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

A fire loss occurred at the UPEI Student Centre. The Centre was in the midst of a renovation and expansion whereby the old UPEI Alumni Gym would be selectively demolished and integrated within the new facility. The insurer had provided the "all risks" insurance coverage to the general contractor for the construction project. The insurer denied coverage on the basis that the fire loss involved the Gym, which according to the insurer was excluded from coverage under the "all risks" policy pursuant to a contractual exclusion for existing structures. UPEI then filed its proof of loss with its own property insurer which paid the claim and brought a subrogated action in negligence against all contractors and sub-contractors on the site who may have been tortfeasors.

Two sub-contractors brought third-party proceedings against the insurer for a declaration that the "all risks" policy that the insurer issued to the general contractor was the primary property insurance in respect of the loss and that the sub-contractors were unnamed insureds under that policy.

After the close of pleadings and completion of oral discovery on the third-party claims, the sub-contractors brought a motion for summary judgment against the insurer for judgment on the third-party claim.

The main issue on the motion was whether the fire loss occurred to a structure that was included or excluded from coverage. The policy provided as follows:

"1. This Policy, except as herein provided, insures

(a) property in the course of construction, installation, reconstruction, or repair."

The insurer issued an endorsement on the "all risks" policy which stated:

"It is hereby agreed that permission is granted for the continuing use and occupancy of the premises for the purposes necessary or incidental to such premises.

It is further agreed that coverage under this policy attaches only to section under renovation and not to existing structure."

The issue therefore was whether coverage under the "all risks" policy covered the damage caused by the fire that occurred in the Gym.

The court concluded that the Gym structure was dedicated to the construction project. The Centre was to be a new building.  The design of the Centre incorporated specific components of the Gym including three brick walls, foundation, steel roofing, and steel girders. During performance of the work, problems were discovered with the structural integrity of the Gym, and reinforcements were commissioned. That undertaking was assigned to one of the sub-contractors which brought the third-party proceedings.

The court also found that insurer's understanding of the construction project was materially at odds with that description.  The insurer understood that the new construction was an addition that would be attached to an existing structure. The Certificate of Insurance described the project as "renovation/additions student union building…". At the time of the fire the Gym was within the construction envelope and under renovation. It was part of the construction site. The contractor had control of the building. It was not then a building for use and enjoyment as a Gym. The court concluded as follows:

"(1) that the property damaged by the fire was property within the construction site and subject to the construction project;

(2) that the fire loss occurred during the operation of the construction project; and

(3) that the "all risks" insurer was operating under a misapprehension that the project was an addition to an existing student-union building and that the Alumni Gym was an existing and occupied building."

Despite these findings, the court found that the insurer's defence survived the "good hard look that is to be applied at the summary judgment stage." The court held that there were questions of fact that would or could involve full evidence at trial. When the fire occurred, the construction project was at a very early stage. There was also a question of fact regarding the nature of the property that was damaged by the fire. On this basis the Court found that the matter should proceed to trial and the motion for summary judgment was dismissed.

The Insured was injured in several motor vehicle accidents. She received disability benefits under a disability plan (the "Plan") administered by the Association. The Plan provided the Association with a right of subrogation in respect of benefit paid thereunder. The Insured subsequently settled her civil actions with Saskatchewan General Insurance ("SGI") and the Association claimed a subrogated interest in the settlement funds. The Association was successful in an application for summary judgment finding that the Insured was required to repay disability benefits that had been provided to her in the amount of roughly $27,900.

On appeal, the Insured argued that because the lawyer who had acted for her in settling the motor vehicle accident cases had also agreed to act for the Association with respect to its subrogation rights, this created a conflict of interest which should operate to preclude the Association from acting on its rights of subrogation. The Chambers Judge found that if the Insured did have valid claims against third parties, such as her lawyer, she could pursue them in other proceedings. The Court of Appeal agreed and noted that any failure by her lawyer or any actions by SGI in relation to the subrogation issue would not negate the Association's rights under the Plan.

