Often ignored or liberally interpreted Rationale: Promote equitable outcome, unfair for companies to evade their obligations whenever the

insurers interest is not that of an owner and has been properly stated in policy, inequitable. Partial interest sufficient

o Disclosure of limited interest in insured property not required: Evergreen Reasons to question this broad interpretation: (1) equating ownership with insurable interest is

inconsistent with plain reading, (2) doing this makes Section 2 meaninglessEvergreen Manufacturing Corp. v. Dominion of Canada Gen. Ins. Co

Facts: Leasehold agreement between the owner and tenant which obliged the tenant to take out insurance on the building, machines, etc. When the place was burned down, the insurance said that we will pay you for everything other than the building. Since you don’t own it you will be unjustly enriched.

Decision: Evergreen had insurable interest and there was express intention that the building would be covered. The court applied the trust principles, tenant recovered but held in trust for owners. Since no privity between owner and insurer

o Company took the premiums for the loss of building so not fair if they don’t pay Stat cond. 2 not applicable where insured has insurable interest Insured indemnified for losses to other interests unless prejudice to insurer, e.g. Misrepresentation,

material concealment (fraud) or non-disclosure: BCIA, s. 126(2), stat. cond.1o Misrepresentation 1. If any person applying for insurance falsely describes the property to the

prejudice of the insurer, or misrepresents or fraudulently omits to communicate any circumstance which is material to be made known to the insurer in order to enable it to judge of the risk to be undertaken, the contract is void as to any property in relation to which the misrepresentation or omission is material.

Do you agree with liberal Interpretation of Stat. Cond. 2?- Billingsley expresses concern about liberal interpretation of “owner” in stat. cond. 2- The concepts of owner and insurable interest are very different. - Evergreen: Having an insurance clause in the tenancy agreement is better for the tenant. This is because

if the landlord takes out the insurance, and they get paid, the insurer would then be able to stand in the shoes of landlord and subrogate from the tenant.

- If legislation was going to codify the common law, they would have known about the concept of insurable interest. By using owner and not insurable interest, the intention was to modify the common law and make it important for the insurer to know who the owner is. The insurer should know when someone other than the insured has a relationship with the property

o Contrary to the intention of the legislature in this regard. - Concern about the physical and the moral hazard. Want to know who has a relationship with the

property. Who controls it and what are they like? - This has a bearing on the risk that is being transferred to the insurer. Therefore it is important to the

insurer to know that the insured should be someone concerned with the wellbeing of the property

(3) Specific Problems relating to Insurable Interestsa. Joint Ventures, Sub-contractors

When multiple persons working on project, e.g. construction site there is generally a single policy, e.g. Builders’ Risk Policy

o Purpose: Provide protection against everyone who works on the project. Since considered a unity entity and working towards a common goal of completing a construction project.

Each party, contractor, sub-contractor, has insurable interest in entire project. No need for everyone to take out insurance

No Subrogation if loss caused by party with insurable interest, since they are all covered by a single policy and prove that the person is covered under the policy

Commonwealth Construction v. Imperial Oil- Facts: Imperial oil created a fertilizer plant and subletted to Welman who contracted to Commonwealth

to install pipes, they caused a fire. When the insurer paid the loss, they then brought a claim against Commonwealth. They said we will pay you for your equipment since your insurable interest is confined to your property and not the entire property.

- Decision: Rejected this argument, Commonwealth has an insurable interest in the entire property and therefore cannot bring an action against them

- Court took the view that possibility of damage to the property of others is entirely conceivable and to avoid the infighting that could possibly arise if damage is caused by people working in such close proximity, create these types of policies.

- Important to note that you cannot obtain subrogation against yourself.

Rationale Damage to property of others or entire site inevitable Insurable interest in entire project and trades people avoids litigation Simplified coverage for complicated projects; cost effective Consistent with legal principle re bailment: person holding the property or working on it has

something to lose in case of damage Guaranteed compensation to rebuild in event of loss

Extensions and additions to existing structures Insurable interest not limited to extension projects, it may cover the older portions, Extends to entire building - Medicine Hat College v. Starks Plumbing & Heating Ltd.

o Subcontract was working on pipes in new building and an explosion caused damage to the old structure. Insurance said that the builder’s liability only applied to new part.

o Court stated that where expansion projects are involved, subcontractors had insurable interest in the entire interconnected structure and not merely the new addition that they are working on.

Who has insurable interest in construction projects: meaning of “insured” under Builders’ All Risk policies? Canadian Pacific v. Base-Fort Security

- Facts: large construction contract where Base-Fort was providing security. CP had insurance policy to cover all the construction workers etc. The contract with the contractors said that CP will provide insurance. However there was no such term in the contract with Base-Fort. After an accident, insurance went after Base-Fort

- Decision: Base-Fort was not crucial to this project like the actual workers who put up the structure etc. We could have carried on without you

- The court limited the notion of insured and who has insurable interest in the project, to persons whose work that is integral and necessary. The people without whose work the project cannot be taken off the group or be completed

o Excludes incidental or collateral contributions- CP never intended BF to be covered because it was not stated in their contract that they would cover

their insurance. - Problematic because the question arises as to whether the security services are really incidental.

b. Identification of Family Interests

Unnamed insured fit certain description in policy, Eg. family members in homeowners’ policies Named and unnamed insureds have insurable interest in property Pro-consumer position: make it possible for everyone within the family to be protected even though the

members in the family do not belong to the contract. If the named insurer recovers for property belonging to an unnamed insurer they hold it in trust for them. Helps further the privity of contract

Reasonable expectation of parties. Every person living in a house is not going to go and take out insurance on the same property

Protects unnamed insured from possible subrogation claim by insurer. Scott v. Wawanesa Ins. Co

Facts: the loss was caused by an unnamed insured, teenager set the house on fire intentionally. Generally speaking every insurance policy has a clause that says you cannot claim if it was caused by your or another insured intentional criminal conduct.

Issue: Can the insurer rely on the exclusion clause to deny the named insured’s claim? Decision: Majority: joint interest – claim excluded. Insurable interest of the partners and child were

inseparably connected and the misconduct of one was sufficient to contaminate the whole insurance policy. If unnamed insured cannot make a claim, named cant either

Dissent: several interests – claim not excluded. Unless the policy specifically states otherwise always interpret the unnamed insured’s interest as being limited to their own property and not the entire property. The unnamed insured’s wrongdoing should not affect the named insured property

o The whole point is to protect the custom and by making them go down, it goes against all the gains made to extend the meaning of who has insurable interest in the property.

c. Automobile Insurance Vehicle registered and insured by person other than true owner True owner may be youth, novice driver or has bad driving record Arrangements intended to obtain cheaper premium If arrangement was to pull a fast one on the company, then they don’t have an insurable interest.

