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P&C Insurance in British Columbia: Top Cases & Industry Developments 2012 – 2013 Insurance Institute of British Columbia June 6, 2013.

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Presentation on theme: "P&C Insurance in British Columbia: Top Cases & Industry Developments 2012 – 2013 Insurance Institute of British Columbia June 6, 2013."— Presentation transcript:

1 P&C Insurance in British Columbia: Top Cases & Industry Developments 2012 – 2013 Insurance Institute of British Columbia June 6, 2013

2 TABLE OF CONTENTS 1.Legislative Changes 2.Duty to Defend 3.Duty to Indemnify 4.Defence Costs 5.Additional Named Insureds 2

3 TABLE OF CONTENTS 6.Exclusion Clauses 7.Subrogation: Covenants to Insure 8.But For Material Contribution 9.Brokers and Agents 10.Bad Faith 3

4 1. LEGISLATIVE CHANGES 2. DUTY TO DEFEND Raman Johal

5 1.LEGISLATIVE CHANGES Limitation Act, SBC 2013 c. 13 Insurance Act SBC 2012 c. 1 5

6 LIMITATION ACT, SBC 2013 c. 13 Came into force on June 1,

7 Basic 2 year limitation period (default) Current 30 year ultimate limitation period replaced with a 15 year ultimate limitation period Discovery of act or omission LIMITATION ACT 7

8 Contribution and Indemnity Postponement for infants and those under disability Transition Rules (s. 30) LIMITATION ACT 8

9 INSURANCE ACT, SBC 2012 c. 1 Came into force on July 1,

10 s. 22(1) of Old Insurance Act said: Every action on a contract must be commenced within one year after the furnishing of reasonably sufficient proof of a loss or claim under the contract and not after. Courts grappled with reasonably sufficient proof. B.C. Courts accepted two interpretations: (1) the clear and unequivocal denial of benefits; and (2) on submission of sufficient proof of loss. Courts found fairly long periods between date of loss and the furnishing of sufficient proof to be reasonable. INSURANCE ACT – Limitation Periods 10

11 Courts sympathetic to insureds and would find that denials were not unequivocal or the proofs of loss insufficient. Given the uncertainty in the case law concerning the definition of reasonably sufficient proof and the impending changes to the Insurance Act, many insurers began to apply the two year limitation period in advance of the change in the law on July 1, INSURANCE ACT – Limitation Periods 11

12 s. 23 of New Insurance Act: the limitation period for property losses is two years from the date the insured knew or ought to have known the loss or damage occurred. Regulation 213/2011: limitation period is not retroactive and does not apply to contracts that were in effect on July 1, INSURANCE ACT – Limitation Periods 12

13 If liability for all or part of a claim is denied, claimants must be advised of a limitation period: – five (5) business days after the insurer denies the claim and – 10 business days after the anniversary of the insurer receiving the claim if it is still open (i.e. not settled or denied). INSURANCE ACT – Notice Requirements 13

14 Denial letters must be sent within 5 business days of denying a claim and the letter must reference the applicable limitation period and contain a statement that the limitation period is set out in the New Act. A letter must be sent within 10 days of the first anniversary of the insurer receiving the claim, if it is still open. Letters need not be sent if the insured has counsel, but the insurer may wish to send the letter in any event. INSURANCE ACT – Notice Requirements 14

15 s. 4 of the Insurance Regulation; consequences for non-compliance with these notice provisions. If an insurer fails to provide the required notice, the running time of the applicable limitation period is suspended from the date on which notice should have been given and ending on the earlier of the following dates: – the date that notice is given; or – the date that would cause limitation period to exceed 6 years after date cause of action against insurer arose. INSURANCE ACT – Notice Requirements 15

16 While insurers need not redraft all policies in existence as of July 1, 2012, all new policies and policies that are renewed or replaced after that date are required to conform to the New Act. Dates must be carefully recorded to keep track of the limitation periods. Judgment required when establishing when an insured "knew or ought to have known" of a claim. Electronic Communication INSURANCE ACT – Notice Requirements 16

17 2.DUTY TO DEFEND Royal & Sun Alliance Insurance Co. of Canada v. Araujo, 2012 BCSC 1203 Dube v. BCAA, 2012 BCSC 1958 Dominion v. Hannam, 2013 NLCA 37 17

18 Duty to Defend may exist even where there is no Duty to Indemnify Pleadings govern the duty to provide a defence Insurer required to provide a defence where facts alleged in the pleadings, if proven to be true, could require the insurer to indemnify the insured for the claim mere possibility that a claim within policy may succeed True nature of the substance of the claim DUTY TO DEFEND 18

