Insurance Law Law 443
Insurance law: an overview
What is insurance about?
Risk Pooling lowers the average cost
Risk Allocation While types of insurance vary widely, their primary goal is to allocate
the risks of a loss from the individual to a great number of people. Each individual pays a
"premium" into a pool, from which losses are paid out. Regardless of whether the
particular individual suffers the loss or not the premium is not returnable. Thus, when a
building burns down, the loss is spread to the people contributing to the pool. In general,
insurance companies are the safekeepers of the premiums. Because of its importance in
maintaining economic stability, the government and the courts use a heavy hand in
ensuring these companies are regulated and fair to the consumer.
Risk Transfer transfer risk to other people
Insurance insures accidents
o Fortuitous losses only;
o Why no insurance for intentional acts or criminal actsbecause acts can be
controlled = no risk
Moral Hazard: people are less careful if they have insurance
o Adjust care levels (deterrence) insurance companies want people to take
optimum care so they have to pay out less money
o Premium differentials risky people get higher premiums
2 main categories of insurance:
1. Property and casualty insurance (tort, things happening to property, 3rd parties)
2. life, accident and sickness (things happening to you) death, inability to work
Property insurance first party insurance (fire ins., collision ins.) money goes to insured
Liability insurance 3rd party insurance money from policy goes to victim
Social Effects of Insurance
- Backbone of Tort System
- Insurers are in it for profit
- Behavioural Adjustment
o smoke detectors in house etc.
o no claims
- Loss Transfer
o from the haves to the have-nots
o Rights of insureds with rights of insurers
o Predictability of the K with reasonable expectations of all parties
o Hard to know right answer on exam use balance
- commercial efficacy
o has to make sense
o has to be consistent
Insurance Law Law 443
TOPIC 1: INTRODUCTION TO INSURANCE
Thompson v. Commercial Union Co. of Canada
Facts: Rabid cat bit man and man died 19 days later from rabies. Ins. Co. refusing to pay
bc they said he was covered for accidental death/bodily injury, not from indirect
death or disease (exclusion). (Most ppl die from disease so too much risk to
insure for disease, guaranteed payout). Problems of causation, limits of language,
what did insurer expect to cover? What did insured expect was covered?
Held: Man was covered, policy did not exclude payment of benefits
Ratio: Cat bite was proximate cause of death direct link
N.B. Need to look at what caused the accident/death
Ricketts v. Moore
Facts: Visitor injured by go-cart driven by boy. Go-cart had motor of lawn mower attached to it.
An action was commenced by injured person against family, family denied liability and
commenced 3rd party action against insurers. Motions judge ruled go-cart to be a toy (built
for a kid) and therefore not excluded. Definitions/coverage is ambiguous
Issue Is childs go-kart a “motorized land vehicle?”
Held: Appeal judge looked in dictionary and decided that go-cart is motorized land vehicle and
therefore is excluded and not covered
Ratio: Go-cart was motorized in sense that it was powered by motor, it did move on land and was
in fact, a vehicle. (broad term)Most policies do not have dictionaries stapled to them
dictionary limitations. Contextual approach
N.B. Often there is a gap in coverage i.e. child’s go-cart insurance no commercial efficacy
What was intention of insurers?
NOT JUST ANY CONTRACT
What contract doctrines do not work? Why?
o Myth of the bargain insurance is a take it or leave it process K of adhesion
o Intention of the parties (how do you prove?)
o Meeting of the minds
CONTRACTS OF AHHESION
O You either adhere to the contract, or walk away (no real choice)
O The “fiction” of unequal bargaining through standardized policies
Who is bound?
Insured cannot bargain, but neither can insurer
Insurer is repeat player
O Is this a bargaining situation?
O Always David and Goliath?
O Predominantly large corporations
Standard terminology cheaper and easier, more litigation on terms
Result? Still “unequal” bargaining power
O Greatest source of litigation
O Nearly all insurance cases involve interpretation of policy terms
a reasonable person could find that the term has two or more
Insurance Law Law 443
TOPIC 2 : INSURANCE CONTRACT INTERPRETATION
INTERPRETATION TOOLBOX Take in order
1. Read the policy LOOK FOR:
a. Coverage #1 most important
d. Consistent terms
e. Inconsistent terms
2. Check the Statute(s) for applicable sections
a. Insurance Act
i. General sections s.115-119
ii. Insurance contracts in Ontario s.122-141
iii. Fire insurance s.142-169 esp 148
iv. Life insurance s.171-223
v. Auto Insurance s.224-281.1 plus regs
vi. Accident and Sickness s.290-329
3. Holistic Interpretation (Bathurst, Wigle, Chilton)
a. Read the policy in its entirety
b. Interpret terms consistently throughout
c. Avoid ludicrous results (need to have commercial efficacy)
4. Ordinary Meaning for Terms(Wigle, Chilton)
a. Give terms the ordinary meaning that the average reasonable person will
understand and attach (not some tech’l meaning only experts would understand)
5. Coverage (broad) and Exclusion Clauses (narrowly) (Chilton)
a. Coverage clauses are construed broadly, exclusive clauses are construed
narrowly insurer better be specific about what is excluded bc he drafted
document and all power is with him
6. Contra Proferentem only if ambiguous terms (Bathurst, Chilton)
a. Construe ambiguous terms against the insurer he drafted it and so he should
pay the price
i. Onus on drafter to draft out
REASONS FOR RULE:
1. insurer controls the language, so fairest to place cost of clear
language on insurer
2. ambiguous language may give insured false impression of
coverage and induce reliance
3. if coverage uncertain, better for insurer to bear the loss than
ii. More clear language is available
7. Reasonable Expectations only if ambiguity (Wigle, Reid Crowther,Brissette
a. If policy is ambiguous you honour the reasonable expectations (of coverage) of
the insured (Keeton)
i. What did the reasonable insured think he or she was buying?
NB: gatekeeper is still ambiguity
Insurance Law Law 443
Ambiguity as Gatekeeper for Contra Proferentem and Reasonable Expectations
o Create ambiguity where none exists
o Refuse to acknowledge ambiguity when it exists (insurer)
o What does “ambiguity” really mean?Can everything be ambiguous in context?
o Can ambiguity include:
The process of reading the policy?
The structure, layout, or design of the policy? marketing
The attachments, endorsements, external documents?
The Ultimate Problem: Who Reads the Policy?
Most insured do not read their policy
Why place burden on the insurer?
o None of rules work FOR insurance companiesAre we implicitly saying that we
know people do not read the policies?
How can insurer accurately estimate risks?
Where is the burden really placed for reading the policy? Insured, insurer, broker
If insured is: A corporate entity that had legal advice in the purchase of coverageWhy
use contra proferentem or the reasonable expectations principle
Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Ins. Co.[ambiguity]
Facts: Factory had problem with heat exchangers. Shut the company down for an
extended time. Insurance company said loss was due to rust, and that was
excluded. “Accident shall mean a sudden and accidental occurrence to the object,
but accident shall not mean corrosion”
Ratio: Onus of proof on insurer to prove no ambiguity, and that the loss is excluded.
Insured wants to prove ambiguity and that they lost something and policy covers
their loss (easier).
Insurer is in position to modify additional future contracts, that is one of
reasons for contra proferentem rule.
Insurer is in position to lose more than insured. Risk spreading better
than wiping out one company etc. Helps control system. Cheaper for
insurance company to draft out of paying than an insured to go without
insurance and have to pay out of own pockets.
Ludicrous Result: Why would factory buy insurance for shutdown, if it turns out
that he was not insured.If you are taking coverage away in face of very reason
person bought the insurance, you had better be explicit and clear.
Rule: Where words may bear 2 constructions, the more reasonable one, that which
produces a fair result, must certainly be taken as the interpretation, which
would promote the interests of the parties.
Wigle v. Allstate Insurance Co. of Canada (1984) (Ont. C.A.) [ambiguity & R.E.]
Facts: Man buys coverage for automobile, took out endorsement
Issue: Uninsured mean Unidentified automobile?
Insurance Law Law 443
Rule 1.The court should look at the words in the contract to determine if there is
2.the court should ascertain the intention of the parties concerning specific
provisions by reference to the language of the entire contract;
3.the court should construe ambiguities found in the insurance contract in favour
of the insured, and then
4.the court should limit the construction in favour of the insured by
"reasonableness".Contextual approach…Any ambiguity in the wording and
meaning of the endorsement should be construed in favour of the insured
Reasonable expectations rule. What did the reasonable person think they
had coverage for?
Reid Crowther & Partners v. Simcoe & Erie Gen Ins. Co  SCC –pipeline work
Rule Ambiguity is gatekeeper for reasonable expectations doctrine. Where policy is
ambiguous, apply reasonable expectations. You should not be allowed to fall
between gap of coverage avoid ludicrous results.
Claims Made Policy an insurance company will pay you if claim was made during
policy time frame. Usually for liability. (Lawyers, doctors have this kind usually)
Occurrence Based Policy an insurance company will pay you for any occurrence that
has happened during the policy time frame, usually for property (1 yr of insurance).
Brissette v. Westbury Life Ins. Co. [stabbing wife for life ins.]
Ratio: Dissent: Public policy exception rare: (last thing you should reach for)
Not a “tool.”
Use narrow approach ambiguous
Said constructive trust
Majority: Sophinka, J.:Public policy rule reigns moral hazard: Rates of
spousal murder very high.
Rule Insurance insures against fortuitous events only you cannot get insurance
for your intentional/criminal acts. stabbing wife not fortuitous event
Wrong-doer should not profit from his/her wrongdoing
Marketing only comes into play when ambiguity reasonable expectations
Chilton v. Co-operators Gen Ins. Co. pg. 2-15
Facts: Mr. C. bought insurance. Injured when he was hit by another car in head-on
collision. The car was stolen and the driver fled the scene. Policy covered
underinsured drivers (when driver responsible for accident does not have enough
insurance), but not unidentified.
Issue: Can an accident victim resort to his SEF 44 endorsement coverage if the driver of
the car that struck him has not been identified and the car was stolen? Is
unidentified driver an inadequately insured motorist?
Held: No, Policy only covered underinsured motorists.
Ratio: In Wigle, it appears that the terms of the endorsement are clear in that it only
applies to underinsured motorists.If unidentified then insurance company does
not have anyone to chase for money subrogation issues
Rule: Do not create ambiguity where ambiguity does not exist.
Insurance Law Law 443
TOPIC 3: INSURABLE INTEREST (in property)
Factual expectancy test Kosmopoulos
o Factual expectancy test - expect an economic advantage from the continued
existence of something, or you would suffer an economic loss if it ceases to
exist an insurable interest is a financial interest that a person has in
the preservation of property that is insured.
o Problem: having an interest in something existing is too broad
Moral certainty of the thing remaining in existence
Default Rule for Insurable Interest
What is it? Unless someone says something different this rule applies
o In case of insurable interest, if they do not say something to the contrary, I have
an insurable interest in the thing
o This will be sorted out after the loss (does this make sense) post-claim under
Who carries the burden, why? On insured to prove interest, maybe more efficient
Does it make insurance transactions more efficient?
Kosmopoulos v. Constitution Ins. Co. of Canada  SCC pg. 3-2
Facts: Broker sold insurance policy to Mr. K. Policy was in Mr. K’s own name and not
in name of corporation.
Held: Mr. Kosmopoulos is insured
Ratio: Factual Expectancy Test
(i) Does the insured have some relation or concern in subject of the
(ii) Does the effect of a peril cause damage, detriment, or prejudice
If both, then insured have sufficient interest
Rule An insured may recover an indemnity so long as they meet the factual
expectancy test, regardless of whether they have bare legal title to the subject
matter of the insurance contract.
Scott v. Wawanesa Mutual Insurance Co. SCC 1989
Facts: 15 yr old son set fire to house. The word "Insured" in the policy includes "the
Named Insured" and "if residents of his household, his spouse, the relative of either,
and any person under the age of 21 in the care of an Insured, therefore he was an
insured under the policy. Insurance company said bc he has an interest in the
house under the policy, the parents cannot get insurance money for loss of house
Issue: Does 15 yr old have an insurable interest under the policy?
Held: Parents do not get coverage under homeowners policy.
Ratio: Wilson, J (majority): if you want broad coverage of insurance, then you should
have only nice people living in your house harsh
Cannot get to reasonable expectations bc no ambiguity in policy. Clear that
policy did not cover willful or criminal acts.