However if the insured actually has an interest in the vehicle, like they paid for the car and the person hasn’t paid for them yet you have an insurable interest

Does owner/insured have insurable interest in vehicle? No insurable interest if insured only nominal owner. Insurable interest: arrangement legitimate, e.g. insured paid some/entire purchase price; true owner obligated to repay

D. Making an Insurance Contract

Insurance Policy distinguished from Insurance Contract Insurance contract is broader than policy and a contract may incorporate policy

Insurance Policy Contract terms and conditions, creates no legal obligations per se. They do not attach to a particular person,

item or interest the policy must be supplemented by an agreement between the insured and insurer on essential terms of the K

It is evidence of the terms of contract but not determinative, the parties’ intentions prevail: Davie v. Palliser Ins Coo Customer purchased insurance from agent for many years and knew that the when commencement date

was always constructed. The damage occurred in the evening and it did not kick in until the next morning. Here the intention of the parties was to have the contract come into effect the next day. You getting a paper that day does not show that you have a contract with the insurer

o Mere possession of a policy does not create a contract of insurance

Insurance Contract

Insurer agrees to indemnify insured for specified risk, is legally binding o Written generally not required: See definition of “Insurance” BCIA, s. 1

Also includes oral contracts, especially in relation to interim coverage. o Statutory requirement for written: BCIA, s. 32(1)(life);Accident & Sickness (s84, 85)

Limitation on Freedom of Contract Statutory Conditions, E.g. BCIA, s. 89 (accident & sickness); s. 126(2) (fire)

o Parties can include what they want, but there are certain limitations on freedom of contract. Certain conditions have to be part of every contract and cannot be altered to the detriment of the accused.

Risks covered by certain types of contracts, e.g. BCIA s. 122 – fire insurance; unjust exclusions or conditions will not bind insured if found unreasonable: s. 129

Wording of standard form policy subject to approval (by government agency) Purpose of this is consumer protection

1. Essentials of a Valid Insurance ContractAgreement between insurer and Insured:1. Definition of risk: who and what is covered

o Identify subject matter of insurance, e.g. property or person insured o Risk covered, e.g. fire; hailstorm

2. Duration of risko Need to know precisely how long the insurer is undertaking to cover the risk

3. Premium o How much are they covering, how much are you paying?

4. Insurance amount: policy limits, value or amounto Specific amount: life insurance; oro General terms: actual cash value (ACV) or replacement cost, subject to policy limit.

Essential requirements satisfied? o Question of fact: Does evidence demonstrates that the parties clearly communicated to one another their

respective willingness to enter into a binding contract on the basis of mutually agreed upon terms. o 2 principles from caselaw: (1) communication of offer and acceptance does not need to be express and can

be reasonably implied or reasonably inferred from conduct. (2) A party’s ability to accept offer may be limited by requirements set out in statue or corporate by-laws.

Davidson v. Global Gen Insurance Co. (1964)- Offer not accepted; no contract terms; No insurance contract. - Facts: Document sent with a premium, Davidson felt that the amount was too high and went out and

secured insurance at a rate he felt comfortable- When he suffered a loss, Global covered and then they tried to get the other company to also cover.

Other contract was not valid it was simply an offer which was not acceptedMcCunn v. C.I.B.C. (2001):

- Withdrawals absent extension agreement so no insurance contract - Here the bank continued with automatic withdrawals even after the expiration of the contract. The

insured saw the deductions and assumed the contract had simply been extended. The court said there was no valid contract because there was never a valid offer and acceptance of the important terms of the contract.

2. Duration of Insurance ContractInterim coverage Immediate protection pending review Duration: less than full term Premium: adjusted accordingly

Coverage Amount: less than contract amount Applicable terms & conditions

o Subject to agreemento Insurer’s standard term policy terms & conditiono Special terms for full coverage not applicable absent insured’s agreement: 0712914 B.C. Ltd. v.

Aviva Insurance Co. of Canada (2007)o Aviva provided interim coverage with term about having an alarm system. Included in full

policy, upon theft alarm did not go off, so they refused to pay for breach. The court said that this was a not part of regular standard form, since insurer did not have knowledge of this term you cannot blindside them

o No obligation to issue full coverage.

Can insurer limit scope of full coverage inconsistent with interim coverage? NoInn Cor International Ltd. v. American Home insurance Co. (1973)

Facts: Inconsistency between terms/scope of interim coverage and subsequent policy issued. Interim coverage applied to all employees and full coverage only full-time ones.

Held: No unilateral variation of coverage without notice to insured. You cannot include something in the interim coverage and give a false sense of security

Duration of interim coverage Remains in effect until full coverage issued Termination by insured or insurer: must give notice before stated expiry. Expiry of stated time Reasonable time

o When full policy not issued and interim not terminatedo Reasonable time for insured to assess request: Kostiuk v. Union Acceptance Corp. (1967): 5 months

beyond reasonable time for interim coverageo What is reasonable? The amount of time that it will take the insurer to decide one way or the

other. Average would be 30 days, but if the application is more complicated, it will take a little bit longer

Payment of premium- Not essential for valid contract: BCIA s. 14

o Exception: Life insurance: BCIA, s. 38(1) policy not effective until the first payment for premium has been paid

- Policy is effective upon receipt of the paperwork even if premium has not been paid unless the type of K is exempt from this type of coverage

o Section 92(1) reproduces S. 14 for accident and sickness insurance. The insurer is entitled to cancel if they have given you 10 day’s notice and if you have not paid your policy

o Delivery Provision: when the policy has been delivered the K is binding on the insurer as if the premium had been paid. This does not nullify offer and acceptance

Implications Policy delivery constitutes acceptance Binding contract absent payment of premium Obligation to pay loss claim before premium paid Insurer entitled to sue for unpaid premium or reduction in claim amount, BCIA, s. 18; s. 93

3. Terminating Insurance Contract1. Specified date or event

o Date used for property or auto insurance, event in marine (duration of voyage not certain)

2. Mutual agreement o Ellis v London: If no prescribed form, then can have an agreement to terminate.

o The policy was returned at the insurer’s request; premium refunded and mutual agreement to terminate.

3. Unilateral termination by insured or insurer No common law right, must be allowed in K or statue, accident & sickness (89, stat cond. 5 &6), fire

(S. 126 stat cond. 5), auto Termination by insured

o Notify insurer: must give notice of intention to terminate. o Registered mail to head office or chief agent in provinceo Termination effective upon receipt of notificationo Refund of unused premium upon surrender of policy

Termination by Insurero Terminate without reasono Termination notice to last known address, personally or registered mail. o Refund unused premiumo Termination effective after reasonable statutory period: 5-15 days (if in person), BCIA, s. 89,

stat. cond. 6; 126(2) stat. cond. 5. Mail is 10 days o Purpose: insured to obtain replacement

Q: Can termination at will jeopardize insured’s need for protection?

