Insurance Law – 344 – Adjin-Tettey2011 Fall Outline (Midterm)Asif Abdulla

INTRODUCTION

Definition:“Insurance” means the undertaking by one person to indemnify another person against loss or liability for loss in respect of a certain risk or peril to which the object of insurance may be exposed, or to pay a sum of money or other thing of value on the happening of a certain event.

- Insured’s Perspectiveo Premium is an admission fee to a pool of similar persons who have grouped risks togethero Premium dependent on degree of risk: Character of the insured matters – moral hazard issue; how

often are claims made; accident-prone?- Society/Insurer’s Perspective

o Loss distribution/spreadingo Risk predictiono No correlation between premiums and recoveryo Random losses

Five Components of an Insurance K:1. An undertaking of one person2. To indemnify another person3. For an agreed consideration4. From loss or liability in respect of an event; and5. The happening of which is uncertain

Purpose of Insurance:- Financial Protection- Impersonal/individualistic society

o Alleviates pressure on family/friends when something goes wrong

NATURE OF INSURANCE CONTRACTS

Elements of an Insurance Contract:1. Undertaking by one person – insurer2. Promise of indemnity: compensate insured

a. Named and Unnamed insuredb. Personal Insurance – life, accident, sickness

i. Assured: purchaser; Insured: person who’s life is insured; Beneficiary: Receives benefit under the policy

3. Agreed consideration for promise of indemnity: Premium4. Loss or liability for insured event or subject matter, subject to policy limit

a. Indemnity vs. non-indemnity contractsi. Indemnity – insurer is undertaking to cover the actual particular loss - Event must happen,

must be an assessment of loss, subject to limitationsii. Non-indemnity – specific amount contingent on the happening of a particular event without

need to prove loss5. Occurrence of event uncertain

Key Features:1. Duty of utmost good faith

a. Exists on both parties – depends on the nature of the obligationb. Open and frank communicationc. Maintaining the integrity of the systemd. Not to exploit vulnerabilities

2. Fortuitya. Losses must be random – uncertain as to which insured will suffer which losses

3. Indemnitya. Recovery limited to actual losses except in non-indemnity contracts

4. Consumer protectiona. Protect against vulnerability exploitation

5. Compensationa. Ensures compensation, especially in 3P policiesb. Reasonable expectation that insurer will be there to cover lossesc. Doubts are resolved in favour of the insuredd. Must maintain financial stability

Ensuring Solvency- Insurer’s solvency is essential to loss spreading- Goes to the purpose of spreading the risk amongst a large class of persons- Financial Institutions Act s. 77 – every insurance company licenced in BC, must maintain a determined amount

of reserves – relative to the amount liabilities

Reinsurance- Insurers can transfer some risk to other insurance agencies- Claims over a certain amount could activate another policy

o Usually multinational policies – spreads risk all over the world- Legal consequences:

o No privity of K between insured and re-insurero Insured has no priority over other creditors: Re Northern Union Ins Co.

Money paid by reinsurer to insurer specifically for insured’s claim, but since insurer was bankrupt, the money paid became just part of the regular assets of the company for creditors

- Predominant in life insurance

Subscription Policy- Separate insurance Ks with multiple insureres regarding same object for specific amounts- Typical in property and casualty insurance- Privity remains between the insured and each insurer- Problem: multiplicity of claims processes

Wagering vs. Insurance

Insurance:- Anterior risk: need for insurance for cushioning in the event of loss- Exists on the basis of some pre-existing risk- Must have an insurable interest in the object of the insurance k

Wagering:- Risk arises from the speculation regarding outcome of an event- Only a change in gain/loss if a bet is made, the anterior risk is not present- Parties are otherwise neutral to happening of the event but for the wager

Position on Wagering:

- BCIA s. 6(1) – Wagering and gambling is prohibited- If k is considered to be a wager, then it is considered to be void- Rationale

o Public policyo Moral Hazard!

In Effect:- Insurance companies insure promotional events (hole-in-one tournaments / let it snow promotion)

o Minimal risk of moral hazard + increased premiums in the pool for other, more common risks?

REGULATION OF THE INSURANCE INDUSTRY

- Required to address power imbalance; potential exploitation of vulnerable parties; to ensure solvency of insurers and to protect loss spreading goals of insurance

- Ultimate goal: consumer protection and confidence in the insurance system

Formation and Operation of Insurance Companies- These are all heavily regulated through legislation

Contents and Enforceability of Insurance Contracts- Terms and conditions – generally standard form contracts – law must ensure they don’t exploit consumers- Part 5 BCIA (s. 126(2)) – stat conditions for fire insurance- Obligations of parties to insurance contract – who can sell insurance- Qualifications and responsibilities of intermediaries – below

Jurisdiction for Regulation of Insurance

Provincial Jurisdiction – Property and Civil Rights (s. 92(13))- Insurance k’s and the regulation of insurance industry- Provincially and federally incorporated insurance companies operating within a province

o Canadian Indemnity Co v. British Columbia (1977 SCC) Fed corp; previously licenced to sell insurance in BC; unsuccessfully challenged provincial

statute regarding universal compulsory auto insurance in BC and monopoly to ICBC S. 92(13) gives province the right to regulate insurance in the province regardless of whether

or not the corporation was federally or provincially incorporated- Prov incorporated companies are also subject to federal legislation on subjects within federal jurisdiction

o This has to do with Bankruptcy and insolvency matters

Regulation of Federally Incorporated Insurance Companies- Chartered banks are federally incorporated but also provide insurance coverage- Federal Banking Act amended to allow banks to provide their own insurance

o Question of licencing requirements in the province prior to providing insurance?o Principle business is banking/financial serviceso Insurance services are incidental

- Provincial regulation is inapplicable where insurance is incidental to the principle business of the federally incorporated body

o Bank of Nova Scotia v. Canada (2003 BCCA) (“Optima” case) Bank hired credit brokers to sell insurance over the phone to credit customers Act allowed them to sell insurance at the same time as selling credit products, but here they

were retroactively selling insurance to previous customers Held:

Workers were employees of the bank There is an exemption for insurance services that are incidental

These incidental services are not limited by time, so does not matter that they were sold after the credit product contract was already made, so long as it was linked to the product which was the principle business of the corp

- Chartered banks offering insurance products are not exempt from provincial licencing requirementso Canadian Western Bank v. Alberta

If they are going to be providing insurance, they must adhere to the provincial requirements

Charter of Rights and Freedoms

- Sometimes risk assessment involves looking at demographic patterns- Risk assessment is central to effective underwriting- Personal characteristics may be potentially discriminating? – s. 15 grounds- Charter is only applicable to government activities- Insurance k’s are private, so not subject to Charter scrutiny

Limited Application- Public insurers- Insurance legislation and regulations must be consistent with Charter values

o Miron v. Trudel Definition of spouse for the purposes of particular benefits covered marriage, so this common

law spouse was excluded Provision was struck down – was not consistent with Charter

- Constitutionality of regulations limited benefits for minor injurieso Morrow v. Zhang – reversed at ABCA

Legislation to limit recovery of certain benefits – to make it more affordable for everyone Number of people involved in MVAs – damages capped to not cover pain and suffering ABCA – this is a legitimate way for the province to control costs of insurance; everyone who

has a minimal injury is treated the same, so there is not inequity here Addresses the wide-spread aim of the legislation – to regulate costs

Discriminatory Practices by Insurers- Discriminatory insurance practices exempt from application of human rights legislation if based on reasonable

and bona fide distinctions (BC Human Rights Code s. 8)- Relevant Factors:

o Type of policy;o Nature of the discriminatory practice – effect on complainants;o Whether distinctions legitimate or unavoidable

- Nova Scotia Human Rights Commission v. Canada Life (1993 NSCA)o Refused mortgage insurance due to physical and health condition – disabilityo Nature of policy? Is it customarily available to general public?