19 Teenagers grandparents, dad and uncle live together Teenager injured in a fire [arson] at Defendants home Insurer unsuccessful in obtaining a declaration that the homeowners policy excludes a bodily injury claim by the Teenager and that the insurer has no duty to defend or indemnify the grandparents, dad and uncle RSA v. ARAUJO, 2012 BCSC

20 Exclusion in personal liability protection section: We do not insure claims made against you arising from…5.Bodily injury to you or any person residing in your household other than a residence employee; You or Your means the person(s) named as Insured on the Coverage Summary page and, while living in the same household: – his or her spouse; – the relatives of either; – any person under 21 in their care RSA v. ARAUJO, 2012 BCSC

21 Issue: was Teenager an unnamed insured or a person residing in the household? Teenagers parents had joint guardianship and custody Primary residence with mom Liberal access to dad Dad exercised access at the grandparents house 2 to 3 times per month for one night Dads house: did not have own room; no belongings; no key to house; slept on sofa; no chores RSA v. ARAUJO, 2012 BCSC

22 Interpreting insurance contracts – Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 When language of policy ambiguous, court should give effect to clear language reading the contract as a whole Where ambiguous, the courts rely on general rules of contract construction – reasonable expectations; avoid unrealistic interpretations When these rules of construction fail to resolve ambiguity – contra proferentum Coverage provisions interpreted broadly and exclusion clauses narrowly RSA v. ARAUJO, 2012 BCSC

23 You is confusing – can refer to each insured making the claim or any insured under the policy I appreciate the objective of plain language contracts but the use of pronouns such as you and your are inherently ambiguous and the application of a definition that uses them invites ambiguity where the court is asked to interpret which you is being referred to in each context. In this Policy, I consider the use of the definition of you and your in the exclusion clause to be ambiguous. RSA v. ARAUJO, 2012 BCSC

24 Any person residing in your household Teenager part of household but not residing there Dual residences possible Much litigation over residing Evidence established that Teenager was a regular visitor to the home but did not reside there Exclusion clauses to be construed narrowly RSA v. ARAUJO, 2012 BCSC

25 Student sued Teacher for assault and battery and negligence Teacher asks insurer to defend the claim Insurer successfully obtained declaration that the homeowners policy excludes claims by the Student and that the insurer has no duty to defend or indemnify the Teacher DUBE v. BCAA, 2012 BCSC

26 No duty to defend or indemnify Teacher on assault and battery claims because of unambiguous exclusion – they are not torts resulting in unintentional injury – exclusion clause: bodily injury…caused by any intentional or criminal act or failure to act by: (a) any person insured by this policy DUBE v. BCAA, 2012 BCSC

27 Two allegations in Students Notice of Civil Claim that are not derivative and could constitute negligence Exclusion clause unambiguous: Sexual, physical, psychological or emotional abuse, molestation or harassment, including corporal punishment by, at the direction of, or with the knowledge of any person insured by this policy; or failure of any person insured by this policy to take steps to prevent sexual, physical, psychological or emotional abuse, molestation or harassment or corporal punishment. DUBE v. BCAA, 2012 BCSC

28 DOMINION v. HANNAM, 2013 NLCA 37 ATV owned by Mr. Hannam (neither registered nor insured) Son lends vehicle to friend who crashes it in gravel pit Passenger severely injured and sues Hannam family 28

29 DOMINION v. HANNAM, 2013 NLCA 37 Hannams homeowners policy excludes ownership, use or operation of a motor vehicle But expressly insures off-road vehicles which you do not own Issue: who is you? 29

30 DOMINION v. HANNAM, 2013 NLCA 37 As in Araujo case, Court concludes you is inherently ambiguous Could mean either the individual insured or everybody who is insured No coverage for dad who actually owned ATV 30

31 DOMINION v. HANNAM, 2013 NLCA 37 But ambiguity means there is a possibility of coverage for son/mother Therefore insurers duty to defend is triggered How do we fix this? 31

32 3. DUTY TO INDEMNIFY 4. DEFENCE COSTS Nigel P. Kent

33 3.DUTY TO INDEMNIFY Liability coverage for employee injury Poole v. Lombard, 2012 BCCA 434 Sams Auto Wrecking v. Lombard, 2013 ONCA

34 POOLE v. LOMBARD, 2012 BCCA 434 Law firm associates and articling students dinner paid for by firm After dinner, some attendees went to nightclub One intoxicated associate lost his balance causing female articling student to fall and hit her head on concrete floor 34

