Interpreting Insurance Policies
- POLICY INTERPRETATION
What is included, what is excluded?
-Standard form: Not much thought given to precisely what the terms mean/negotiation, so heavy burden on insurer to clearly reflect their intentions. Courts try to ascertain reasonable mutual intentions
-Custom form: Negotiated and insured often is large company with its own legal team
-Potential sympathy for insured still exists, because negotiated policy is often made by agent/broker who just takes clauses from standard form contracts that are not unique to insured’s situation: Jesuit Fathers
Two step process: Consolidated Bathurst
(1)Unambiguous Language
-Give words their plain and ordinary meaning
-If word has two meanings, use the meaning that reasonably promotes the true intentions of the parties: what did parties contemplate at the time contract was made (not with hindsight)
-Do not negate the objective of the contract based on technical meanings
-Do not give either party windfall
-Terms that are just statues written into contract do not demonstrate intentions
(2)Ambiguous Language
-Occurs when there are multiple reasonable meanings or irreconcilable provisions
-Generally, ambiguities are resolved in insured’s favour:
i. Contra Proferentem
-Ambiguous terms interpreted against insurer (party who drafted contract)
-Exception: statutory terms are immune because drafted by neither party
ii. Coverage provisions broadly construed; EC narrowly construed
-Applies to statutory provisions
iii. Satisfy parties’ reasonable expectations at the time of the contract
-Only use this when there is an ambiguity in the contract, EXCEPT when unambiguous term would threaten very purpose of the contract
-Protect RE of both parties (not just insured)
iv. Public policy of consumer protection / pro-coverage: Brissette
-Do not give insured unfair advantage by stretching terms beyond their reasonable meanings. Interpretation principles still trump public policy, even if harsh result: Vytlingam
-There are other mechanisms to protect consumers: relief from unreasonable terms and conditions, waiver and estoppels, etc.
CASE LAW
Consolidated Bathurst: Insured experience consequential loss from corrosion of heat exchanges. Normally wear and tear is excluded, and policy had EC for actual corrosion. Majority said EC did not cover consequential damages resulting from corrosion, so don’t extend EC this far. Big dissent: how can you separate loss from corrosion and consequential loss from corrosion?
Jesuit Fathers: insured does not get coverage from policy with EC that excludes claims arising from insured’s negligent acts, if insured was aware of potential claims before the policy was put in place
Corbould: insured does not get coverage because of EC about pollution/contamination. Oil leak fits squarely within EC. Only look at parties’ reasonable expectations if there is ambiguity in the contract
Reid Crowther:insured gets coverage. He knew about potential claim before he renewed policy, but court says it is okay because insurer cannot force a gap in coverage just because insured got wind of a potential claim—would negate purpose of insurance and contradict reasonable expectation of parties
Brissette: H kills W, but he is beneficiary under W’s life insurance policy. Ambiguity because policy does not provide for what happens if beneficiary causes death. Dissent says to interpret contra proferentum and create constructive trust for H. Majority says court does not follow interpretation rules slavishly, and public policy will not allow for this interpretation.
- LOSS CAUSED BY ACCIDENT
Purely fortuitous (blameless accident)negligencegross negligencerecklessintent to cause loss
-Insurance can only cover uncertain events / fortuitous loss
-Implied exclusion: cannot insure expected losses (intentional acts, wear and tear)
What constitutes fortuitous / accidental loss?
-“An unlooked for mishap or occurrence”
-Liberal interpretation of accident applies to both liability and first party contracts: Stats
-Includes negligence and gross negligence (when insured took on the risk, didn’t think it was negligent)
-The insured takes a calculated risk, but does not expect the loss to follow: Walkem
-The insured did not desire the outcome in question: Walkem
-Unexpected consequence of grossly negligent actions is covered: Stats
-Excludes recklessness
-When insured took on the risk, they realised the danger of their actions and deliberately assumed the risk
-Excludes intentional conduct
-It is okay if the actions were intended, but not okay if the outcome was intended: Martin
-Consider subjective-objective assessment of insured’s state of mind: Martin
-Excludes loss from natural causes (unclear law)
-When a loss is unexpected but it is not and “accident” (ex. Dying in sleep)
-Was there an external cause (accident) or is it all arising from internal cause (natural)?
-Even if there is an external cause, if it is part of ordinary course of events and was not a mishap or trauma, it will not be considered an “accident”: Gibbens, Nelson
-Includes loss to property from faulty workmanship
-Property damage includes damage to any tangible property (includes 3rd party property and original building): Progressive
-Reasonably foreseeable loss from faulty workmanship can be “accidental” so long as resulting loss was not expected / intended / desired. The damage need not be sudden and can result from continuous repeated exposure: Progressive
CASE LAW
Walkem Machinery:Negligent repair of crane and insured wants indemnification for damage to third parties. Insured won: the insured was negligent, but did not actually desire the outcome, just took calculated risk. Court rejects tort analysis of negligence = reasonably foreseeable = expected.