The second argument advanced by the Insured was that the Association had no right of subrogation because it had failed to comply with various provisions in the Saskatchewan Insurance Act (the "Act"). The Court of Appeal noted that the provisions in the Act operate with respect to "contracts of insurance" and that it was not clear whether the Plan was a contract of insurance. The coverage at issue was not provided by a third party insurer, but rather, by the Health District or the Association on its behalf. The second difficulty with this argument was that the provisions in the Act which the Insured relied on did not apply to contracts of "accident" and "sickness" insurance. Since coverage provided under the Plan was in the nature of disability insurance coverage, the Plan would, on its face, come within the meaning of accident or sickness insurance as these terms were used in the Act. Thus, even if the Plan was a contract of insurance, it would not attract the provisions that the Insured sought to rely on.

The Insured also argued that the Chambers Judge had erred with respect to the amount of money he had awarded to the Association. In particular, she argued that because she received less on settlement than she had demanded for past income loss, the amount that the Association was entitled to collect from her should have been reduced in the same proportion. The Court of Appeal rejected this argument, finding that there was no legal basis for concluding that the Association's claim should be cut back to reflect the compromise that the Insured had made in settling her lawsuit.

The insured made a number of other arguments which were not persuasive, including an argument that the Chambers Judge had erred in failing to recognize the stress that the proceedings had caused her or the loss of opportunity which they had involved.

The Court of of Appeal therefore found that there was no basis for interfering with the decision of the Chambers Judge.

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.

The Plaintiff brought an application to amend its Statement of Claim seeking damages for business interruption; mental distress on behalf of the corporate directors; and punitive damages for loss of reputation and loss of business incurred by the Plaintiff corporation. In the underlying action, the Plaintiff, 539091 Ontario Ltd. (c.o.b. Len’s R.V. Sales) ("Len’s R.V. Sales") sued its insurer, Allianz Insurance Co. of Canada ("Allianz") alleging bad faith after a fire broke out at the corporate premises. Mr. and Mrs. Ager were the shareholders and directors of the Plaintiff Len’s R.V. Sales.

The Defendant, Allianz opposed the amendments on the following grounds: counsel for the Plaintiff had already confirmed there would be no claim for business interruption loss which constituted an admission that should not now be withdrawn by the amendment; the corporation’s directors were not named insureds and therefore did not have any claim under the insurance policy; and a claim for punitive damages had already been pleaded in the Statement of Claim.

The first issue was whether the statement by Plaintiff’s counsel that there would be no claim for business interruption loss constituted an admission. Plaintiff’s counsel submitted the statement, contained in a letter following a request made at an examination for discovery, was not an admission as it was not made by Mr. and Mrs. Ager, the company’s shareholders. The Court found that the solicitor’s statement constituted an informal admission that was not binding on the Plaintiff who gave it. The Defendant would not suffer prejudice if the admission was withdrawn and the amendment was permitted.

The second amendment sought was to add a claim for damages for the mental distress of Mr. and Mrs. Ager caused by the nature of the claim and the handling of it by the Defendant insurer. The Defendant argued that this claim was not tenable at law because the shareholders were not named as insureds under the Policy. The Court found that Mr. and Mrs. Agers were not named insureds under the Policy. However, it could not be said that there was no contractual nexus between the Agers and the insurer given the limited scope of coverage extended to officers and shareholders. Whether it is sufficient to ground the duty of care is an issue that should be left for trial to be decided on a full evidentiary record.

 Accordingly, the Plaintiff was granted leave to amend its Statement of Claim to seek damages for mental distress on behalf of the Agers as officers of the Plaintiff corporation.

The Testator willed his land and cottage to one of his children and her husband and the rest of his estate to another group of heirs.   He died in the fire that damaged the cottage.

The Fire Investigator had provided a report in which he concluded that the Testator died from smoke inhalation before the cottage was substantially damaged.   The Executrices of the will of the Testator applied for directions as to whether the heirs of the estate or the heir of the interest in the cottage  were entitled to the insurance proceeds for the damaged cottage.

The Court held that, based on the evidence of the Fire Investigator, it appeared the Testator died before there was any substantial damage to the cottage. Consequently, the cottage passed to the personal representative of the deceased, with the beneficial interest to the heirs of the estate at the time of his death.  As the "substantial damage" occurred after the "legal" and "beneficial title" had passed, the insurance proceeds were likewise payable to the heirs that had an interest in the cottage as opposed to the estate.

