p&c insurance in british columbia: top cases & industry developments 2012 – 2013 insurance...

P&C Insurance in British Columbia:Top Cases & Industry Developments

2012 – 2013Insurance Institute of British Columbia

June 6, 2013

TABLE OF CONTENTS

1. Legislative Changes

2. Duty to Defend

3. Duty to Indemnify

4. Defence Costs

5. Additional Named Insureds

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TABLE OF CONTENTS

6. Exclusion Clauses

7. Subrogation: Covenants to Insure

8. “But For” “Material Contribution”

9. Brokers and Agents

10. Bad Faith

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1. LEGISLATIVE CHANGES2. DUTY TO DEFEND

Raman Johal

1. LEGISLATIVE CHANGES

Limitation Act , SBC 2013 c. 13

Insurance Act SBC 2012 c. 1

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LIMITATION ACT, SBC 2013 c. 13

Came into force on June 1, 2013

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• Basic 2 year limitation period (default)

• Current 30 year ultimate limitation period replaced with a 15 year ultimate limitation period

• Discovery of act or omission

LIMITATION ACT

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• Contribution and Indemnity

• Postponement for infants and those under disability

• Transition Rules (s. 30)

LIMITATION ACT

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INSURANCE ACT, SBC 2012 c. 1

Came into force on July 1, 2012

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• s. 22(1) of Old Insurance Act said: “Every action on a contract must be commenced within one year after the furnishing of reasonably sufficient proof of a loss or claim under the contract and not after.”

• Courts grappled with “reasonably sufficient proof”.

• B.C. Courts accepted two interpretations: (1) the “clear and unequivocal denial of benefits”; and (2) on submission of sufficient proof of loss.

• Courts found fairly long periods between date of loss and the furnishing of sufficient proof to be reasonable.

INSURANCE ACT – Limitation Periods

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• Courts sympathetic to insureds and would find that denials were not unequivocal or the proofs of loss insufficient.

• Given the uncertainty in the case law concerning the definition of “reasonably sufficient proof” and the impending changes to the Insurance Act, many insurers began to apply the two year limitation period in advance of the change in the law on July 1, 2012.


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• s. 23 of New Insurance Act: the limitation period for property losses is two years from the date the insured “knew or ought to have known the loss or damage occurred.”

• Regulation 213/2011: limitation period is not retroactive and does not apply to contracts that were in effect on July 1, 2012.


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• If liability for all or part of a claim is denied, claimants must be advised of a limitation period:

– five (5) business days after the insurer denies the claim and

– 10 business days after the anniversary of the insurer receiving the claim if it is still open (i.e. not settled or denied).

INSURANCE ACT – Notice Requirements

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• Denial letters must be sent within 5 business days of denying a claim and the letter must reference the applicable limitation period and contain a statement that the limitation period is set out in the New Act.

• A letter must be sent within 10 days of the first anniversary of the insurer receiving the claim, if it is still open.

• Letters need not be sent if the insured has counsel, but the insurer may wish to send the letter in any event.


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• s. 4 of the Insurance Regulation; consequences fornon-compliance with these notice provisions.

• If an insurer fails to provide the required notice, the running time of the applicable limitation period is suspended from the date on which notice should have been given and ending on the earlier of the following dates:

– the date that notice is given; or

– the date that would cause limitation period to exceed 6 years after date cause of action against insurer arose.


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• While insurers need not redraft all policies in existence as of July 1, 2012, all new policies and policies that are renewed or replaced after that date are required to conform to the New Act.

• Dates must be carefully recorded to keep track of the limitation periods.

• Judgment required when establishing when an insured "knew or ought to have known" of a claim.

• Electronic Communication


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2. DUTY TO DEFEND

Royal & Sun Alliance Insurance Co. of Canada v. Araujo, 2012 BCSC 1203

Dube v. BCAA, 2012 BCSC 1958

Dominion v. Hannam, 2013 NLCA 37

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• Duty to Defend may exist even where there is no Duty to Indemnify

• Pleadings govern the duty to provide a defence

• Insurer required to provide a defence where facts alleged in the pleadings, if proven to be true, could require the insurer to indemnify the insured for the claim

• “mere possibility” that a claim within policy may succeed

• True nature of the substance of the claim

DUTY TO DEFEND

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• Teenager’s grandparents, dad and uncle live together

