Limitation period in policy trumps Limitation Act

Appeal by the insured from the dismissal of his action on the basis that the action was brought outside the one-year limitation period in the Insurance Act. The British Columbia Court of Appeal held that the trial judge erred in law in failing to apply the two-year limitation period contained in the policy and further that the policy limitation gave rise to a rolling limitation period.

Sander v. Sun Life Assurance Co. of Canada, [2011] B.C.J. No. 5, January 6, 2011, British Columbia Court of Appeal, L.S.G. Finch C.J.B.C., M.E. Saunders and K.E. Neilson JJ.A.

The appellant insured, a former dentist, received disability benefits from the respondent insurer under a group insurance policy after being diagnosed with cataracts. The insurer advised the insured in June 2001 that no further benefits would be made because the insured had refused to undergo cataract surgery as was required under the policy. The insurer provided the insured with a notice of denial by letter dated June 29, 2001. The insured underwent cataract surgery in 2003 but maintained that he was still unable to practice dentistry. He then commenced an action for disability benefits.

At issue was whether the insured’s action was barred for being commenced outside the limitation period. At summary trial, the Supreme Court of British Columbia held that the action commenced by the insured was barred by s.22(1) of the Insurance Act, R.S.B.C. 1996, c. 266 (the “Act”) which mandates that, “…every action on a contract [of insurance] must be commenced within one year after the furnishing of a reasonably sufficient proof of loss or claim under the contract…”. The summary trial judge held that the one-year limitation period was triggered when the respondent insurer provided the insured with a notice of denial by letter dated June 29, 2001. The limitation period for issuing a Writ of Summons therefore expired and the Writ of Summons was issued out of time.

The insurance policy held by the insured stated that:

“No action or proceeding against the Company for recovery of a claim under this policy shall be commenced more than two years after the date the insurance money became payable or would have become payable if it had been a valid claim.”

The Court held that the limitation period in Part 2 of the Act guarantees a minimum level of protection. However, the Court held further that the insurer must be held to the terms of the contract it provided where they are more favourable to its insured than the provisions of the Act. The Court held that insurers are only prohibited from providing a less generous limitation period than that which is prescribed in Part 2. The Court held that nothing in s.3(a) prevents an insurer from stipulating for a limitation period greater than in the Act itself. As such, the Court held that the two-year limitation period as set out in the insurance policy prevailed over that set out in the Act.

The insured argued further that the wording in the policy limitation has been interpreted in cases involving continuous entitlement to benefits as creating a “rolling” limitation period where that cause of action accrues at each successive interval at which benefit instalments are to be paid. In other words, so long as the insured continues to be entitled to benefit payments as a result of a continuous disability, the cause of action against the insurer is renewed every time a benefit becomes payable.

The Court held that upon review of the insurance policy, it was clear that the insured had a right to monthly benefit payments so long as he met the conditions of the insurance policy with regard to total disability. The risk insured against was continuing total disability and in that sense, insurance money was also payable on a continuing basis after the prescribed elimination period. As such, the Court concluded that each benefit payment gave rise to its own limitation period and the insured had a continuing claim through the period of disability. That claim was not extinguished by the failure to sue within two years of the commencement of that continuum. The insured’s claim accrued monthly and therefore the limitation must be viewed as commencing a new on each successive entitlement.

The appeal was allowed and the order of the summary trial judge set aside. The action was remitted to trial for determination of whether the insured was entitled to benefits under the insurance policy for the period of two years preceding the date on which he issued the Writ of Summons and anytime thereafter.

This case was digested by Aaron D. Atkinson and edited by David W. Pilley of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact them directly at aatkinson@harpergrey.com or dpilley@harpergrey.com or review their biographies at http://www.harpergrey.com

Coverage for theft when keys left in the vehicle

In a case concerning coverage under a motor truck cargo insurance policy, a truck driver locked a truck and secured the two flatbed trailers, but left the keys under the floor mat inside the cab of the truck.

Following a theft, Lloyd's Underwriters ("Lloyd's") argued that this loss was not covered, because the policy in place only applied to trucks subject to such trucks "having all their openings closed, securely locked and all keys removed…."

The Plaintiff’s action against Lloyd's with respect to the disappearance of cargo on one of its truck trailer units was allowed.  The court held that "all keys removed" created ambiguity as to whether the keys were intended to be removed from the locks or from anywhere in the truck.  The Court found the wording of the Unattended Truck Endorsement was ambiguous, and interpreted the policy wording against Lloyd's.

421205 Alberta Ltd. (c.o.b. Schroeder Transport) v. Lloyd's Underwriters, [2011] A.J. No. 311, March 17, 2011, Alberta Court of Queen's Bench, J.M. Ross J.

Lloyd's issued a motor truck cargo insurance policy to the Plaintiff which included an exclusion for "any losses from unattended trucks while in the ordinary course of transit". The Lloyd's policy also contained an Unattended Truck Endorsement which provided that, in consideration of an additional premium charged, the policy was extended to included losses to cargo "directly resulting from forcible and/or violent entry to unattended trucks, subject to such trucks having all their openings closed, securely locked and all keys removed…."

On March 1, 2006, a truck and two flatbed trailers owned by the Plaintiff and insured under the Lloyd's policy were stolen from the parking lot of a truck stop. A cargo of electrical cable reels was stolen from the trailers. The two trailers had remained attached to the power unit and the driver had locked the doors of the power unit, leaving the keys under the floor mat or on the floor of the cab. The driver had gone into the truck stop leaving the truck unattended as defined in the Lloyd's policy. The Plaintiff made a claim on the insurance contract as Lloyd's had denied coverage on the basis that the keys had not been removed from the truck.

The Plaintiff argued that it was entitled to the protection of the Unattended Truck Endorsement and the fact that the keys were left inside the locked truck was immaterial. The Endorsement extended coverage to include losses directly resulting from forcible and/or violent entry. In this case, all of the openings were closed and securely locked and, therefore, access to the power unit must have occurred due to forcible and/or violent entry. Lloyd's disagreed with this interpretation noting that the coverage provided was specifically made subject to the trucks having "all their openings closed, securely locked and all keys removed". Lloyd's argued that the phrase "all keys removed" was unambiguous and means that all keys must be removed from the truck. The Court disagreed noting that it was possible that the phrase "all their openings closed, securely locked and all keys removed" created ambiguity as to whether the keys were intended to be removed from the locks or from anywhere in the truck. The Court could not resort to the common practice in the industry as no evidence was placed before it with respect to whether or not it was common practice to leave unattended trucks running where the weather was extremely cold, as suggested by the Plaintiff. However, given the ambiguity in the wording, the Court held that this was one of the appropriate cases to resort to the contra proferentem doctrine with the result that the policy must be interpreted against the insurer.

The Court rejected the submission put forward by Lloyd's that the claim was statute-barred. Section 3(1)(a) of the Limitations Act provided for a two year limitation after the date on which the claimant first knew, or in the circumstances ought to have known, "that the injury was attributable to the conduct of the defendant…". The Court agreed with the position set out in Johnson v. Wunderlich (1986), 57 O.R. (2d) 600, that in an action for breach of contract, the cause of action arises from the date of the breach and that such a breach occurs when the insurer denies liability or the insured knows or ought to know that his claim will not be honored. In the case at bar, the action was commenced within two years of the receipt of the denial from Lloyd's. Therefore, the action was not statute barred.

In the result, the Court found that the Plaintiff's claim for the disappearance of cargo from one of its truck trailer units was covered under the Unattended Truck Endorsement of the Lloyd's policy.

This case was digested by Jonathan D. Meadows and edited by David W. Pilley of Harper Grey LLP.