35 POOLE v. LOMBARD, 2012 BCCA 434 Student suffers brain injury, sues law firm associate, ultimately awarded $6 million damages Associate had $1 million coverage under homeowners policy...obviously not enough Question: coverage available under law firms CGL policy? 35

36 POOLE v. LOMBARD, 2012 BCCA 434 Policy provided coverage for additional insureds, namely (a)your employees but only for acts within the scope of their employment [but] none of these employees is an insured for bodily injury to a co-employee while in the course of his or her employment; and (b)Any employee....but only with respect to their employment...with the [law firm] 36

37 POOLE v. LOMBARD, 2012 BCCA 434 Court of Appeal holds no coverage under either clause Scope/course of employment conditions could not be met, so clause (a) not applicable with respect to (clause (b)) has a wider meaning but line must be drawn on a commercially reasonable basis between what are essentially firm functions and what are essentially social functions 37

38 POOLE v. LOMBARD, 2012 BCCA 434 No excess coverage available for the associate Note no appeal of Trial Judges rulings that (1) CGL had duty to defend associate and (2) CGL must reimburse homeowners insurer 50% of associates defence costs: Danicek v. Alexander Holburn, 2011 BCSC

39 SAMS AUTO WRECKING v. LOMBARD, 2013 ONCA 186 Companys VP and operations manager seriously injured when struck by a crane operated by employee Not covered by Workers Comp so sued company and employee CGL insurer denied coverage on basis of employee injury exclusion 39

40 SAMS AUTO WRECKING v. LOMBARD, 2013 ONCA 186 this insurance does not apply to....bodily injury to an employee of the Insured arising out of and in the course of employment by the Insured Does this apply to executives who are not covered by Workers Comp? Ruling: Even though he was an executive officer, he was still an employee of the company and the exclusion squarely applied 40

41 SAMS AUTO WRECKING v. LOMBARD, 2013 ONCA 186 Court recognized there was an odd coverage gap...the exclusion takes away coverage where an employer might wish to have it (work place injury not covered by Workers Comp) 41

42 4.DEFENCE COSTS ACE INA v. Aegis, 2012 ONSC 6248 (Contribution) Papapetrou v Ont. Ltd., 2012 ONCA 506 (Commercial Contracts) 42

43 ACE INA v. AEGIS, 2012 ONSC 6248 July 2008 hi-rise undergrounding parking area explosion Property damage/bodily injury claims against Toronto Hydro totalling $55 million ACE INA provided primary CGL coverage to Toronto Hydro (coverage for defence costs in addition to stated liability limits) 43

44 ACE INA v. AEGIS, 2012 ONSC 6248 Toronto Hydro also had $45 million excess liability policy with Aegis Coverage was for indemnity to pay ultimate net loss in excess of underlying coverage ultimate net loss defined to include both indemnity and defence costs with respect to each occurrence 44

45 ACE INA v. AEGIS, 2012 ONSC 6248 No express duty to defend in Aegis policy, just a right to associate in defence if they wish to ACE made application to court for declaration Aegis was obliged to contribute to defence costs ($550,000 and counting) Argued excess cover was clearly going to be triggered and principles of equity required contribution; 45

46 ACE INA v. AEGIS, 2012 ONSC 6248 Court denied contribution claim; Aegis policy contained no duty to defend (unlike ACE policy)...was simply a reimbursement cover The two policies were not covering the same risk but rather were covering separate and clearly defined layers of risk (no overlap) 46

47 ACE INA v. AEGIS, 2012 ONSC 6248 Aegis policy expressly excluded indemnity for Toronto Hydros defence costs if they were included in other valid and collectible insurance Aegis policy limits were eroded (reduced) by any defence costs payment, so contribution would prejudice Toronto Hydro by reducing coverage otherwise available Primary insurers claim for contribution denied 47

48 ACE INA v. AEGIS, 2012 ONSC 6248 First reported case involving a contribution claim against an excess insurer whose policy does not contain a duty to defend....decision has been appealed and will be heard by Ontario Court of Appeal in September,

49 PAPAPETROU v ONT. LTD., 2012 ONCA 506 Winter maintenance/snow clearing service contract Contract contained indemnity of building owner against all claims, liabilities....arising out of....the contract Contract required maintenance Co to obtain CGL insurance with owners as an additional insured 49

50 PAPAPETROU v ONT. LTD., 2012 ONCA 506 Contractor fails to get owner added to CGL coverage Accident happens, personal injury lawsuit ensues versus contractor and owner Owner seeks order requiring contractor to assume its defence 50

