Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

Pansy Burry was insured under a fire insurance Policy (the “Policy”) at the time when her house was destroyed by fire on December 31, 2000. She was represented by counsel, and made a claim for insurance benefits after December 31, 2001. Co-operators General Insurance Company (“Co-operators”) had issued the policy, and denied her coverage on the basis that statutory condition 14 of the Fire Insurance Act requires any claim for insurance proceeds to be made within one year of the occurrence. 

Ms. Burry commenced an Action for entitlement to insurance proceeds under her insurance policy. Ms. Burry was successful at trial against Co-operators based on the decision of the Supreme Court of Canada in K.P. Pacific Holdings Ltd. v. Guardian Insurance Co. of Canada, 2003 SCC 25, [2003] 1 S.C.R. 422. Co-operators appealed the declaration. In hearing the appeal, Roberts J.A. noted the reasoning relied upon in K.P. Pacific Holdings Ltd. for not applying the limitation periods contained in the legislation pertaining to policies providing fire insurance to all-risks or multi-peril policies is equally pertinent to the case at Bar. There is nothing in the language of the Fire Insurance Act which exempted it from K.P. Pacific’s persuasive authority. The trial judge did not err in deciding as he did and the appeal was dismissed. 

A second issue raised on appeal was: even if the statutory condition did not apply, was the limitation period still valid since it had been incorporated into the wording of the insurance policy? Roberts J.A. cited the decision of the Manitoba Court of Appeal in Royal Bank of Canada v. Red River Valley Mutual Insurance Co. (1986), 28 D.L.R. (4th) 595 for the proposition that:

…The mere fact that the statutory conditions are printed on the policy form does not mean that they have been adopted contractually by the parties. Their inclusion in the policy form is a requirement of the Act…. Whether or not the statutory conditions, in addition to being a statutory requirement, have been adopted contractually by the parties must depend on the circumstances of each case. [p. 601]

The Newfoundland Labrador Court of Appeal found the reasoning of Twaddle J.A. in Royal Bank of Canada persuasive and dismissed this aspect of the appeal as well.

Crosbie Industrial Services Ltd. ("Crosbie") was insured by Lombard General Insurance Co. of Canada ("Lombard") under a commercial general liability policy. Crosbie, a cleaning company, was hired as a subcontractor to clean a large fuel oil storage tank. The tank exploded after cleaning and the owner of the tank, Ultramar, sued Crosbie for damages for loss of the tank, cost to dismantle it and other related costs. Crosbie defended the action, claiming the accident was inevitable and made allegations of negligence against Ultramar and another contractor. In addition, Crosbie issued and served a Third Party Notice and a Statement of Claim on Lombard, seeking indemnification if Crosbie was held liable. Lombard denied it had a duty to defend the action because it considered Ultramar’s claim outside the scope of Crosbie’s policy.

On a summary trial application, the Judge concluded that Lombard had a duty to defend on behalf of Crosbie and ordered Lombard to pay Crosbie’s costs of applying for the determination of insurance coverage on a party and party basis. In addition, Lombard was required to provide Crosbie with full indemnification for the defence of the allegations that had been made against it by Ultramar. Crosbie appealed the decision of the summary trial judge on the basis that it was entitled to full indemnification, or solicitor and client costs, for the action it had commenced to compel Lombard to provide coverage.

Crosbie did not make any allegation of bad faith against Lombard, nor did it rely on bad faith conduct as a basis for requesting costs on a solicitor and client basis. The Newfoundland Court of Appeal noted that the summary Judge neglected to consider that the basis for a solicitor and client cost award may be found in the insurance contract itself. The Court noted that this issue was discussed in detail in M.(E.) v. Reed (2003), 171 O.A.C. 145 (ONCA) (leave to appeal refused [2003] S.C.C.A. No. 334):

[22] Entitlement to solicitor-and-client costs in the third party proceeding flows directly from the unique nature of the insurance contract which entails a duty to defend at no expense to the insured. The obligation to save harmless the insured from the costs of defending the action is sufficiently broad to encompass the third party proceedings. It is the contractual basis for the claim to solicitor-and-client costs that justifies the award and therefore constitutes an exception to the usual rule that solicitor-and-client costs will not be awarded except in unusual circumstances.