• Teenager injured in a fire [arson] at Defendants’ home

• Insurer unsuccessful in obtaining a declaration that the homeowners policy excludesa bodily injury claim by the Teenager and that the insurerhas no duty to defend or indemnify the grandparents,dad and uncle

RSA v. ARAUJO, 2012 BCSC 1203

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• Exclusion in personal liability protection section: “We do not insure claims made against you arising from…5.Bodily injury to you or any person residing in your household other than a residence employee;”

• “You or Your” means the person(s) named as Insured on the Coverage Summary page and, while living in the same household:

– his or her spouse;

– the relatives of either;

– any person under 21 in their care


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• Issue: was Teenager an unnamed insured or a person residing in the household?

• Teenager’s parents had joint guardianship and custody

• Primary residence with mom

• Liberal access to dad

• Dad exercised access at the grandparents house 2 to 3 times per month for one night

• Dad’s house: did not have own room; no belongings; no key to house; slept on sofa; no chores


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• Interpreting insurance contracts – Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33

• When language of policy ambiguous, court should give effect to clear language reading the contract as a whole

• Where ambiguous, the courts rely on general rules of contract construction – reasonable expectations; avoid unrealistic interpretations

• When these rules of construction fail to resolve ambiguity – contra proferentum

• Coverage provisions interpreted broadly and exclusion clauses narrowly


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• “You” is confusing – can refer to each insured making the claim or any insured under the policy

• “I appreciate the objective of “plain language” contracts but the use of pronouns such as “you” and “your” are inherently ambiguous and the application of a definition that uses them invites ambiguity where the court is asked to interpret which “you” is being referred to in each context. In this Policy, I consider the use of the definition of “you” and “your” in the exclusion clause to be ambiguous.”


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• “Any person residing in your household”

• Teenager part of “household” but not “residing” there

• Dual residences possible

• Much litigation over “residing”

• Evidence established that Teenager was a regular visitor to the home but did not reside there

• Exclusion clauses to be construed narrowly


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• Student sued Teacher for assault and battery and negligence

• Teacher asks insurer to defend the claim

• Insurer successfully obtained declaration that the homeowners policy excludesclaims by the Student and that the insurer has no duty to defend or indemnify the Teacher

DUBE v. BCAA, 2012 BCSC 1958

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• No duty to defend or indemnify Teacher on assault and battery claims because of unambiguous exclusion

– they are not torts resulting in “unintentional injury”

– exclusion clause: “bodily injury…caused by any intentional or criminal act or failure to act by: (a) any person insured by this policy


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• Two allegations in Student’s Notice of Civil Claim that are not derivative and could constitute negligence

• Exclusion clause unambiguous: “Sexual, physical, psychological or emotional abuse, molestation or harassment, including corporal punishment by, at the direction of, or with the knowledge of any person insured by this policy; or failure of any person insured by this policy to take steps to prevent sexual, physical, psychological or emotional abuse, molestation or harassment or corporal punishment.”


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DOMINION v. HANNAM, 2013 NLCA 37

• ATV owned by Mr. Hannam (neither registered nor insured)

• Son lends vehicle to friend who crashes it in gravel pit

• Passenger severely injured and sues Hannam family

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• Hannam’s homeowners policy excludes ownership, use or operation of a motor vehicle

• But expressly insures off-road vehicles “which you do not own”

• Issue: who is “you”?

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• As in Araujo case, Court concludes “you” is inherently ambiguous

• Could mean either the individual insured or everybody who is insured

• No coverage for dad who actually owned ATV

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• But ambiguity means there is a possibility of coverage for son/mother

• Therefore insurer’s duty to defend is triggered

• How do we fix this?

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3. DUTY TO INDEMNIFY4. DEFENCE COSTS

Nigel P. Kent

3. DUTY TO INDEMNIFY

•Liability coverage for “employee injury”

•Poole v. Lombard, 2012 BCCA 434

•Sam’s Auto Wrecking v. Lombard, 2013 ONCA 186

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POOLE v. LOMBARD, 2012 BCCA 434

• Law firm associates and articling students dinner paid for by firm

• After dinner, some attendeeswent to nightclub

• One intoxicated associate lost his balance causing female articling student to fall and hit her head on concrete floor

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• Student suffers brain injury, sues law firm associate, ultimately awarded $6 million damages

• Associate had $1 million coverage under homeowners policy...obviously not enough

• Question: coverage available under law firm’s CGL policy?