LaForest, J (dissent): cannot get insurance proceeds bc of vindictive person who
was named insured, however the sins of the guilty should not be visited on the
innocent. Make liability several. Each tortfeasor is only responsible for the
wrong that he did. Family could recover for their losses, but son would not be
able to recover for his losses.
Insurance Law Law 443
Rule Factual Expectancy Test is narrow Only have to have slight interest, to be
deemed to have insurable interest in the thing.
Post-script to Scott v. Wawanesa
“perfectly clear and unambiguous” (majority)
o literal words in the abstract
“anything but clear and unambiguous” (minority)
o contextual application? in this context not clear and unambiguous
o Oust coverage for insured’s actions;
o Warn insured in policy (Denning red ink)
o Make coverage several;
o Grant coverage on doctrinal grounds;
o Grant coverage on equity of policy grounds.
Assad v. Economical Insurance Group Ont. Ct. of Appeal 2002. Ch. 3- pg.13
Facts: A. purchased vehicle, did not ask for documentation on it, or bill of sale, got it
much less than its value, did not ask questions. Bought policy on it. Car was
stolen. Denied coverage by insurers
Issue: Can a thief have insurable interest in a property that is not really theirs.
Ratio: No insurable interest on stolen property. Have to have some limits.
Rule We do not want to provide incentives for thief stealing property and then
destroying it to get money F.E.T is narrowed further. F.E.T does not work
for stolen goods.
Insurance Law Law 443
TOPIC 4 - DUTIES OF THE INSURER AND THE INSURED
Dual agent disputes
Insured relies on broker/agent for….
Coverage gap issues
You sold the product, it didn’t cover the loss agent should
have known, so sued
Authority issues did agent overrepresent his authority
Actual v. apparent authority (Fine’s Flowers)
How does the insured know what powers the agent has to bind
coverage? (Fine’s Flowers)
Insured may rely to her detriment on representations of agent
Towards Insurer: Agent must act with reasonable care in the
scope of her authority
Towards Insured: must adhere to standard of care of
professional in the industry cannot give misleading
information, investigate risks etc.
N.B Always look for least cost avoider
Crafting an efficient solution
Who should bear the loss in these cases
Gatekeeper for Agent/Broker Liability
Put yourself in the shoes of the insured listening to the agent what would you have
o Fines Flowers “full coverage” and Fletcher “maximum coverage”
o Fletcher brochure and “NOT APPLIC”
Is it right to ask “what would the insured have done if he/she knew” What will the
answer always be?
Government Insurers: Fletcher
Differences from private insurer
Public choice and competition
Attention to customer detail
Should government insurers have a lower duty to insureds than a private insurer?
Proving Expectation of Coverage
Where did the insured’s expectation of coverage come from?
o Something in the policy?
o Something in the marketing literature?
o Independent assumption?
o His/her broker?
Should that make any difference?
Subj. v. obj. reasonable expectations problems
Crafting an efficient solution
For fines flowers, Fletcher and Taku, who should bear the loss in this case, if you were
trying to craft an efficient solution?
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(hint: who’s the least cost avoider?) most of the time the Agent
A. Duty of Insurance Agent
Fine’s Flowers Ltd. v. General Accident Assurance Co. (CA) 1977 Ch. 4 pg. 3
Rule Duty is very high, includes positive duties take reasonable care to get the
coverage that the insured has bargained with you for. Continuing duty
B. Duty to Inform the Insured
Fletcher v. Manitoba Public Insurance Corp. SCC  Ch. 4 pg. 4
Facts: MVA. The other driver did not carry sufficient insurance to cover the appellants'
losses. The appellants claimed for the shortfall against the respondent, a
government-owned insurance company, who administered a mandatory public
automobile insurance scheme within the Province of Manitoba. Under the
"Autopac" scheme the owner of a motor vehicle must purchase insurance which
provides minimum collision and public liability coverage. In addition, "underinsured
motorist coverage" (UMC) is available upon the payment of a slightly higher
premium. At the time of the accident the appellants were insured by the respondent
under an Autopac policy which did not provide UMC.
Issue: Does a government-owned insurer selling compulsory insurance directly to vehicle
owners have a duty to advise its customers of the existence, nature and extent of
underinsured motorist coverage?
Ratio: Autopac insurance is compulsory for all owners of motor vehicles,
customers are likely to rely on the government insurer as their source of
information about the kinds of additional coverage available and the nature
of the protection afforded. detrimental
Respondent knew or ought to have known that purchasers of insurance
constitute a class of persons that may reasonably be expected to rely on the
information communicated to them by its employees. Owed its customers a
duty of care to inform them of all available coverage, their purpose and their
Public insurer has the respons’y of seeing that its customers receive the
information required to make intelligent decisions as to how much risk they
are prepared to bear.
The respondent's communication was insufficiently clear to discharge its
duty of care. The initial information was inadequate and the information
given with the renewal form was confusing. The purchaser was never in a
position to make an informed choice about this optional coverage.
Rule Reasonable reliance by a person on information provided by someone else can
ground a duty of care in tort that binds the provider of the information. The sale
of automobile insurance is a business in the course of which information is
routinely provided to prospective customers with the expectation that they rely on
C. Duty of Insurer to Investigate (Taku)
If insureds have a duty of disclosure, why add an insurer’s duty to investigate by:
o Checking own files (easy?)
o Checking public records (more difficult?)
Would such a duty only apply when insurance is legislated and only for public safety
reasons? Here the benefit of the insurance is for the flying public
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Coronation Insurance Co. v. Taku Air Transport Ltd.  SCC Ch. 4 pg. 11
Facts: Ins. policy stated that it would be void if the insured had misrepresented any material
fact, and that it did not apply if the total number of passengers carried at the time of
loss exceeded the number of seats declared. C.I.C. had provided coverage for Taku
in 1978, but following three accidents in the first year had not renewed the policy.
Taku reapplied for a policy in 1986, the insurers did not check their files for its
accident record, but instead asked Taku to disclose it. Taku reported only one
accident and obtained coverage for only 4 seats. Aircraft crashed killing all 5
passengers. The insurers denied coverage under the policy on the ground that Taku
had misrepresented its accident record and brought an action against Taku to have
the policy declared void ab initio.
Ratio: The insurers cannot escape liability on the grounds that Taku failed to disclose its
accident record. While the uberrima fides doctrine as formulated in 1766 can still
hold true where the policy is for the exclusive benefit of the insured, it should not be
applicable in the highly regulated field of aviation insurance, where insurance for
passengers has been made a condition for licensing air carriers. Where the insurance
policy required by statute or reg. is primarily for the benefit of members of the flying
public and not just the insured, the insurer must take some basic steps to investigate
the flying record of the air carrier applying for insurance. At a minimum, it should
review its own files on the applicant, and should make a search of the public record
of the air carrier's accidents. The respondents are the victims of an inadequate
regulatory scheme, while the insurers are not innocent parties but rather companies
so eager for a premium they failed even to examine their own records.
Rule There is a duty on the insurer to investigate the accident record of the
applicant for insurance that rests upon an insurer providing coverage for
Duty to Defend
Probably the most litigated
o Insurer must defend insured from liability lawsuits even if groundless, false or
fraudulentReally is litigation insurance (counter Scalera)
o Broader than the duty to indemnify
Triggered by an even groundless claim as long as there is potential for
coverage under the policy
Really question about coverage, not about liability of insurer to pay on
Source of the Duty
o Only limited definition in policy itself
o Left to common law rules
o Policies not revised to fit the common law
Why would insurers not revise their policies? easier this way/more
efficient unless judgment is open to multiple interpretations
Duty to Indemnify
Insurer must pay claim if reasonable under the policy
Q: are the insured’s and insurers interests usually aligned? When and When not? (conflict
insured wants to settle, insurer want to take it further)
Insurance Law Law 443
Limits Issues and Defences
The first insurance policy usually provides defence (if an auto and an umbrella, it’s the
auto that provides defence)
Defence is expensive
What if the first policy (auto) pays its limits right up front and asks to be let out of the
action and stop the defence? What’s wrong with that?
What is the secondary insurer relying on?
Triggering the duty to defend
Scope of pleadings rule
o If in Statement of Claim drafted by victims lawyer something might fall within
coverage of that policy, the insurer has a duty to defend it
Four corners of the pleadings rule
o If you pled the facts in your Statement of Claim the court can only look within
the four corners of the document to see if it falls within coverage
Eight corners rule (pleadings + policy) Extrinsic evidence (Monenco)
o If there is the potential for coverage based on the Statement of Claim, then you
have a duty to defend (Nichols)
D. Duty to Defend
Nichols v. American Home Assurance Co.  SCC Ch. 4 pg. 18
Facts: Action alleging fraud was commenced by a Bank against a lawyer. The policy
required the insurer to defend any suit against an insured seeking damages which
were or might be payable under the terms of the policy, even if any of the allegations
of the suit were groundless, false or fraudulent. The insurer denied any obligation to
defend the respondent in view of the exclusion clause, which provided that the policy
did not apply to fraudulent acts or omissions of an insured.
Ratio: Under the policy, the insurer was under no duty to defend the insured. The duty to
defend imposed by the defence clause is unambiguously restricted to claims for
damages which fall within the scope of the policy. Since the only damages sought
against the insured in this case were on account of fraudulent acts or omissions, and
such damages are not payable under the policy, the defence clause did not apply.
Rule The duty to defend, while broader than the duty to indemnify, is not so broad
that it arises with respect to allegations, which are clearly beyond the scope of
the policy. If there is a mere possibility of coverage under the policy there is a duty
Non-Marine Underwriters, Lloyds of London v. Scalera  SCC Ch. 4 pg. 21
Facts: Sexual assault against minors. The appellant owned a homeowner’s insurance
policy issued by the respondent insurer. The policy provided coverage for
“compensatory damage because of bodily injury” arising from the insured’s
personal actions, excepting “bodily injury or property damage caused by any
intentional or criminal act”.
Rule There is no duty to defend anything that falls outside the policy. An insurer
only has a duty to defend when a lawsuit against the insured raises a claim
that could potentially fall within coverage. The insurer’s duty to defend is
related to its duty to indemnify.
N.B. Do not want to plead anything is intentional or criminal bc you are not covered for any
intentional, criminal or willful act.
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Waivers and Reservations Letters
If an insurer wants to defend but still later deny coverage, it can get insured to agree to a
o Non-waiver agm’t, or
o Reservation of rights letter
These letters set out that just bc the insured now has a defence, that does not guarantee
him or her coverage by the same insurer later
(defence against reliance)
s.131 Insurance Act – waiver must be in writing!!!
E. Bad Faith Actions Against Insurers
need objective negligent conduct by insurer
Evidence insurer probably knew, at some point during claims process, that the claim was
coveredUsually need much more that just an improper denial of a claim based on
unreasonable misinterpretation of policy provisions or based on reading the insured
application or file (Pilot)
Damages for Bad Faith Breach
o Contractual breach damages
o Tort damages for negligence of insurer for not-paying
o Punitive have to have malicious or highhanded conduct
i. Punitive Damages
Whiten v. Pilot Insurance Co.  SCC Ch. 4 pg. 31
Facts: Whitens discovered a fire in the addition to their house just after midnight in
January 1994. Totally destroyed the home and its contents, including three cats.
The respondent insurer made a single $5,000 payment for living expenses and
covered the rent for a couple of months or so, then cut off the rent without telling
the family, and thereafter pursued a confrontational policy. The appellant’s
family was in very poor financial shape. Respondent’s alleged that the family had
torched its own home, even though the local fire chief, the respondent’s own
expert investigator, said there was NO evidence whatsoever of arson. Insurers
appellate counsel conceded that there was no air of reality to the allegation of
arson. The jury awarded compensatory damages and $1 million in punitive
Ratio: The jury’s award of punitive damages, though high, was within rational limits.
The respondent insurer’s conduct towards the appellant was exceptionally
reprehensible. The denial of the claim was designed to force her to make an
unfair settlement for less than she was entitled to. The conduct was planned and
deliberate and continued for over two years, while the financial situation of the
appellant grew increasingly desperate. The jury evidently believed that the
respondent knew from the outset that its arson defence was contrived and
unsustainable. Insurance contracts are sold by the insurance industry and
purchased by members of the public for peace of mind.