Offered to eligible bank customers; not service customarily provided to public within Human Rights Act

Therefore exempt from the legislationo Was it relevant to assess applicant’s health and disability profile?

Life insurer is entitled to assess risk based on health – service can be denied for those high risk applicants

Cannot limit insurance company’s ability to assess risk based on factors that are relevant to the type of insurance sought

This was made in good faith and reasonable – exemption is bona fide

Reasonable Bona Fide Distinction:- Zurich Insurance Co v. Ontario Human Rights Commission (1992 SCC)

o Basis of the complaint:

Young men assessed at higher risk than others for auto insurance Based on stats showing higher risk of accident Claimed discriminatory because individuals not assessed on own merit

o Held: Sided with insurer – no reasonable alternatives – standard industry practice – there are stats to

demonstrate the higher accident rate of that groupo Dissent: (LHD/McL)

Stereotyping – just convenient to rely on the industry practice Insurer must be able to show a direct causal link between factors relied upon and the high

accident rateo Note:

Customary/industry standards are not accepted as law in other areas

NATURE OF INSURANCE CONTRACTS

Indemnity and Non-Indemnity Contracts

Indemnity Principle- Limits insured’s entitlement to actual losses on happening of insurance peril- Rationale:

o Moral hazardo Policy against rewarding people for being victims of a situation

- Subject to the intentions of contracting partieso Freedom of contract still exists – parties can specifically contract out of the indemnity principleo K can say that recovery can be more than actual losso Deductibles/caps are examples of where insured can recover less than losso Replacement cost endorsements are examples of where insured can recover more than loss

- Insurance k’s can be either indemnity contracts or non-indemnity contracts- BCIA s. 1 – definitions

o Undertaking by one person to indemnify 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

Includes indemnity AND non-indemnity contracts!!

Indemnity vs. Non-Indemnity Insurance- Indemnity – replacement of loss due to materialization of insured risk

o May actually be entitled to more or less than the actual losseso Subrogation is automatic for indemnity contracts

Insurer can step into shoes of the insured to go after a 3P that is at faulto Requirements:

Happening of insured peril Proof of loss Value of loss

o Basically, if designed to replace a specific loss, it is an indemnity contract, if not, it’s non-indemnity- Non-Indemnity – Insured recovers predetermined amount on happening of insured peril

o No proof requiredo All that is required is the happening of the insured perilo Predetermined amount regardless of actual losso No right of subrogation – subject to terms of the contracto Cumulation permitted as recovery is not to replace specific loss

Glynn v. Scottish Union & National Insurance Co Ltd- Presumption of indemnity – all insurance contracts – s. 7 BCIA- S. 7(2) except for life insurance contracts- Every insurance contract should be construed as a contract of indemnity, which presumptively has a right to

subrogation

Death and Disability Benefits- Glynn in obiter – insurance ks for payment of fixed sums on the happening of a specified event (life, accident

and sickness), generally are non-indemnity- Mutual Life Assurance v. Tucker:

o Court distinguished Gibson – both types of Ks provide fixed amounts to insured, but when looking at the specific terms and the overall scheme, it becomes clear in Gibson that the k was intended to be an indemnity K, so the right of subrogation exists

o Tucker could be in a better position if able to recover tort damages and also benefit under the non-indemnity contract

Without subrogation, insurer cannot subtract awards from other areas- BC Insurance (vehicle) Regulations ss. 81-83

o Stat no fault benefit – if you get contract damages, they should be deducted from the stat benefit (even if k damages given up, they should be reasonably assess and subtracted)

First and Third Party Insurance- First party:

o Protects insured’s interests; benefits paid to insured- Third party:

o Protects insured against liability to otherso Benefit paid to 3Ps based on insured’s liability to them

May not be identified by nameo Duty to defend and indemnify insured

Scalara – Intentional wrong-doing does not trigger duty to indemnify If there would be recovery under the policy, then there is a duty to defend on the part of the

insurer- Liability Policies:

o Hybrid policies protect first and third partieso Protects liability of insured; guaranteed source of recovery for victims

- Third party insurance is likely necessary in the absence of first part insurance for everyoneo If everyone had it, then there’d be no need for liability/3P insurance

CLASSIFICATION / INTERPRETATION OF INSURANCE CONTRACTS

Classification of Insurance Ks- Object-defined

o Characterized by object of policy (automobile, boiler, etc)- Peril-defined

o Characterized by insured risk (fire, accident, sickness, etc)- Purpose:

o Specific terms, principles and requirements for particular insurance contracts- Problems:

o In reality, most policies are multi-risk policies – combine first/third party insurance; combine various perils/objects

o Problematic – various interpretations for insurance ks

Different limitations for different types – so classification becomes an issue

Regulation:- General Statute

o Governs all insurance contracts – BCIA Divisions within the general statute

Part 2: general – all insurance unless specifically excepted Part 3: Life insurance Part 4: Accident and Sickness Part 5: Fire (stat conditions s. 126(2) apply to all fire contracts) Part 7: miscellaneous classes and subclasses

- Specific legislation for specific areas of insuranceo Insurance (Vehicle) Act; Insurance for Crops Act; etc

Fire Insurance Problems- S. 119 BCIA – includes multi-risk policies – they are fire insurance, and fire insurance can also cover other

risks, so still governed as fire insurance- Specific contracts excluded from fire insurance; aircraft, auto, boiler and machinery, inland transport, marine,

plate glass, sprinkler leakage, theft, rents/charges/loss of profits and nuclear risko S. 119(c) – part 5 is NOT applicable if fire incidental peril to coverage providedo Question becomes whether fire was dominant or incidental risk covered by policy

Classification of Multi-Risk Policies

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

Background:- Traditional approaches to resolve classification are inadequate – do not create certainty – denounced old

methods- Ex post facto classification

o Wait and see- Dominant-incidental risks- Risks incidental

o If it happens to be multi-risk, incidental risks are not the classification scheme used- Multi-risk policies are fire policies

Single Peril Policies:- Not a problem – classification related directly to the risk

Multi-Peril Policies:- Numerous risks including fire- How to characterize the policy? Which part of the BCIA applies?

