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					Insurance Law  Law 443
Professor Knutsen
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 actsbecause 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
Class Themes
   - Balance
            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
Professor Knutsen

                            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?
   SPECIALIZED POLICIES
         O Predominantly large corporations
                 Standard terminology  cheaper and easier, more litigation on terms
                 Coverage counsel
                 Result? Still “unequal” bargaining power
         O Risks?
   POLICY AMBIGUITIES
         O Greatest source of litigation
         O Nearly all insurance cases involve interpretation of policy terms
                 AMBIGUITY
                           a reasonable person could find that the term has two or more
                                   meanings
Insurance Law  Law 443
Professor Knutsen


                    TOPIC 2 : INSURANCE CONTRACT INTERPRETATION



INTERPRETATION TOOLBOX  Take in order
7 tools
    1. Read the policy  LOOK FOR:
           a. Coverage #1 most important
           b. Exclusions
           c. Definitions
           d. Consistent terms
           e. Inconsistent terms
           f. Ambiguity
    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
                                insured
                    ii. More clear language is available
    7. Reasonable Expectations  only if ambiguity (Wigle, Reid Crowther,Brissette
        Chilton)
           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
Professor Knutsen

Ambiguity as Gatekeeper for Contra Proferentem and Reasonable Expectations
   Foreseeable Problems?
          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:
                  Complexity?
                  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 companiesAre 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 coverageWhy
       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
Professor Knutsen
Rule            1.The court should look at the words in the contract to determine if there is
                ambiguity
                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 [1993] 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
Professor Knutsen

                        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
               writing
     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 [1987] 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
                           insurance?
                  (ii)     Does the effect of a peril cause damage, detriment, or prejudice
                           insured?
                            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
Professor Knutsen
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
     Efficient solutions:
            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
Professor Knutsen

              TOPIC 4 - DUTIES OF THE INSURER AND THE INSURED
Common Disputes
                        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
                                  (Fletcher)
                              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
    Objective Standard
    Put yourself in the shoes of the insured listening to the agent  what would you have
       thought?
           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
    Market freedom
    Specialization
    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?
           o Insurer
           o Insured
Insurance Law  Law 443
Professor Knutsen
            o Agent
       (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 [1990] 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
                       cost.
                    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
               it.

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
Insurance Law  Law 443
Professor Knutsen

Coronation Insurance Co. v. Taku Air Transport Ltd. [1991] 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
              passengers

Duty to Defend
    Probably the most litigated
            o Insurer must defend insured from liability lawsuits even if groundless, false or
               fraudulentReally 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
                       the policy
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
Professor Knutsen
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)
     Potentiality Rule
            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. [1990] 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
                to defend
Non-Marine Underwriters, Lloyds of London v. Scalera [2000] 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.
Insurance Law  Law 443
Professor Knutsen
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
     PLUS
     Evidence insurer probably knew, at some point during claims process, that the claim was
       coveredUsually 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
      Compensatory
             o Contractual breach damages
             o Tort damages for negligence of insurer for not-paying
      Exemplary
             o Punitive  have to have malicious or highhanded conduct
i. Punitive Damages
Whiten v. Pilot Insurance Co. [2002] 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
               damages.
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
Professor Knutsen
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
               this case.

ii. Damages for Mental Distress
      Rare
           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 [2006] 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
               surveillance.
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
Professor Knutsen

                               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
       rights)

Sources of Duties
Insurer
     Repeat market player
     Complete product control
           o Both result in prejudice to insured
Insured
     Imperfect information between insurer and insured
     Complete insurability (risk) information
           o Results in prejudice to insurer as insured holds all information

Insurance Misrepresentation
     Representation must be
          o False
          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
               policy.
Ratio          Recollection of Agent
                    Notes, Standard practice
               Recollection of insured
                    Corroborating evidence, Insured’s experience with insurance
                    The form itself (writing, words)
               Credibility?
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 knowReliance 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.
Insurance Law  Law 443
Professor Knutsen
    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) [2001] 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. [1989] SCC Ch. 5 pg. 7
Rule          s.129 provides relief not only for statutory conditions, but contractual ones as
              well