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• Policy provided coverage for additional insureds, namely

(a) “your employees but only for acts within the scope of their employment [but] none of these employees is an insured for bodily injury to a co-employee while in the course of his or her employment”; and

(b) “Any employee....but only with respect to their employment...with the [law firm]”

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• Court of Appeal holds no coverage under either clause

• Scope/course of employment conditions could not be met, so clause (a) not applicable

• “with respect to” (clause (b)) has a wider meaning but “line must be drawn on a commercially reasonable basis between what are essentially firm functions and what are essentially social functions”

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• No excess coverage available for the associate

• Note no appeal of Trial Judge’s rulings that (1) CGL had duty to defend associate and (2) CGL must reimburse homeowners insurer 50% of associate’s defence costs: Danicek v. Alexander Holburn, 2011 BCSC 65.

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SAM’S AUTO WRECKING v. LOMBARD, 2013 ONCA 186

• Company’s VP and operations manager seriously injured when struck by a crane operated by employee

• Not covered by Worker’s Comp so sued company and employee

• CGL insurer denied coverage onbasis of “employee injury exclusion”

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• “this insurance does not apply to....bodily injury to an employee of the Insured arising out of and in the course of employment by the Insured”

• Does this apply to “executives” who are not covered by Worker’s Comp?

• Ruling: Even though he was an executive officer, he was still an employee of the company and the exclusion squarely applied

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• Court recognized there was an “odd coverage gap”...the exclusion takes away coverage where an employer might wish to have it (work place injury not covered by Worker’s Comp)

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4. DEFENCE COSTS

•ACE INA v. Aegis, 2012 ONSC 6248 (Contribution)

•Papapetrou v. 1054422 Ont. Ltd., 2012 ONCA 506 (Commercial Contracts)

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ACE INA v. AEGIS, 2012 ONSC 6248

• July 2008 hi-rise undergrounding parkingarea explosion

• Property damage/bodily injury claims against Toronto Hydro totalling $55 million

• ACE INA provided primary CGL coverage to Toronto Hydro (coverage for defence costs in addition to stated liability limits)

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• Toronto Hydro also had $45 million excess liability policy with Aegis

• Coverage was for indemnity to pay “ultimate net loss” in excess of underlying coverage

• “ultimate net loss” defined to include both indemnity and defence costs with respect to each occurrence

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• No express duty to defend in Aegis policy, just a “right to associate in defence” if they wish to

• ACE made application to court for declaration Aegis was obliged to contribute to defence costs ($550,000 and counting)

• Argued excess cover was clearly going to be triggered and principles of equity required contribution;

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• Court denied contribution claim;

• Aegis policy contained no duty to defend (unlike ACE policy)...was simply a reimbursement cover

• The two policies were not covering the same risk but rather were covering separate and clearly defined layers of risk (no overlap)

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• Aegis policy expressly excluded indemnity for Toronto Hydro’s defence costs if they were “included in other valid and collectible insurance”

• Aegis policy limits were eroded (reduced) by any defence costs payment, so contribution would “prejudice” Toronto Hydro by reducing coverage otherwise available

• Primary insurer’s claim for contribution denied

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• First reported case involving a contribution claim against an excess insurer whose policy does not contain a duty to defend....decision has been appealed and will be heard by Ontario Court of Appeal in September, 2013

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PAPAPETROU v. 1054422 ONT. LTD., 2012 ONCA 506

• Winter maintenance/snow clearing service contract

• Contract contained indemnity of building owner “against all claims, liabilities....arising out of ....the contract”

• Contract required maintenance Co to obtain CGL insurance with “owners as an additional insured”

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• Contractor fails to get owner added to CGL coverage

• Accident happens, personal injurylawsuit ensues versus contractor and owner

• Owner seeks order requiring contractor to assume its defence

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• Trial Court orders contractor both to assume defence and to indemnify owner with respect to damages

• Ont. CA sets aside order but requires contractor to pay owner’s solicitor/client costs of defending lawsuit

• “Premature to summarily enforce the indemnity provision until issues of liability and damages had been finally determined”

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• However, contractor clearly breached contract by failing to obtain insurance for owner

• Remedy is not ordering a duty to defend but rather an award in damages

• Appropriate damages are an indemnity for the owner’s defence costs on a solicitor/client basis which otherwise would have been covered by the insurance