KP Pacific and Churchland:- Both parties waited more than a year from time of the loss – so they would be statute barred under part 5; but

they wanted to be in part 2 where their claims would still be alive- Lower courts classified policies as fire policies – no luck- SCC held – Not fire policies – therefore part 2 applies

Holding:- Absent specific legislative provisions to the contrary, multi-risk policies governed by the general part of the

legislation and not fire part even if fire is one of the risks coveredo So long as covers more than one thing – multi-risk – out of fire part and into general

Can Limitation Periods be Contracted Into Multi-Risk Policies?- K in KP Pacific had a contractual term for the limitation period to be the same as that in Part 5- Section 3 BCIA – legislative protection for insured cannot be contracted out of in the insurance k

o Cannot be substituted for harsher terms- Section 22 limitation is much longer than the contracted limitation – so cannot be contracted for

Effects of KP and Churchland:- Fire part limited to loss by fire alone- Simplify classification of multi-risk policies; avoids uncertainty- Reflects the reality of modern insurance policies- Policies are not subject to multiple parts or different legislative regimes

Outside BC:- Caselaw goes back and forth on application of KP, but always in favour of the insured- Casey v. Federated Insurance (2004 MBQB)

o Multi-risk policy – loss from hailstorm, not fireo Issue: was this a fire policy? – if not fire part not applicable, detrimental effect to insuredo Held: KP distinguished – policy covered loss by fire; fire policy; fire provisions acceptable

- Audeo Works Production v. Canadian Northern Shield Ins Co (2005 QB)o Followed KP/Churchlando Multi-risk policy covered equipment while in transit rather than just in warehouseo Held: fire part not applicable because it was multi-risk – favourable to insured

Note, this was truly multi-risk, whereas with Casey, dominantly fire- Fenrich v. Wawanesa Mutual Ins Co (2005 ABCA)

o Policy likely characterized as fire where fire loss claim made under multi-risk policyo Loss here was for flood, not from fire – since not from fire, no need to think about fire parto Held: even if fire part did apply, court would not have followed KP – would have looked to the

dominant purpose of the policy- Burry v. Co-Operators Gen Ins Co (2007 NFLDCA)

o KP followed – Multi-risk policies must be outside fire part – even though loss in this case was outside the fire part

Favoured insured in terms of limitation period

Freedom of Contract:- Cannot contract terms that are harsher on the insured than the statutory provisions (BCIA s. 3 under part 2)- Casey – legislation prohibits contractual variation of stat limitation period- Fenrich – Contractual limitation period is permissible- Burry – no indication parties intended to include contractual term regarding limitation

Other Fire Stat Provisions:- Audio Works – all stat provisions specifically applicable to fire not applicable to multi-risk policies

Multi Risk Policies- No specific provisions govern multi-risk policies- Creates uncertainty – does not work as the SCC intended to receive uniform approach- Courts should ensure that the entire fire part does not apply to MR policies because then it puts pressure on the

legislature to address this gap in legislation

Other Classification Problems

Section 122 – Extended Policies not Governed by Fire Part- Fire insurance contract deemed to include coverage for specific risks

o Loss caused by fire from explosion or otherwise EXCLUDES: caused by certain factors

o Coverage against fire caused by lightening EXCLUDES: certain electrical issues

o Excluded – contamination by radioactive material- Extended Polices can obtain insurance for excluded areas- All extended policies are outside the fire part

o CIBC v. Nickolievich (1977 MBCA) Extended policies are outside the fire part – they are not specifically excluded from the fire

part, but they are also not includedo Chiason v. Century Ins Co of Canada (1978 NBCA)

Only the loss caused by excluded perils are outside the fire part Extended policies governed by the fire part where risk not specifically excluded Fire classification depends on whether fire is the dominant/incidental risk insured

- After KP Pacifico Now if we had a policy that covered fire policy but also extended coverage not included in fire

coverage under s. 122, the policy would likely be taken out of Part 5 entirely as it would be a multi-risk policy

Group and Individual Insurance

Group Insurance Contracts:- Coverage for classes of individuals with common characteristics (employer, union, prof. association)- Beneficiaries not identified by name in policy- No privity of contract between insurer and beneficiaries (k is between insurer and sponsor)

o Direct claims against insured are permitted despite the lack of privityo Special provision that allows claim even of not the contracting party

- Coverage is for direct benefit of beneficiaries- Insurability of individual beneficiaries is not required – non-medical basis- Not void for lack of insurable interest- Open-ended contract – beneficiaries can include present and future members

Individual Insurance Contracts:- Coverage for one or many individuals, named or unnamed- Privity of contract exists – named insured’s have direct contractual relationship with insurer- Proof of insurability is required

o Must prove a particular relationship with party in order to insure them- Insurable interest in life insurance required

INSURABLE INTEREST

- Nexus between insured and the object of insurance- Relationship should be such that you would have an interest in the object continuing to exists and will suffer a

detriment from the loss of that object- Required for a valid insurance contract- Distinguishes insurance from a wager (BCIA s. 6)

Rationale- Promotes indemnity principle (except life insurance – insurable interest is still required there though)- Discourages wagering- Avoids moral hazard- Promotes public safety

Constitution Insurance Co of Canada v. Kosmopoulos (SCC)- Sole owner of business, insured under personal name, not corp name; fire – claim – rejected because Kosmo

didn’t have insurable interest in the corp assets – he was not the owner, just a shareholder- Held: Valid insurable interest – Factual Expectation Test

o Pragmatic approach that looks at the actual relationship between the insured and objecto As sole shareholder, Kosmo was so place with respect to the assets of the business so as to have

benefit from their existence and prejudice from their destruction- Old Formalistic Approach (Macaura Principle)

o Focuses on property or contractual rightso Legal or equitable interest required insurable interest in property

Factual Expectancy Test:- Close relationship between insured and object of insurance- Insured’s interest in object is legal, equitable or contractual- Legal right not required – reasonable expectation of benefit from status quo and loss from risk is

sufficient

Implications:- Relationship is fact-specific- Flexible determination – possible extension to new property interests- Tangible connection with property required – pecuniary interest

o Ownership/title is relevant but not determinativeo Presumption of insurable interest with legal title, but is rebuttable absent pecuniary interest

Rider v. North Waterloo Farmers’ Mutual Ins (1991 ONGenDiv) Presumption was there, but P was a nominal owner with no real interest, so insurable

interest was rebutted- Actual possession not required

o Laratta v. Peace Hills Gen Ins (1999 ABQB) Transfer of ownership not simultaneous with possession; insurable interest arose when

ownership transferred Despite not having possession yet of a purchased vehicle, insurance was already taken out on

it and was valid, as insured had every interest in the property despite not having possession of it

- Shareholders?o Depends on the nature of the interest in the property being insuredo How about unsecured creditors?

- Stolen property?o Not if it’s known that the property is stoleno If there is possession and belief that the item was validly purchased, then insurable

Statutory Modifications: Life, Accident and Sickness Insurance

Factual Expectancy Test and Non-Indemnity Contracts- Factual expectation – risk of financial loss; non-indemnity k – no proof of loss- Opportunity to profit; moral hazard- Insurable interest is still required – BCIA s. 6 – otherwise it’s a wager- Who’s life is insurable?

o Assured’s own life No insurance on someone else’s life without insurable interest

o Child/Grandchildo Spouse

o Person you are wholly or partially dependent on or from whom you receive support or educationo Employeeo Pecuniary interest in life insured

- Rationale:o Presumption of loss in these categories – no need for family to prove losso Likelihood of moral hazard is minimal

- Contract would be void if insured is outside specified relationships under the BCIA- Exceptions:

o Not required for group insuranceo Insured consents in writing to be insuredo Insured under 16 years, parental consent required

Timing of Insurable Interest

Non-indemnity Contracts- Must exist at the time of the formation of the contract- Avoids betting on things that don’t exist yet in insurable interests- Los of insurable interest after commencement of policy:

o Question of increased moral hazard?o In some cases, it is agreed that policies continue (benefit of children after a breakdown)

- If there was no insurable interest at formation, the contract is void ab initioo Premiums returned, except for where fraud is present