Insurance Law Law 443
Rule There is an obligation of good faith dealing. This means that the appellant’s
peace of mind should have been the respondent’s objective, and her vulnerability
ought not to have been aggravated as a negotiating tactic. It is this relationship of
reliance and vulnerability that was outrageously exploited by the respondent in
ii. Damages for Mental Distress
o Do not have to prove bad faith to get mental distress damages
Insurance contracts are peace of mind contracts (Fidler)
o Mental distress reasonably contemplated as flowing from the breach
Strict test for punitive damages (Pilot)
Fidler v. Sun Life Assurance Co. of Canada  SCC Ch. 4 Pg. 40
Facts: Ms, Fidler worked at RBC, covered by LTD benefit policy. She became ill. Sun
Life refused benefits bc they said she was active for 5 full days, after conducting
Ratio: Insurance K are peace of mind K’s any breach results in mental distress
Rule You do not have to prove bad faith to get mental distress damages
Insurance Law Law 443
TOPIC 5 -DUTIES OF THE INSURED
1. Duty of Disclosure
2. Duty to provide notice and proof of loss
3. Relief from Forfeiture you can get out of # 2 in certain circumstances
4. Duties to mitigate and to co-operate with insurer cannot run up damages if insurer
says go to treatment you have to do it
5. Insurance Waiver and Estoppel
6. Duty to Pay Premiums pay for what you buy
7. Limitations of Actions duty to bring action in specified time frame (not sleep on
Sources of Duties
Repeat market player
Complete product control
o Both result in prejudice to insured
Imperfect information between insurer and insured
Complete insurability (risk) information
o Results in prejudice to insurer as insured holds all information
Representation must be
o Material; and
o Induce reliance on party suffering damage by relying on the false information
Insured usually has to be substantially true (not a perfect standard)
A. Duty of Disclosure
Vrbancic v. London Life Insurance Co. Ont. CA (1995) Ch. 5 pg. 3
Facts: P took out life insurance policy on her and husband. Husband later died from
sclerosis of the liver. Insurer denied payment on the basis of misrepresentation
and non-disclosure of material facts. Most agents keep notes, evidence of standard
practice. It alleged that numerous facts pertaining to the health, medical condition
and drinking problem of Mr. V were not disclosed when they applied for the
Ratio Recollection of Agent
Notes, Standard practice
Recollection of insured
Corroborating evidence, Insured’s experience with insurance
The form itself (writing, words)
Rule There is a duty upon the insured to disclose anything that may impact the
policy.TEST: Materiality to a reasonable insurer what would they have wanted
to knowReliance on information which is relevant to some decision by the
insurer. Non-disclosure of material facts s.183 (2) voids policy
N.B. How long does the Duty of Disclosure last?
1. Duty of disclosure at formation of contract
a. Includes renewals, additions etc.
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2. Duty to inform about material changes
a. Statutory conditions
i. Auto insurance – material change in risk
ii. Fire insurance – material change in risk
iii. Accident & sickness insurance – change in occupation
b. Contractual conditions
i. May include ongoing duty in the K itself
Life Insurance Timelines: Pusateri’s
Life Insurance Contract taking effect
s.180(1) between signing application and delivery of K if any material changes must let agent
know policy does not take effect until policy is delivered.
It is not want insured actually knew, but what a reasonable person should have or
would have known (Pusateri had interest in not disclosing)
What would insurer have wanted to know
Pusateri’s Ltd. v. Prudential of America Life Insurance Co. (Canada)  Ont CA
Facts: Pusateri took out life insurance policy for $5mill. When asked about rectal
bleeding before signing policy, he denied it. Did not disclose visits to doctor for
bowel problems. He was diagnosed with colon cancer on day of receiving policy.
Agent/broker did know about some health issues but was told by Pusateri not to
tell insurers. Ultimately, P died.
Issue: Was insurer bound by agent’s knowledge?
Ratio: s.183 of the Insurance Act says that misrepresentation of facts leaves the policy
voidable by the insurer.
Rule An insurer is not bound by broker’s knowledge. If you lie on application it
will oust coverage.
B. Duty to Provide Notice and Proof of Loss
Elance Steel Fabricating Co. v. Falk Brothers Industries Ltd.  SCC Ch. 5 pg. 7
Rule s.129 provides relief not only for statutory conditions, but contractual ones as
Cervo v. Raimondo (2006) Ont. CA Ch. 5 pg. 9
Facts: C. was injured when struck by a forklift while checking a light at the rear of his
companion’s van. Lawyer failed to act in timely fashion. No explanation was
given for the delay. State Farm was first notified of the accident two days before
the two-year limitation expired. The insurer rejected the claim, citing s. 59 of the
Statutory Accident Benefits Schedule (SABS).Section 59 provides that claimants
must give notice to the insurer within 30 days “after the circumstances arose that
gave rise to the entitlement to benefits, or as soon as practicable thereafter.”
Under s. 59(4), failure to comply did not disentitle insureds who had “a
reasonable excuse.” Cervo sued State Farm for acc’t benefits. He also sued the
operator of the forklift in tort and Raimondo in neg. for failure to give notice to
State Farm in a timely fashion.
Insurance Law Law 443
Rule An insured should notify the insurer within 30 days after the circumstances
arose that gave rise to the entitlement, or as soon as practicable thereafter
Prejudice Question will other side be prejudiced by delay
Excuses that do not work for non-compliance
1. you relied on your lawyer
2. a difficult legal question
3. the matter was too complex
Dissent No prejudice to insurer bc insured will not be able to exercise legal right to sue
C. Relief from Forfeiture
S.129 equitable doctrine enshrined in s.129
If you did not comply we will turn the other way
Only helps with imperfect compliance (not signing application correctly), not non-
Williams v. York Fire & Casualty Insurance Co. (2007) ONCA Ch. 5 pg. 15 Now law in
Facts: W. was in B.C. & unaware that his Ont. driver’s license was suspended due to
failing to attend a demerit point interview. It was suspended on day of accident.
This suspension left his insurance policy void.
Issue: Does a judge have the discretion to grant relief from forfeiture in circumstances
where the insured was unaware that his driver’s licence was suspended?
Rule Judges do not have a broad discretion to grant relief from forfeiture as this
would allow the court to have the power to alter the terms of the policy or
conditions of coverage.
S.129 is interpreted narrowly
Only for things relating to post-accident proof of loss
Only for things relating to the loss
D. Duties to Mitigate and Co-operate with Insurer
Bassett v. Paul Revere Life Insurance Co. (2001) BCSC Ch. 5 Pg. 17
Facts: Physician claimed against insurer for coverage for medical disability. They paid
for so long but then found out that his inability to work also had to do with sexual
allegations that led to him being forced to resign.
Note: Why should Dr. Bassett have had to put the insurer’s treatment plan ahead of
finances, family and other opportunities?
Should he have told insurer he was winding down his practice bc his licence was
revoked, even though the insurer never asked on the application? How far does
the duty of good faith disclosure go?
Bassett was trying to stretch out treatment, bc he could not go back to practicing
medicine for 3 yrs tried to mitigate his own losses, not the insurers
Rule An insured has a duty to mitigate any losses by co-operating with terms of
insurer, so long as they are reasonable
E. Insurance Waiver and Estoppel
Fraud and Waiver
Fraud – knowingly misrepresenting a material fact
Waiver – voluntarily giving up a legal right
Insurer uses waivers signed by insureds to:
Insurance Law Law 443
o Waive notice of claim periods for insureds, Grant defence but reserve right
to deny coverage
o Allow late payment of premiums (Sask River Bungalows)
Has reliance quality built right into it
Insured relies to her detriment on conduct or representation of insurer
Insurer cannot start defending insured and then stop and deny defence and
Insurer took a premium, issued a policy, then argued insured could not buy Policy
AFTER the accident issue of eligibility (Insured can make estoppel argument)
Waiver & Estoppel
Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co.  SCC Ch. 5 pg. 20
Ratio: Relief against forfeiture is an equitable remedy and is purely discretionary. The
factors to be considered by the court in the exercise of its discretion are the conduct
of the applicant, the gravity of the breaches, and the disparity between the value of
the property forfeited and the damage caused by the breach. The reasonable conduct
requirement is not met in this case. The respondents knew, at all relevant times, that
MF was terminally ill and uninsurable, but they nonetheless chose to have their
correspondence from Maritime sent to a post office mail box over the winter, and to
collect their mail only intermittently. When the respondents learned that payment of
the premium was nine months overdue in April 1985, they did not tender a
replacement cheque, but rather waited three months, until July 1985.
Rule Waiver can be retracted if reasonable notice is given to the party in whose
favour it operates.
F. Duty to Pay Premiums
Padua v. Massachusetts Indemnity & Life Insurance Co. . Ch. 5 pg. 23
Rule There is a duty to pay premiums. No relief from forfeiture; no
Q: No relief from forefeiture; no waiver/estoppel. Is this right?
Q: What is so special about paying premiums versus problems with filing proofs of loss?
Premiums are the consideration for the K it seals the deal
G. Limitations of Actions : Irish
Check contract FIRST
2 yrs from date of discovery Limitations Act (unless K says otherwise)
o auto accident benefits, accident and sickness, life
Insurance Act special limitation
o Auto – 1 year own auto property, 2 yrs 3rd party liability
o Fire loss – 1 yr
Common K’l limitations
o Notice of claim/proof of loss – 1 to 6 months (45 days to put insurance co.
on notice that you may have a claim)
o Starting an action – can be 1 yr
Insurance Law Law 443
TOPIC 6 -FIRE & PROPERTY INSURANCE
- broad comprehensive property and liability coverage all risks property coverage
o anywhere in world
- guiding principle insures against fortuitous losses ONLY
A. Meaning of Occurrence:
WTC Properties v. Hartford Fire Ins. Co.
Facts: WTC hit by 2 planes. Property owner tried to claim on insurance. Had insurance
$3.5 billion per occurance
Issue: Meaning of word “Occurrence”? 2 occurrences or one?
Ratio: Is meaning of occurrence ambiguous?
- should be contra proferentum so decided against the insurer
o Court spent lot of time discussing occurrence
o First party versus 3rd party
o The term occurrence is not applicable in first party insurance cases
Court made distinction between first party and third party insurance no role in negotiating the
terms however is an insurance contract not a take it or leave it entity anyway
Does that mean that we are treating an injured person different than one who
suffers property damage tort in one (innocent part who got injured bc of
someone’s fault) and not a tort in the other (in property law, the only question is
“is the contract triggered”
B. Vacant Property
Iacobelli v. Federation Ins. Co. Ch 6 pg. 6
Facts: Guy rented house to Satan’s Choice motorcycle gang
Issue: Was home “private dwelling” within terms of policy?
Ratio: Goes back to duties of the insured did not tell insurer of change in material risk
Use had changed from what was originally intended
Court looked at various factors:
o Nobody slept or cooked in house
o Devil’s head painted on living room wall
o Slogans painted on living room wall
o Animal skin on front door
o Union jack/nazi flag in windows
o Basement windows barred, motorcycles in house
o Landlord said he did not know
- judge said not private dwelling relied on dictionary for definitions
- why dispute centred on whether it is a “private dwelling” turns on risk
insured (private dwelling versus meeting place/clubhouse) Q: was this
the risk accepted by the insurer?
- Is the question really is the risk lower bc ppl are living there?
- Does the question go to use too if you use place as a home then you
care for it more
Rule Need to look at whether risk was accepted by the insurer
- no consistency in term “showcases” in policy
- Insurer must keep definitions consistent throughout the policy if not it will often
be construed against the insurer
Insurance Law Law 443
- Using multiple terms in multiple ways = ambiguous
- Insurer could have used the different words but made it clear.
- Coverage for burglary if external violence/damage to the premises
- Damage here was inside lock (it had been picked)
- Court said no coverage strict literalism
- Absurd result? maybe court was doing it to stop inside jobs however, need to read
the policy as a whole to avoid ludicrous results.
- Seems to be incentivising violent vs. non-violent break-in
- Risk based on obtaining subrogated interest back from the thief?
- Gallery owners having showing of Bell’s paintings
- Gave certain information to agent to obtain coverage
- Said had guard dog, premises was always occupied
- Guard dog was cocker spaniel, premises was not occupied during art showing
- No burglary alarm on premises
- Coverage denied when artwork stolen, said gallery owners had Misrepresented
D. ALL RISKS PROPERTY COVERAGE AND INTRINSIC LOSS
o All risks property coverage:
o Broad-form first party coverage
Covers everything except what is excluded in the policy
o Opposite of “specified peril coverage”
E.g. buy just a theft policy
o Does not insure against intrinsic loss –why? doesn’t cover wear & tear, flaws
within the property itself
o Why Not?