Renewing Insurance Contracts Extends duration upon paying premium, prevents a time gap Renewal process depends on nature of original contract: Continuous or non-continuous(a) Continuous Policy

o Extension of K is anticipated at the outset and renewal is achieved by unilateral action of one partyo Automatic right of renewalo Usually life insurance: effective until death of subjecto Renewal procedure in original contract, you just keep on renewing upon each anniversaryo Accident & sickness: effective until insured reaches specified ageo Renewal extends original contract duration; no new contract, it is simply an extension of the original

contract o Unilateral renewal: you send your money and that is all

(b) Non-Continuous Policy No automatic renewal, need new bilateral agreement All other policies No automatic right of renewal Renewal by mutual consent: they will be asking you to pay a premium within a specified time, there is

an offer and acceptance. The parties have to agree again on the terms, the premium may increase Discretion to accept or decline renewal Paying premium within stated period constitutes acceptance Renewal creates new contract Non-Continuous: One or Two-step renewal process

o One-step process : Renewal request with certificate of insurance. Premium paid; binding contract o Two-step process : Insurer mails renewal offer; certificate of insurance issued after premium paid. No

binding contract until you payPatterson v Gallant [1994]:

- The one-step or the two-step depends on the facts and the practice of the company. Is it their practice to send out the certificate with the K

- The man never received the certificate because he didn’t pay the premium. Gallant said that you never

sent me a notice of termination after I didn’t pay the insurance. The court said you cannot make this argument because the original contract had expired, and you never chose to extend it. No obligation on the insurer to provide you with notice

Grace Period Period between expiry and due date for renewal premium Contract presumed effective upon payment within grace period Presumption of termination on original expiry date absent payment within grace period Loss within grace period covered provided premium paid within specified time Grace period discretionary, Exception: Life insurance – mandatory 30-day grace period - BCIA, s. 40(2)

(between expiry date and when you can pay) Commencement: premium due date even if non-business day:

o Firth v. Western Life Assurance, [1957]: It can fall on a weekend, or statutory holiday or day the insurer is not generally open. Here grace period started on long weekend, but this does not mean they had 2 extra days.

Termination: Next business day if falls on Sunday - Tiller v. McCarthy (1982)o This is for the termination of the grace period. In this case the grace period terminated on the

weekend, have up to the next business day and therefore were not out of time

Reinstatement of lapsed policy Simply means that the parties enter into another K on the same terms and conditions as the original K after

failure to renew or contract terminated Reinstatement at discretion of parties Life Insurance: statutory obligation to renew: BCIA, s. 47(2)

o Reinstatement within 2 years of policy lapsingo Payment of overdue premiums, interest and other debts. Interest cannot exceed 6%o Proof of insurability, including good health

Commencement: No retroactive reinstatement unless otherwise stated in the policy – Parker v. Constitution Ins Co of Canada (1983)

o In Parker, the policy was reinstated, but since a loss had occurred before the reinstatement, policy lapsed and so no retroactive application.

E. DUTY OF GOOD FAITH AND OBLIGATION OF FULL DISCLOSURE

1. Duty of DisclosureInsurance Contracts - Utmost good faith

Duty of disclosure: you must have forthright communication between the parties. Must discuss the full risks without even being asked. Two way duty

Caveat emptor inapplicable: cannot say that the insurer should be looking out for their own interest Customer/insured disclose material facts: obligation to disclose material facts, any information that

will help the insurer to make its underwriting decision whether to accept the proposal or not and on what terms

Rationale Accurate risk assessment Facts inaccessible to insurer: insured is the most reliable source of info

Origins of duty of disclosure Dawn of insurance industry; Limited access to information Times have changed; information age

Is there a continuing justification for disclosure duty given enhanced accessibility to information today?o Unreasonable for the insurer to take on the possibility of investigating every risk, this will

increase transaction costs.

Lord Mansfield’s Conception of Disclosure Duty: Carter v. Boehm Facts: Carter had a policy taken out in case the Fort was conquered. He knew that the security against

foreign invasion was not very good, also not very safe. Insurer argued a breach of disclosure duty because he knew of the possibility of attack.

Held: Failure to disclose was not a breach of disclosure duty in this case.o Applicant had to disclose fact, not opinion or speculation. No actual knowledge of an attack, so

this was opinion and speculation so didn’t have to be disclosedo Issue of security and chances of invasion could have been known to insurer if put in effort.

Insured’s obligations were only in relation to things that were in his sole knowledge.

Limits on customer’s duty to disclose Excludes facts in insurer’s actual or constructive knowledge, e.g. natural disasters; political reality

(likelihood of European attack on fort) Past and present facts not statements of opinions or speculations about future events; concerns about

possible French invasion speculative Must disclose the material facts.

Outstanding Issues from Carter:1. What constitutes “material fact”2. Meaning of information within “insured’s knowledge”

(a) TEST FOR MATERIALITYMutual Life Ins Co N.Y. v. Ontario Metal Products

- Facts: The insured was getting tonic injections from his wife but stated in his application that he didn’t take prescription medications from a doctor. He got cancer after insurance which was not related to the shots.

- Decision: he did not intend to defraud the company and injections were not material facts in that they would not have impacted the insurer’s decision to enter in the contract. Therefore he did not breach his duty of disclosure.

- Reasonable insurer test: Would reasonable insurer, on a fair consideration of evidence, have acted differently but for non-disclosure of facts in question?

- Materiality question of fact; Objectively determined- Would disclosure have affected insurer’s decision, e.g. deny coverage; different terms, etc. [Detailed

discussion of proving materiality below) 2 part test: (1) View the non-disclosure through the eyes of a reasonable or prudent insurer rather than through the

eyes of actual insurer (2) Whether the non-disclosure was critical to the formation of the contract. Undisclosed information is not material if:

o Lowered premiumso No effect on premium and decision to provide coverageo Merely delayed the formation of contract

Time for determining Materiality Time of contract Irrelevant cause of loss unrelated to undisclosed facts

If they would have done something completely different even if the reason for the claim was different for the breach of the duty

Henwood v. Prudential Ins Co of America Facts: When applying for insurance she was asked a series of questions regarding emotional and

physical health. Her answers gave no indication of her ever having any medical problems or nervous trouble. If she had disclosed her problems, her rates would have been very high. She dies in a car accident which was not related to her depression

Insured’s depression considered material when it was unrelated to her death because if the insurer had known the information the policy which they issued would have been different.

In Mutual life it was decided that it is a question of fact in each case whether if the matters concealed or misrepresented had been truly disclosed they would in a fair consideration of the evidence, have influenced a reasonable insurer to decline the risk or to have stipulated for a higher premium.

There was a dissent which said the insurer did no relieve themselves of burden because they did not show that a reasonable insurer would have done things differently.

Facts within insured’s knowledge Actual or constructive knowledge (could have reasonably known). Cannot turn a blind eye to things that

a reasonable person would have taken seriously Insured need not know how the information will affect insurability

Is objective test likely unfair to insured?- No actual knowledge; knowledge imputed if reasonable. Even if you don’t personally know that

something should be stated, they will still impute utmost good faith- Actual knowledge not easily ascertainable- Insured cannot fail to make reasonable inquiries

(b) Extent of Insured’s Disclosure DutyCanadian Indemnity Co. v Canadian Johns-Manville Co. (SCC 1990)

- Facts: The risk of asbestos to human life was known to the public at the time. But the insured argued that this was a material fact which the insured failed to disclose. Therefore they wanted to contract voided before claims were made.