Chantiam v. Packall Packaging Inc (1998 ONCA)- Ex employee of Packall, but Packall retained insurance policy on C’s life; C sought order to stop payments and

to have C take over the policy- Held: insurable interest is only required at the commencement of the policy, subsequent loss of insurable

interest is irrelevanto No contractual / statutory provision to counter this principle – but this could have been bargained for

by the insured at the commencement- Note:

o In Manitoba, legislation exists to allow insured to terminate insurance on his/her life where insurable interest no longer exists

Indemnity Contracts- Must have insurable interest at the time of loss

o Doesn’t matter if the property wasn’t owned/insurable interest at the time of the k formation, just must have insurable interest at the time of actual loss

- Recognizes commercially prudent practices – insuring revolving inventory, etc.- Lack of insurable interest at the time of loss results in a failed claim – not void

o Premiums not refundable absent mistaken belief regarding object of insurance

Insuring Interests of Others

- Allowing persons with partial interest in property to take out policies against the entire property avoids insurance duplication, simplified claims, and access to insurance

Keefer & Quebec Bank v. The Phoenix Insurance Co of Hartford- Keefer selling property, buyer paid in instalments – Keefer keeping value of insurance on whole property- Purchaser had assigned interest to the Bank (which is why the bank is with Keefer on this one)- Held: Keefer can claim 100% of the property’s value, not just the beneficial interest

o There are preconditions for insuring the interests of others though below.

Requirements for Insuring Other’s Interests:- 1. Insured has some insurable interest in the property

o Need not be the entire property, but must have some reasonable expectation of benefit from the continued existence of the property and stand to lose something if the risk occurs (factual expectancy test)

- 2. Intention to insure interests of others – ie, the entire value of the propertyo Must be actual intention to cover the entire value of the property

- 3. Permitted under terms of the contracto K must specifically not say that interests of others cannot be insured

- Disclosureo Insured is under obligation to disclose any information that is material to the risk being insuredo Linked to duty of utmost good faitho In Keefer, there was no obligation to disclose the partial interest, as it was not mentioned in the

contract, so the policy was valid provided there was an insurable interest

Indemnity Principle is maintained:- Full value of the loss is recoverable by the insured, but the amount beyond the insured’s loss is held in trust for

others- So above, Keefer would have to pay back the part that was already paid to him by the purchaser

Statutory Condition 1 (s. 126(2)) - 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.

- Note:o “Fraudulently omits” is a higher standard than simple misrepresentation

Statutory Condition 2 – Property of Others- 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 in it is stated in the contract.- Note:

o Inconsistent with the Keefer application – the interest of the other owner was not stated in the contracto This is often ignored or liberally interpreted

Owner – libererally interpreted: partial interest sufficiento Disclosure of limited interest in insured property not requiredo Basically it’s read as “insurable interest” rather than 100% ownership, so even if the insured has an

insurable interest, then they are a valid “owner” as per this stat condition

Evergreen Manufacturing Corp v. Dominion of Canada Gen Ins Co- Business premises leased by evergreen – lease agreement had insurance clause – so evergreen was obligated to

take out insurance on the building as the tenant- Evergreen insured their own interests and the building – place burnt down – coverage rejected on the building

because insurer said it wasn’t theirs – no insurable interest- Held:

o Insured can recover 100% - consider insured to be the landlord’s agent – landlord can then recover from the tenant – held in trust for those who have suffered (owner)

- Stat condition 2 not applicable where there is an insurable interest- Rationale

o Promotes equitable outcomeo Prevents insurer from declining to cover insurable interests where others have partial interest

- No privity of contract between others interests in the insured property- Insured is indemnified against losses to others with interests in the property by the insurer, unless there is

prejudice to the insurero Maybe the other interest is someone they wouldn’t have insuredo Misrepresentation (stat condition 1) – material concealment (fraud)

Discussion Points:- Inappropriate to interpret a clear condition like stat condition 2 for ownership- Insurer should know when someone other than the owner has a relationship with the property- If there is no separate meaning, then stat condition 2 is really just redundant- Concern for moral and physical hazard – need to know who they are contracting with

o But in evergreen they do ensure that it would not prejudice the insurer- Better for tenant to take out insurance rather than landlord

o Subrogation – if the insurance was taken by landlord, insurance paid to landlord, insurer could then step into shoes of the landlord to go after the tenant if they caused it

Specific Problems Relating to Insurable Interets

Joint Ventures and Sub Contractors:- Multiple persons working on project – eg construction site- Single policy – builder’s risk policy – generally obtained by main builder, but provides protection against

everyone who works on the construction project- Each party has insurable interest in the property- If the loss is caused by a person with an insurable interest, then insurer satisfies the claim with no right of

subrogationo Commonwealth Construction v. Imperial Oil

Insurer is precluded from bringing a subrogation claim against the single person who caused the loss – all parties have common insurable interest in the entire value of the property

- Rationale:o Damage to property of others or entire site inevitableo This avoids litigation between parties and the need of many smaller policieso Simplified coverage for complicated projects – cost effective and simplified claimso Consistent with principles of bailment – even without title, nevertheless have insurable interest in

property through special relationship with the propertyo Guaranteed compensation to rebuild in event of loss

Extensions and Additions to Existing Structures:- Insurable interest not limited to the extension project – extends to the entire building/property

o Medicine Hate College v. Starks Plumbing and Heating People working on an extension have an insurable interests in the entire property because it is

conceivable that the damage can easily spread to the entire building So no subrogated claims against the source of the loss for the cost of repairs to the existing

structure

Who has Insurable Interest in Construction Projects?Candian Pacific v. Base-Fort Security- Limited notion of insurable interest to persons who’s work is integral or necessary to the project- That is, the persons without whose work, the project cannot get off the ground or be brought to successful

completion – collateral/incidental contributors are excluded- Here, CP’s policy did not cover loss caused by BF because security services were not integral to the project –

beneficial but not integral- So insurance paid to CP, and then subrogated claim brought against BF for causing the damage

o Note, here there was no insurance clause in the BF/CP K as was in all the others- Notes:

o It was the insurer’s best interest to have the security there in the first place, without insurance to BF, theft/loss would have been covered by the policy anyways to CP, but insurer would have no one to go after. Here, BF’s presence was only for the protection of the insurance claims really

Family Interests- Coverage for unnamed and named insured’s

o Described as part of a class of some particular characteristics (group coverage similar)- Unnamed insured fit ceratin description outlined in policy, ie family members in homeowner’s policy- Named and unnamed insured have insurable interest in property- Rationale:

o Pro-consumer position – allows everyone in family to be protected, even if property doesn’t belong to named insured

o Privity requires that only named insured can bring the claim for coverage of losses though Funds held in trust for those who lost them

o Reasonable expectation of the partieso Protects unnamed insured from possible subrogation claim by insurer – because unnamed persons have

an insurable interest in the entire property

- Issue: What about loss caused by an unnamed insured (intentional conduct)o Excluded – general provisions disallow thiso Scott v. Wawanesa Ins (1989 SCC)

Loss intentionally caused by child of family (unnamed insured) Held: Claim must be denied, because they are considered together, so claims are joint Dissent: Unless policy states otherwise, the interpretation of the unnamed insured interest

should be limited to their own property and not extended to the entire property – allowing insured to claim all that is theirs, but not what is the son’s

Note: Wouldn’t the dissent open the door to subrogation if the son unintentionally caused

damage to the entire house, but only held insurable interest in his own property?