51 PAPAPETROU v ONT. LTD., 2012 ONCA 506 Trial Court orders contractor both to assume defence and to indemnify owner with respect to damages Ont. CA sets aside order but requires contractor to pay owners solicitor/client costs of defending lawsuit Premature to summarily enforce the indemnity provision until issues of liability and damages had been finally determined 51

52 PAPAPETROU v ONT. LTD., 2012 ONCA 506 However, contractor clearly breached contract by failing to obtain insurance for owner Remedy is not ordering a duty to defend but rather an award in damages Appropriate damages are an indemnity for the owners defence costs on a solicitor/client basis which otherwise would have been covered by the insurance 52

53 PAPAPETROU v ONT. LTD., 2012 ONCA 506 Because of conflict arising out of indemnity clause, owner can choose its own counsel and contractor must pay that law firms legal fees for defending the lawsuit Lesson: parties signing contracts requiring indemnities or liability insurance must ensure the necessary coverage is obtained 53

54 5. ADDITIONAL NAMED INSUREDS 6. EXCLUSION CLAIMS Satinder Sidhu

55 55 5. ADDITIONAL NAMED INSUREDS Vernon Vipers Hockey Club v. Canadian Recreation Excellence (Vernon) Corporation, 2012 BCCA Ontario Limited v. Farmers' Mutual Insurance Company (Lindsay), 2012 ONCA 210

56 56 VERNON VIPERS V. CANADIAN RECREATION, 2012 BCCA 291 Does the but for test apply to interpretation of arising out of Plaintiff attended multiplex to watch a hockey club play Multiplex owned by regional district and managed by recreation company

57 VERNON VIPERS V. CANADIAN RECREATION, 2012 BCCA 291 Plaintiff injured himself walking over large boulders and sued regional district and recreation company Regional district and recreation company named as additional insureds on the hockey clubs CGL policy with American Home Regional district and recreation company third partied hockey club and American Home claiming defence, contribution and indemnity 57

58 58 VERNON VIPERS V. CANADIAN RECREATION, 2012 BCCA 291 Policy contained exception that only insured... in respect of liability arising out of the Named Insureds operations [emphasis added] Regional district and recreation company argued that: o coming and going of fans to see a game was part and parcel of the hockey clubs operations and plaintiffs injury arose out of those operations, and o but for plaintiffs attendance at game, he would not have fallen and injured himself

59 59 VERNON VIPERS V. CANADIAN RECREATION, 2012 BCCA 291 American Home argued mere presence of plaintiff at game is insufficient and but for test has been rejected by SCC as a means of interpreting arising out of The court considered 5 leading cases dealing with the interpretation of the phrase "arising out of":

60 60 VERNON VIPERS V. CANADIAN RECREATION, 2012 BCCA 291 o Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 o Saanich (District) v. Aviva Insurance Company of Canada, 2011 BCCA 391 o Citadel General Assurance Co. v. Vytlingam, 2007 SCC 46 o Lumbermens Mutual Casualty Co. v. Herbison, 2007 SCC 47 o Amos v. Insurance Corp. of British Columbia, 1995 CanLII 66

61 61 VERNON VIPERS V. CANADIAN RECREATION, 2012 BCCA 291 Court of Appeal found: o correct interpretation of arising out of and arising from requires closer causal nexus than simple but for test; o arising out of requires an unbroken chain of causation and connection that is more than merely incidental or fortuitous; o no ambiguity and contra proferentum rule not applied;

62 62 VERNON VIPERS V. CANADIAN RECREATION, 2012 BCCA 291 o even allowing for a broad and liberal interpretation of the operations, no aspect of hockey clubs operations were alleged to have caused plaintiffs injury; o the most that pleadings alleged was that hockey clubs operations caused him to be in a place where, for unrelated reasons, he became injured; and o perhaps facts enough to meet but for test but did not satisfy the more rigorous causal requirement.

63 ONTARIO LIMITED. V. FARMERS', 2012 ONCA 210 To what extent are courts at liberty to consider extrinsic evidence in determining whether the allegations against an additional named insured arose out of the named insureds operations Subcontractor electrocuted while working on sign located in front of commercial plaza

64 ONTARIO LIMITED. V. FARMERS', 2012 ONCA 210 Subcontractors surviving family members sued the landlord, owner of the hydro lines, and contractor that subcontracted the work Landlord was additional named insured under tenants CGL issued by Farmers Additional insured as landlord only and only with respect to liability arising out of operations by or on behalf of the tenant for interior decorating