- Applicant to disclose fully and fairly only known facts except: Information known or knowable by insurer, e.g. common knowledge within relevant industry

- Test: Whether "a reasonably competent insurer" insuring risks in operative industry would have known facts.

- Decision: Insurer offering protection re asbestos industry in early 1970s should have known risks to human health. Presumed knowledge of an insurer includes matters known to the general public and facts which are available and customary or well known in the field which it insurers. They are expected to keep abreast of information regarding the particular industry but done need to do a detailed research or in-depth investigation

Coronation Ins v. Taku - Two Issues: misrepresentation of the number of seats and failure to disclose accident record- Facts: Taku had a history with the insurance company and failed to disclose the number of accidents and

misrepresented the number of seats in the aircraft. - Decision: The contract was void from the beginning because they failed to properly disclose the number

of seats in the aircraft. This was known only to them. o In obiter they stated that there was no breach with the accident record because the insurer had an

obligation to obtain by due diligence material information available from sources other than the insured.

o Where the policy of insurance required by statue or regulation is primarily for the benefit of the flying public and not just insured, the insurer must take some basic steps to investigate the flying record of the air carrier applying for insurance. This makes the duty of due diligence higher since people are reliant on policy by people on the planes.

- Q: Is Cory’s interpretation of Carter consistent with your understanding of Mansfield’s conception of the relative obligations of customers and insurers in negotiating insurance contracts?

o he was reacting to the broader duty of the insured and therefore he was staying true to what Mansfield said in Carter

Implications of Canadian Johns-Manville and Taku• Narrow duty for insured in information age• Expertise in relevant areas • Insurers to stay informed in areas of service • Cost to insurer and insured• Off-loading governmental responsibility

Limited Scope of Insurer’s Duty to InvestigatePereira v. Hamilton Township Farmer’s Mutual Fire Insurance Co.

Facts: Had a mushroom farm which was not in business, and the policy said that coverage stops if the farm stops business. The farmer and the agent knew that this was an important fact but agent stated that it was starting up again. Therefore there was no need for the insurer to make further inquiries about the state of the property.

There was an obligation of due diligence, need fair and full disclosure. The insurer should be able to rely on the statements made and only make further inquiries if something in the circumstances requires this further investigation. Duty to inquire narrowly construed.

The insurer should not be an investigator of every application. This is unreasonable and renders the duty inapplicable. Arises only in exceptional circumstances where necessary

3. CONTRACTUAL VARIATION OF DISCLOSURE DUTY: WARRANTIES

Warranties Equivalent of condition in ordinary commercial contract Requires strict compliance regardless of materiality

Effect of Breach• Insurer entitled to void contract• Materiality not required

Effect of Warranties• Limit insurer’s risk exposure• Insignificant facts converted into material• Future conduct of insured relevant• Discretion of insurer to nullify policy• Enhanced protection for insurer to insured’s detriment

4. LIMITS ON INSURERS’ RISK CONTROL: STATUTORY MODIFICATIONS

(1) Unspecified Classes of Insurance or Insurance Policies in General- BCIA, s.12: terms and conditions intended to bind insured to be in writing- Warranties of truth abolished; Materiality required for non-disclosure or misrepresentation: BCIA , s. 13

(2) Fire Insurance- BCIA, s. 126(2) stat. cond. 1

- Insured not to: - Falsely describe subject property to insurer’s prejudice. - Misrepresent material facts- Fraudulently omit material facts

To what extent does stat cond 1 modify common law? Insured’s duty cannot be expanded by warranties Misrepresentation must relate to material facts Omissions/non-disclosure and misrepresentations distinguished

o Misrepresentation: customers’ intention irrelevant; misrepresentation need not be fraudulento Omissions/non-disclosure must be fraudulent; requires subjective awareness of materiality of

facts omitted. If it was innocent you get out of it, but if fraudulent then you’re liable Taylor v. London Assurance Corp, (SCC, 1935)

- Facts: Many forest fires in the area and a fire was advancing to the insured’s home, so they called and asked for insurance. On the phone she simply said there was fires all over the country but did not say anything about the specific risks to their property.

- Insurer said you knew the property was at risk of fire, and failed to disclose this The fact that the fire was that close to your property was material and had we known, would not have insured it

- Issue: Was failure to communicate specific risk of fire to subject property misrepresentation or omission?

- Duff J: Gave meaning for fraud a narrow definition, changed the CL making the insured’s actual intentions relevant to the omission of information.

o Fraudulent omission requires intention to mislead, or reckless in making statements.o Whether statement constitutes misrepresentation is question of fact

- Misrepresentation: statement calculated to mislead insurer and relied on by insurer to its detriment. o Here no misrepresentation, she did not make the statement by intending it to mislead the insurer.

- Failure to disclose risk of fire not misrepresentation and not fraudulent omission.

Misrepresentation v Nondisclosure- Distinction important – serious consequences for misrepresentation compared to omissions- Fraud is narrowly construed and therefore if it is classified as omission easier for the insured.

Concerns from Taylor: Narrow scope of insured’s disclosure duty re omissions/non-disclosure

o Issue of informational responsibility - as the insurer providing coverage you also have a responsibility to find out the true state affairs. Carter and Taku

o If not fraudulent then you are cut some slack Distinction b/n disclosure duty in misrepresentation and omission arbitrary; potentially undermines

insured’s disclosure duty Misrepresentation or omission not easily ascertainable

o Example, Where a person does not disclose all their claims, say they have 4 when really 7. Is it a misrepresentation of the number of claims or an omission of 3

Must be told who has access to the physical property, what type of materials are used The provision in the legislation limit what the insurer can do in terms of voiding for breach of material

risk.

(3) Automobile Insurance - BC Insurance (Vehicle) Act, s. 75- Insured not to- (1) Falsely describes car to insurer’s prejudices; or - (2) Knowingly misrepresents or fails to disclose facts required to be stated on the application

(knowingly qualifies both)

Meaning of “Knowingly”Does it require intention to mislead? noSleigh v. Stevenson (1943)

- Facts: The applicant signed a form that the agent had filed out with information that was provided by the insured’s son. The vehicle was purchased by the son and the car was registered under the mom’s name. The son did tell the truth but the agent mistakenly recorded that information and stated that the mom was the one who purchased.

- The insurer then denied the claim based on a breach of the disclosure duty. She agreed the information was incorrect but she stated that she did not knowingly or deliberately mislead

- Decision: knowingly doesn’t require an intention to mislead, all we need to trigger knowingly is that the insured knew the truth but this was not communicated to the insurer. Regardless of your state of mind.