Automobile Insurance- Vehicle registered and insured by person other than true owner – generally done to attract lower rates- If done just to get a cheaper rate and the insured is just a nominal owner, then no insurable interest- Insurable interest exists if the arrangement is legitimate – funds held in trust for actual owner

MAKING AN INSURANCE CONTRACT

- Contract is broader than policyo Contract may incorporate policyo Policy only contains the terms and conditions that govern the contract

- Policy:o Creates no legal obligation per se – receiving policy alone does not mean contract is formedo Policy does not necessarily evidence the terms agreed to in the contracto Davie v. Pallisner

Generally the effective date of coverage is the next day – here damage occurred the evening the contract was formed – insurer refused coverage

Held: Intention of the parties was for contract to start the next day – no coverage- Contract:

o Insurer agrees to indemnify insured for a special risk

o Does not have to be written – s.1 of the BCIA – particularly with interim coverage, which is generally an oral agreement

o Statutory requirements for life/accident/sickness to be written contracts

Nature of Insurance

Limitations on Freedom of Contract- Stat Conditions in the BCIA (accident/sickness and fire)

o Parties are generally free to include whatever limitations and conditions they agree to, but certain types of contracts have express stat limitations

o Ie. cannot be altered to the detriment of the insured- Unreasonable conditions will not bind insured – s. 129- Government approval may be required for standard form contracts

Essentials of a Valid Insurance Contract- Definition of Risk- Duration of Risk- Premium- Insurance Amount

- Satisfaction is a question of fact- Davison v. Global Gen Ins Co (1964 ONHC)

o Offer not accepted, no contract terms, no insurance contracto Did not agree on premium price – insurer sent over offer, but insured ignored it, and took out policy

with another insurer (global)o Loss suffered, and global insurance triggered, but global sought recovery from initial companyo Held: no valid k between initial insurer and insured – no acceptance of premium

- McCunn v. CIBC (2001 ONCA)o Bank continued with withdrawals after expiry of termo Held: no k because no express agreement between bank and insured – act resulting from oversight is

insufficient to form the contract

Duration of Insurance Contract

Interim Coverage- Provides immediate protection pending review- Duration is less than full term – doesn’t oblige insurer to issue full policy- Exists until superceded by full policy- Legally terminable by either party- Premium is adjusted accordingly – less than full charge- Coverage amount is less than contract amount- Special terms for full coverage not applicable absent insured’s agreement

o 0712914 BC v. Aviva Insurance co of Canada (2007 BCSC) Insurer introduces term that they want included in full coverage – only insurance if there’s an

active alarm system; robbery occurs, no alarm Held: This is not a standard term in the policy, but is something the insurer introduced, insured

did not consent to it being in the K so they were blind sided- Can insurer limit scope of full coverage inconsistently with interim coverage?

o Inconsistency between terms/scope of interim coverage and subsequent policy issuedo Held: no unilateral variation of coverage without notice to insuredo Takeaway: insurer cannot go above the insured and change the contract without insured’s agreement

Duration of Interim Coverage- When full coverage is issued, interim coverage terminates- Can be terminated by either side at any time- If not terminated, expires as stated- Reasonable time

o Situation: full policy not issued, interim not terminatedo Reasonable time for insured to assess requesto Kostiuk v. Union Acceptance Corp (1967 SKQB)

5 months was beyond reasonable time for interim coverage

Payment of Premium- Not essential for the formation of a valid contract- BCIA 14 – if insured hasn’t paid premium, insurer can still be on the hook for the policy- Exception for life insurance – BCIA 38(1) – not effective until premium is paid – policy delivered – and no

changes occur regarding the insurability of the life insured between the payment and delivery

Terminating Insurance Contract

- 1. By specific date or event – as set out in the K- 2. Mutual agreement of the parties

o No prescribed form to agree to terminateo Ellis v. London Canada Ins Co (1954 SCC)

Policy returned at insurer’s request, premium refunded, mutual agreement to terminate Held: Mutually agreed upon termination, insurer requested return of policy, insured complied

and accepted the refund – that is sufficient- 3. Unilateral termination by the Insured or Insurer

o No CL right to do soo Must either be expressly permitted by the contract or the statute

Accident and Sickness – s. 89 stat condition 5 and 6 Fire – s. 126 stat condition 5 Auto – Insurance (Vehicle) Regulation, stat cond 10

o Termination by Insured Notify insurer – notice to agent by registered mail Registered mail to head office or chief agent in province Termination effective upon receipt of notification Refund of unused premium upon surrender of policy

o Termination by Insurer Can terminate without reason – duty of good faith applies though Termination notice to last known address Refund unused premium Effective after reasonable statutory period (5-15 days Allows insured to obtain replacement insurance

Renewing Insurance Contracts- Extends duration upon paying premium beyond period contemplated by the K- Process depends on the structure of the original contract

Continuous Policy- Auto right of renewal- Usually life insurance – continues until death- Procedure in original contract- Extends original contract duration, no new contract

- Unilateral renewal process

Non-Continuous Policy- No auto right of renewal- Must have mutual consent- Discretion to accept or decline renewal- Paying premium within state period constitutes acceptance- Renewal creates a new contract

o However, if insured/insurer changes a key term, should be brought to attention of other party (must? Onus on insured to read?)

Renewal Procedure:- 1 step Renewal Process

o Renewal request with certificate of insurance – process set out in the policyo Premium paid, binding contract formed

- 2 step Renewal Processo Insurer mails renewal offer; o Premium paido Insurer mails certificate of insurance, binding contract is formed

- Patterson v. Gallant (1994 SCC)o 2 step non-continuous renewal processo Renewal notice did not go with certificate of insurance, insured did not pay, no receipt of certificate –

loss occurso Court held: no coverage as no valid insurance in place

If an offer to renew is extended, but not accepted by insured, the insurer does not have to give notice of the termination

Grace Period:- Period between expiry and due date for renewal premium- Contract presumed effective upon payment within grace period- Loss within grace period is covered provided premium is paid within specified time- Discretionary to have a grace period

o Exception – Life insurance – mandatory 30 day grace period (including holidays) But if the last day falls on a Sunday, then next business day is when payment is due

Reinstatement of Lapsed Policy- Failure to renew or contract is terminated- Reinstatement can occur at the discretion of both parties- Life Insurance – stat obligation to renew

o Reinstatement within 2 years of lapsingo Payment of overdue premiums, interests and other debts – interest cannot exceed 6%

- Commencement – no retroactive reinstatement unless otherwise statedo Parker v. Constitution Ins Co of Canada (1983 ONHC) – policy lapsed and loss occurred before

reinstatement went through. No coverage.

DUTY OF GOOD FAITH AND OBLIGATION OF FULL DISCLOSURE

Utmost Good Faith- Duty of disclosure – forthright communication between parties regarding risk – applicant has an obligation to

make full and frank disclosure regarding proposed risk, without even being asked- Duty of disclosure overrides caveat emptor

- Material facts must be disclosed by insured/customero Anything that will help insurer make an underwriting decision, whether to accept proposal, and if so,

on what terms- Rationale:

o Accurate risk assessmento Availability of information

Carter v. Boehm – Lord Mansfield’s Conception of Disclosure Duty- Insurance on a fort; Insured knows it could be attacked, and it is attacked.- Insurer argues that insured breached disclosure duty given knowledge of the potential attack- Held:

o In favour of insured.o This was not a breach because the obligation is to disclose matters of fact, past and present, rather than

opinions/speculationo There was no actual knowledge of the attack, only concerns of ito Insurer could have discovered the state of lax security if effort was put into ito Possibility of attack is something insurer ought to have known – therefore no obligation to disclose –

insured must disclose only that which the insurer has no way of knowing- Outstanding Issues:

o What constitutes a “material fact”o Meaning of information within “Insured’s knowledge”

1. Test for Materiality – Mutual Life Ins Co NY v. Ontario Metal Products- Reasonable insurer test:

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

o Materiality is a question of fact – objectively determinedo Irrelevant whether insurer asked question or considered the question relevanto Would disclosure have affected insurer’s decision?