65 ONTARIO LIMITED. V. FARMERS', 2012 ONCA 210 Landlords application that Farmers defend was dismissed Court of Appeal considered whether entitled to go beyond the pleadings and consider extrinsic evidence to determine the true substance and nature of the claim

66 ONTARIO LIMITED. V. FARMERS', 2012 ONCA 210 Landlord wished to have admitted evidence that contractor was retained by tenant to show that liability arose out of the operations of tenant Legal principles considered: o the court must consider the substance and true nature of the claim; o extrinsic evidence explicitly referred to in pleadings may be considered to determine the substance and true nature of the allegations;

67 ONTARIO LIMITED. V. FARMERS', 2012 ONCA 210 Legal principles considered (contd) o court may not look to premature evidence; evidence which, if considered, would require findings to be made before trial that would affect the underlying litigation; and o extrinsic evidence must relate to undisputed facts that do not require findings to be made before trial.

68 ONTARIO LIMITED. V. FARMERS', 2012 ONCA 210 Court of Appeal found: o extrinsic evidence was disputed; o even if admitted, extrinsic evidence would not support a duty to defend; and o substance and true nature of the claim against landlord based on conduct as owner and occupier of plaza and not as landlord of the premises leased to the tenant.

69 ONTARIO LIMITED. V. FARMERS', 2012 ONCA 210 Extrinsic evidence exception to the pleadings rule cannot be used to demonstrate that pleadings that say one thing really mean something else Extrinsic evidence rule cannot be used to convert claims against the landlord qua owner into claims against the landlord as landlord of the premises leased to tenant

70 70 EXCLUSION CLAUSES OByrne v. Farmers Mutual Insurance Company, 2012 ONSC 468 Hector v. Piazza, 2012 ONCA 26

71 OBYRNE V. FARMERS, 2012 ONSC 468 What type or kind of environmental contamination is required for pollution exclusion to apply Building damaged by an oil leak from furnace Tenant tampered with furnace resulting in oil leak Farmers denied coverage to landlord on the basis of a pollution exclusion 71

72 72 OBYRNE V. FARMERS, 2012 ONSC 468 Policy Wording This policy does not insure against a)loss or damage caused directly or indirectly by any actual or alleged spill, discharge, emission, dispersal, seepage, leakage, migration, release or escape of pollutants, nor the cost or expense of any resulting clean up, but this exclusion does not apply: i.if the spill, discharge, emission, dispersal, seepage, leakage, migration, release or escape of pollutants is the direct result of a peril not otherwise excluded on this policy; ii.to loss or damage caused directly by a peril not otherwise excluded under this policy.

73 73 OBYRNE V. FARMERS, 2012 ONSC 468 Pollutants defined as follows : o Pollutants means any solid, liquid, gaseous or thermal irritant, or contaminants including odour, vapour, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

74 74 OBYRNE V. FARMERS, 2012 ONSC 468 Legal principles relied on: o use of words such as discharge, dispersal, release and escape reflect that the exclusion is directed to a pollutant that results in traditional environmental contamination; o pollution exclusion does not apply to injuries caused by common irritants and contaminants emitted from a faulty furnace;

75 75 OBYRNE V. FARMERS, 2012 ONSC 468 o pollution exclusion can be reasonably interpreted as applying only to environmental pollution; and o if exclusion is capable of more than one reasonable interpretation it is ambiguous and should be interpreted in favour of the insured.

76 76 OBYRNE V. FARMERS, 2012 ONSC 468 Court held: o pollution exclusion should be interpreted in favour of landlord such that it only excludes traditional environmental contamination; o oil remained within the building and probably within 30 feet of furnace and did not amount to traditional environmental contamination such as oil seepage into soil; and

77 77 OBYRNE V. FARMERS, 2012 ONSC 468 o distinguished Corbould v. BCAA Insurance Corp., [2010] B.C.J. No (B.C.S.C.) where a storage tank spilled oil that seeped into the soil - case of traditional environmental contamination that was subject to the standard pollution exclusion.