- 2 criteria came out of this case: (1) the insured is aware or ought reasonably to be aware of the information provided in their form and (2) the insured is aware that the information provided is accurate or incomplete

Barsaloux v. I.CBC 2010 BCSC- Relevant question: Whether applicant knew at the time of insurance facts that would render statement

untrue- Facts: the insured said he was the principal operator but the girlfriend also drove the car, when got

insurance didn’t know that the extent of her use would affect the characterization of who is the principal operator.

- Decision: Given the evidence, it was hard to decipher who used it more often. But in terms of disclosure, what he knew about the extent of her usage did not make this statement untrue because he didn’t know that this would translate into a different characterization. The applicant must not only know the relevant information but must know the fact that this information renders the statement untrue.

- Sleigh does not stand for the proposition that there is a knowing misrepresentation merely because the applicant knows certain facts that may subsequently lead the insurer or the court to determine based on all the evidence that the statement was incorrect.

Berkowits v. Manitoba Public Insurance Corp - Requires deliberate conduct, an error of address not deliberate, no breach- Knowingly is being equated with intentionality and misrepresenting material facts to gain an advantage

that you would not have otherwise had, if you had told the truth- Facts: in this case he did not provide his correct address, the truck was used to haul materials to and

from farm. He knew that if you used a rural address you would get a better premium. He lived in the city but used his rural address as his primary address

- Decision: No deliberate effort to mislead the insurer or influence him to get a rate that he would otherwise not have had. Knowingly means deliberate conduct on your part to mislead whereas the Sleigh cases said that deliberate did not matter.

Q: Which of the two opposing views do you find accurate and why?- Sleigh may be better because of the onus on the insured, the insurer should not have to examine every

case. If you look at the purpose of the disclosure duty it may make more sense to say that you are liable regardless of whether you knew the information was false.

Should misrepresented or undisclosed facts be material to risk? Provision silent on materiality, Section 5. Does the information in question need to be material, should

be read into it even though the legislation does not say so. Berkowits – materiality required

o Only be able to void for non-disclosure if the information was material.

(4) Life Insurance, Accident & Sickness Insurance

- Misrepresentation and non-disclosure provisions binding regardless of contractual terms: s. 30(1) – life; s. 82(1) – accident & sickness

- Disclosure duty binds insured and life insured - Material facts known and not disclosed by other person: S. 41(1) (Life); s. 97(1) (accident & sickness).

Must disclose otherwise K void- Notify insurer of changes in insurability between time of application and policy delivery: BCIA, s. 38

(Life) - Section 42: this section does not apply to a misstatement of age, the premium may go up or down (s.

42(2)), Section 43: not void if after 2 years and no fraud (s. 101). Section 47: does not apply to K of group insurance. Section 98: incontestability

- Insured has an absolute duty to disclose all relevant information which the insured knows or ought to know. If incomplete or inaccurate information is provided the K is in breach regardless of whether the failure to disclose was committed innocently or was in good faith or negligence. Here the fraudulently or knowingly misrepresents are covered but not required by this duty.

o This is ameliorated because once a life policy has been in place for 2 years, the insurer cannot rely on a breach of disclosure obligation unless the insurer can prove the breach was fraudulent, actual fraud, purposeful misleading of insurer.

McLean v. Paul Revere Life Insurance Co (accident & sickness) - Facts: she was not suffering depression but had assessments done in the context of criminal proceedings.

The consultation with the doctors was material and it was something that she should have disclosed - The onus is on the insured to establish on a balance of probabilities that the non-disclosures were made

fraudulently. Metcalfe v. Manufacturers Life Insurance Co. (life)

- Facts: He told the agent of prior drug use and hospitalization, agent said it was old so no disclosure of his prior drug use and prior hospitalization in application. He relapsed and then died of drug overdose. The insurer attempted to deny the claim, the prior drug use was relevant to the assessment of the risk and failure to disclose voided it

- Decision: The policy has been in place for 2 years and even if there has been a breach of disclosure duty it cannot be void unless there is fraudulent information. So although there was a breach here, it was not reckless and he was not of the mind to mislead the insurer

Consider Adjin-Tettey, “How genetic information might affect access to insurance” There is nothing certain about whether you will develop a certain inherited condition so the question is

whether it is fair to include this in insurance contexts Applicant not required to undergo testing

o The CBC case, she was forced to undergo testing as a pre-condition for insurance because he father had Huntington’s disease. However she did not want to undergo the testing because of the psychological concerns

Duty to disclose genetic material information Purpose of disclosure?

o Other insured’s: You should pay according to your risk, not fair for the pool of other insurers Potential concerns?

o Access to insurance: genetic science has come a long way but it is not fool proof and absolute and there could be false readings with inconclusive results. What does a 5% chance mean, there are problems with the science itself and it is not 100% certain and there is the risk that someone can be unfairly prejudiced.

o Effect on access to other social goodso Health and quality of life; heath care cost o Genetic Exceptionalism: predictive value is not fool proof, even if there is a 5% chance, then my

premium should only be a 5% increase but that is nothing. Disclosure duty arises where the person as previously undergone genetic testing and is aware of

information that might affect insurability.

Genetic predispositions to certain conditions might adversely affect applications deemed to be higher risk

Also a risk that inconclusive test results may lead insurers to make assumptions about a person’s genetic susceptibilities giving rise to denials of coverage, unwarranted higher premiums or reduced benefits.

People may not undergo this testing because it detrimentally affects insurability. Also might undermine health benefits of genetic testing with detrimental consequences for public health and quality of life and increase health care costs

Not requiring disclosure of material genetic information could lead to adverse selection as those with knowledge of some negative genetic predisposition may obtain insurance and for larger amounts.

4. Material Change in Risk Duration of disclosure duty depends on type of insurance. In some cases the insured is mandated to

continue to provide the information Auto and Fire – continuing duty Report material changes in risk or changes that affect risk Fire: written notice of material change to risk within insured’s knowledge and control: BCIA, s. 126(2)

stat. cond. 4. E.g. change in property useo If the use to which the property is put has changed, then you must inform them especially if there

is a higher risk in the new use of the property. o It must be done promptly, no time restriction but then the insurer can decide whether or not to

change the policyo Only obliged to report changes which are within the insured’s control, changes the insured

physically brought about or could reasonably have prevented Auto: Changes in use of vehicle and primary location when vehicle not in use– BC Insurance (Vehicle)

Regulation, BC Reg. 477/83, schedule 10, s. 2(3)o This information has to be told within 10 days, like if your address has changed to an area with a

high incident of car theft Purpose: Reassess risk and insurability; appropriate premium; terminate contract, etc.

5. PROVING BREACH OF INSURED’S DISCLOSURE DUTY

- Compliance with formation of insurance contract presumed upon completed of forms - Insurer to prove insured’s breach to its detriment (prove inaccurate info on form)- Need Evidence for rebutting presumption of compliance

o You show the form and say you said this, but we have records which say otherwise. If this is the case, then the insurer can void the contract so long as it deals with material facts

- Necessary elements of breach: Insurer must establish that (1) insured failed to fully or accurately disclose particular facts (2) the undisclosed or misrepresented facts were material (3) the facts were known to the insured (4) omission or misrepresentation was committed with the degree of intent required by law.