- In Ontario Metal:o Was coverage provided when it likely would have been declined if disclosure given?o Insured was medicated on substance undisclosed to insurero Held: Held in favour of beneficiary – disclosure of this information would not have influences a

reasonable insurer to deny coverage, so failure to disclose should be neither here nor there

Time for Determining Materiality- At the time of contract formation- There is no link between the cause of the loss and the disclosure in question –only concerned with whether a

reasonable insurer would have denied coverage, or provided different terms, with the full disclosure- Henwood v. Prudential Ins co of America

o Insured’s depression considered relevant even when it was unrelated to her deatho Disclosure of the depression would have caused a reasonable insurer to exclude coverage, change

rates, etc – the K would have been totally different There likely would have been some policy, but not this one, this was a breach at the time of

formation – therefore the K is void ab initio

2. Facts Within the Insured’s Knowledge- Actual or constructive knowledge

o Actual knowledge and that which can reasonably have been knowno Wilful ignorance is not an excuse for not “knowing” of a condition

o This recognizes that there’s no way to know what people actually know - Insured need not know how information will affect insurability

o Upto insurer to determine what issues are material to the K

Canadian Indemnity Co v. Candian Johns-Manville Co (1990 SCC)- Applicant to disclose fully and fairly only known facts- Exclusions:

o Information known or knowable by insurer (common knowledge within relevant industry)o Facts in public domain discoverable through research

If providing insurance to a particular industry, then insurer has the responsibility of knowing the particulars of that industry

o Test: Whether “a reasonably competent insurer” insuring risks in operative industry would have known facts

Coronation Ins v. Taku- T had been insured before by the same insurer and had accidents with them in the past- New policy, did not disclose accidents - pilot- Held:

o There was a clear misrepresentation about seating capacity – insurer needs to be aware of this fact: there was an obligation to disclose – this was a breach – voids the K

o On the issue of past accidents, not a breach of disclosure duty, because the particular company should have known past accidents as he was covered with them in the past when the accidents occurred

Also, company’s accident record was available, some digging would turn it up So no Carter duty to disclose the information This enhanced duty on the insurer is because it was a 3P dependency issue

Requires heightened responsibility on the part of the insurer to take adequate care of those covered by the policy (unnamed)

Implications of Canadian Johns-Manville and Taku:- Narrow duty for insured in information age – limited scope of disclosure duty- Expertise in relevant areas – insurer must be aware of its coverage areas- Insurers to stay informed in areas of service- Cost to insurer and insured

o Information is in the public domain – which is problematic for insurers- Off-loading governmental responsibility

Limited Scope of Insurer’s Duty to Investigate- Greater scope may undermine insured’s disclosure duty- Pereira v. Hamilton Township Farmer’s Mutual Fire Insurance Co (ONCA)

o Insured should not have such a limited scope of disclosure duty – this in effect creates a duty of investigation on the insurer which renders disclosure duty irrelevant

Duty is primarily focused on insured – must no misrepresent anything material Duty of due-dilligence still exists on insurers

o Here, mushroom farm, policy involved a shut down provision for where the farm was no longer up and running; but fact that farm was not up and running at the time of formation was not disclosed

No need for the insurer to second guess the status of the farm Here, disclosure duty cannot be negated by failure of due diligence of the insurer Insurer should be able to rely on the statement of the insured, unless there is cause for further

inquiry from the information provided- Disclosure duty is primarily on the insured- Insurer’s duty to make further inquiries arises only in exceptional circumstances where necessary

Contractual Variation of Disclosure Duty: Warranties

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

o So insurers started putting these in to get around the materiality requirement- Insurer would be able to void contract if breached- Limits insurer’s risk exposure- Future conduct of the insured becomes irrelevant- Gives discretion to the insurer to basically nullify policy where they want to

Limits on Insurer’s Risk Control: Statutory Modifications- Ensures that contracts cannot be altered to the detriment of the insured

General Insurance Policies:- BCIA S. 12 – terms and conditions intended to bind insured to be in writing

o Cannot rely on anything not specifically stated in the contract – all impacts must be in writing- BCIA s. 13 – Warranties of truth abolished; materiality required for non-disclosure or misrepresentation

o K’s can only be voided for misrepresentation or failure to disclose only if the failure to disclose related to a materially relevant fact – using the material fact test

Fire Insurance:- S. 126(2) Stat Condition 1

o Insured not to falsely describe subject property to insurer’s prejudiceo Misrepresent material factso Fraudulently omit material facts

- Insured’s duty cannot be expanded by warrantieso Misrepresentations – intention irrelevant – need not be fraudulento Omissions – required fraudulent act – requires subjective awareness of materiality of facts omitted

- Taylor v. London Assurance Corp (1935 SCC)o Failure to disclose fire in area that was approaching – risk of fire to subject property; property burned

next day; policy was taken out by wifeo Held:

The fire was nearby was a material fact – had they known they wouldn’t have insured the property

But was this an omission or a misrepresentation? Insurer must prove that the insured was aware of the fact in question Must demonstrate that the insured was subjectively aware of the negative impact it would have

on the insured’s policyo Fraudulent omission requires intention to mislead

Breach of duty of good faitho Misrepresentation requires a statement calculated to mislead insurer and reliance on that statement to

the insurer’s detrimento Failure to disclose the risk of the fire was not misrepresentation and not fraudulent omission

Nothing to suggest intention to mislead insurer No evidence of detrimental reliance

- Misrepresentation vs. Nondisclosureo Serious consequences for misrepresentation rather than omissiono Omission must be considered fraudulent to void the contract – insurer must show that insured’s

conduct intended to mislead and there must be detrimental relianceo Concerns:

Narrow scope of insured’s disclosure duty regarding omissions/non-disclosure Distinction between disclosure duty misrepresentations and omissions is arbitrary – potentially

undermines insured’s disclosure duty

Misrep not easily discernible from omissions

Auto Insurance:- S. 75 BC Insurance (Vehicle) Act – Insured not to: falsely describe car to insurer’s prejudice; OR knowingly

misrepresent or fail to disclose facts required to be stated on the application- Meaning of “Knowingly”

o Sleigh v. Stevenson (1943 ONCA) Knowingly – does not require intention to mislead So long as insured knew facts that were to be disclosed – breach Applicant signed insurance form prepared by agent without reading – agent misreported

information from son Held: she signed the form and thereby attested to it’s truth, and the facts she knew were

different, so this was a breacho Barsaloux v. ICBC (2010 BCSC)

Knowledge of the relevant information and that information differing makes statement untrue Test: whether applicant knew at the time of insurance facts that would render the statement

untrue Question as to who would be the principle operator of the vehicle Here, the disclosure duty was not breached because although the insured knew about the other

driver on the vehicle, insured was unaware that if the other driver were the principle driver, that it would effect the insurance