Fortuity principle nothing you can do about it (wear & tear), not
Moral hazard if insured against wear & tear, then ppl would do
nothing with it, would let it fall into disrepair
- grain destroyed bc of heat
- P insured under all risks policy
- Duty of plaintiff prove that the grain heated by accident
- P does not have to prove precise cause that is up to insurer if they want to get it to
fall into exclusionary clause
- High burden on insurer to make it implicit
o Exclusion clause in all risks insurance has to be interpreted very narrowly
- Again maybe want to stop moral hazard farmer leaving grain out in all weathers
A basic set of principles for dealing with insurance cases
Major rules: contract interpretation, insurer and insured duties)How type of insurance
alters rule application
A methodology for solving problems commonly faced in insurance
Using rules and logic to solve insurance problemsThinking creatively
Insurance Law Law 443
A mess!! Use tools as guiding principles, plus notions of balance
E. Pollution Exclusion : Zurich
- insurer cannot rely on broadly worded exclusion
- court looks at purpose of the exclusion what was it meant to do
- def does not say restricted to environmental pollution
i. Q: By holding that the pollution liability exclusion clauses only apply to
traditional envir pollution, not only did the court in Zurich interpret an
exclusion clause broadly, but it also construed the clause against its plain
meaning. In light of this is the Zurich decision an example of the
willingness of courts to interpret insurance K’s in such a manner as to
achieve broader policy objectives despite the intentions of the parties?
F. Concurrent Causation in Insurance
- fundamentally different than causation in tort
- no search for fault, morality, blame
- tort concepts of foreseeability and causation not readily transferable to insurance
- a contract law question what does the policy mean?
- Not who is to blame and who should pay
- Only question is what fact triggers coverage
Chauvin Hurricane Katrina Case
Facts: Houses were total losses could not live in them
- Happened from a number of things, wind, flood, rain
- Most of damage was from flood
- Causation problem!!! when is coverage triggered when you have multiple causes
- Policy excluded coverage for flood (most do)
- State has VPL (Value Policy Law) you decide what the house is worth before event
happens if you lose house insurance company pays you total amount avoids insurers
over or under valuing homes
Issue: What causes plaintiff’s loss? When a covered clause combines with an excluded clause,
do you have coverage?
- Discrepancy btwn insurer’s exclusionary intent and language chosen
o I.e. “private dwelling” “vacant” “seasonal residence”
o Becomes important
- consistency issues = ambiguity (show cases)
- no insurance for intrinsic loss (moral hazard)
- exclusions must be clear esp. in all risk policies
- purposive, historical approach to pollution v. literal
- concurrent causation concerns a puzzle?
Insurance Law Law 443
TOPIC 7 - LIABILITY INSURANCE
third party tort insurance
- insures YOU against lawsuits brought about because of YOUR negligence
- Standalone policies
o Professional liability insurance (E&O)
o Directors and officers liability insurance (D&O)
- Dual-component policies
o Auto-insurance (liability plus comp/collision)
o Homeowners (liability + property)
Liability Insurance Themes
- Enormously wide scope (as wide as tort law)
- Difficult for insurer to rate all possible risks
- Enormously wide coverage clauses (i.e. insures for acts “Anywhere in
The backbone of the tort law system (this is where the money comes from)
Definition of insured
Scope of liability coverage (Walken)
- Broad comprehensive coverage for accident
- “Any unlooked for mishap or occurrence”
- Negligent is by far the most frequent source of exceptional liability
- A policy which would not cover liability due to negligence could not
properly be called “comprehensive”
- If no calculated risks or dangerous operations covered, what’s left?
- SCC takes purposive look at the insurance
- Policy that does not cover for neg. cannot be called comprehensive
- Broad spectrum liability for non-intentional torts
Designed to oust coverage because of:
- adverse selection
some insurance company only insure groups of low risk
individuals to the expense of the other insurers
instant profit bc they hardly ever make claims
- moral hazard
do not want ppl to act unsafely bc they have insurance coverage
- catastrophic (linked) losses to many insureds
most insurance policies exclude catastrophic losses
- market segmentation (overlapping policies)
segment risk by what they cover
need overlapping policies to cover risks
- liability exclusions to be interpreted narrowly
- insurer needs to be specific
All designed with the idea that insurance covers only fortuitous accidents that which we can
predict we do not insure certainties and that which we can predict
Insurance Law Law 443
A. HOMEOWNERS LIABILITY
i. Who is insured?
Covers named insured, and:
His or her spouse and relatives of either who lives in your house
While living in the same household, his or her spouse….
Gecho v. BCAA Insurance Corp. Ch. 7 pg. 2
Facts Man living in estranged relationship with wife, man burns house down
Issue Whether man was living in “same household?”
Held Yes, he was, t/fore no coverage for his actions
Ratio: Families transient, would be coverage nightmare if we had to call every time
someone moved in or out
We don’t want family members torching houses (moral hazard)
o We do not want to incentivize a family member to torch the house
o Controls whole family behaviour is this saying you should throw
any ppl out of your house if you think they might be a risk
o (problem): sins of the guilty visited on the innocent
Broad coverage gives option to take it away in case of incident
Insurable interest principle rely on the idea that the ppl living in the house
have an interest in keeping the house safe
Basically, insurers saying we do not insure you against making a bad choice
Court just cared what the words on the page said. literalist approach
Rule: Need to look at the intention of the parties and balance against commercially
sensible idea of coverage
Note: household is considered broad & ambiguous definition of household is not defined/no
limiter on the definition of household (often construed against the insurer) need to look at
whole policy for context look at pattern of behaviour
Canadian Universities Reciprocal Ins. V. Halwell Mutual Ins. Co. Chapter 7 – pg.6
Facts Boy president of activities in college, lives in dorm. Organized mudslide event,
someone injured, boy sued
Issue Could parents homeowners policy indemnify him “Was he member of household”
Held Boy was member of household, coverage
Ratio Dorm is not home, you cannot stay there during the summer
Intention of parties (Gecho) is not overriding bc boy thought dorm was
home, but court said no
Look at pattern of behaviour every summer and hols, he went homeSo
parent’s home is his home
Rule You can have more than one household need to look at pattern of behaviour,
pattern of living
Note: How many households are too many? (what about blended households)
Insurance Law Law 443
B. Commercial General Liability Insurance
i. Breadth of Coverage
CGL designed to cover if you injure a 3rd party does NOT cover faulty workmanship that you
need to go back and remedy
- otherwise no-one would do a good job (moral hazard)
- they will insure if faulty workmanship hurts someone, but not cover
cost to re-build
ii.Faulty Construction (Alie)
Was damage to faulty foundations covered under CGL policy?
Did the insurer intend to cover X?
If damage to 3rd party, you can assume that is what the insurance was meant to cover
CGL’s are designed to cover you for tort liability to 3rd parties, not shoddy
workmanship bc would result in moral hazard
iii.Own Work Exclusion (Bridgewood)
New homes, structural damage to concrete
Drafting problem does not cover you for your own work what is own work?
Exception to the exclusion poorly drafted did not take you back to coverage work
done by subcontractors
Coverage clause and exclusion clause have to match the risk otherwise have a problem
Insurance company had tools and money to draft it correctly, if they didn’t then it is
their problem. If insurance companies do not wish to indemnify general
contractors for the shortcomings of their subcontractors, they need only say so in
clear and unambiguous language in their policies.
C. Business Interruption Insurance
- relatively newan addition to commercial property/mixed commercial policiesinsures capital
assets that is business stream
- tension with incentives for moral hazard/mitigation fearsneed to incentivize ppl to go back to
work otherwise there would be problem with them staying at home and taking money
Duane Reade and ABM
i. period of restoration (Duane Reade) owned and operated over 200 pharmacies (single most
profitable was in Twin Towers.
o how long do you get B.I. payment for?
o DR = Until re-build twin towers?
o Insurer = until you get new location elsewhere Pharmacy needs to mitigate
o Court = period of restoration is only until you can build functionally
o Who gets to decide functionally equivalent?
Insurers setting arbitrary deadlines? St. Paul was not obligated to provide
business interruption coverage until Duane Reade could restore
operations at a store located at its former World Trade Center location.
Instead, the Court ruled that coverage only extends for the hypothetical
time it would reasonably take Duane Reade to repair, rebuild, or replace
its World Trade Center store at a suitable location.
Insurance Law Law 443
Does it place an unreasonable burden on the insured whose business
hinged on a particular unique factor that is not easily reestablished?
This is why you insure the capital asset of your business stream
Contingent Business Interruption
Covers losses resulting from damage to another’s property (like a supplier’s warehouse or
customers place of business) Is designed to protect insured when a business it relies on
has a loss and such loss triggers an additional loss for the insured
Supplier’s property must be damaged and no exclusions can apply to oust coverage
ii. “use” and “control” (ABM) Insurable Interest in Business Stream
o court uses insurable interest doctrine
o WTC is not ABM’s building they are just janitors
o 800 employees sole source of business
o Court = insurable interest does not just mean property court looked to use and
o If you have exclusive use and control of some parts, sinks, closets, security
system, call centre gives enough insurable interest so that you can get paid
for loss of income stream.
Insuring Income Stream through Property Definitions
A broad limiter on the question “income from what”
If property damaged, you get BI coverage
Property defined widely
o Own property, Care, custody and control, Property for which you are legally
o Property in which you have an insurable interest (F.E.T.)
Why not insure the business stream itself?
o Moral hazard argument incentive to not work as hard so that they can
recover BI insurance
o Actuarial problems how do you quantify income stream hard to know
what type of loss you are underwriting
D. Professional Liability (E&O) Insurance
i. Claims made versus Occurrence Based Policies
Claims Made – insures against claims made by 3rd parties during the policy period
Usually only professional liability insurance Cheaper than occurrence based
Excludes long latency claims by nature Coverage temporally limited
Locus of control is in hands of 3rd party making claim (efficiency issues?)
Gaps result “fall between 2 stools”
Discovery policy – claims made after end of coverage period still covered if
circumstances giving rise to claims discovered during coverage period
Locus of control is in insured’s discovery of damages during policy period
“alert insurer that you have “discovered a potential of a claim”
Claims Made Coverage: Balance?
If locus of control in hands of 3rd party claimants, is this an efficient coverage trigger
given informational imbalance between:
o insurer who knew there could be “some” claims coming but not exact details
o Insured who knew there were some claims coming but not exact details
o 3rd party victims who were conducting fact finding to determine efficiency of a
Insurance Law Law 443
Conditions precedent to recovery:
1. Victim would have to inform insured: you were neg and I am
going to sue you
2. Insured would have to inform insurer of the lawsuit in a timely
3. Insurer would have to deem claim fell within policy period
How does an insured control 3rd party conduct to its prejudice? Does
it say “please sue us?”
Occurrence Based – insures against liability that occurs during the policy period, even if
a lawsuit is brought later
o Auto, CGL, homeowners coverageWorks best when you immediately know
you have had an accident (i.e. auto)Not well suited for professional services
because potential for long-latency claims greater;
o Claims likely made after policy expiredHard to actuarially estimate future
o Risk assessment difficult (how will claim be split, if at all?)
Professional Liability Insurance
specific profession insurance
o legal, medical, engineering professionsprofession itself often has influence on
coverage design and implementation
o risk control controls premium cost
o coverage restricted to only while acting in capacity of that profession
o insurer not often switched (or impossible to do so) no gap issues
generalized broad spectrum liability insurance (Jesuit Fathers)
o no specific profession coveragebroad spectrum risks covered
o expensiverife with exclusions controlling coverage as claims-made coverage
onlycan be multiple insurers over life of insured
Jesuit Fathers of Upper Canada v. Guardian Ins. Co. of Canada
court considered in this case when and if a court should consider availability of
additional coverage in the interpretive exercise? (contra Alie Bertrand)
What is there wasn’t anything available on the market in this case?
Facts The Jesuits operated a residential school for native children in Spanish, Ontario. In
1994, a former student made a claim for abuse sustained at the school. The Jesuits
reported that claim to its insurer, Guardian, during the policy period. The Guardian
policy expired shortly afterward. After the expiry, approximately 100 other claimants
came forward. The Jesuits sought coverage for all 100 claims under the claims-made
professional liability coverage on the basis that the first report extended to all
Ratio The Court agreed with Guardian that there was only coverage for the first claim, and
that the 100 claims made after expiry were not covered. The policy only responded to
claims that were "first made" during the policy. The Court also rejected the Jesuits'
arguments that the word "claim" ought to be interpreted broadly for public policy
reasons concerning compensation of abuse victims. The Court noted that the policy
was to be interpreted instead according to its terms.