Martin:Doctor killed himself from overdose of IV painkillers. Insurer refused to pay based on intentional conduct. Court disagreed. Don’t consider if the actions were intentional, consider whether the outcome was intentional. Doctor did not intend to die.
Stats: Drove drunk and even refused a ride. Insured wins because outcome not expected by insured
Kolbuc: Bitten by West Nile mosquito and contracted disease. Court says that the disease is natural, but it arose from an accidental event (no reported cases of West Nile yet)
Wang: Woman died on course of childbirth from very rare condition. Court said that although it is very rare, it is essentially something every woman giving birth could experience. Loss arose completely from natural causes with no external factor, so not covered.
Gibbens: Guy had unprotected sex, got herpes, became paraplegic. Court said no coverage because loss arose from natural cause. There was no external force that caused the loss, but rather something that could happen naturally from engaging in unprotected sex. Risks of STDs were well known.
Nelson: Old man died from arrhythmia while swimming (not drowning). Cold water might have brought on arrhythmia, but swimming was part of his natural routine, so although it might have triggered arrhythmia, it was not a mishap / untoward event / trauma so not an “accident”
Progressive: Faulty workmanship is causing condo to leak – loss is covered because although it was reasonably foreseeable, it was not intended so still considered and “accident”
- LOSS CAUSE BY INTENTIONAL / CRIMINAL ACTS
At Common Law
-Complete bar for intentional / criminal acts
-Rationale: PP against benefiting from crime
-Problem: Innocent 3rd parties or co-insureds get no compensation
Statutory Modification
-If contract terms includes common law criminal forfeiture principle, then no recovery
-If contract is silent about criminal acts, then statute prevails:
BCIA s.2.3:Subject to contract terms, violation of law does not render an indemnity claim unenforceable under the contract, unless the violation is committed by insured (or by another person with consent of insured) with the intent to bring about loss or damage
BCIA s.28.6: NOT SUBJECT TO TERMS OF CONTRACT: If you are innocent (co-insured or third party) and not in any way tainted by the other person’s conduct, you are allowed to claim, but your claim will be limited to your interest in the property
Definition of “intentionally caused loss” for exclusion
-Includes all criminal conduct in CCC, regardless of intentional or not: Eichmanis
-Problem: mensrea? Some crimes don’t require intention. DOES NOT MATTER.
-Includes deliberate conduct intended to cause particular loss / outcome
-Excludes deliberate conduct that causes unintended harm: RDF
-So long as some damage was intended, it is irrelevant that scope of resulting harm was more than contemplated: Saindon, Emeneau
-Intent to cause harm is presumed for inherently harmful conduct (ex. Sexual wronging): Scalera
Proving insured’s intention to cause harm
-First try to ascertain subjective intent: Martin
-If difficult to ascertain, consider subjective-objective approach (would reasonable person in those circumstances have seen the outcome to be reasonably certain? If so, there is intent): Martin
Concerns with Intentional or Criminal EC
-Inconsistent with interpretation principles (gives broad interpretation to an EC against insured, when EC are supposed to be read narrowly)
Knutsen:
-Purpose of criminal exclusion is to deter criminal conduct: allowing non-criminal calculated risk losses (Martin) but disallowing unintentional criminal losses (Eichmanis) makes no sense
-Crimes can happen by accident – behavioural deterrent effect of EC is lost on these crimes
-Criminal EC should require mensrea element to the crime (subjective mental intent)
-Less of a problem now, because s.28.6 allows for innocent parties to recover regardless of EC
-Crime victims compensation schemes can help victims who cannot recover based on insurance
- AUTOMOBILE INSURANCE
s.7 BCIVA: Coverage for loss or injury arising from “use or operation of a motor vehicle”
s.76 BCIVA: Victim has right to bring action directly against tortfeasor’s insurer
-If hurt in motor vehicle accident, first claim no-fault and if that doesn’t cover, claim indemnity
-Once past purpose test for no-fault, causation is easy. Indemnity is much stricter.
Two part test: Amos
(1)Purpose Test
-Did accident arise from well-known and ordinary activity normally associated with use of motor vehicle?
-Satisfied if vehicle is being used as a vehicle
-Liberal and contextual interpretation of “use or operation” (off-roading, pushing vehicle)
-It is irrelevant that the conduct is illegal or dangerous: s.76(6)(c)
-This broad reading is the same for no-fault benefits and indemnity / third party liability claims
(2)Causation Test
-Is there a sufficient causal relationship (not necessarily a direct or causal relationship) between the insured’s injuries and ownership, use or operation of the motor vehicle?
-No causation if connection between injury and ownership/use/operation is merely incidental
-No causation if injury due to existence of “an intervening act, independent of the ownership/use/operation which breaks the chain of causation”
No fault (first party):
-Focus on the insured
-Vehicle does not need put be the instrument that hurts insured, just needs to put insured in harm’s way (requires very basic connection between injury and vehicle): Amos
Rationale: consistent with parties’ reasonable expectations to focus on insured. People buy no-fault benefits for peace of mind. Expectation that if vehicle somehow contributes to injury, you will be covered.