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• Because of conflict arising out of indemnity clause, owner can choose its own counsel and contractor must pay that law firm’s legal fees for defending the lawsuit

• Lesson: parties signing contracts requiring indemnities or liability insurance must ensure the necessary coverage is obtained

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5. ADDITIONAL NAMED INSUREDS6. EXCLUSION CLAIMS

Satinder Sidhu

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5. ADDITIONAL NAMED INSUREDS

• Vernon Vipers Hockey Club v. Canadian Recreation Excellence (Vernon) Corporatio n, 2012 BCCA 291

• 1540039 Ontario Limited v. Farmers' Mutual Insurance Company (Lindsay), 2012 ONCA 210

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VERNON VIPERS V. CANADIAN RECREATION, 2012 BCCA 291

• Does the “but for” test apply to interpretation of “arising out of”

• Plaintiff attended multiplex to watch a hockey club play

• Multiplex owned by regional district and managed by recreation company


• Plaintiff injured himself walking over large boulders and sued regional district and recreation company

• Regional district and recreation company named as “additional insureds” on the hockey club’s CGL policy with American Home

• Regional district and recreation company third partied hockey club and American Home claiming defence, contribution and indemnity

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• Policy contained exception that only insured “... in respect of liability arising out of the Named Insured’s operations” [emphasis added]

• Regional district and recreation company argued that:

o coming and going of fans to see a game was part and parcel of the hockey club’s “operations” and plaintiff’s injury arose out of those operations, and

o “but for” plaintiff’s attendance at game, he would not have fallen and injured himself

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• American Home arguedmere presence of plaintiff at game is insufficient and “but for” test has been rejected by SCC as a means of interpreting “arising out of”

• The court considered 5 leading cases dealing with the interpretation of the phrase "arising out of":

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o Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49

o Saanich (District) v. Aviva Insurance Company of Canada, 2011 BCCA 391

o Citadel General Assurance Co. v. Vytlingam, 2007 SCC 46

o Lumbermens Mutual Casualty Co. v. Herbison, 2007 SCC 47

o Amos v. Insurance Corp. of British Columbia, 1995 CanLII 66

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• Court of Appeal found:

o correct interpretation of “arising out of” and “arising from” requires closer causal nexus than simple “but for” test;

o “arising out of” requires “an unbroken chain of causation” and connection that is more than “merely incidental or fortuitous”;

o no ambiguity and contra proferentum rule not applied;

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o even allowing for a broad and liberal interpretation of the “operations”, no aspect of hockey club’s operations were alleged to have caused plaintiff’s injury;

o the most that pleadings alleged was that hockey club’s operations caused him to be in a place where, for unrelated reasons, he became injured; and

o perhaps facts enough to meet “but for” test but did not satisfy the more rigorous causal requirement.

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1540039 ONTARIO LIMITED. V. FARMERS', 2012 ONCA 210

• To what extent are courts at liberty to consider extrinsic evidence in determining whether the allegations against an additional named insured arose out of the named insured’s operations

• Subcontractor electrocuted while working on sign located in front of commercial plaza

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• Subcontractor’s surviving family members sued the landlord, owner of the hydro lines, and contractor that subcontracted the work

• Landlord was additional named insured under tenant’s CGL issued by Farmers’

• Additional insured “as landlord only” and “only with respect to liability arising out of operations by or on behalf of the tenant for interior decorating”

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• Landlord’s application that Farmers’ defend was dismissed

• Court of Appeal considered whether entitled to go beyond the pleadings and consider extrinsic evidence to determine the true “substance” and “nature” of the claim

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• Landlord wished to have admitted evidence that contractor was retained by tenant to show that liability arose out of the operations of tenant

• Legal principles considered:

o the court must consider the substance and true nature of the claim;

o extrinsic evidence explicitly referred to in pleadings may be considered to determine the substance and true nature of the allegations;

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• Legal principles considered (cont’d)

o court may not look to “premature” evidence; evidence which, if considered, would require findings to be made before trial that would affect the underlying litigation; and

o extrinsic evidence must relate to undisputed facts that do not require findings to be made before trial.

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• Court of Appeal found:

o extrinsic evidence was disputed;

o even if admitted, extrinsic evidence would not support a duty to defend; and

o substance and true nature of the claim against landlord based on conduct as owner and occupier of plaza and not as landlord of the premises leased to the tenant.