Rule With claims made policy, insurer only covers claims made during the policy
Insurance Law Law 443
ii. Professional Services
E & O insurance
Cassels, Brock & Blackwell LLP v. LawPro
Facts The policy contained an exclusion with respect to “any CLAIM in any way arising out
of an insured providing investment advice and/or services, including without
limitation, investment advice and/or services relating to or arising out of a business,
commercial or real property investment unless as a direct consequence of the
performance of PROFESSIONAL SERVICES. In the coverage litigation, the law firm
argued that it fell within the exception to the exclusion clause, that even if it had
provided ”investment advice and/or services”, it had done so as a direct consequence
of the performance of “professional services”. The firm pointed to the fact that it had
used its trust account as a vehicle for the receipt and distribution of investment funds
Ratio The Court interpreted the underlying claim against the law firm to be one in which the
firm’s client claimed to have approached Cassels Brock for business advice about the
safety of a particular investment. The client’s claim also alleged that the law firm had
not properly monitored its trust account and had not followed the client’s instructions
in releasing funds from that account
Ont. CA did not think that the exception to the exclusion applied. It said that although
use of a law firm’s trust account can constitute “professional services”, there was no
basis for concluding, in this case, that the account had been used for anything but
investment services. Thus, the use that was made of the account did not rise to the
level contemplated by the exception to the “investment advice” exclusion.
Rule Professional Services definition is narrowly constrained/construed
E. Directors and Officers (D&O) Liability Insurance
i. Insured versus Insured Clause
Kohanski v. St. Paul Guarantee Ins. Co. Chapter 7 page 35
Issue Does a duty to defend arise under a directors’ and officers’ liability, which contained
what is known as an “insured v. insured” exclusion. This exclusion applies when one
insured sues another.
Ratio It ruled that the exclusion was unambiguous and should be applied, regardless of the
policy reasons that might have underlain its insertion into the insurance contract.
Rule Professional liability insurance is very expensive and very narrow does not
insure all risks incentivizes CEO’s to do a good job.
Note: What is of broader interest here is the Court of Appeal’s approach to the interpretation of
the insurance policy. It is well established in Canadian caselaw, that exclusion clauses are to be
construed against the insurer. But the Court made it clear that this rule of construction only
applies where the policy language is ambiguous. If there is no ambiguity, then there is no basis
for a court to do anything but give effect to the plain meaning of the exclusion. As the Court of
Appeal noted, “Trite though it may be, an insurer has the right to limit coverage in a policy issued
by it and when it does so, the plain language of the limitation must be respected.”
F. The Fortuity Principle and Intentional or Criminal Acts
Do you have liability for intentional and criminal acts?
Most liability policies have an exclusion for intentional acts (if not C.L will take care of
itInsurance designed for fortuitous acts only
Liability insurance insures against negligence (torts)
Exclusion should be interpreted to not take away coverage for negligence (otherwise
PROBLEM: what IS an intentional act? What IS a criminal act?
Insurance Law Law 443
o “intentional or criminal act or failure to act”
Scalera, Gamblin, Eichmanis
o “Intentional Act”
S.118 Insurance Act public policy
Unless the contract otherwise provides, a contravention of any criminal or other
law in force in Ontario or elsewhere does not, by that fact alone, render
unenforceable a claim for indemnity under a contract of insurance except where
the contravention is committed by the insured, or by another person with the
consent of the insured, with intent to bring about loss or damage, but in the
case of a contract of life insurance this section applies only to insurance
undertaken as part of the contract whereby the insurer undertakes to pay
insurance money or to provide other benefits in the event that the person whose
life is insured becomes disabled as a result of bodily injury or disease.
How to reconcile a rule? The fact situation
Saindon - lawnmower man (no coverage) Intentional?Court says criminal – so what?
Scalera – sexual assault by bus drivers (no coverage)
Could be obviously criminal
Buchanan – schoolyard fight (no coverage)
Could be criminal, an assault?
Gamblin – deer hunter shooting jeep (coverage)
Criminal – firearms offence
Eichmanis – criminally negligent shooting (no coverage)
Criminal – criminally negligent causing bodily harm
Q: When does intentional or criminal conduct oust coverage?
Must have intent to act and intent to injure
If have allegation of sexual assault, it is always intentional not
Co-operative Fire & Casualty Co. v. Saindon
Facts Lawnmower lifted by man towards neighbour. Neighbours hand injured badly.
Issue Was coverage excluded for intentionally caused injury?
Ratio The Court held that as he intended to raise the lawn mower it did not matter if the
consequences were more severe than intended.
Rule Conduct = deliberate (foreseeable risk recklessness?) therefore, actions are not
covered. The mere fact that unintended consequences result from an
intended act does not make an intentional act an "accident" It does not
matter if consequences were more severe than intended, if was intentional act.
Non-Marine Underwriters, Lloyds of London v. Scalera
Rule When you have sexual abuse case, there is always presumption of an intentional
act – no coverage
Must demonstrate an intentional act plus intent to injure in order to rely on
Insurance Law Law 443
Buchanan v. GAN Canada Ins. Co. Ont. CA (2000) Chapter 7 page 49
Facts 2 schoolboys (B & W) engaged in fight. B got upper hand even though he did not start
it. Used more force than necessary and W was injured. W had chipped tooth, cuts
etc, but also suffered PTS disorder, closed head injury and depression. B wanted to be
covered for liability under mother’s homeowners policy. Said he could not have
foreseen PTSD or depression. Exclusion in policy for intentional bodily injury caused
by an insured.
At original trial, judge held that exclusion clause applied.
Issue Did judge err in saying that the exclusionary clause applied?
Ratio Appeal court looked at Sirois v. Saindon said that it was governing authority
Exclusion clause applies where the insured commits a deliberate act which
was the dominant cause of the plaintiff’s injuries where injury was
foreseeablethe fact that the intentional act had more serious consequences
than what was contemplated was immaterial
Rule No insurance for intentional acts even if they are not foreseeable (even P.T.S
disorder, and depression)
Gamblin v. O’Donnell
Facts Hunters case. RA (a named insured under home policy) shot at what he thought was a
deer. Was in fact a car, with 3 other hunters. Hit one of G’s eye. RA wanted insurers
to defend him and pay all sums up to policy limit which he may become liable to pay
as compensation to G
Issue Does exclusion clause cover careless use of firearm as defined in s.86(1) of C.Code?
Held Halifax insurance failed to discharge burden that the exclusion clause applies. They
are bound to indemnify RA.
Rule Insurer could have made exclusion clause more clear, if clause is ambiguous
interpret it against the insurer.
Eichmanis v. Wawanesa Mutual Ins. Co.
Facts Eichmanis was seriously injured when he was shot by Ryan Prystay. 3 teenangers
were playing with a loaded gun in Prystay's father's home. The three boys had broken
into the home, contrary to the father's instructions not to be there. At the time, Prystay
was living with his uncle and aunt. E sued for damages under the uncle and aunt's
homeowner policy, but the insurers denied coverage because the policy excluded
activities "caused by any intentional or criminal act."
Issue What is the proper interpretation of the criminal act exclusion in a homeowner's
insurance policy? Does the criminal act exclusion applied to criminal negligence
which resulted in injury?
Ratio Even if the "criminal intent" portion of the exclusion did not apply, the "criminal act"
portion of the exclusion did. "The exclusion applies to injury 'caused by any
intentional or criminal act,'"
Rule Intention is not a required element of the criminal act.
A DELIBERATE ACT TEST:
What should be the test for ousting coverage of intentional acts?
o Objectively reasonable intent
o Subjective intent of insured
And intent to do what? To do an act leading to the harm? To do the harm? (Saindon)
Must it always be an intentional tort? What about courting the risk?
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Subjective intention to act plus subjective intent to injure
o Scalera (2000)
o Gamblin (2001)
Subjective intent to act plus presumed objective intent to do at least some
damage, just not so much
Objective intent to act plus intent to injure irrelevant
o Eichmanis (2007)
Canadian CGL Exclusion
“damage or injury expected or intended from the standpoint of the accused”
Interpretive perspective clear – subjective
Expectation principle included
Liability Insurance Summary
Coverage is broad and comprehensive “negligence” insurance (Buchanan)
Insured and household ambiguous, broad definitions
Cut for or against an insured depending on the circumstancesContext, intent, pattern of
Faulty construction work and “own work” issues aimed at moral hazard (Alie )
Business interruption claims often tied to things out of the insured’s control (ABM)
Claims made versus occurrence based
o Creates disputes among insurers and insureds about who covers what
D&O and E&O coverage and exclusions
o Claims made coverage controlled
Is intention or criminal act clause properly policing the fortuity principle? A better way?
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TOPIC 8 - LIFE INSURANCE
MOST complex and regulated area of insurance
often paired with financial vehicles
difficult to classify in Insurance Act
o life insurance (i.e. payout on death)
o AD&D coverage (i.e. payout on accidental death)
Classified under Accident and Sickness insurance or Life Insurance?
The ultimate condition precedent = death!!
Term life insurance – just life insurance
Whole Life Insurance – life insurance plus an investment portion (premiums usually
higher, so usually less “insurance” per premium dollar)
How many have life insurance?
o Everyone pretty much gets it
Why would an insured buy life insurance?
o To provide for family left behind
Why would an insurer sell life insurance?
o No guarantee when person will die, although everyone will
o Gambling on death?
Insurance Act very important in this type of litigation
Contract taking effect (s.180
o Delivery, premium, plus no material change
Duty to disclose material facts (s.183)
2 yr incontestability (no fraud) (s.184(2)
suicide and reinstatement (s.188(2))
mandatory reinstatement (s.189)
o payment of back premiums. No change in health
Life Insurance Application
Why is it so important
Insuring a certainty
A. Death by Accidental Means
Martin v. American International Assurance Life Co. Chapter 8 pg. 2
Facts Family doctor had an addiction to opiate medications. Completed treatment program.
After an injury became addicted to other drugs and had to stop work. Got off drugs
and went back to work. Had pain in his leg, went for a drive and was found dead in
his office from overdose of Demerol that he had injected for the pain. Policy had
accidental death benefit. Insurers say death was not by accidental means and said
self-injection was deliberate act.
Held Death was caused through accidental means that falls within the definition in the
Ratio The court concluded that the pivotal question was whether the insured expected to die.
The new approach is to examine the situation from the standpoint of the insured, and
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if that is not possible, to look from the perspective of a reasonable person. Thus, if a
plaintiff can prove that the method by which the injury arose or the result that
happened were neither expected nor intended from their own perspective, then based
on the Supreme Court's decision, the matter will be found to be an accident
Rule Subjective test: did the insured intend to die? If inconclusive, then ask what a
reasonable person in that person’s position have intended?
Contextual Look at the situation from the standpoint of the insured and the
perspective of a reasonable person did the person subjectively intend to die?
B. Insurable Interest (s.179)
Provisions set out when and who you can take life insurance out on someone else’s life
Why require an insurable interest at all? What is so wrong with relative or dependent?
Does the same problem exist in “key person” insurance policies for businesses
Packall Packaging Inc. v. Chantiam
Facts Policy issued on life of NFC for 250K payable to Packall. C was plant manager and
consented to policy, but stopped working for P and started own company. C found P
continued to pay premiums and maintain policy in good standing. C demanded policy
be discontinued. Brought order to have policy cancelled or transferred to him at
FMV. C said bc he no longer worked at P, there had been a material change in
circumstances and that consent should only apply for period of employment
Held In absence of statutory provisions, the court cannot intervene and cancel an otherwise
Ratio Traditionally, you had to have insurable interest in person to be able to have valid
policy, otherwise void ab initio. No longer any necessity of insurable interest where
the person whose life is insured has consented in writing.
Rule Insurable interest in life insurance is only required at the time of commencement
of the policy, unlike property insurance where insurance is required at the time
of the loss. Once you have I.I. you always have it.
Note: Is this an example of too literal approach to the contract?
C. Public Policy
Insurers can never rely on public policy, if that is all they have got
Innocent beneficiaries? Do they fit into the criminal should not profit from their crimes
box NO!! they are not doing the crime
Oldfield v. Transamerica Life Insurance Co. of Canada Chapter 8 page 9
Facts O carried 30 cocaine filled condoms in stomach, one burst causing death. Former
spouse claimed proceeds of life insurance policy in which she is named beneficiary.
Insurance company said no payment bc it would be contrary to public policy to permit
a criminal to benefit from his or her crime.
Issue Is there a public policy rule that renders a life insurance policy unenforceable, where
the insured dies as a result of own criminal act, regardless of who beneficiary is?