Issues: Intermediary completes form with verbal information from insured Ambiguous question on application form: Where question is unclear, the court will evaluate the accuracy of

the insured’s response by considering how a reasonably intelligent Canadian in the applicants positions would have understood the question.

Role of Insurance Agents- In some cases intermediaries are authorized by the insurers to complete these forms. - At what point will the intermediary be considered an agent of the insured. - If insured signed completed form then Intermediary presumed customer’s agent – Newsholme principle

o If the agent wrongly records information and the applicant signs without reading then the agent is applicant’s secretary and errors are attributable to customer - Newsholme Bros. v. Road Transport

o Here the insurer can void the contract even though you told correct information, should have read the form before you signed it

- Agent accurately records information provided by customer or on customer’s behalf – Sleigho By signing the form, the insured has authenticated the contents of the form and was bound by

them. - Consequences: If customer breached disclosure duty then Contract voidable by insurer- Only time not bound is if the company denies you the opportunity to read the completed form –

Blanchette

Exceptions to Newsholme principleStone v. Reliance Mutual Insurance Society Ltd

Authority to complete forms – Intermediary is authorized to complete the forms in the application process, and the court may decide the intermediary is acting on behalf of the insurer

Facts: The agent was a company employee who went to this couple to reinstate their last policy, he went to solicit coverage. They did not mention the prior fire because they were not asked and assumed the company knew. But after a break and enter the company refused to pay.

Decision: Court stated that the couple was not actively looking for coverage themselves. In these circumstances it was unreasonable to attribute the errors of the agent to the customer, they believed that since same company and they didn’t ask about a claims record, presumably they knew that they had made a claim before.

She was by herself, had limited education and so completely relied on the intermediary to complete the form and so no reason for her to second guess what had been done. It was unreasonable to allow the insurer to void the contract, she was not bound by her signature

o There was also discussion of the Bawden case which the court in Newsholme rejected. The court said that case was rightly decided because if you look at the vulnerabilities of the person, it was not unreasonable to hold that the insurer should be liable for the agents mistakes rather than the customers.

Blanchette v CIS Limited Facts: The agent had authority to fill forms and finalize coverage and the customer had no opportunity to

review information. He left and told the insured that he would add the tractor, information was filed out incorrectly

The intermediary gave the customer the impression that they have interim coverage after they signed The company tried to argue that since you signed your bound. But the SCC found this case was

distinguishable from Stone and Newsholme because he did not have the chance to review the responses because the information was included after he had signed.

Dissent: The insured lied on this application, so it should have been void before the tractor stage. Also if you chose to sign a form and leave some of it blank, you should also be liable to the intermediaries mistakes and therefore this is no different thean Newsholme. Cannot equate the customer here to the same ones in Stone and Bawden, he knew the risk of fire and was young, and unlike the other customers he requested insurance and knew what he wanted.

Concerns How would customers feel about intermediary being considered their agent re disclosure duty?

o Is this consistent with customers’ reasonable expectations?o Does it accurately reflect reality of intermediaries’ role in marketing insurance?

Life, Accident and Sickness- There is a rebuttable presumption against agency: modifies Newsholme

- Intermediary not presumed insured’s agent to insured’s prejudice: BCIA s. 79 (life) S. 118 (A & S)

Ambiguous Questions

- Do responses to ambiguous question breached disclosure duty- Objective test: How a reasonably intelligent person in customer’s position would have understood

question. If the applicant’s response is consistent with how reasonable person would have responded or interpreted the question, there is no breach

- Stewart v. Canada Life Assurance Co: – average Canadian not expected to know bowel, colon and rectum part of intestines.

o He knew he had colitis but didn’t know that this was part of the intestines. So the court said that his response was not unreasonable in the circumstances. Therefore it was not in breach of the disclosure duty and so the beneficiary can make a claim after his passing.

6. Proof of Materiality

Defence of breach of disclosure obligation Insurer proves materiality

o Reasonable insurer test – Ontario Metal Products. This is an objective test, would the information have influenced a reasonable insurers decision to provide the insurance.

o They have to prove that they would have done something differently if the customer provided proper information

Presumption of materiality – Court assumes insurer’s practice reflects rationale of other insurers unless contradicted by insured - Henwood

o In Henwood: Onus shift to customer to prove the insurers practice is unreasonable or inconsistent with the practice of prudent insures or casts doubt on their credibility.

She didn’t disclose treatment for depression, was killed by an accident, no causal link between the accident and the depression. But once there is breach it doesn’t matter that the loss is unrelated to the breach.

The senior employees say that they would have given her insurance but it would have been different. The court said that there was no evidence that a reasonable insurer would have acted differently

o Majority: they were more confident that even inside information can be reliable. Convinced that almost all employees act as reasonable insurers.

Issue: when asked about what other companies do, the witnesses said that we don’t know and didn’t bother to find out what others would do

o Spence: the decision really undermined the customer protection and felt that there should be some objective verification of the information. Believing the insurers was self-serving and they should not be able to get away with it in the way the majority was saying.

o What is required to discharge that burden?o Bring evidence to the table and call your own expert witnesses, not consistent with other

practices. o What assumptions underlie the two positions?

o Majority: willing to be a higher onus on the customer that is not support by the dissent. It turns an objective determination into a subjective materiality. We will accept what you say although we are supposed to apply an objective test. It turns customer protection on its head

o Dissent: more consumer protection o Which position do you prefer and why?

o In general the insurance companies tend to stick together and cover one another. o It will be very difficult to get an industry expert to come and contradict what the company is

saying

- Undisclosed or misrepresented information is material if a reasonable insurer who was aware of the information would have increased the premium or refused coverage.

- The test is objective so best source of evidence if an objective source who can testify as to the standard industry practices. Can also use contradicted subjective evidence

Prejudice to Insurer Proof of breach of disclosure duty per se legally insignificant Breach induced insurer to enter into contract – See Taylor, per Duff, C.J.C.

o One of the reasons why there was no misrepresentation on the part of Taylor because no evidence that her statement had influenced the agents decision to provide protection. It was inconclusive that the agent would not have provided information.

Prudent insurer test: Whether this would have influenced reasonable insurers in giving protection, but this does end up being a subjective test.

Beyond proving that non-disclosure would have been material to a reasonable insurer, the insurer must prove that the non-disclosure had a material effect on its own underwriting decision. Here the best evidence is subjective testimony

Subjective Materiality Insurer’s underwriting practices relevant to inducement Probable evidence of actual practice trumps prudent insurer standard

o If actual practice is to take on a very high level of risks then don’t look at reasonable person. So your actual practices in this situation take precedent over the reasonable insurer.