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• Extrinsic evidence exception to the pleadings rule cannot be used to demonstrate that pleadings that say one thing really mean something else

• Extrinsic evidence rule cannot be used to convert claims against the landlord qua owner into claims against the landlord as landlord of the premises leased to tenant

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EXCLUSION CLAUSES

•O’Byrne v. Farmers’ Mutual Insurance Company,2012 ONSC 468

•Hector v. Piazza, 2012 ONCA 26

O’BYRNE V. FARMERS’, 2012 ONSC 468

• What type or kind of environmental contamination is required for pollution exclusion to apply

• Building damaged by an oil leak from furnace

• Tenant tampered with furnace resulting in oil leak

• Farmers’ denied coverage to landlord on the basis of a pollution exclusion

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• Policy Wording This policy does not insure againsta) loss or damage caused directly or indirectly by any actual or

alleged spill, discharge, emission, dispersal, seepage, leakage, migration, release or escape of “pollutants”, nor the cost or expense of any resulting “clean up”, but this exclusion does not apply:

i. if the spill, discharge, emission, dispersal, seepage, leakage, migration, release or escape of “pollutants” is the direct result of a peril not otherwise excluded on this policy;

ii. to loss or damage caused directly by a peril not otherwise excluded under this policy.

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• Pollutants defined as follows :

o “Pollutants” means any solid, liquid, gaseous or thermal irritant, or contaminants including odour, vapour, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

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• Legal principles relied on:

o use of words such as “discharge, dispersal, release and escape” reflect that the exclusion is directed to a pollutant that results in traditional environmental contamination;

o pollution exclusion does not apply to injuries caused by common irritants and contaminants emitted from a faulty furnace;

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o pollution exclusion can be reasonably interpreted as applying only to environmental pollution; and

o if exclusion is capable of more than one reasonable interpretation it is ambiguous and should be interpreted in favour of the insured.

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• Court held:

o pollution exclusion should be interpreted in favour of landlord such that it only excludes traditional environmental contamination;

o oil remained within the building and probably within 30 feet of furnace and did not amount to traditional environmental contamination such as oil seepage into soil; and

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o distinguished Corbould v. BCAA Insurance Corp., [2010] B.C.J. No. 2125 (B.C.S.C.) where a storage tank spilled oil that seeped into the soil - case of traditional environmental contamination thatwas subject to the standard pollutionexclusion.

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• Farmers’ also tried to deny coverage based on mechanical or electrical breakdown or derangement exclusion

• Court rejected this position and found that there was no internal defect or problem in the furnace

• Exclusion was not intended to exclude damage caused by tenant

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HECTOR V. PIAZZA, 2012 ONCA 26

• Does the “property owned” exclusion in a CGL refer to property owned at present, in the past or both

• Piazza purchased an apartment building that was renovated and sold to Hector

• Hector sued Piazza with respect to faulty construction related to settling of the foundation

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• Piazza was insured by AXA and sought coverage under a CGL

• AXA denied coverage on basis that policy excluded cover for property owned by the insured

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• The policy excluded coverage for:o (y) property damage –

o (z) to property owned or occupied by or rented to the Insured, or, except with respect to the use of the elevators, to property held by the Insured for sale or entrusted to the Insured for storage or safekeeping [emphasis added]

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• If the word “owned” referred only to the past tense, the exclusion would apply

• If the word “owned” referred to the present as well as the past tense, policy could not be said to “clearly and unambiguously” exclude coverage

• Insurer must show that the exclusion “clearly and unambiguously excludes coverage” (Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada [2010] S.C.J. 33)

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• Court held that:

o when read in context “property owned” can grammatically refer to property owned now or previously owned;

o exclusions in CGL policies, for the most part, deal with items that would be the subject of first-party coverage which is within the power of the insured to protect

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o if “property owned” interpreted as referring to present tense only, property that was owned by the insured in the past, and that is subject to a third party claim, could fall within the ambit of coverage under the policy;

o this would not inconsistent with the intention of the parties to exclude first party liability coverage; and

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o the word “owned” can refer to the present as well as the past tense; and

o policy cannot be said to “clearly and unambiguously” exclude coverage.

7. SUBROGATION:COVENANTS TO INSURE

8. “BUT FOR” AND“MATERIAL CONTRIBUTION”

Larry Munn

Kruger Products Ltd. v. First Choice Logistics Inc., 2013 BCCA 3

•Kruger, aka Scott stored finished and unfinished paper products in a warehouse operated by First Choice Logistics (“FCL”).