Held Not a crime to allow an innocent beneficiary to obtain proceeds where an insured
accidentally dies during the course of a criminal act.
Ratio Generally, a criminal should not be allowed to profit from his crime, this applies to a
criminal’s estate. However, an innocent beneficiary (3rd party) is neither a criminal nor
claim through the criminals estate, bc of that the public policy rule is inapplicable
Rule Where a crime is committed by the insured, and the insured did not intend to
cause death through the commission of the crime, the beneficiary named in the
policy insuring against accidental death, not being the estate of the insured, was
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not precluded from taking the insurance proceeds as the public policy rule did
not apply. S.195 A beneficiary may enforce for the beneficiary’s own benefit, ,
the payment of insurance money made payable to him
Note: Court said to look at anti-social act, and who is asking and what is the nature of
Sall v. Canada Life Assurance Co. Chapter 8 page 13
Facts P claims $ under life insurance policy on husband who died along with son in single
vehicle accident after car left road and entered lake. Policy had exclusion clause for
suicide. Family said no indication that insured had suffered any stress prior to his
death. Some differences in evidence between policeman and family. A note was
found in wastepaper basket written in Punjabi, sounded like suicide note. Marks at
scene of accident indicated that it was a deliberate act
Issue Did insured die as result of accidental death or by his own hand?
Held Concluded that it was not accident but was as result of own hand. No insurance!!!
Ratio Physical evidence indicated deliberate act, more than accident.
Evidence pointing to suicide:
Accused was worried and possibly suicidal prior to death
Evidence concerning deceased’s emotional state, Note
Attempts family had at finding deceased as soon as he was missing
No mechanical problem with vehicle
No indication of drugs or alcohol in system
Evidence pointing away from suicide:
Devote Sikh Suicide contrary to religious beliefs
No financial difficulties
Rule Circumstances tending to prove a suicide can be taken into consideration by the
trial judge, along with the rest of the evidence (Balancing). The P bears the
burden of proving that her husband died accidentally on a BOP
Gregory v. Jolley (2001) Ont. C.A. Chapter 8 Pg. 17
Facts Insured failed to disclose in his application for individual disability insurance that he
had undergone surgery on his left knee. He also made serious misrepresentations with
respect to his income, estimating his income as $90,000 in 1989 and $100,000 in 1990
when in fact he had a loss of income of $58,000 in 1989 and a loss of income of
$10,000 in 1990. Policy had lapsed twice. He had paid back premiums however.
When he applied for reinstatement for 3rd time, he had no income but did not say it.
Insurer did not ask for written application on this reinstatementIncontestability 2 yr
period is re-set on each reinstatement
Ratio Fraud is proven when a false representation has been made 1) knowingly 2) without
belief in its truth, or 3) recklessly, careless whether it be true or false
Here considerable evidence that support a finding of fraud
Income figures not just wrong, but grossly wrong, lack of candour, , misrepresented
his income, health and employment
Rule Where an insured is in possession of facts that any reasonable person would know could
make him or her uninsurable, there is a duty to disclose those facts even if the insurer
does not ask for a written application.
Incontestability: Gregory v. Jolley
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duty to disclose material info in life insurance (s. 183)
incontestability after 2 yrs, except for fraud (s.184(2));
o insurer has 2 yrs to ferret out misrepresentation
long-term contract reliance
put some burden back on insurer to take positive investigatory step
stops post-claim underwriting problems
crt interpreted the law as the clock starting anew every time insurance is reinstated.
F. Interim Coverage
Davies v. Zurich Life Insurance Co. of Canada SCC Chapter 8 pg. 21
Facts D got life insurance policy for $10K on April 11, he died on April 23 and widow
claimed payout. Portion of premium had been paid. No policy had been issued
however, only a conditional insurance agmt. TJ said no coverage. Overturned by CA
Held Agreed with CA, widow wins
Ratio Although the agreement contemplates the issue of a policy, it nowhere says expressly
that coverage is dependent on prior proof of insurability.
Every reason to apply a contra proferentem construction to a contract of adhesion as
is the case here. D died of natural causes, had medical month before his death
Burden on insurer to prove no insurance = not met
Rule Onus on Insurer to prove that person is not insurable at standard rates
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TOPIC 9 - AUTOMOBILE INSURANCE
Purpose of Auto Insurance
To protect car owner from liability?
To provide compensation to accident victims?
What Drives YOUR decision about the limits of auto insurance YOU purchase? fear
In most provinces pure tort system
In BC, SK, MB government provides basic no fault insurance with private top up
o BC can sue for non-pec and economic loss
o SK; no non-pec, economic loss to 52K/yr
o MB; no non–pec, no economic
o QC; Gov’t covers injury – private covers property damage to auto
Private sale of government no-fault hybrid product:
o ON: non-pec and economic only if over threshold
No Fault System in Ontario
o Give up right to sue in tort in exchange for menu of stat accident benefits (SABS)
from victim’s own insurer
o Unless deemed catastrophic, caps on damages insurer must pay;
o 80% of income loss before trial, 100% after trial
o If injuries cross legislated threshold, victim can sue for:
Health-related expenses past cap
No Fault Insurance Theory
o Reduces cost to system by:
o Eliminating the P’s burden of proving the D’s fault
o Eliminating role of lawyers and courts
o Creating predictable, controlled insurance system (premiums, experience rating)
o Capping damages
Spreading compensation at a lower amount but to a greater number of people
Statutory Accident Benefits
Income replacement benefits
o 80% of salary, up to $400 per week, can buy up to $800 per week
medical and rehab benefits
housekeeping and home maintenance
out of pocket and visitors expense
no recovery of non-pec losses
disputes about SABS go to arbitration, then court
can get independent medical assessments in process.
A. The Injury Threshold
O/Reg. 461/96 Meyer v. Bright
o Permanent serious disfigurement
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o Permanent serious impairment of an important physical, mental or
Can sue for pain and suffering
80% of net incomestill no health care expenses unless deemed catastrophic
Sliding deductibles for non pec damages
o $30K UNLESS P recovers more than $100K in non-pec damages
For FLA claims (family members)
o 15K unless FLA claimant recovers more than $50K
Auto Insurance Themes -Ontario
government written – mandated insurance
labyrinthine statutory navigation
commercial efficacy of trade offs of no-fault
o exchange right to sue in tort for cheaper auto insurance premiums
o exchange lower level compensation for greater access to compensation by
Hybrid public-private issues:
o Competing interests between insurers and government?
Collision and Comprehensive
Auto Property Coverage
Collision upset or impact of vehicle with something else
Comprehensive all risks except collision (i.e. fire, theft, vandalism, glass
breakage unless excluded)
o Coverage does not overlap but rated separately – WHY?
Level of control, more control over collision moral hazard,
behaviour modification cause people to dry more safely.
Meyer v. Bright; Dalgleish v. Green; Lento v. Castaldo Ch. 9 pg. 2 [interpreting threshold]
Held Case interprets serious important disfigurement
Ratio 1. Death?
2. Permanent serious disfigurement? objective
3. Permanent serious impairment of an important bodily function? subjective
serious has to substantially interfere with a person’s daily life case by case basis
important case by case basis
disfigurement marring and disfigurement to appearance judged from what other
ppl think (objective standard)
Meyer -Just because it is painful to do household chores, does not make it serious
Dalgleish -Losing spleen/scarring not important or serious 74 yrs old and no-
one gonna see it, didn’t change clothes she wore “not all bodily functions are
Lento – could not work anymore (important) (serious)
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No two cases are ever same case-by-case basis not every hurt is going to allow
you to sue and get past threshold
Rule Interprets threshold Permanent serious impairment of an important bodily
Golab v. Schmidt Chapter 9 pg. 14 [waters down Meyer v. Bright]
Facts No objective findings of a serious injury. Friends etc. talked about impact on her life
and said how it had changed her
Issue Did injury pass the threshold?
Held Court said she found it intolerable so passed threshold and could sue.
Ratio Watering down of Meyer v. Bright
“permanent & serious”
beyond “frustrating & unpleasant” beyond “the tolerable to the serious”
what is tolerable to one person may not be to another totally subjective
Rule Need to look at credibility of witness, injuries now only need to be intolerable to
pass threshold beyond the tolerable to the serious beyond frustrating &
Has the no-fault insurance purpose of reducing cost of claims worked? probably not,
most people not paying less captive market
Are accident victims less compensated?
Disfigurement eye of the beholder leads to arbitrary results? just how many
people have to see your scar before you get compensated? Recent cases moving
towards subjective opinion –Use laywitnesses to attest to change in your confidence
B. Consent to Use a Vehicle
In Ontario to get coverage you need to be operating vehicle with consent of the owner
McCauley v. Blagdon Chapter 9 pg. 17
Facts Innocent 3rd party passenger injured. Person driving did not have consent and was
therefore uninsured. Plaintiffs asked court to read-in “within the knowledge of the
Ratio Exclusion exists to:
Force owner to only lend car to competent drivers
Moral hazard disincentivize people from taking car without coverage
All about risk control. K is between insurance co. and owner
Rule No coverage if driver does not have consent even for passenger who did not have
knowledge No exceptions for innocent 3rd party passengers
“Use and Operation” of an Automobile
Amos v. Insurance Corp. of B.C. Chapter 9 pg. 20
Facts Shot by gang trying to break in van while driving.
Ratio Purpose Test was vehicle being used for proper purpose. Causation Test (restrictive
version) – did vehicle’s use as “a vehicle” cause the injury
More than “BUT FOR” – must be an unbroken chain of causation linking conduct of
motorist as motorist to injury
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Chain may not be broken by a “not abnormal” incident of the risk or likely to arise “in
the ordinary cause of things”
Happened while in vehicle so coverage
Rule If auto somewhere in nexus then you have coverage
Knutsen Maybe gut reaction is better test!!!!!
Reasonable expectations used here but no ambiguity (mutation of tool)
Herbison v. Lumbermens Mutual Casualty Co. Chapter 9, pg. 23
Facts Man shot hunter after he got out of truck. 3rd party liability covers loss “arising from
the ownership or directly or indirectly from the use and operation of an automobile
Issue Does auto policy cover liability?
Ratio The court look applied the facts of the case to the two part test (to determine whether an injury
arose from the use and operation of an automobile) established in Amos v. ICBC. The first
element of the test relates to the purpose for which the vehicle was being used at the time of
the loss. Wolfe’s purpose for driving was to reach his hunting blind. Since this is an ordinary
use for an automobile, the Court felt that the “purpose” component of the test was satisfied.
The second component of the test requires that there be a “chain of causation” between the
incident giving rise to the loss and the use of an automobile. Since Wolfe could not have
traveled to the point of the incident without the use of his automobile, the Court ruled that the
“chain of causation” test was met. Accordingly, the Court concluded that Wolfe’s auto insurer
was obligated to respond to the claim.
Rule Need to look at purpose and chain of causation
Vytlingam v. Farmer Chapter 9 pg. 34
Facts Drunks threw boulders on passing traffic. Underinsured 3rd party liability. Recover
from inadequately insured motorist in respect of injury arising directly or indirectly
from the use and operation of a vehicle
Issue Does auto policy cover the liability?
Rule If acts occurred in connection with the use and operation of an automobile, then
you have coverage. The Court found that the purpose test was satisfied because
Farmer and his companion were using an automobile to transport a heavy boulder.
The chain of causation test was met because Farmer and his companion could not
have moved the boulder to the overpass with the use of a motor vehicle. As such, the
Amos test was satisfied.
USE AND OPERATION TESTS
1. transportational function test is the vehicle being used as transport?
2. causal connection to the accident test is the vehicle’s use, in some way, causally
related to the accident (part 2 Amos)
3. employed for some purpose test (liberal) is the vehicle being used for some purpose,
even if not for typical purpose (Part 1 Amos)
4. Vehicle at the nexus test Is there a vehicle at the nexus (common in US very liberal)
USE AND OPERATION CONCLUSIONS
Causal chain test difficult and unworkable more litigation?
Reasonable expectations mutated to mean expectations of both parties, not a tool for
contract of adhesion
Difference between 1st & 3rd party situations fuzzy more litigation?
More sensible results from gut reaction approach
Interpreting coverage clauses narrowly?
Narrowing of Amos test!!!