In the case at bar the insurance contract provides for payment relating to defending an action for damages to property covered by the insurance contract. However, although the language is specific regarding the cost of defending an action covered by the insurance contract, specifically noting that these costs will not reduce the monies available to indemnify the insured under the policy and that the insured is entitled to full indemnification, there is no mention of costs where the duty to defend is disputed by the insurer. The Court concluded that, in the absence of a clear indication to the contrary, the insured is entitled to full indemnity of its costs related to enforcing the insurer’s duty to defend.

The insured’s obligation with respect to costs in this context is broadly stated in the Reed decision. The Newfoundland Court of Appeal noted that it had not been directed to any authority that would lead them to conclude that this case is different from that reached by the Ontario Court of Appeal in Reed. It therefore follows that Crosbie is entitled to full indemnity for expenses incurred in enforcing Lombard’s duty to defend it against Ultramar’s claim.

Ms. Arnold was injured in a motor vehicle accident. She commenced an action against Ms. Davidson and Ms. Davidson’s insurer, Enterprise Rent A Car Canada Ltd. ("Enterprise"). In addition, Ms. Arnold commenced an action against Wawanesa Mutual Insurance Co. ("Wawanesa") under an SEF 44 family protection endorsement, which would provide Ms. Arnold with insurance benefits to the extent that the damages in the action that she commenced against Ms. Davidson were not covered by Ms. Davidson’s insurer, Enterprise.

Wawanesa brought an application to compel Enterprise to produce a copy of its Certificate of Insurance [ with Ms. Davidson ] in the action that Ms. Arnold had commenced against Wawanesa. The Court noted that Enterprise was not a party in that action and as such, the determination of disclosure of the Certificate of Insurance was governed by the Court being satisfied that the production of the document was necessary for disposing fairly of the proceedings or of saving costs, and was not injurious to the public interest. Enterprise opposed production of its Certificate of Insurance relying upon Peters and Fireman’s Fund Co. of Canada (1984) 45 O.R. (2d) 149 (O.N.H.C.) and Lamie v. Royal Insurance Co. of Canada [1994], N.S.J. No. 433.

Wawanesa argued that although many provinces have legislated disclosure of policy limits, in this case, Enterprise had already orally disclosed its policy limits to Wawanesa. Wawanesa was not satisfied with this disclosure and requested the actual Certificate of Insurance.

Dymond D. J noted that it was not until liability had been proven against Enterprise that Wawanesa could have any potential liability to Ms. Arnold in the action that she has commenced against them. In addition, unless Enterprise was held liable for a claim greater than its policy limits on behalf of Ms. Davidson, it would never be called upon to disclose to Wawanesa its policy coverage. Dymond J concluded that there would not appear to be a nexus that connects the application for production of Enterprise’s Certificate of Insurance to Wawanesa at this time. Dymond J determined that the present application was premature and that the Enterprise’s Certificate of Insurance was not producible to Wawanesa.

Mr. Ollerhead lived in a fishing community on the outskirts of St. John’s. He was the owner of a nightclub named the Club Commodore ("Commodore"). The Commodore was built in the early 1940s and consisted of a wooden frame on a concrete foundation. Originally Mr. Ollerhead was interested in obtaining "replacement cost" fire insurance on the Commodore, but was advised that such insurance was not available for nightclubs.

Mr. Ollerhead retained an insurance broker and reviewed several insurance policies. He chose a policy from Ecclesiastical Insurance Office PLC ("Ecclesiastical") which provided insurance for the "actual cash value" of the Commodore. The policy provided for an increasing scale of premiums based upon the value of the property insured. Mr. Ollerhead paid for premiums to insure the Commodore up to a maximum of $300,000. At the time that he purchased the insurance, he was aware that the market value of the property was $200,000. However, Mr. Ollerhead did not want market value insurance, he wanted replacement cost insurance or the equivalent.