•Due to issues with forklifts (known to FCL) paper caught on fire

•Entire warehouse and all contents destroyed

7. SUBROGATION: Covenants to Insure

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Kruger Products Ltd. v. First Choice Logistics Inc., 2013 BCCA 3

•Trial judge and Court of Appeal concluded FCL breached standard of care and caused loss

•Subrogated action by insurer

•A Warehouse Management Agreement governed Scott’s relationship with FCL

KRUGER V. FIRST CHOICE, 2013 BCCA 3

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• Agreement contained a clause requiring Scott to maintain general liability insurance, tenant’s legal liability insurance and insurance on its inventory and property in the warehouse

• Scott also agreed to add FCL as additional insured

• Agreement also stated, “all insurance policies contemplated hereunder shall constitute and respond as primary coverage to any insurance otherwise available to Scott”


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• Trial judge – bailor/bailee situation and warehouser had no insurable interest therefore landlord/tenant covenant to insure cases do not apply

• Court of Appeal disagreed – there was an insurable interest given warehouser’s liability

• But insurable interest not necessary where covenant to insure designed to benefit party against whom subrogated claim brought


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• Scott paid insurance premiums, but not necessary negligent party pay

• Parties also acknowledged that Scott’s insurance primary

• No benefit from provision, if no tort immunity


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• Tort immunity extends well beyond landlord/tenant situations

• Who pays premium not important

• Clause to insure must be given meaning

• Important to review insurance clauses in contracts (leases and otherwise) to determine if an immunity defence exists


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Clements v. Clements 2012 SCC 32

•The plaintiff, Mrs. Clements, a passenger on her husband’s (the defendant’s) motorcycle

•Unbeknownst to defendant, nail had punctured rear tire

•When accelerated to 120km/hr to pass car, nail popped out, tire deflated. Plaintiff thrown from motorcycle with resultant severe traumatic brain injury

•Some evidence bike overloaded

8. “But For” and “Material Contribution”

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• Defendant’s evidence questioned whether accident would have happened in any event

• Trial judge could not say “but for” defendant’s negligence, plaintiff would not have been injured

• However, found defendant liable on a material contribution

• Court of Appeal disagreed regarding material contribution

• SCC disagreed re material contribution but ordered new trial and further consideration of “but for” test

CLEMENTS V. CLEMENTS, 2012 SCC 32

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• Basic rule for recovery for negligence required plaintiff establish on a balance of probabilities that defendant caused injury on the basis of “but for”

• Only where impossible to determine which of a number of negligent acts by multiple actors caused the injury can the “material contribution” test be used


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• Cook v. Lewis (hunters); Walker Estate (tainted blood)

• Here – a single defendant case


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• Plaintiff suffered from persistent bradycardia during her birth that caused permanent brain damage – spastic quadriplegia and cerebral palsy

• Sued obstetrician• Trail judge found attempt to deliver by mid-level forceps

procedure was a “but for” cause• Obstetrician breached standard of care by not ensuring

sufficient back-up, namely anaesthetist in event C-section required

EDGAR V. JOHNSTON, 2013 SCC 18

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• Court of Appeal concluded evidence did not establish that forceps attempt caused the cord compression and resultant bradycardia – did not occur within seconds

• Court of Appeal also concluded no evidence plaintiff could have been delivered earlier if there had beenback-up


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• SCC disagreed – trial judge had reason to find that causation was forceps attempt

• Causation a factual inquiry applying “but for” test and no palpable and overriding error

• Finding of causation supportable – other evidence explained why the onset of the bradycardia was not immediate

• Finding regarding reasonable back-up also sound• Burden of proof remains with plaintiff but scientific

certainty not necessary


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9. BROKERS AND AGENTS10. BAD FAITH

Glen Boswall

9. Brokers and Agents

Ostenda v. Miranda 2012 ONSC 7346

•Plaintiff claimed Zurich Insurance was (a) directly liable to him for failing to advise him of need to obtain additional underinsured motorist coverage; and/or (b) vicariously liable for an insurance broker’s failure to provide this advice.•Insured was a transport driver for Synergy. JDIMI was Synergy’s insurance broker.•JDIMI provided a “transportation package survey” to Zurich describing Synergy business and coverage sought. There was no request for underinsured motorist protection coverage for Synergy employees.