78 78 OBYRNE V. FARMERS, 2012 ONSC 468 Farmers also tried to deny coverage based on mechanical or electrical breakdown or derangement exclusion Court rejected this position and found that there was no internal defect or problem in the furnace Exclusion was not intended to exclude damage caused by tenant

79 79 HECTOR V. PIAZZA, 2012 ONCA 26 Does the property owned exclusion in a CGL refer to property owned at present, in the past or both Piazza purchased an apartment building that was renovated and sold to Hector Hector sued Piazza with respect to faulty construction related to settling of the foundation

80 80 HECTOR V. PIAZZA, 2012 ONCA 26 Piazza was insured by AXA and sought coverage under a CGL AXA denied coverage on basis that policy excluded cover for property owned by the insured

81 81 HECTOR V. PIAZZA, 2012 ONCA 26 The policy excluded coverage for: o (y) property damage – o (z) to property owned or occupied by or rented to the Insured, or, except with respect to the use of the elevators, to property held by the Insured for sale or entrusted to the Insured for storage or safekeeping [emphasis added]

82 82 HECTOR V. PIAZZA, 2012 ONCA 26 If the word owned referred only to the past tense, the exclusion would apply If the word owned referred to the present as well as the past tense, policy could not be said to clearly and unambiguously exclude coverage Insurer must show that the exclusion clearly and unambiguously excludes coverage (Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada [2010] S.C.J. 33)

83 83 HECTOR V. PIAZZA, 2012 ONCA 26 Court held that: o when read in context property owned can grammatically refer to property owned now or previously owned; o exclusions in CGL policies, for the most part, deal with items that would be the subject of first-party coverage which is within the power of the insured to protect

84 84 HECTOR V. PIAZZA, 2012 ONCA 26 o if property owned interpreted as referring to present tense only, property that was owned by the insured in the past, and that is subject to a third party claim, could fall within the ambit of coverage under the policy; o this would not inconsistent with the intention of the parties to exclude first party liability coverage; and

85 85 HECTOR V. PIAZZA, 2012 ONCA 26 o the word owned can refer to the present as well as the past tense; and o policy cannot be said to clearly and unambiguously exclude coverage.

86 7. SUBROGATION: COVENANTS TO INSURE 8. BUT FOR AND MATERIAL CONTRIBUTION Larry Munn

87 Kruger Products Ltd. v. First Choice Logistics Inc., 2013 BCCA 3 Kruger, aka Scott stored finished and unfinished paper products in a warehouse operated by First Choice Logistics (FCL). Due to issues with forklifts (known to FCL) paper caught on fire Entire warehouse and all contents destroyed 7.SUBROGATION: Covenants to Insure 87

88 Kruger Products Ltd. v. First Choice Logistics Inc., 2013 BCCA 3 Trial judge and Court of Appeal concluded FCL breached standard of care and caused loss Subrogated action by insurer A Warehouse Management Agreement governed Scotts relationship with FCL KRUGER V. FIRST CHOICE, 2013 BCCA 3 88

89 Agreement contained a clause requiring Scott to maintain general liability insurance, tenants legal liability insurance and insurance on its inventory and property in the warehouse Scott also agreed to add FCL as additional insured Agreement also stated, all insurance policies contemplated hereunder shall constitute and respond as primary coverage to any insurance otherwise available to Scott KRUGER V. FIRST CHOICE, 2013 BCCA 3 89

90 Trial judge – bailor/bailee situation and warehouser had no insurable interest therefore landlord/tenant covenant to insure cases do not apply Court of Appeal disagreed – there was an insurable interest given warehousers liability But insurable interest not necessary where covenant to insure designed to benefit party against whom subrogated claim brought KRUGER V. FIRST CHOICE, 2013 BCCA 3 90

91 Scott paid insurance premiums, but not necessary negligent party pay Parties also acknowledged that Scotts insurance primary No benefit from provision, if no tort immunity KRUGER V. FIRST CHOICE, 2013 BCCA 3 91

92 Tort immunity extends well beyond landlord/tenant situations Who pays premium not important Clause to insure must be given meaning Important to review insurance clauses in contracts (leases and otherwise) to determine if an immunity defence exists KRUGER V. FIRST CHOICE, 2013 BCCA 3 92

93 Clements v. Clements 2012 SCC 32 The plaintiff, Mrs. Clements, a passenger on her husbands (the defendants) motorcycle Unbeknownst to defendant, nail had punctured rear tire When accelerated to 120km/hr to pass car, nail popped out, tire deflated. Plaintiff thrown from motorcycle with resultant severe traumatic brain injury Some evidence bike overloaded 8. But For and Material Contribution 93

94 Defendants evidence questioned whether accident would have happened in any event Trial judge could not say but for defendants negligence, plaintiff would not have been injured However, found defendant liable on a material contribution Court of Appeal disagreed regarding material contribution SCC disagreed re material contribution but ordered new trial and further consideration of but for test CLEMENTS V. CLEMENTS, 2012 SCC 32 94

95 Basic rule for recovery for negligence required plaintiff establish on a balance of probabilities that defendant caused injury on the basis of but for Only where impossible to determine which of a number of negligent acts by multiple actors caused the injury can the material contribution test be used CLEMENTS V. CLEMENTS, 2012 SCC 32 95