On December 18, 2001, the burglar alarm at the Commodore was triggered, and the police were alerted. When the police arrived at the scene, they discovered that the building was on fire. Although the Torbay Volunteer Fire Department immediately dispatched a fire truck to the scene, the building was completely destroyed. The fire investigation did not determine the cause of the fire, but there was no evidence of accelerates and Mr. Ollerhead fully cooperated with the police. After the fire, an appraiser determined that the market value of the building was $181,000, but that the replacement costs of the building, less accumulated depreciation, was $256,311.

Ecclesiastical advised Mr. Ollerhead that the actual cash value of the building was $181,000 pursuant to the terms of the policy. Mr. Ollerhead took the position that the actual cash value of the building was the replacement cost of the building, less accumulated depreciation. Ecclesiastical provided Mr. Ollerhead with payment of $181,000.

Mr. Ollerhead commenced this action against Ecclesiastical to recover the $75,311, amongst other things. The issue to be decided was the meaning of "actual cash value" in Mr. Ollerhead’s policy of insurance. Halley J. noted that there was no definition of the phrase "actual cash value" set out in the insurance contract. Halley J. noted that in determining the meaning of "actual cash value" in the context of the facts of this case and the insurance contract, it was necessary to consider the rules established by the Supreme Court of Canada for the interpretation of insurance contracts. Specifically, Halley J. noted Consolidated Bathurst Export Ltd. v. Mutual Boiler Machinery Insurance Co. (1979), 112 D.L.R. (3d) 49 in which the Court noted that the Court must search out a construction of the contract that would capture the true intent of the parties and that they "should be loath to support a construction which would either enable the Insurer to pocket the premium without risk or the Insured to achieve a recovery which could neither be sensibly sought nor anticipated at the time of the contract". In addition, Halley J. relied upon Brissette Estate v. Westbury Life Insurance Co. (1992), 96 D.L.R. (4th) 609 for the proposition that where words are capable of two or more meanings, the meaning that is more reasonable in promoting the intention of the parties will be selected, that any ambiguities will be construed against the Insured, and any interpretation that would result in either a windfall to the Insurer or an unanticipated recovery to the Insured should be avoided.

Both parties brought legal precedents and articles which supported their client’s interpretation of the meaning of the phrase "actual cash value". Halley J. noted that while these cases and materials were interesting, they were not helpful because the meaning of the phrase must be determined on a "case by case basis" with an emphasis on the facts which may indicate the intention of the parties at the time of the execution of the insurance contract. Halley J. placed significant weight on the evidence of the insurance broker, Susan Winsor, who testified that although she knew the market value of the building and land was approximately $200,000, she did not believe that that figure was relevant because she was satisfied that "actual cash value" meant replacement costs of the building, less its depreciation. She further testified that she would not have permitted Mr. Ollerhead to over-insure his property and to pay additional premiums to insure his property for $300,000. Halley J. went on to determine that the intention of the parties at the time of the execution of the fire insurance contract was that the "actual cash value" meant the replacement costs of the building, less its accrued depreciation. Accordingly, Mr. Ollerhead recovered the $75,311 from Ecclesiastical.

Halley J. noted that Mr. Ollerhead and Ecclesiastical had a legitimate disagreement with respect to the meaning of the phrase "actual cash value". Ecclesiastical had negotiated with Mr. Ollerhead in a fair and reasonable manner, and that there were no grounds for either punitive or aggravated damages against Ecclesiastical.

Ultramar is an owner of a marine terminal which has a number of large fuel storage tanks for petroleum products. The tank in question had a 70-foot diameter and a height of 37 feet and a capacity of 25,000 barrels of petroleum. In June of 2002, Ultramar contacted Rancur Petroleum Services ("Rancur") to clean the tank. Rancur did the prep work and engaged Crosbie Industrial Services Limited ("Crosbie") to complete the cleaning. While the tank was being cleaned, gas inside the tank exploded and the tank was ruptured and partially collapsed. It was ultimately determined to be completely destroyed. Ultramar claimed damages for the loss of the tank; costs of dismantling its twisted remains and securing the area; loss of storage capacity; and costs of altering the distribution network and other related costs necessary as a result of the loss of storage capacity.