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
Professor Knutsen
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-
        compliance

Williams v. York Fire & Casualty Insurance Co. (2007) ONCA Ch. 5 pg. 15  Now law in
Ontario
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
Professor Knutsen
            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)
Estoppel
    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
      coverage
    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. [1994] 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. [1999]. Ch. 5 pg. 23
Rule            There is a duty to pay premiums. No relief from forfeiture; no
                waiver/estoppel
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
Professor Knutsen
                   TOPIC 6 -FIRE & PROPERTY INSURANCE
Homeowners Philosophy
  - 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

C. THEFT:
Hegemeyer
    - 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
Professor Knutsen
    -   Using multiple terms in multiple ways = ambiguous
    -   Insurer could have used the different words but made it clear.

Charania
   - Burglary
   - 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?

Bell
    -   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
                        fortuitous
                     Moral hazard  if insured against wear & tear, then ppl would do
                        nothing with it, would let it fall into disrepair
Goderich
    - 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

RECAP:
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 problemsThinking creatively
Insurance Law  Law 443
Professor Knutsen
The cases
     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?
Held: No!!!

    -   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
Professor Knutsen

                           TOPIC 7 - LIABILITY INSURANCE

       third party tort insurance
   -   insures YOU against lawsuits brought about because of YOUR negligence
   -   Standalone policies
           o CGL
           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
                        world”
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

Liability Exclusions
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
Interpreted narrowly
                       - 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
Professor Knutsen
A. HOMEOWNERS LIABILITY
i. Who is insured?
Gecho/ Halwell
                    Covers named insured, and:
                    His or her spouse and relatives of either who lives in your house
                     (Halwell)
                    While living in the same household, his or her spouse….
                    (Gecho)

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
                     of husband
            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 homeSo
                     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
Professor Knutsen



B. Commercial General Liability Insurance
     i. Breadth of Coverage
Construction CGL
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 newan addition to commercial property/mixed commercial policiesinsures capital
assets that is business stream
- tension with incentives for moral hazard/mitigation fearsneed 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
                   losses
              o Court = period of restoration is only until you can build functionally
                   equivalent business
              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
Professor Knutsen
                       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
                 control
             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
               liable
            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
                lawsuit
Insurance Law  Law 443
Professor Knutsen
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
                                 fashion
                            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 coverageWorks 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 expiredHard to actuarially estimate future
               claims
           o Risk assessment difficult (how will claim be split, if at all?)
    Hybrid-combination policies

Professional Liability Insurance
     specific profession insurance
            o legal, medical, engineering professionsprofession 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 coveragebroad spectrum risks covered
            o expensiverife with exclusions controlling coverage as claims-made coverage
                onlycan 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
           claimants.
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
           period
Insurance Law  Law 443
Professor Knutsen
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
       itInsurance designed for fortuitous acts only
     Liability insurance insures against negligence (torts)
     Exclusion should be interpreted to not take away coverage for negligence (otherwise
       coverage illusory)
     PROBLEM: what IS an intentional act? What IS a criminal act?
Insurance Law  Law 443
Professor Knutsen
       Common exclusions:
          o “intentional or criminal act or failure to act”
                  Scalera, Gamblin, Eichmanis
          o “Intentional Act”
                  Saindon
                  Buchanan
                  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)
     Intentional?
     Could be obviously criminal
Buchanan – schoolyard fight (no coverage)
     Intentional?
     Could be criminal, an assault?
Gamblin – deer hunter shooting jeep (coverage)
     Intentional?
     Criminal – firearms offence
Eichmanis – criminally negligent shooting (no coverage)
     Intentional
     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
                         covered (Scalera)

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
          exclusion clause
Insurance Law  Law 443
Professor Knutsen
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
                   foreseeablethe 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?
Reconciliation:
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Professor Knutsen
                      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
                            o Saindon
                            o Buchanan
                    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 circumstancesContext, intent, pattern of
        behaviour important
    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?
Insurance Law  Law 443
Professor Knutsen

                               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!!

    2 Definitions:
     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
                   For insurer?
                           Insuring a certainty
                   For insured?