Indemnity (third party):
-Focus on tortfeasor
-The tortfeasor must be at fault as a motorist
-Requires unbroken chain of fault between vehicle and injury/loss
-Criminal nature of the conduct is irrelevant: Vytlingam
Rationale: consistent with parties’ reasonable expectations to focus on the use of tortfeasor’s car. Expectation that auto indemnity coverage protects you from losses arising from harm caused by another person’s vehicle. Sympathy for claimant is irrelevant.
Steps:
- Purpose: was vehicle (tortfeasor’s or insured’s) being used as a vehicle. Easy to satisfy
- Causation:
- First party: focus on insured. Did vehicle contribute in any way?
- Third party: focus on tortfeasor. Was vehicle direct cause, or intervening act?
CASE LAW
Eichmanis: Teen holding handgun accidentally injured someone and convicted of negligence causing harm. Court ruled for insurer. Criminal forefeiture EC that insurer had is not limited to criminal conduct involving mensrea (intending to cause harm): it includes all breaches of CCC. Criminal conviction not required. If the EC is triggered, no duty to defend.
RDF: Boy lit fire on school grounds and caused damage to property. Insurer said no duty to defend because intentional harm, and claim in negligence was just a strategy to make insurer pay for loss. Held: insurer must defend because might be deliberate actions causing unintended harm (covered).
Saindon: Insured lifts lawnmower to scare neighbour, but actually cut off neighbours fingers. Held: once you intend to do some harm (assault by scaring neighbour) it does not matter that the resulting harm was much worse than you anticipated.
Emeneau: Insured tried to kill himself and in the process blew up his truck and caused damage to neighbour’s property. Held: insured intended to cause harm to himself and his property, so does not matter that resulting harm was more than expected. Insurer is not liable.
Scalera, Sansalone: Insured’s sexually assaulted third party and claim that battery can be argued both intentionally and negligently, so insurer must defend them. Held: No, some kinds of wrongdoing (sexual) have inherent intention to cause harm.
Automobile
Amos: Insured was injured when vehicle surrounded by attackers with intent to break into car. SCC created 2 part test. First party coverage granted. Liability would have been denied because tortfeasors were not using vehicle as a weapon.
Pender: Driving vehicle off road is ordinary and well known use of vehicle, so passes purpose test.
V-Twin Motorcycles: Pushing motorcycle during driving lesson passes purpose test
Vytlingam: Family injured when rocks thrown at their car. Irrelevant to purpose test that the vehicle was being used for illegal purposes. Family gets no-fault benefits, but they are not enough. They do not get liability coverage because tortfeasor’s rock throwing is severable from his conduct as a motorist.
Whipple:Drunk old man hurt himself when doing headstand in party vehicle. Purpose satisfied: the antics were within ordinary use of the party vehicle (it was advertised this way). Causation satisfied (first party): partying while moving was the purpose of this vehicle, and no intervening act. Insured’s negligence is not a factor in determining accident for no-fault benefits.
Herbison: Tortfeasor’s insurer does not have to pay on third party liability because shooting the gun was intervening act. Using the car to get to hunting site does not satisfy purpose test.
Russo: Drive by shooting case. Tortfeasor used vehicle to get away, but shooting was intervening act and direct cause of her injury. No indemnity coverage.
Chan: Someone threw brick from moving vehicle and it injured her. SCC criticised it by saying BCSC should have recognised rock throwing was direct cause of harm, independent of vehicle (I think this goes too far)
Object falling off moving truck: Probably would be covered under indemnity because the falling rock injures person because it is moving quickly, which is direct result of being on vehicle.
Public Policy Restrictions
-Courts will nullify contract where completion would violate PP:
1. Criminal acts
2. Suicide
- CRIMINAL ACTS – Criminal Forfeiture Principle
Insuring Illegal Activity
-Public policy prohibits recovery
-Contract terms and parties’ intentions are irrelevant
-Coverage for illegal activities (ex. Drug trafficking) is always unenforceable, even for innocent third party who does not know about the illegal activity
-Other people in insurance pool should not have to pay premiums to subsidize my illegal activity
Valid Insurance Contract
-When the contract is valid, but the loss arises due to criminal activity
-Wrongdoer is barred from recovery
-Contract remains valid, but the particular claim is unenforceable
-Innocent beneficiaries and innocent third parties can recover: Oldfield, Goulet
-No recovery when insured intended the loss (must be miscalculation/accident)
Recovery by or through criminal’s estate
-If innocent beneficiary must make claim through estate of criminal, they will not be covered
-If innocent beneficiary can make independent claim, they will receive coverage
-Problem: this emphasis on the difference between relationship of criminal to insurance policy and innocent beneficiary to insurance policy is nonsensical. Ex. Family named as beneficiary gets proceeds, but family named in will does not: Oldfield
Relationship between contractual terms and PP
-Unless statute provides otherwise, PP will always trump contractual terms
-Cannot contract for something that contravenes PP
Punishing wrongdoer v. compensating victim
-Victims precluded from being compensated under liability
-Wrongdoer not compensated (obviously), but insurer is totally excused from contract