No breacho Berkowits v. Manitoba Public Insurance Corp

Requires deliberate conduct; error regarding address not deliberate – no breach Applicant didn’t provide correct address; insurance for truck to be used around farm, aware

that rural address would provide better premium than city address, but he lived in the city – used his farm address to register the truck and apply for insurance

Trial Court: simple error on part of the applicant – no breach Knowingly means deliberate conduct to mislead insurer Differs from Sleigh – where simple knowledge difference from disclosure is all that is

required- Does not make any mention to materiality

o Berkowits – requires materialityo Not making materiality a requirement would be a step backwards, so it is likely read in

Must still be able to influence a reasonable insurer to deny the policy (or contract differently)

Life / Accident and Sickness Insurance (Personal Insurance Contracts):- Misrepresentation and non-disclosure provisions binding regardless of contractual terms – BCIA- Where assured buys policy on insured’s life, disclosure duty applies to both of them- Material facts known and not disclosed by other person- Notify insurer of changes in insurability between time of application and policy delivery- McLean v. Paul Revere Life Insurance Co (accident and sickness)

o Medical history relevant; consultations with psychiatrists and psychologistso Psych evals done in the context of criminal proceedingso Consults were material – should have been disclosed, even though consults occurred not based on any

symptomso K void for failure to disclose material facts

- Metcalfe v. Manufacturers Life Insurance Co (life)o Hospitalization and treatments for drug use – not disclosedo Insured clean for 6 years before the policy, but relapsed and died after policy activeo Held:

Prior drug use was material for the issuance of the life insurance policy, BUT Saved based on the statutory provisions for life insurance

Even if there is a breach of disclosure duty, after 2 years, it cannot be voidable UNLESS there was fraudulent breach of duty

Incontestibility principle If it were within the first two years, it would have been sufficient to void the K absent

fraud, but because it was after, now needs fraud, not present

Genetic Discrimination Debate- Family history does not provide certainty in whether or not a person will take on a particular ailment- Applicant not required to undergo genetic testing, but are they really in effect not required?

o Based on family history there’s a problem, and the only way to get insurance now is to undergo the testing…

o Some people don’t want to know these things- Purpose of disclosure

o Insurer’s perspective When joining the pool, insurer’s should be able to assess the amount of risk you’re bringing to

the pool- Potential concerns

o Access to insurance Genetic information is avail without genetic testing – not required

o Effect on access to other social goodso Health and quality of life – health care costs

Material Change in Risk- Duration of disclosure duty

o Depends on the insuranceo Auto/fire – continuing duty

- Fire: written notice of material change to risk within insured’s knowledge and controlo Once insurer notified, they must let insured knowif they want to terminate or change terms of the

contract Insured then has 15 days from receipt of that notice to agree to the new terms or contract will

lapse (advanced premiums returned)- Auto: Changes in use of vehicle and primary location when vehicle not in use- Purpose: to reassess the risk and insurability; appropriate premium; terminate contract, etc

Proving Breach of Insured’s Disclosure Duty- Compliance with formation of insurance contract is presumed- Insurer to prove insured’s breach to its detriment- Evidence for rebutting presumption of compliance

o Inaccurate information in written applicationo Easiest way to prove breach is to show written statement of the application along with eveidence of the

truth of the situation

Role of Insurance Agent- Depending on facts, the same intermediary can be considered an agent of either party (not both at the same

time)

Newsholme Bros v. Road Transport- Insured signed completed form; intermediary presumed customer’s agent- Applicant did not read the form but signed anyways- Presumed to have knowledge of the form when signing it – bound to the contents- Held: breach of disclosure duty

Exceptions to Newsholme Principle- Stone v. Reliane Mutual Insurance Society Ltd

o Agent working for insurer, not insured; stone was a company employee who approached a couple to reinstate their policy – completes form and directs them to “sign here”

o Held: Unreasonable to attribute the intermediary’s error to the insured rather than the insurer Insured could reasonably believe that because they dealt with insurer before, presumably they

already knew of claim history Notes that insured made a mistake by not reading the form but negated by her lack of

education – completely relied on Stone- Blanchette

o Authority to fill forms and finalize coverage – customer had no opportunity to review informationo Held: intermediary gave customer the impression that with a quote and payment for that quote, you

have interim coverage – no opportunity to review information

Concerns:- How would customers feel about intermediary being considered their agent regarding disclosure duty?- The agent wants to make a sale, and is never really working for you

Life, Accident and Sickness- Presumption against agency- Intermediary is presumed insured’s agent to insured’s prejudice – BCIA

o Presumption here is that regardless of whether the intermediary is an independent salesperson, an employee of the insured, or whatever, the presumption is not to think of the agent as working for the insured.

Ambiguous Questions- Objective Test – how reasonably intelligent person in customer’s position would have understood the question

o Stewart v. Canada Life Assurance 1999, aff’d 2000 ONCA

Proof of Materiality- Only entitled to void if the breach relates to a material fact- Onus is on the insurer to prove the info was material and the’d do it different had they known about this

information (not given coverage or contracted for different terms)- Question is whether the reasonable insurer would have acted similarly knowing the information?- However, presumption of materiality

o Based on insurance common practices unless contradicted by the insuredo If insurer tells court that they would have been influenced differently with the information, then the

court will basically assume that this insurer speaks for the reasonable practice No requirement to adduce evidence to show what other insurers would have done Onus shifts to insured to show that insurer’s practice is inconsistent with practices of

reasonable insurers- Recall Henwood:

o Only evidence of reasonable practice came from executives of insurance companyo No link between depression and MVA causing death, but her depression was not disclosedo Insurer stated they would have insured, but under different termso Court held that there was no reason to believe that a reasonable insurer would have acted differently

Majority was comfortable allowing members of the insurer speak for the standard practices of that company

Dissent feels that the customer is not well protected by shiftin onus because evidence shows that employees didn’t actually know what the practice of other insurance companies were

Prejudice to the Insurer- Proof of breach of disclosure duty per se is legally insignificant

o If the effect of the breach is neutral in the risk assessment then doesn’t actually make a difference – there must be some prejudice to the insurer

Subjective Materiality- Where there’s a reasonable basis to actually find out what this actual insurer would have done, then there’s no

reason to rely on what the objective insurer would have done- Must be reasonably certain evidence of this- Evidence of actual practices would take precedence over reasonable insurer practices

Nuvo Electronics Inc v. London Assurance- No material non-disclosure; insurer would have not acted differently; reasonable insurer conduct irrelevant- Prior claim that the insured didn’t disclose- Court held that there is no breach here, but if there was, there would have been no prejudice and insurer

wouldn’t have been induced into provided protection when it otherwise wouldn’t haveo Evidence showed that this information does not usually make a difference to the insurer’s practices

Effects and Consequences of Breach of Insured’s Disclosure Duty- 1. Repudiate Contract

o void ab initioo Insurer realeased from contractual obligation; notify insured of termination; premiums refunded absent

fraud- 2. Ignore breach

o treat the contract as valid- 3. Unilateral Termination

o This would allow insurer to keep part of the premiums; obligation is only to return the unused premiums; for a 12 month k, if unilateral term at 11, they only lose 1 month of premium

Statutory Modifications

Life; Accident and Sickness- Contract is voidable

Incontestability- Contract (including reinstatement) not voidable after 2 years unless breach fraudulent- Actual fraud required; insured knowing misled insurer or was reckless

o McLean v. Paul Rever Life Insurance Co Criminal context psych assessment – not disclosed to insurer of accident and sickness policy Contract over 2 years; breach was fraudulent