The Claimant Strata Corporation brought an action against the owners of an individual strata unit (the "Owners") for damage caused by a burst water pipe. The failure was due to high acid levels in the local water and not to any negligent act or omission by the Owners.

The cost of the repairs was approximately $3,700, which was less than the $10,000 deductible in the insurance policy held by the Strata Corporation. The Strata Corporation accordingly looked to the Owners for the cost of repairs. The owners had a household insurance policy with the Insurer, which provided a limit of $2,500 in respect of liability of a strata owner for an assessment in respect of any insurance deductible of the Strata Corporation. This amount was paid by the Insurer to the Strata Corporation in partial settlement of the claim. The Strata Corporation then sought to recover the balance of the claim ($1,287.80 plus costs) from the Owners.

The same household policy held by the Owners provided that, upon payment of a $500 deductible by the Insureds (i.e. the Owners), the Insurer would pay for the remaining property damage for which the Insureds were found to be "responsible". The trial judge considered whether it could be said that the Owners were "responsible for the loss or damage" and answered this question positively. In particular, her honour held that because the Owners had a duty to repair and maintain the premises, they were "responsible" for the loss.

She therefore ordered the Insurer to pay the Strata Corporation $787.80 on behalf of the Owners, after taking into account the $500 deductible. The Supreme Court judge upheld this decision, finding that "being responsible for the loss or damage" was not the same as being negligent.

Duke was an engineering technician who entered into a critical illness insurance policy with Clarica. At the time he entered into the policy, Duke had no particular health concern and was farming, flying regularly and running 6 km a day, three times a week. He passed his pilot’s physicals on a regular basis. Duke further passed a physical by a physician retained by Clarica. Subsequently, the plaintiff was diagnosed with Parkinson’s disease.

 During the investigation into his condition, Duke told one of his physicians that, in hindsight, "I’d been carrying my arm on an angle and dragging my heel" over the last five years. Once diagnosed with Parkinson’s disease, Duke made a claim for critical illness benefits under the policy. Clarica denied coverage based upon an exclusion in the policy excluding coverage where "the insured person had a covered critical illness or any symptoms associated with a covered critical illness before the date the policy came into effect".

 The Court held that the requisite timing of the association of the symptoms with the covered critical illness was unclear from this exclusion clause. The Court noted that it could not determine from a plain reading of the exclusion clause that having symptoms of Parkinson’s disease before the policy was issued would exclude coverage whether or not anyone made an association between the symptoms and Parkinson’s disease as of that date. In this case, the Court interpreted the ambiguity in the exclusion clause against Clarica and in favour of Duke such that, under the exclusion clause, the association of the symptoms with Parkinson’s disease had to occur before the policy was issued to exclude coverage. The Court found that neither Duke nor any of the physicians who had treated or assessed him had "associated" his symptoms with Parkinson’s disease prior to the issuance of the policy.

Therefore, the Court held that the exclusion clause did not apply and Clarica had improperly denied the critical illness benefits under the policy.

The Insured had a builder’s all-risk insurance policy with the Insurer that insured it against all risks of direct physical loss or damages in connection with the construction of a railway tunnel and also insured against the costs associated with delayed opening expenses.

During the course of construction of the tunnel, a tunnel boring machine ("TBM") failed to perform as anticipated, resulting in substantial loss and damage to the Insured and a delay in the opening of the new tunnel. The Insured made a claim under the policy which was denied by the Insurer on the ground that the TBM was faulty and that the policy excluded coverage for any loss or damage caused by faulty or improper design. The trial judge found that the design of the TBM was not faulty or improper, as the excess differential deflection that caused the failure was not foreseeable and that the exclusionary clause therefore did not apply. The trial judge awarded the Insured a significant sum under the policy.

 On appeal, the Court of Appeal was asked to consider whether the trial judge had erred in holding that the excess differential deflection that caused the TBM’s failure was not a foreseeable risk and that the faulty or improper design exclusion therefore did not apply. The Court of Appeal allowed the Insurer’s appeal, finding that the trial judge had erred in his conclusions. Specifically, the Court of Appeal noted that there was evidence given at trial, which the trial judge had ignored, to the effect that the designer of the TBM was aware that differential deflection posed a serious potential danger to the TBM’s sealing system. Further, the extent of this potential danger had been investigated by the designer and others on behalf of the Insured prior to the use of this machine on the tunnel project.