Where there is a reasonable basis for ascertaining what the insurer would have done, no reason to rely on the objective test by making the inference from reasonable insurer. If reasonably certain evidence about what this particular insurer would have done or their actual practice in relation to this type of information, this is what we will look at.

Why? Prudent insurer test avoids prejudice to insurer No prejudice absent inducement by non-disclosure

Nuvo Electronics Inc. v. London Assurance – No material non-disclosure because the insurer would not have acted differently so reasonable insurer

conduct irrelevant Facts: It was a courier loss and the company had agreed to settle, they later refused to pay and so a claim

was made to the insurer. The insurer said that by not disclosing the courier claim, it was breach of disclosure duty.

Decision: The court said no claim at the time of K, therefore you were not prejudiced. We know from your practice that this type of information would not have made any difference to you, so it does not matter what a reasonable insurer might have done.

Deference to industry practice- Reasonableness of insurer’s practices not questioned where consistent with industry practice/ reasonable

insurer standard: Kehoe v. BCIC (1992) BCCA)- This is where insurer alleged breach of disclosure duty, the courts found that the claims record was

material, if you have extraordinary bad luck we may not want to insure you or increase your premium. He told the new insurance company he had no claims because he stated that it was a new house and therefore omitted the past claims.

- If it is widespread industry practice, we will not question it.

Discussion Questions1. Are there dangers in courts accepting evidence of particular insurers’ practices on materiality to satisfy

the prudent insurer test?

a. Issues with industry practice, it can be arbitrary or unreasonable. The courts are not assessing the reasonableness of the practice which is problematic and inconsistent with the way the law treats customary practices in other areas.

b. There may be an element of protectionism for themselves which has not been tested. 2. Is deference to industry practice re materiality reasonable? 3. Are there potential inequality concerns re establishing materiality? Consider Adjin-Tettey, “Reforming

the Disclosure Duty in Insurance Contracts”

7. EFFECTS AND CONSEQUENCES OF BREACH OF INSURED’S DISCLOSURE DUTY Upon Breach Insurer has 3 options: 1. Repudiate contract

Contract void ab initio Insurer released from its contractual obligation Notify insured of termination; premiums refunded premiums absent fraud

2. Ignore breach Treat contract as valid You are estopped from trying to assert breach of the disclosure duty

3. Unilateral termination- You pretend as though the contract was still valid but then exercise your right for termination. - This is so that the insurer can keep some of the premiums and only return the unused premium.

Statutory Modifications

Life; Accident & Sickness Contract voidable: s 41(2) (Life); s. 97(2) (accident & sickness)

Incontestability Contract(including reinstatement) not voidable after 2 years unless breach fraudulent – BCIA, s. 42 (2) –

life; s. 98(1)(b) – accident & sickness Actual fraud required; insured knowingly misled insurer or was reckless

McLean v. Paul Revere Life Insurance Co. - Accident & sickness policy where there was a material non-disclosure of medical condition. Fraud

established and so even though contract over 2 years since the P knowingly provided false information, contract voided

- She had consulted with psychologist which she did not disclose. Her decision not to disclose was fraudulent and she should have provided it because she knew that the insurer would be using it. Her conduct here constituted fraud and so they were entitled to void the contract

Metcalfe v. Manufacturers Life Insurance Co. - Hospitalizations and drug treatment was material but since no fraud, incontestability applied and policy

not voidable- He didn’t disclose his previous treatment for drug addiction but he did tell the agent that he had these

issues. But the insurance then said that they needed this information- It was unreasonable on his part to rely on the agent the way he did, there was breach of the disclosure

duty by not passing on the information. But since the policy was in place for 2 years the only way to void the contract was if they could prove that he failed to provide the information. Here he was willing to provide the information and so no fraud on his part.

Rationale for Incontestability Timely and thorough review of applications Reasonable expectations of insured’s and beneficiaries

o Duration of policieso Avoid false sense of security

o Enhanced duty for insurers

Misstatement of Age No nullification Benefits or premiums adjusted: s. 44(2) – life; s. 101(1) – accident & sickness For accident and sickness, they can adjust the insurance amount based on the correct age and the

premium being paid (same as life) or they can choose to keep the same insurance amount but adjust the premium based on the insured’s actual age.

Statutory ModificationsFire: Severability

Contract void vis-à-vis property/risk subject to breach: BCIA, s. 126(2), stat. cond. 1, 4 Don’t void the entire insurance contact, we single out the aspect of the property or the risk that we have

a problem with. If the breach of the disclosure duty is in relation to the fire risk which turned out not to be true that will have nothing to do with theft and so the problem could be the fire risk.

Auto: Contract invalidated; recovery forfeited – Insurance (Vehicle) Act, s. 75

8. CAUSATION, FAIRNESS AND INSURED’S DISCLOSURE DUTY

Can insurer deny coverage where breach causally unrelated to loss or change in risk and rectified before loss?- When undisclosed or misrepresented information is material to the risk, the insurer is entitled to deny

coverage or any loss subsequently claimed by the insured whether or not the loss was caused by the undisclosed or misrepresented fact

- May be argued that an insurers ability to deny coverage on the basis of a non-disclosure or misrepresentation which is not causally related to the loss raises a question of fairness.

o For example in home owner policies you are not allowed to leave the place vacant for more than 30 days. If this is happening, you have to let them know.

- S. 126(2) fire, statutory condition 4 – When there is a change in in circumstances which is equivalent to a breach the contract is void.

- Can court rely on discretion under BCIA, s. 129(b) to relieve insured of consequences of breach of disclosure duty?

o This section gives courts discretion to relieve the insured of the consequences in a condition, warranty or term if they think it is unfair or unreasonable. Can the courts rely on this discretion, so that the insurer is not allowed to void the K where there was a change in risk but they had nothing to do with the later damage

Marche v. Halifax Insurance Ins. Co.- Facts: a home was bought as a rental property and it was left vacant for more than 30 days. House burnt

down while vacant, insured argued this had nothing to do with the fire. Also emphasized the temporary nature, unfair to void the K for temporary breaches especially since no evidence of casual link between the breach and the resulting loss. It is punitive for home owners who rent because given the nature of rental market may be difficult to rent within the 30 days.

- Insurer argued S. 129(b) only exists in relation to contractual conditions and not statutory provisions. This is to protect insured’s from unequal power and relieve customers in unfair circumstances.

- Since statutory conditions are meant to be reasonable and fair, it doesn’t make sense to relive the customers. The legislature had already thought about this so no reason for you to relive them

- SCC (5:2): Mclachlin C.J. (majority)- N.S. equivalent of s. 129 not limited to contractual conditions. It is applicable to unreasonable statutory

conditions or otherwise reasonable but unreasonable in their application in particular situations

- Statutory breach need not be causally related to loss. Don’t call the insurer every time there is some sort of malfunction in the house, nonsensical and imposes an obligation too onerous on the insured.

o Distinguished Henwood, as that was a breach that was void abinitioo In these cases it was a valid contract and the problem was fixed at the time of the damage.