Insured knowingly provided false information Contract voided There was fraud here because insured hid the facts from insurer

o Metcalfe v. Manufacturers Life Insurance Co Hospitalization and drug treatment not disclosed Held: incontestability – not voidable

The facts were material, but after 2 years, statute kicks in Unreasonable to rely on his agent the way he did, but this did not amount to fraud He was willing to provide the information, so no fraud

- Rationale:o Timely and Thorough review of applicationso Reasonable expectations of insured and beneficiaries

Misstatement of Age

- No nullification – doesn’t entitle insurer to void k if this was the only problem, but insurer is given some options

- Benefits or premiums can be adjusted

Fire: Severability- Contract void vis-à-vis property/risk subject to breach- The entire K is not voided, rather the aspect of the risk property that is causing the problem in light of the new

info is signalled out and severedo Eg. Insured says property is used in one way and has low risk of fire, not true, the k is voided in

relation to that risk or subject property, and the rest of the K lives on

Auto:- Contract invalidated; recovery forfeited – s. 75 Insurance (Vehicle) Act- When claim is forfeited for breach of disclosure, it extends to everyone who is claiming through the insured’s

policy, or on their behalf- This only affects the insured; it does not effect the other person they hit in the MVA.

Causation, Fairness and Insured’s Disclosure Duty

Marche v. Halifax Ins Co (SCC)- Can court use its discretion to relieve insured of the effects of stat cond 4?- S. 129(b) gives courts discretion to disregard unreasonable condition or term- Here, place was left vacant – should have been disclosed – no longer vacant, fire burns it down- Majority

o S. 129 not limited to contractual conditions – also applicable to unreasonable stat conditionso Unjust to deny coverage where material change in risk is rectified before loss and the loss was

unrelated to the temporary change to begin with Note: this can be distinguished from cases where disclosure duty would render a contract void

ab initio – here no issues at formation, and the breach is rectified prior to the loss- Dissent

o Discretion only application to contractual conditionso Breach in question was a stat condition, hence inapplicableo Disclosure duty strictly should be enforced – need not be causally linked to losss

- Notes:o Dissent is predictable at leasto If there is a breach, then the contract is void right then and there, why is it ok if it’s rectified?o Dissent is more in tune with the purpose of insurance

LEGAL LIABILITY OF INSURANCE AGENTS AND BROKERS

Typical Scenario- Intermediary’s fault results in lack or inadequate coverage- Intermediary is personally liable for this action- Rationale:

o Professionals not mere salespersons – trained in area of insuranceo Insured entitled to rely on that expertiseo Higher standards of careful and prudent conduct

Generally an extensive relationship – based on longterm trust and agent likely knows the needs of the insured quite well

Basis of Intermediary’s Liability

Agency Law- Ostensible authority to conclude contracts and detrimental reliance

o If ostensible authority, then insurer can still be responsible to insured – but insurer can go after the intermediary

Contract- Fines Flowers v. General Accident Assurance

o Intermediary was supposed to provide full coverage for the insured – received commission for services rendered

o Policy ended up not covering certain aspects, but they were considered “wear and tare” and are not covered by any policy

o A separate contract is formed between insured and agent, than the insurance contract Service in exchange for commission from insurer

o Here, no agreement on meaning of “full coverage” Loss not covered under any policies Parties may not have had meeting of the minds – disagreement over what constitutes “full

coverage”

Torts:- Tort liability can be limited in the contract- Expectation of reasonable care implied against insurance agent- Agent liable for losses from failure of due care

Equity:- Breach of fiduciary duty- Suggested in Fines Flowers, but not typically used

Scope of Intermediary’s Duty- Depends on nature of service product sought

Full Coverage- Instructions may be specific of vague- Intermediary is to obtain appropriate coverage or advice of its unavailability / gaps- Advise customer of available option

o In addition to getting the insured what they want, they must advise of all the options and where gaps remain

- Rationale:o Intermediary is a professional with specialized knowledge

Results in a high standard of careo Reasonable reliance on intermediary’s expertise for coverageo No opportunity for alternative protection

- Fines Flowers v. Gen Accident Assurance o Customer’s instruction was to provide full coverageo Obligation – to get them everything tha was commercially available, but also to advise them of the

gaps to give them opportunity to account for those gaps

Special Coverage- Reasonable skill and care to obtain required coverage- Obtain requested coverage or advise of unavailability / gaps- Sandborn Wholesale Ltd v. Pottruff & Smith Insurance Brokers Inc

o Customer asked for a specific insurance policy- stock that remained on premiss was not part of the coverage provided – he had asked for transportation insurance only

o Intermediary came to location to sign paperwork and mentioned that inventory was not covered as part of the policy – insured asked if it was available, intermediary responded would have to look into it – insured told him not to worry and that he didn’t want it

o Held: Request was for transportation insurance, which was provided and the intermediary advised of

the gap, but insured didn’t act on it

Ongoing Duty- Convey information between insured and insurer- Asses changes in client’s needs and advise accordingly- Even if advice was adequate when given, but client situation changes over time giving rise to different needs,

there is an obligation on intermediary to assess client’s new situation and advise accordingly – including advising of new gaps and how to protect against them

- Beck Estateso Breakdown of relationship of woman and man; woman used same brokerage firm for her policies

before and after breakdowno They saw her change of address and the sole tenant’s policy on her new placeo They knew of the change in relationship status, so they knew the risk of her maintaining the joint

home-owners’s policy on the marital home that she and husband had owned but now only he lived in Intermediary should have advised her of the risk – acts of one insured can effect the other Intentional loss caused by the ex husband on the home – so she was unable to claim for the

losso Insurer still provided some settlement out of good faith, so this case was against the intermediary in the

amount of difference between the settlement amount and the value of the homeo Note: BCIA 28.6 would have changed the outcome of this case

Unsolicited Information- Provision of optional/additional coverage

Fletcher v. Manitoba Public Insurance Co- Insured asked for full-insurance, employee only discussed basic coverage with client- Accident – other driver at fault – their insurance didn’t cover total damages, insured’s insurance didn’t cover

short-fall coverageo This was an available option, but this information was not given to insured

- Held:o Insurer cannot count on customer’s knowledge, this information should have been provided by the

intermediary to the customero Public vs. private insurance agents – there is a difference – below

- MPIC was found liable o Providers of auto insurance routinely provide info to customerso Foreseeable that customers will rely on information regarding available options to make informed

choices and reasonable reliance by customerso Public insurer not to assume too much regarding customer’s knowledge

Scope of Duty: Private Insurance Agents v. Public Insurers

Private:- Information about available coverage and what meets customer’s needs – including gaps in coverage

Public:

- Accurate information about available coverage, including optional coverageo Not the same level of expectation as from private insurance agentso But still high enough to require employee in Fletcher to provide information about options available

Rationale:- Private agents are licenced professionals; individualized service; opportunity to assess customer’s needs and

advise accordingly; work on commission- Public agents are not licenced or experts; work in institutionalized settings; no opportunity for private

/individualized service; fixed salary

Defences- There may be room for contributory negligence – insured may be obliged to exercise due care to ensure

necessary coverage requestedo So if they have a disregard for their own personal situation, and took action below that of a reasonable

person in their own situation, they could be contributoriliy negligent- Obligation to read information provided by the intermediary

o CIA Inspection Inc v. Dan Lawrie Insurance Brokers