OSTENDA V. MIRANDA, 2012 ONSC 7346

• Zurich undertook risk management survey and prepared risk assessment report including this statement, “By delivery of this Report, Zurich does not assume any responsibility for discovery, notification or elimination of hazards or risks.”

• Report did not mention that Synergy had no UMP coverage for drivers or comment on Synergy’s failure to request any.

• Zurich issued transportation package policy to Synergy in 2006. Unlike standard auto parties issued to private citizens, this policy had no UMP coverage.


• In 2008, Plaintiff suffered catastrophic injuries in road accident caused by a driver with little or no liability insurance.

• Plaintiff discovered he had no UMP coverage to make up any shortfall in damages award against other driver.

• Plaintiff sued driver, JDIMI and Zurich. Plaintiff then sought summary judgment against Zurich.


• Judge addressed these issues:

– Regarding the non-inclusion of the UMP endorsement in the policy issued to Synergy, did Zurich stand exposed to liability equivalent to that of a broker?

– Was Zurich liable to the Plaintiff as principal for the mistakes of JDIMI as agent?


• Did Zurich stand exposed to liability equivalent to that of a broker?– No.– Judge noted that SCC in Fletcher v. Manitoba Public Insurance

Co. (1990) found that an insurer selling policies directly had a responsibility to ensure customers received sufficient information to make intelligent decisions as to how much risk they were prepared to bear.

– However, in the present case, the policy sale was made through a broker. Judge noted Drader v. Sebastian (2009 SKCA) and Boudreau v. Ontario Soccer Assn. (2012 ONSC) which established that, in cases where experienced brokers are involved, an insurer owes no duty to customer to procure appropriate insurance coverage.


• Did Zurich stand exposed to liability equivalent to that of a broker? (cont’d.)

– Facts showed Zurich did not assume duty and public policy mitigated against imposing duty.

• Zurich’s risk assessment report came with express liability disclaimer.

• From public policy perspective, imposing upon insurers a similar duty to that undertaken by brokers would result in considerable duplication of effort.


• Was Zurich liable as principal for mistakes of JDIMI as agent?– No.

– Judge found that evidence in this case fell “well short” of establishing that JDIMI had legal authority to represent Zurich so as to affect Zurich’s legal position. Therefore, there was no agency relationship.

ZEFFERINO v. MELOCHE MONNEX, 2013 ONCA 127

• Plaintiff claimed insurer was liable for failing to provide sufficient information for Plaintiff to make informed decision about purchasing optional additional income replacement benefits coverage as part of an auto policy.

• Plaintiff previously purchased auto policies from other insurers based on very competitive pricing.

• In 2003, Meloche Monnex (“MM”) made telephone sale of automobile policy to Plaintiff and wife. Coverage included mandatory minimum income replacement benefits.


• MM sales representative used standard script to provide and record information. No detailed discussion of optional additional income replacement benefits. Plaintiff refused optional cover.

• November 2003 legislative change required every automobile insurer to offer optional income replacement benefits.

• MM’s subsequent renewal of Plaintiff’s policy came with sheet providing brief explanation of MM’s obligation to offer optional additional income replacement benefits.


• Plaintiff badly injured in 2005 accident and sued MM for failing to explain optional additional income benefits.

• Trial judge addressed three issues:– Did MM owe a duty of care to the Plaintiff?– Did MM breach the applicable standard of care?– Would Plaintiff likely have purchased optional benefits if

properly offered?


• Was there a duty of care?

– Yes.

– Fletcher v. Manitoba Public Insurance Co. (1990 SCC) established that that sale of automobile insurance is a business in the course of which information is routinely provided to customers with the expectation they will rely on it.


• Did MM breach the standard of care?– Yes.– Questioned boiled down to whether MM must offer optional coverage

in such a way that the customer can make a fully informed decision about what to purchase.

– Evidence of common industry practice is persuasive but not determinative.

– “To make the mandatory offer of optional coverages meaningful, customers must be given an understandable alternative which would allow them to measure the need for more coverage against risk and cost.”

– “The fact that [optional income replacement benefits] are less well known may increase the insurer’s practical obligation to explain their existence and the details of the optional coverage.”