On the day that the tank exploded, Crosbie’s employees cleaned the tank and removed waste material without any incident. Crosbie’s employees took their lunch break, and were scheduled to hydroblast the tank in the afternoon. While Crosbie’s employees were on their lunch break, Mr. Curlew, the president of Rancur, without advising the employees of Crosbie, closed the tank vents and the manway cover at the entrance to the tank. After lunch, the Crosbie’s employees proceeded with the hydroblasting work, not realizing that the tank vents and manway covers had been closed over the lunch hour. Approximately 20 minutes after the Crosbie’s employees began hydroblasting the tank, an unexplained fire and then a subsequent explosion occurred, causing the damage to the tank and some minor injuries to Crosbie’s employees. Crosbie applied to its insurer, Lombard General Insurance Company of Canada ("Lombard") for coverage under its policy of insurance. Lombard refused to provide coverage, and refused to defend Crosbie for the action that had been commenced against them by Ultramar. Crosbie then issued a Third Party Notice against Lombard seeking a declaration of an entitlement to insurance coverage, and to have Lombard defend the allegations made against Crosbie pursuant to the policy of insurance.

Crosbie had a commercial general liability occurrence-based policy with Lombard. The policy contained a property damage exclusion clause which noted that insurance does not apply to:

5)   That particular part of real property on which you are a contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the "property damage" arises out of those operations; or

6)    That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it ...

Lombard refused to cover the loss on the basis that the damages fell outside the scope of the policy. This application dealt with whether Lombard was required to defend Crosbie for the action commenced against Crosbie by Ultamar.

In determining whether Lombard had a duty to defend Crosbie, the court applied the legal principled contained in Halifax Insurance Company of Canada v. Imnopex Ltd. et al, [2004] I.L.R. I-4338, and from the Reasons for Judgment of Iacobucci J. in Monenco Ltd. v. Commonwealth Insurance Co., [2001] 2 S.C.R. 699 (S.C.C.). The court noted that in order to make a determination with respect to whether coverage existed the court must first review the pleadings to determine whether or not the possibility of an obligation to indemnify arises. Where the pleadings give rise to a doubt as to whether the allegations fall within coverage, such doubt is to be resolved in favour of the policy holder. Finally, the court noted that in seeking to determine the "substance" and "true nature" of a claim, the court is entitled to go beyond the pleadings and consider extrinsic evidence. Extrinsic evidence can be referred to when it has been explicitly referred to within the pleadings, and when it would assist the court in appreciating the nature and scope of an insurer’s duty to defend.

Counsel for Lombard relied upon an American case of Jet Line Services Inc. v. American Employers Ins. Co. 404 Mass. 706 (Sup. Ct. 1989), which the court noted dealt with a factual situation nearly identical to the present case. In Jet Line Services, the insured was performing cleaning operations on a storage tank. The Massachusetts court held that the exclusion clause in the commercial general liability policy would extend to damages arising not just from the particular part of any property in which operations were being performed but would extend to the entire portion of the property and damages associated with the entire property. Lombard argued that Jet Line Services provided a clear precedent upon which the law should be excluded from coverage under the policy of insurance.

Crosbie argued estoppel based on Lombard’s dealing with it regarding an incident which took place in Corner Brook, and for which an investigation ensued by Lombard’s adjusters for 16 months until April of 2002. Crosbie stated that following the incident, Lombard never informed Crosbie that the potential claims arising from the Corner Brook incident may not be covered under the insurance policy. The insurance policy issued to Corner Brook by Lombard contained the same exclusion clause as the current policy. The Corner Brook incident involved a similar explosion to a fuel tank. Crosbie relied upon Maracle v. Travellers Indemnity Co. of Canada, [1991] 2 S.C.R. 50 for the proposition that a party relying on the doctrine of issue estoppel must establish that the other party has by words or conduct made promises or assurances which were intended to affect the legal relationship and to be acted on. Furthermore, the representee must establish that in reliance on the representation, he acted on it or in some way that changed his position. The court further noted that although the promise must be unambiguous, the promise could be inferred from circumstantial evidence.