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Auto Insurance – cont’d
Amos no fault first party SABS
o “injury caused by an accident that arises out of ownership, use or operation
of a vehicle”
o Binnie, J: coverage wider – its your accident, so restrict coverage
Vytlingam underinsured 3 party liability recover from “ inadequately insured
motorist in respect of injury arising directly or indirectly from use and operation of
o Binnie, J: Coverage much narrower – someone else’s actions
Herbison 3rd party liability
Covers loss from the ownership or directly or indirectly from the use & operation of
an automobile (i.e. no motorist)
Binnie, J: coverage much narrower, its someone elses actions
D. Definition of Automobile
Steps to define Automobile
o Read Policy & Endorsement
o Insurance Act s.267.1(1) (coverage) – insured for use and operation of
o Insurance Act s.224 (2) (auto defined) – includes motor vehicle that is
required to be insured
o Compulsory Insurance Act s. 2 (1) (motor vehicle defined) – same meaning as
in H.T. Act & trailer & acc of motor vehicle
Definitions circular use very word trying to define in definition
Morton v. Rabito Chapter 9 pg. 39
Facts The plaintiff was severely injured in an accident with a backhoe on a public
highway.The driver of the backhoe was operating it without its owner's consent. The
backhoe was not insured under a motor vehicle liability policy. The plaintiff sued his
insurer under the uninsured automobile coverage in his policy,
Issue Did a backhoe fall under the meaning of automobile?
Ratio The meaning of "automobile" was to be determined by reference to ordinary parlance,
the language of the policy of insurance and the governing statutes. A backhoe was not
an automobile in ordinary parlance, under O.E.F. 44, or under s. 224(1) of the
Rule Backhoe is not an automobile in ordinary parlance.
Copley v. Kerr Farms Ltd. Chapter 9 pg. 42
Ratio a tomato wagon was not an “automobile” as it was not a vehicle that was required to
be insured under a motor vehicle liability policy
Rule Tomato Wagon is not an automobile
E. Statutory Accident Benefits (SABS)
Baron v. Kingsway General Insurance Co. Chapter 9 pg. 46
Facts The insured had brought this action, seeking income replacement, med-rehab,
attendant care and housekeeping benefits. Kingsway had terminated income benefits
at the 104-week mark, when another DAC assessment had concluded that the insured
(the plaintiff) “did not suffer from “a complete inability for performing any
occupation for which he is suited for by education, training or experience.” In the
litigation, the insurer sought examinations by a psychologist and an orthopaedic
surgeon. It also wanted to schedule vocational and functional capacity assessments.
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The insured refused to attend and argued that the insurer was bound by the findings at
Ratio If do not pass threshold – own insurer pays
If dispute insurer can send you to DAC (designated assessment center)
If catastrophically injured – DAC can order more $ benefits
If you put medical problems at issue, you better be prepared to go through a battery of
Rule An insurer can ask for own expert tests to be conducted. However, they cannot
stop paying until you get different/new information
No fault system is NOT less costly/more efficient than tort as was promised
As of March, DAC system eliminated – now have insurer assessment – means they can
challenge what your treating doctor says.
As of March – insurer can do pre-claim assessment can determine (before asked) if
you are going to have claim
o Can demand disability certificate from doctor
F. Protected Defendants protected from tort
Vollick v. Sheard Chapter 9 pg. 52
Facts Under the various no-fault insurance regimes in place in Ontario since 1990,
defendants have been put into two categories, "protected" and "unprotected."
Protected defendants are given statutory immunity from certain claims for damages.
Here, a towing company was sued both as owner of the vehicle involved in the
accident and as employer of the negligent tow truck driver.
Ratio It is now clear law in Ontario that an employer is not a “person present at the incident”
merely because one of its employees is involved. Plaintiffs do not have to prove
independent actionable negligence (for example, negligent hiring practices or driver-
training practices) on the part of the employer. It is merely the employer’s status,
assuming the employee driver is in the course and scope of his or her employment,
which triggers the doctrine of vicarious liability.
Rule For car accidents occurring on or after October 1, 2003, Bill 198 applies. Bill 198
specifically states at s.267.5(10.1) that a vicariously liable employer defendant is
no more liable than its negligent employee.
G. Underinsured Motorist Coverage
Sutherland v. Pilot Insurance Co. Chapter 9 pg. 56
Facts MVA accident in Jamaica
Issue Does the territorial limitation contained in an automobile policy and in the Insurance
Act also applied to restrict coverage provided in the underinsured motorist
Ratio Uninsured Chilton first party insurance, legislated & mandatory your insurance
pays you if you are injured by a driver who had no insurance
Underinsured Sutherland, Wigle First party insurance, extra premium, not
mandatory, private (statute silent)
1. Read endorsement grant coverage for striking underinsured motorist;
nothing about territorial exclusion except QC; says all terms of main policy in
effect, unless otherwise provided
2. Ready Policy coverage Canada, U.S. and any other jurisdiction designated
in SABS schedule
3. Read Insurance Act repeats #2 verbatim for uninsured but is silent on
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4. Read SABS schedule there is no “any other jurisdiction”; there are no
other territorial limitations sections; just repeats coverage clause
5. Realize Jamaica is in “non-list” and you are NOT covered!!!
N.B. demonstrates dichotomy between public and private intent.
H. Discrimination & Automobile Insurance
Could insurance companies take certain things in to account when deciding on premiums
Where does stereotyping stop?
o Race, socio-economic status?
Zurich Insurance Co. v. Ontario (Human Rights Commission) Chapter 9 pg. 59
Facts Young males under age 25 paying ridiculously high auto insurance.
Rule How do you pool the risk? Reasonable & Bone Fide if you do not use stats,
how can you rate the risk? You need to make sure the characteristic is linked
to the risk
BENEFITS AND DETRIMENTS TO A NO FAULT SYSTEM
What problems are there with setting a no-fault threshold based on
o Value of claim
o Seriousness of injury
Do lawyers like the no-fault system?
No-Fault & Fault
Keeton and O’ Connell
Threshold, 2 level no-fault hybrid system in 1964
Do not divorce fault from tort
o No-fault may not be a good idea
O’ Connell choosing insurance
Driving uninsured makes good economic sense
Why should I buy a piece of paper which provides a long delayed transfer payment to
strangers who are more affluent than themselves
Is it a fair exchange to choose to drive uninsured and give up non-pec damages (but keep
lawyers fees and income loss)
o Poor of society might choose this
o Cheaper to hurt these drivers
o Less insurance enforcement costs
o Does free-choice vitiate these concerns
What about a choice no-fault plan, in exchange for cheaper premiums?
Does it matter if I cause an accident by not stopping at a stop sign because of:
o An icy road
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o Talking on cell phone
o Couldn’t see the stop sign because of trees
o I was drunk
o Didn’t see the other car
Is fault subjective or objective?
No-Fault insurance Realities
Makes the injured worse off!!
Confusing system (forms, limitations, assessments)
Innumerable degrading hoops to jump
Lawyers now even more necessary
Unsympathetic, inefficient bureaucracy sucks $ better spent elsewhere
A whole assessment industry created out of this
Robs the right to sue
Robs compensation (caps, deductibles, SABS)
Robs the moral nature of tort law from the equation
Makes the sick even more sick (who can survive this process after a tragic accident and
be better off?)
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TOPIC 10 - CONCURRENT CAUSATION
Why would you ever want more than one insurance policy to respond? if one insurer
denies coverage, the other might grant coverage
Wayne Tank : Dominant Cause: a solution
What is the dominant cause in the following cases:
o Partridge (jackrabbit pistol) (auto v. Home)
o Waseca (burning embers) (auto v. home)
o US Fidelity (day care) (auto v. CGL)
o Lawver (lift rope) (auto v. Home)
Concurrent Causation : a summary
No dominant cause approach from Wayne Tank
Too many metaphysical debates (Derkson, CCR Fishing)
Liberal approach the law in Canada (Derksen)
If one cause covered and one excluded, loss is covered
Insurers can write anti-concurrent exclusions (i.e. Pavlovic
Apportion based on contribution (Derksen)
A. Development of Concurrent Causation
Wayne Tank & Pump Co. Ltd. v. Employers’ Liability Assurance (UK C.A.) concurrent
Facts Fire in Mill. Wayne Tank supplied equipment and apparatus coupled with useless
thermostat. Completely unsuitable for purpose. Installer switched on heating pipe and
left it unattended
Issue What was cause of fire?
Ratio Insurers would argue between themselves, that is was either liability or auto
Rule When more than one cause Look for dominant and effective cause of the loss
Four possibilities of concurrent causation
1. conservative if one cause is excluded, no coverage
2. dominant cause if dominant cause covered, the loss is covered (Wayne Tank, U.K.,
majority of states)
3. liberal if any one cause in chain of events is covered, the loss is covered (CA, Canada,
4. apportionment allow recovery minus proportion of cause that is excluded
how should losses be apportioned under concurrent causation?
Categorizing Concurrent Causation
independent, individually sufficient causes
o each cause a separate and distinct factor which produces an ultimate combined
o cumulative effect
o if one causal event in chain removed
interdependent, individually insufficient causes
o each cause combines with the other to produce a single, indivisible loss
o each factor caused a loss on its own
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*****Derkson v. 539938 Ontario Ltd. (SCC, 2001)
Facts Guy cleaning up site, put sign base plate on cross bar of trailer. Forgot it was there
and drove away. Base plate went through window of school bus decapitating one
child and brain injuring 3 others. Defendant had CGL, excess coverage (covered any
shortfalls under other policies), auto insurance.
Issue Was cause of injury negligence (liability insurance) or driving away (auto insurance)?
Held Both policies cover loss. The CGL covers the loss due to non-auto related negligence.
Ratio Both the auto policy and a CGL policy had been triggered because the accident had
been the result of two concurrent causes: failure to clean up the work site properly
when loading the steel plate on the truck and failure to ensure that the truck could be
Rule Where a policy is ambiguous, seek to give effect to the reasonable expectations of
the partiesApportion damages based on contribution to harm
C. Concurrent Causation in Liability Insurance
Djepic v. Kuburovic (Ont. CA, 2006)
Facts Djepic blinded in one eye while attempting to secure mattress to roof of D’s mini-van
with K. D bought action against K The plaintiff sued, and the defendant sought
coverage under an auto policy issued to the plaintiff by the insurer.
Issue Does claim evolve out of use of an automobile
Ratio The insurer had no duty to defend or indemnify, as the defendant was not a driver or occupant
of the vehicle, and he did not possess the vehicle with the plaintiff's consent. The defendant
was accordingly not an insured person under the policy, and there was no coverage for the
The first part of the test requires the insurer to show that all of the possible scenarios alleged in
the pleadings were claims arising from use of an automobile. Does this not incentivize an
insured to cast pleadings as wide as possible in order to circumvent an exclusion clause, even
tho it’s clearly the intention of the insurer to no provide such coverage?
In particular, it is unfair to the insurer where the cause of the injury is difficult to pinpoint
(such as in this case, where we do not know why the bungee cord became loose), allowing the
insured to make countless pleadings, invariably causing the insurer to have a duty to defend .
Insurer Responses to Concurrent Causation
California Earthquake insurance
o We do not insure regardless of:
o the cause of the excluded event
o Other causes of the loss, or
o Whether other causes acted concurrently or in any sequence with the excluded
event to produce the loss
o We do not insure against anything caused by, resulting from contributed to, or
aggravated by the [excluded clause]
Prescriptive Market Solutions
How could the market respond if the insurer decides to draft out of
Could an insurer create price incentives for purchasing 2 policies
Why not market a package homeowners-auto combo to stop concurrent
cause disputes (McDowell 1998)?
Insurance Law Law 443
TOPIC 11: ACCIDENT AND SICKNESS INSURANCE
private system in the event that you are injured (unless ODSP or CPP benefits tapped
covers person if she is knocked out of the workforce
usually pays 60-80% of salary
STD – short term disability (under 2-3 months);
LTD- long term disability (usually a waiting period of 2-3 months)
Own Occ vs Any Occ
Own occupations LTD coverage
o covers lost wages if insured unable to perform HER occupation
o often coverts to “any occ” after a certain period of time (i.e. 2yrs) (Sucharov)
o i.e. if lawyer can no longer practive law, LTD begins
Any Occupation LTD coverage
o covers lost wages if insured unable to perform ANY occupation (van allen)
o i.e. if lawyer can no longer practice law, but can work in legal publishing
company, LTD does not begin
A. Long Term Disability Insurance
i. Meaning of Total Disability
Paul Revere Life Insurance Co. v. Sucharov (SCC, 1983)
Issue What does total disability mean?
Ratio Does disabled mean “Functionally disabled?” or “ completely unable to do any work –
Rule Disabled means functionally disabled. The test to be applied is whether or not
there was an inability to perform substantially all of the duties of the claimant's
work. This test is satisfied when common care and prudence require a
reasonable man to desist from his business or occupation in order to effectuate a
cure. The burden is on the P, on a balance of probabilities to establish this.