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
           policy.
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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Professor Knutsen
           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
          valid policy.
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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Professor Knutsen
           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
           their rights
D. Suicide
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
                Loved son
                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

E. Incontestability
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 reinstatementIncontestability 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
Insurance Law  Law 443
Professor Knutsen
       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
            o why?
                      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
Insurance Law  Law 443
Professor Knutsen

                          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
      of liability???
    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:
                     Non-pec losses
                     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
    caregiver benefits
    non-earner benefits
    medical and rehab benefits
    attendant care
    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 Death
          o Permanent serious disfigurement
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Professor Knutsen
           o Permanent serious impairment of an important physical, mental or
               psychological function
       Defines:
           o Impairment
           o Important
           o Permanent
       Can sue for pain and suffering
       80% of net incomestill no health care expenses unless deemed catastrophic

Sliding deductibles for non pec damages
     for victims:
          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
     labyrinthine definitions
     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
              more people
     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
          important”
          Lento – could not work anymore (important) (serious)
Insurance Law  Law 443
Professor Knutsen
           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
           function

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”
                    versus
           beyond “frustrating & unpleasant” beyond “the tolerable to the serious”
           PROBLEM
           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 &
           unpleasant

Threshold Questions
    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
      level etc.

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
            passenger”
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.
Issue     Coverage?
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
Insurance Law  Law 443
Professor Knutsen
        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!!!
Insurance Law  Law 443
Professor Knutsen
    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
           an auto
               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
                automobile
            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
           Insurance Act.
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.
Insurance Law  Law 443
Professor Knutsen
           The insured refused to attend and argued that the insurer was bound by the findings at
           the CAT-DAC.
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
           tests etc.
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
          endorsement?
Held      No
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
Insurance Law  Law 443
Professor Knutsen
                   underinsured
              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?
           o Religion?
           o Education?
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?
   Do insurers?
   Do governments?
   Do consumers?

No-Fault & Fault
Keeton and O’ Connell
     Threshold, 2 level no-fault hybrid system in 1964
Klar
     Do not divorce fault from tort
     No deterrence
     More expensive
           o No-fault may not be a good idea
     No “justice”

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
Insurance Law  Law 443
Professor Knutsen
            o Talking on cell phone
            o Speeding
            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?)
Insurance Law  Law 443
Professor Knutsen

                       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
                             example)
                           Apportion based on contribution (Derksen)

A. Development of Concurrent Causation
Wayne Tank & Pump Co. Ltd. v. Employers’ Liability Assurance (UK C.A.)  concurrent
causation
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,
       Pavlovic)
   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
              loss
           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
Insurance Law  Law 443
Professor Knutsen
*****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
         driven safely.
Rule     Where a policy is ambiguous, seek to give effect to the reasonable expectations of
         the partiesApportion 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
Held       No.
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
            claim.
            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
     Liability Insurance
           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
                       situations?
                    Could an insurer create price incentives for purchasing 2 policies
                       (Keeton)?
                    Why not market a package homeowners-auto combo to stop concurrent
                       cause disputes (McDowell 1998)?
Insurance Law  Law 443
Professor Knutsen


                      TOPIC 11: ACCIDENT AND SICKNESS INSURANCE



Introduction:
Disability Insurance
     private system in the event that you are injured (unless ODSP or CPP benefits tapped
        early)
     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 –
           period?”
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
Professor Knutsen

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
      Retraining
             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
                Wang
     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
Professor Knutsen
       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
           appealed further
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
Professor Knutsen
            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
       against insurer
      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 [2007] 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
Professor Knutsen
                                  TOPIC 12 - OVERLAPPING COVERAGE
A. Contribution
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
           or claim
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
exhausted.
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
Professor Knutsen
           Accident victim successfully sues tortfeasor but thinks insurer should have covered
            tortfeasor’s loss
           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 –
                     exclusions etc.
                 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
        c. Subrogation
        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

EXAM STRUCTURE
   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)

				
DOCUMENT INFO
Description: Insurance Provider Agreement Pollution Denial of Claim document sample