• Would Plaintiff have purchased if benefit was properly offered?– No.– Plaintiff’s history of seeking basic coverage and MM notes

showing Plaintiff’s wife said there was “no need” for optional coverage both indicated Plaintiff would have declined optional additional income replacement benefits if offered.

– Therefore, there was no causal link between MM’s negligence and the Plaintiff’s lack of additional benefits.

• Trial decision upheld by Ontario Court of Appeal.

10. Bad Faith

Branco v. American Home Assurance Co. 2013 SKQB 98•Court made staggering punitive damage awards against disability insurers.•Plaintiff employed by Saskatchewan company that operated mine in Krygzstan. American Home Assurance Co. (“AHAC”) provided workers with benefits based on Saskatchewan WCB coverage. Zurich Life Insurance Co. Provided long term disability benefits coverage.•In December 1999, a steel plate fell on the Plaintiff’s foot. Following unsuccessful surgery, numerous doctors (including many seen at insistence of AHAC) pronounced him permanently unemployable.

BRANCO V. AMERICAN HOME, 2013 SKQB 98

• Judge found,– Zurich had delayed dealing with claim and made offers to settle claim

at significant discount despite acknowledging that full coverage applied.

– AHAC discontinued payment of benefits in order to create hardship on the Plaintiff and force him to accept a extremely low settlement offer.

• Judge ruled that both AHAC and Zurich breached duties of good faith. Of particular importance to this finding were the insurers’ lack of consideration for the overwhelming medical evidence, their deliberate behaviour, and their general disregard for hardship suffered by Plaintiff.

BRANCO V. AMERICAN HOME, 2013 SKQB 98

• $1.5 million in punitive damages awarded against AHAC and $3 million against Zurich!

• Judge specifically referred to $1 million in punitive damages awarded in Whiten v. Pilot Insurance (2002) and its apparent insufficiency in forcing insurers to abide by policies.

• Judge also awarded $450,000 in aggravated damages, an award that greatly exceeds the $335,000 cap on general damages set by the SCC in a catastrophic injury case!

SGI V. WILSON, 2012 ONCA 106

• Trial judge awarded punitive damages against insurer in case where there was no actual loss of benefits, no claim for punitive damages, and a lack of compensable mental aggravation flowing from bad faith breach of a disability policy.

• Court of Appeal substituted award for cost of litigation to mitigate against anticipated loss of benefits.


• Plaintiff injured in two motor vehicle accidents and received rehabilitation accident benefits for over 10 years under her Saskatchewan Government Insurance (“SGI”) auto policy.

• Plaintiff’s treating therapists and team of health care providers retained by SGI recommended ongoing passive therapy.


• SGI sent file for review by independent physiotherapist and, based on her recommendations, advised the Plaintiff in November 2006 that treatment funding would be terminated in six months.

• Plaintiff sued for reinstatement of benefits and aggravated damages for breach of duty of good faith.

• Prior to the end of the six month expiry period, SGI advised it would reinstate the benefits conditional upon the Plaintiff dropping her claim for aggravated damages. The Plaintiff refused.


• The trial judge found SGI acted in bad faith but that the Plaintiff had not suffered sufficient mental distress to merit an award of aggravated damages.

• However, judge awarded,

– $15,333 in punitive damages made up of a general award of $7,500 plus $7,833 to compensate full legal costs to the date SGI offered to reinstate benefits; and

– a mix of full and double party/part costs based on SGI’s conduct at trial.

• SGI appealed.


• On appeal, SGI argued that breach of duty of good faith could not arise in absence of damages flowing from the breach of an express term in the underlying insurance policy. Because benefits were never cut off, there was no breach.

• Court of Appeal (“CA”) ruled that SGI made an anticipatory breach of the policy when it announced benefits would be suspended. Even without actual suspension of benefits, SGI had breached the policy and acted in bad faith.


• However, the Plaintiff had made no express claim for punitive damages in her pleadings and so the CA overruled the punitive damage award. This dispensed with the $7500 award for general punitive damages but the CA allowed the full pre-trial legal expense award on another ground - that these were the costs of mitigating against an anticipated loss flowing from the policy breach.

QUESTIONS?

These materials are necessarily of a general nature and do not take into consideration any specific matter, client or fact pattern.

THANK YOU

Presented By:Nigel [email protected]

Satinder [email protected]

D. Lawrence [email protected]

Raman [email protected]

Glen [email protected]

p&c insurance in british columbia: top cases & industry developments 2012 – 2013 insurance...

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