Van Allen v. London Life Insurance Co. (SCC, 2000)
Facts VA was insurance agent & was insured under group insurance policy of LTD
insurance. When young he had fell and severely damaged back this had caused him to
be off work many times, but he had always returned asap. During these times he had
lost business, but he managed to slowly build it back up each time. In 1990 he
suffered final disabling attack. On previous occasions had received STD benefits, and
then LTD benefits until his return to work. In 92 insurers tried to gradually phase him
back into work. This was not successful. Insurers unreasonable.
Issue Meaning of total disability?
Ratio P has burden of proof to prove disability
Then burden switches to insurer to say that although the insured is disabled, they
could do another career
Has to be comparable career (reasonable), has to be in same salary range hopefully
Test is holistic =Loss of use loss of useful use does it relate to career
Rule Same as Paul Revere case.
Insurance Law Law 443
ii. “Regular Care of Physician”
Any problems with moral hazard with this requirement? serious moral hazard issue
with LTD what incentive is there to go back to work?
o Any incentives not to go back to work (or not even try)? happens a lot bc ppl
scared to lose benefits and then get ill later and have to go through process again
o Is this the most efficient result for employee? For employer? Insurer?
Any problems with fraud? if have ongoing source of evidence about condition, then
cuts back on fraud
Where have we seen this type of linguistic analysis before? pollution exclusion
o Should an insured have to submit to retraining for a new career after disability?
o Should an insured be able to collect LTD benefits if retrained in a new profession
with similar earning capacity (i.e. injured surgeon goes to law school)?
Kirkness v. Imperial Life Assurance Co. of Canada
Facts schizophrenic's committee claimed long-term disability benefits on his behalf under a
group policy which required him to be under the regular care and personal attendance
of a psychiatrist before he could recover benefits. The insured refused medical
treatment and in an approximate eight-year period, he was seen only three times by
three different psychiatrists. A symptom of the insured's schizophrenia was the denial
of any illness and the consequent refusal of treatment.
Issue Did P’s failure to comply with “regular care” clause void policy?
Held No, insurers ordered to pay and their appeal dismissed
Ratio The purpose of such clauses is evidentiary. They provide insurers with reliable
assessments of the condition of the insured and protect insurers against fraudulent
claims. Where permanent and irremediable disability exists, regular medical care and
attendance is futile and ineffective"
Rule "Regular care" clauses should be liberally construed such that they will
not bar recovery where permanent disability is established and no useful
purpose would be served by regular attendance at a physician.
B. Accident Insurance
i. Definition of Accident
Stats (drunk driver)
o Unlooked for mishap, not the same as courting the risk (contra Candler)
o Even covers dangerous and gross negligence
Martin (physician Demerol addict)
o “did the insured expect to die?”
Wang (amniotic fluid embolism)
o Martin test not for natural causes or “illness”
o Laskin, J.A. dissent: use Martin, “illness not defined”
Guillet (neck movement in basket ball)
o Everyday activity could be an “accident” if unexpected result
o Borins J.A.: dissent: focus on stroke, not artery acclusion, and follow
Kolbuc (West Nile Virus from mosquito)
o Accident can cause a disease, if unexpected (contra Wang)
How to reconcile maybe look at internal (natural) v. external causes
Insurance Law Law 443
Even if you are predisposed to illness, we still look at external cause, and if external
cause was unexpected, then accident
Stats v. Mutual of Omaha Insurance Co. (SCC, 1978)
Facts Sister (named beneficiary) of deceased trying to get accidental death benefit. Policy
provided $25K upon death. Death had occurred after deceased had been out and
about visiting friends, ran several stop signs & ran into brick building killing her and
passenger. Tests after death showed that deceased was grossly impaired. Insurers
refused to pay death benefit saying death was not within coverage, & insured cannot
profit from criminal act. TJ said no accident. On appeal, court said accident. Insurers
Issue Did death occur from “accidental bodily injury received while the insured was driving
any private passenger automobile”?
Held Appeal dismissed
Ratio Spence, J: insured’s conduct was negligent and dangerous, however, the insured did
not voluntarily or actually court the risk of the collision that killed her. Impairment
was not obvious to witnesses & until she backed into neighbours car, the impairment
was not obvious to anyone. The slight accident must have caused impairment to surge
up and deprived her of any intelligence or judgment whatsoever.
Rule The term accident in an insurance policy is to be given its plain and ordinary
meaning. There is no technical meaning of accident to be applied. Excluding
any accident from coverage in which a negligent action is involved would exclude
the largest proportions of the risks insured against.
Wang v. Metropolitan Life Insurance Co. (Ont. CA., 2004)
Facts Wife died and husband and child received $480K death benefit under a policy of life
insurance. Insured died after caesarean operation. Death was due to amniotic fluid
embolism. Insurer said that another $200K ADB was not payable because death was
not accidental, but from a natural cause. Exclusionary clause said “no payment will
be made if the death is caused or contributed to by a physical, mental illness or
treatment for the illness”
Issue Did death during childbirth result from an accident?
Held Death was caused or contributed to by a physical illness within the meaning of the
exclusion. Not accidental!!!
Rule If natural or internal cause, not accident
Guillet v. American Home Assurance Co. ( Ont. CA., 2004)
Facts G playing basketball turned neck which caused arterial trauma leading to stroke. At
trial G awarded $200K. TJ determined that deliberate acts of ordinary living can fall
within the definition of an accident under the policy. Insurer appeals.
Rule An injury that is unforeseen, unexpected and without design, and not likely to
result naturally or ordinarily from the voluntary or intentional act, but rather
constitutes an unusual result is capable of constituting an “accident”
SOLUTIONS TO “ACCIDENT”
Expectation test flawed
o Who doesn’t expect to live?
Common usage of “accident” test flawed
o What isn’t an accident
Causation Test flawed
Insurance Law Law 443
o Too many metaphysical debates – what “death” isn’t natural in some fashion
with some causal factor
Solution: let policy definition of “accident” and “illness/disease” drive analyss, with
toolbox assistance if ambiguity
Follow Derksen draft out idea
o Put burden on “least cost avoider”
C. Travel Medical Insurance
“pre-existing” condition disputes
“eligibility” disputes &“cost-containment” decisions
traveler faces lawsuit from foreign medical provider for costs, plus must run litigation
reliance and estoppel issues, especially in times of stress
i. Pre-existing Condition
Bird Estate v. Canada Life Assurance Co. (Ont. SCJ, 2002)
Facts Husband bringing action against insurers for payment of benefits and hospital costs
under a travel insurance policy. Husband told broker/agent that they had had to fly
back to Canada in past bc of medical emergency. Agent said coverage would be no
problem bc it all happened over a yr before. Wife died while on vacation in Florida in
1998. Diagnosed as cirrhosis of the liver secondary to alcohol abuse.
Issue Does the exclusion clause exclude benefits for losses caused directly or indirectly bc
of abuse of alcohol?
Held Costs should be paid
Ratio Court found evidence of alcohol abuse prior to 1994. Witnesses said she had not
drunk after that time.
Exclusion clauses are to be interpreted narrowly and therefore the clause did not apply
in current situation as the alcohol abuse occurred years prior to the commencement for
the policy. If insurer wanted to apply clause in this situation, it needed clearer words
to achieve that aim. Reasonable person reading policy would believe that it applied to
alcohol abuse during policy period not alcohol abuse years before
Kolbuc v. ACE INA Insurance – TWEN  Ont. CA
Facts K was bitten by mosquito and contracted West Nile Virus which rendered him a
paraplegic. Mosquito bites are common but there had been no reported cases of the
virus in W. Ontario
Ratio It was an unforeseen event and caused by an external source, and falls within the
definition of accident. The cause of the illness was an accidental event. Decision by
SCC in Martin is applicable. The plasterer had no reason to believe that he would
contract West Nile Virus from the activity in which he was engaged
Rule An accident can cause a disease. An injury may be regarded as accidental where
the insured engages in a voluntary act without intending to cause himself harm
and the consequent harm could not have reasonably been foreseen or expected.
Insurance Law Law 443
TOPIC 12 - OVERLAPPING COVERAGE
Family Ins. v. Lombard
Other insurance (family)
If other insurance exists which applies to a loss or claim or would have applied if this policy did
not exist, this policy will be considered excess insurance and the Insurer is not liable for any loss
A claim against the insured, Y, was settled with the quantum of damages payable by her two insurers set at
$500,000. Y was insured by F under a homeowner/residential insurance policy with a maximum benefit of
$1 million, and by L under a commercial general liability policy for up to $5 million. Both policies
contained “other insurance” clauses that declared the policies to be “excess insurance” to any other
insurance coverage. Each insurer relied on its “other insurance” clause to shield itself from primary
liability. In a contest between the two insurers concerning the extent to which each of them was liable to
pay the insured’s claim, the trial judge held that the two clauses were mutually repugnant, and that
liability should be apportioned between the insurers equally.
Other Insurance Clauses
What is the proper approach for identical or dueling other insurance clauses like in Family
o Prorated sharing based on limits in each policy (majority in US)
o Prorated sharing based on premiums paid
o Prorated sharing equally up to limits of lower policy (Canadian Rule)
B. UMBRELLA POLICIES - McKenzie a personal liability policy was a true excess or umbrella
policy andwas not required to respond to the claims until the limits of the primary policy were
insure separate risks
explicitly dependant on first layer of coverage
covers a completely different level of risk
different actuarial concerns, different premiums charged (less)
dependant on primary coverage absorbing most risk
often requires insured to have certain level of primary coverage first
Key: read the insuring language for dependency on primary level of coverage
“net loss minus retained limit”
“Excess coverage” language
TOPIC 13 - SUBROGATION
Mary’s house is burned down as a result of neighbours negligence
Mary’s homeowners policy covers Mary for the loss
Mary’s homeowners insurer then chases its “subrogated interest” by chasing neighbours
homeowner’s liability policy
Principle: The one who causes the loss is liable for the loss
Somersall v. Friedman:
Insured is wholly indemnified. Loss falls on person who is legally responsible for causing it
Insured has to act reasonably in good faith in limits agreement
Stinging Binnie dissent:
o Not a “tittle” of evidence of tortfeasor’s financial capacity
o Insurers don’t chase subrogated interest out of a “morality crusade”
Tuttle v. Travelers Indemnity Co.
Subrogation for property damage barred by statute among Ontario auto insurers because
transaction costs too high (s.263(5))
TOPIC 14 - 3RD PARTY DIRECT ACTIONS under s.132: Cannon and Stoyka
Insured tortfeasor denied coverage by insurer
Insurance Law Law 443
Accident victim successfully sues tortfeasor but thinks insurer should have covered
Accident victim stands in the shoes of the insured and sues insurer directly under
s.132, demanding coverage and indemnity:
o Insurer had opportunity to participate in original trial or get added as
intervenor to protect interests (Cannon and Stoyka)
o Insurer can only use same “equities” it would have against its own insured –
o Insurer cannot retry damages, liability (Stoyka)
o No “laying in the weeds” (Cannon)
o Question is not whether judgment correct” (Cannon)
o Result: administrative efficiency savings (no relitigation of same things)
ORGANIZING FOR THE EXAM (DECEMBER 8 @ 9am.)
1. INSURANCE CONTRACT INTERPRETATION TOOLBOX:
a. Principle & name of case (Reid Crowther) fine
b. Nearly all questions will require some tool reference
2. DUTIES OF INSURED AND INSURER
3. TECHNICAL INSURANCE CONCEPTS
a. Concurrent causation
b. Overlapping coverage
d. Third party direct actions
4. SPECIFIC AREAS OF INSURANCE
a. Specific factual/policy wording analogies vital!!!!
N.B. Use syllabus organizes by various areas of insurance
Watch relative point value of questions
Tailor answer according to value
One question which provides some freedom of response
Rest are direct, targeted answers (especially small point value questions)
Instructions on TWEN now
Just deal with what question is asking, bargain time accordingly
EXAM ATTACK STRATEGY
1. Read the facts. Read the policy language
2. What kind of insurance? More than one?
a. Property, auto, life, liability, health, disability?
3. What concepts within that insurance are applicable (other concepts)
4. Apply the toolbox and the other insurance concepts (here, case specific detail when
necessary for analogy) to the facts and policy
5. Most important step is the legal reasoning, analysis and fact-specific analogizing you do.
Make the “why” crystal clear (overwhelming majority of points for #5)