Both Lombard and Crosbie presented affidavit evidence detailing the representation made in the Corner Brook incident. The trial judge determined that Lombard’s conduct in the handling of the Corner Brook incident combined with the statements of their employee to Crosbie during the Corner Brook incident amounted to a representation which would lead a reasonable insured to believe coverage existed for the type of loss in the subject matter of the action that had been commenced against Crosbie by Ultramar. Lombard had taken no steps to inform the insured that no coverage existed. The trial judge determined that Lombard was estopped from arguing that Crosbie was not insured under its policy of insurance due to the manner in which it handled the Corner Brook claim. Therefore, the trial judge determined that Crosbie was entitled to coverage for the loss and for the defence of the allegations made against them by Ultramar.

The Appellant Insured was involved in a motor vehicle accident in September 1999. All of the parties involved in the accident got out of their vehicles, inspected the scene and discussed the situation. No damage was evident to any of the vehicles and none of the parties believed that they had been injured. The parties did not exchange any information and each left the scene of the accident. The Insured later felt pain and discomfort and was subsequently diagnosed with a soft tissue injury. She commenced an action for damages pursuant to s.33 of the Newfoundland Automobile Insurance Act, R.S.N.L. 1990, c. A-22, which allows an Insured to obtain from its Insurer damages for accidents involving unidentified automobiles if the identity of the vehicle’s driver or owner cannot be ascertained. The trial judge held that the Insured could have easily ascertained the identity of the at fault driver or owner immediately following the accident. As she chose not to, she could not prove that the identity of the driver or owner could not be ascertained. As such, her claim was dismissed.

On appeal, the Court held that the onus is on the Insured to prove that the identity of either the owner or driver of the at fault vehicle cannot be ascertained. This burden ought not be unduly onerous, but an Insured must prove that all reasonable efforts in the circumstances were made to ascertain identity. The Court further held that the relevant time period over which to determine the reasonableness of the Insured’s efforts commences at the time of the accident, not when an Insured becomes aware of injury and hence a cause of action.

The Court applied this reasonableness standard and held that at the time of the accident, the Insured was capable of ascertaining identity but made no efforts to do so. As such, she could not prove that the identity of the driver or owner of the at fault automobile could not be ascertained. In addition, the doctrine of contra proferentum did not apply to the statutory terms of the insurance policy and the Insured was not entitled to relief from forfeiture since the denial was not based upon imperfect compliance with a condition of the policy but rather due to a dispute with respect to the Insured’s proof of entitlement to coverage.

The appeal was therefore dismissed.

A fish plant belonging to the Plaintiff Insured was destroyed by fire in December 1995. The plant and its contents were insured under two policies, one covering the stock and another covering the building and equipment.

The Insurers denied coverage. The stock Insurer claimed the owners of the Insured or persons acting on their behalf committed arson to collect on the insurance money. They also relied on several alleged policy violations by the Insured which served to vitiate the policy, as did the building and equipment insurers.

With respect to the claim under the stock policy, the defence of arson advanced by the stock Insurers failed as they did not prove to a high degree of probability that the fire was incendiary nor did they eliminate all reasonably probable causes for the fire other than arson. The court also held that the Insured did not violate the policy in any way which warranted vitiating the policy.

With respect to the claim under the building and equipment policy, the defence of breach of policy was unsuccessful, since, any violations were more technical than substantial.

The Insured was therefore entitled to the damages proven. The Insured’s claim for general damages, aggravated damages and punitive damages was dismissed. The Court held that the Insurer’s actions did not reach the exceptional level required for such an award.