The Court of Appeal concluded that, contrary to the findings of the trial judge, the design of the TBM was inadequate to meet a known risk of possible failure of the TBM. As such, the design of the TBM was faulty and the exclusion in the policy applied. The Insurer was therefore entitled to deny coverage to the Insured on this basis. The Court of Appeal allowed the Insurer’s appeal and dismissed the Insured’s claim. The Insured’s cross-appeal was dismissed.

The Insurer, GCAN Insurance Company ("GCAN"), applied for a declaration that it had no duty to defend the Respondents. Two strata companies had brought an action against the Respondents alleging that, inter alia, the Respondents built a defective building envelope which allowed water ingress, which in turn caused damage to the interior and exterior of the building.

GCAN argued that the decision of the British Columbia Supreme Court in Swagger Construction Ltd. v. ING Insurance Co. of Canada, 2005 BCSC 1269, was determinative of the issue, and was binding. The Respondents argued that Swagger was (1) distinguishable; (2) a judicial aberration that ought not to be followed, or (3) applicable only to general contractors, but not to owners, developers, or general partners. The Court accepted the third argument of the Respondents, and found that the "own work" type coverage or exclusion from coverage did not apply to owners or developers, but was limited to general contractors. The Court stated: stands for the principle that in the context of an insurance policy covering physical injury to tangible property, defective construction is not an "accident" (and therefore coverage is excluded) unless there is damage to the person or property of a third party. To deny coverage to the owner/developer when they took no part in the construction of the project is essentially akin to saying that the general contractor and the owner/developer are the same parties. While the precise roles of all the parties involved must be determined on the facts at trial, at this point it can at least be said that the "Named Insureds" contained within the Policies are not all the same party.

Swagger

 […]

 It would be unfair to allow the insurer to avoid defending an owner/developer for work performed by the general contractor in which the owner/developer took no part (paras. 95-97).

The Court therefore granted the declaration in respect of the general contractor, but found that GCAN was obligated to defend the other Respondents.

The Insured was an employee of the City of Toronto, which had a contract with the Insurer to provide health and disability benefits to City employees for injuries sustained in the course of their employment. The Insured, a truck driver and loader for the City, was injured in a motor vehicle accident that occurred during the course of his employment. He made a claim for long-term disability benefits from the Insurer, who denied the claim on the ground that the Insured had elected to proceed with a civil action against the other driver, rather than pursue his application for Workplace Safety and Insurance benefits ("WSIB").

The Insured had brought an action against the Insurer for payment of benefits under the policy, but before trial the Insurer sought a preliminary determination of the Insured’s entitlement to such benefits and the appropriate deductions assuming that entitlement was established. The motions judge held that the Insured was not entitled to receive LTD benefits from the Insurer because of his election to proceed with a civil action.

The Court of Appeal considered the relevant portions of the Insurer’s LTD plan and specifically Article 4, which provided for monthly benefits payable to an employee who was insured under the policy. Article 4 stated that the amount of monthly benefits payable to an employee would be reduced by any payment to which the disabled employee was entitled to under any Workers’ Compensation Act or under the disability benefit provisions of the Canada or Quebec Pension Plan. Article 4 further provided that in order to receive benefits under the Plan, the employee must make an application for any disability benefits for which he or she might be eligible under any Workers’ Compensation Act or comparative legislation or insurance provision, or under the Canada or Quebec Pension Plan. The Insured had made an application for WSIB benefits, but had then elected to proceed with a civil action against the third party driver, leaving his application for benefits outstanding.

The Court of Appeal considered the effect of s. 30 of the Ontario Workers’ Compensation Act, which provided that, depending on the amount of damages obtained by the Insured in the civil action, his application for WSIB benefits might still result in payment of some benefits to him. Accordingly, the Court concluded that the Insured was entitled to receive LTD benefits under the policy having met the condition precedent of making the application for benefits that he might be entitled to.

The Court of Appeal further concluded that the Insurer was entitled to reduce the monthly benefit payable to the Insured under the policy by the amount of any WSIB benefits to which he would have been entitled had he not elected to proceed with the civil action.