96 Cook v. Lewis (hunters); Walker Estate (tainted blood) Here – a single defendant case CLEMENTS V. CLEMENTS, 2012 SCC 32 96

97 Plaintiff suffered from persistent bradycardia during her birth that caused permanent brain damage – spastic quadriplegia and cerebral palsy Sued obstetrician Trail judge found attempt to deliver by mid-level forceps procedure was a but for cause Obstetrician breached standard of care by not ensuring sufficient back-up, namely anaesthetist in event C-section required EDGAR V. JOHNSTON, 2013 SCC 18 97

98 Court of Appeal concluded evidence did not establish that forceps attempt caused the cord compression and resultant bradycardia – did not occur within seconds Court of Appeal also concluded no evidence plaintiff could have been delivered earlier if there had been back-up EDGAR V. JOHNSTON, 2013 SCC 18 98

99 SCC disagreed – trial judge had reason to find that causation was forceps attempt Causation a factual inquiry applying but for test and no palpable and overriding error Finding of causation supportable – other evidence explained why the onset of the bradycardia was not immediate Finding regarding reasonable back-up also sound Burden of proof remains with plaintiff but scientific certainty not necessary EDGAR V. JOHNSTON, 2013 SCC 18 99

100 9. BROKERS AND AGENTS 10. BAD FAITH Glen Boswall

101 9. Brokers and Agents Ostenda v. Miranda 2012 ONSC 7346 Plaintiff claimed Zurich Insurance was (a) directly liable to him for failing to advise him of need to obtain additional underinsured motorist coverage; and/or (b) vicariously liable for an insurance brokers failure to provide this advice. Insured was a transport driver for Synergy. JDIMI was Synergys insurance broker. JDIMI provided a transportation package survey to Zurich describing Synergy business and coverage sought. There was no request for underinsured motorist protection coverage for Synergy employees.

102 OSTENDA V. MIRANDA, 2012 ONSC 7346 Zurich undertook risk management survey and prepared risk assessment report including this statement, By delivery of this Report, Zurich does not assume any responsibility for discovery, notification or elimination of hazards or risks. Report did not mention that Synergy had no UMP coverage for drivers or comment on Synergys failure to request any. Zurich issued transportation package policy to Synergy in Unlike standard auto parties issued to private citizens, this policy had no UMP coverage.

103 OSTENDA V. MIRANDA, 2012 ONSC 7346 In 2008, Plaintiff suffered catastrophic injuries in road accident caused by a driver with little or no liability insurance. Plaintiff discovered he had no UMP coverage to make up any shortfall in damages award against other driver. Plaintiff sued driver, JDIMI and Zurich. Plaintiff then sought summary judgment against Zurich.

104 OSTENDA V. MIRANDA, 2012 ONSC 7346 Judge addressed these issues: – Regarding the non-inclusion of the UMP endorsement in the policy issued to Synergy, did Zurich stand exposed to liability equivalent to that of a broker? – Was Zurich liable to the Plaintiff as principal for the mistakes of JDIMI as agent?

105 OSTENDA V. MIRANDA, 2012 ONSC 7346 Did Zurich stand exposed to liability equivalent to that of a broker? – No. – Judge noted that SCC in Fletcher v. Manitoba Public Insurance Co. (1990) found that an insurer selling policies directly had a responsibility to ensure customers received sufficient information to make intelligent decisions as to how much risk they were prepared to bear. – However, in the present case, the policy sale was made through a broker. Judge noted Drader v. Sebastian (2009 SKCA) and Boudreau v. Ontario Soccer Assn. (2012 ONSC) which established that, in cases where experienced brokers are involved, an insurer owes no duty to customer to procure appropriate insurance coverage.

106 OSTENDA V. MIRANDA, 2012 ONSC 7346 Did Zurich stand exposed to liability equivalent to that of a broker? (contd.) – Facts showed Zurich did not assume duty and public policy mitigated against imposing duty. Zurichs risk assessment report came with express liability disclaimer. From public policy perspective, imposing upon insurers a similar duty to that undertaken by brokers would result in considerable duplication of effort.

107 OSTENDA V. MIRANDA, 2012 ONSC 7346 Was Zurich liable as principal for mistakes of JDIMI as agent? – No. – Judge found that evidence in this case fell well short of establishing that JDIMI had legal authority to represent Zurich so as to affect Zurichs legal position. Therefore, there was no agency relationship.