- Unjust to deny coverage where material change in risk rectified before loss and loss unrelated to temporary change

- Bastarache (dissent): Discretion only applicable to contractual condition since the breach in question statutory condition, condition inapplicable

- Disclosure duty strictly enforced; breach need not be causally related to loss; irrelevant change in risk cured before loss

o It has never been a condition that the loss in question be causal related to the breach, we have always said this is a non-issue, so why are we making this an issue here.

Problem(s) with the different approaches?- The dissent rule is predictable, as a matter of principle we should be consistent- Waiting and seeing is a very problematic approach- Canadian law is unclear as to whether the insured’s duty to report material changes which are rectified

by the date of lass and is so under what circumstances.

9. LEGAL LIABILITY OF INSURANCE AGENTS AND BROKERS

Typical Scenario- Intermediary’s fault results in lack or inadequate coverage- Insured’s recourse against intermediary, the intermediary is personally liable.- Why?- Professional’s not mere salespeople. Supposed to be licensed - Insured entitled to rely on their expertise and knowledge - Higher standards of careful & prudent conduct

Basis of Intermediary’s liability- (1) Agency law: ostensible authority to conclude contracts and detrimental reliance. If you act outside the

agency relationship, your personally liable. - (2) Contract: Obtain coverage – Fine’s Flowers v. General Accident Assurance (Wilson)

o 2 separate contracts: one between the customer and the intermediary to get full coverage for their premises and the other is for the actual insurance itself

o Consideration – indirect; for the agents it is the opportunity to earn commissiono Not always easy to rely on contract – Fine’s Flowers, (Estey)

Coverage for all “insurable risks – unclear loss in question was insurable risk Impossible to get the coverage that he wanted and no agreement on meaning of “full

coverage” (no meeting of the minds)- (3) Torts

o Common basis of liabilityo Tort duty may arise pursuant to contract – concurrencyo Agent undertakes to obtain coverage for customero Expectation of reasonable care implied termo Agent liable for losses from failure of due care o Important where customer gives intermediary general instructions – Fines’ Flowers

Intermediary’s duty is to use their skill to decide what is available to the customer and advise them accordingly.

To carry out instructions the agent must use the common usage of the words in the industry unless evidence otherwise indicates.

The agent must: (1) take objectively reasonable steps to acquire what has been requested (2) agent services the policy which would require vigilance with respect to the context and (3) that if the form of insurance is not available to promptly advise the client so thate he or she can find other protections (CIA)

o Contract or Tort? Fletcher v. M.P.I.C.: Wilson (SCC) Opportunity to choose b/n contract and tort but didn’t deal with this issue, found tort liability in negligence

Concurrency P entitled to choose b/n tort and contract Tort: loss reasonably foreseeable Limitation period – generous in torts

- (4) Equity: Breach of fiduciary duty. Not typically used unless you chose to use it

Scope of Intermediary’s Duty- Depends on nature of service or product sought- Full Coverage : Coverage instructions may be specific or vague: intermediary knows about the customers’

business and their needs. o Intermediary an advisor, explore options and inform about all protections o Intermediary determines customer’s need and appropriate coverageo Obtain appropriate coverage or advise of its unavailability/gapso Advise customer of available optionso Rationale: Intermediary a professional with specialized knowledge

Reasonable reliance on intermediary’s expertise for coverage No opportunity for alternative protection. Insured under false sense of security

o Fine’s Flowers v. Gen. Accident Assurance Facts: Customer told agent to get full coverage, he failed to do so because not possible but

didn’t inform the customer of gaps. Decision: agent had an obligation because he ought to have known about the risk of loss and

he breached the K by failing to obtain proper coverage. Also he failed to advise the insured about the gaps in coverage.

- Specific Coverage : Reasonable skill and care to obtain required coverage. Obtain requested coverage or advise of its unavailability/gaps

Sandborn Wholesale Ltd. v. Pottruff & Smith Insurance Brokers Inc.- Facts: Loss of drugs in a basement not covered by the insurance. - Decision: The customer had asked for a specific type of transportation policy which did not apply to the

stock in the warehouse. The agent told the insurer that he would have to find out about the other goods, but he told him not to worry about it. Agent discharged obligation because he told him he wasn’t sure if it was covered. Didn’t have to put it in writing, oral was okay.

Ongoing duty- Convey information b/n insured and insurer- Even if advice was accurate at the outset, you have an obligation to assess situation and re-advise if gaps

arise. - Assess changes in client’s needs and advise accordingly: Beck Estate- Facts: the husband killed his wife and set home on fire. She had moved out, insurer knew this but did not

tell her to change coverage. - Decision: It was clear that she was no longer living at home, so she should have been told of the risks

associated with not living there. She should have been told to switch over to rental. Therefore brokerage firm was negligent in their actions of not informing her about the possible changes due to her change in circumstances.

o Current law: BCIA S. 28.6 –innocent co-insured can claim even if the loss was caused by someone who was insured under the policy.

Unsolicited InformationFletcher v. Manitoba Public Insurance Co- The P did not get the underinsured coverage, although they asked for full coverage - On what basis was M.P.I.C found liable?

o Providers of auto insurance routinely provide information to customerso Foreseeable that customers will rely on information of available options to make informed choices

& reasonable reliance by customerso Public insurer not to assume too much re customers’ knowledge

Scope of Duty: Private Insurance Agents v. Public Insurers- Private insurance agents: Information about available coverage & what meets customer’s needs, including

gaps in coverageo Private insurance agents owe a duty to their customers to provide not only information about

available coverage, but also advice about which forms of coverage they require to meet their needs. (Fine Flowers)

- Public – accurate information about available coverage, including optional coverageo Fletchers: Different from private because (1) institutionalized setting where it is sold and therefore

affords less scope for privacy and individualized attention. (2) Employees don’t hold themselves out as specialists.

o Their duty is limited to ensuring that the necessary information upon which applciatns could make their decisions was placed before them. Does not extend to advising or persuading them to rake the option coverage

Rationale for Different Scope of Duty

Private Insurance Agents Public InsurersIntermediaries licensed professionals Employees not licensed agents or alleged expertsProfessional & individualized services Work in institutional settingOpportunity to assess customers’ needs and advise accordingly

No opportunity for private & individualized attention to customers

Commission Fixed salary

Defences- Is insured obliged to exercise due care to ensure necessary coverage requested?

o There could be room for contributory negligence in this area. If they disregarded their own interest they can be liable to CN

o What are the consequences of failure to exercise due care? See CIA Inspection Inc. v. Dan Lawrie Insurance Brokers

A client cannot ignore or not read the documentation provided by the insurer especially when given caution to do so.

Here the insured was reckless in not pursuing clarification from the insurer when he was receiving notes with the wording to the effect that the cargo policy did not provide for onsite coverage. So although the insurance broker did breach their duty, the insured was CN