108 ZEFFERINO v. MELOCHE MONNEX, 2013 ONCA 127 Plaintiff claimed insurer was liable for failing to provide sufficient information for Plaintiff to make informed decision about purchasing optional additional income replacement benefits coverage as part of an auto policy. Plaintiff previously purchased auto policies from other insurers based on very competitive pricing. In 2003, Meloche Monnex (MM) made telephone sale of automobile policy to Plaintiff and wife. Coverage included mandatory minimum income replacement benefits.

109 ZEFFERINO v. MELOCHE MONNEX, 2013 ONCA 127 MM sales representative used standard script to provide and record information. No detailed discussion of optional additional income replacement benefits. Plaintiff refused optional cover. November 2003 legislative change required every automobile insurer to offer optional income replacement benefits. MMs subsequent renewal of Plaintiffs policy came with sheet providing brief explanation of MMs obligation to offer optional additional income replacement benefits.

110 ZEFFERINO v. MELOCHE MONNEX, 2013 ONCA 127 Plaintiff badly injured in 2005 accident and sued MM for failing to explain optional additional income benefits. Trial judge addressed three issues: – Did MM owe a duty of care to the Plaintiff? – Did MM breach the applicable standard of care? – Would Plaintiff likely have purchased optional benefits if properly offered?

111 ZEFFERINO v. MELOCHE MONNEX, 2013 ONCA 127 Was there a duty of care? – Yes. – Fletcher v. Manitoba Public Insurance Co. (1990 SCC) established that that sale of automobile insurance is a business in the course of which information is routinely provided to customers with the expectation they will rely on it.

112 ZEFFERINO v. MELOCHE MONNEX, 2013 ONCA 127 Did MM breach the standard of care? – Yes. – Questioned boiled down to whether MM must offer optional coverage in such a way that the customer can make a fully informed decision about what to purchase. – Evidence of common industry practice is persuasive but not determinative. – To make the mandatory offer of optional coverages meaningful, customers must be given an understandable alternative which would allow them to measure the need for more coverage against risk and cost. – The fact that [optional income replacement benefits] are less well known may increase the insurers practical obligation to explain their existence and the details of the optional coverage.

113 ZEFFERINO v. MELOCHE MONNEX, 2013 ONCA 127 Would Plaintiff have purchased if benefit was properly offered? – No. – Plaintiffs history of seeking basic coverage and MM notes showing Plaintiffs wife said there was no need for optional coverage both indicated Plaintiff would have declined optional additional income replacement benefits if offered. – Therefore, there was no causal link between MMs negligence and the Plaintiffs lack of additional benefits. Trial decision upheld by Ontario Court of Appeal.

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

115 BRANCO V. AMERICAN HOME, 2013 SKQB 98 Judge found, – Zurich had delayed dealing with claim and made offers to settle claim at significant discount despite acknowledging that full coverage applied. – AHAC discontinued payment of benefits in order to create hardship on the Plaintiff and force him to accept a extremely low settlement offer. Judge ruled that both AHAC and Zurich breached duties of good faith. Of particular importance to this finding were the insurers lack of consideration for the overwhelming medical evidence, their deliberate behaviour, and their general disregard for hardship suffered by Plaintiff.

116 BRANCO V. AMERICAN HOME, 2013 SKQB 98 $1.5 million in punitive damages awarded against AHAC and $3 million against Zurich! Judge specifically referred to $1 million in punitive damages awarded in Whiten v. Pilot Insurance (2002) and its apparent insufficiency in forcing insurers to abide by policies. Judge also awarded $450,000 in aggravated damages, an award that greatly exceeds the $335,000 cap on general damages set by the SCC in a catastrophic injury case!

117 SGI V. WILSON, 2012 ONCA 106 Trial judge awarded punitive damages against insurer in case where there was no actual loss of benefits, no claim for punitive damages, and a lack of compensable mental aggravation flowing from bad faith breach of a disability policy. Court of Appeal substituted award for cost of litigation to mitigate against anticipated loss of benefits.

118 SGI V. WILSON, 2012 ONCA 106 Plaintiff injured in two motor vehicle accidents and received rehabilitation accident benefits for over 10 years under her Saskatchewan Government Insurance (SGI) auto policy. Plaintiffs treating therapists and team of health care providers retained by SGI recommended ongoing passive therapy.

119 SGI V. WILSON, 2012 ONCA 106 SGI sent file for review by independent physiotherapist and, based on her recommendations, advised the Plaintiff in November 2006 that treatment funding would be terminated in six months. Plaintiff sued for reinstatement of benefits and aggravated damages for breach of duty of good faith. Prior to the end of the six month expiry period, SGI advised it would reinstate the benefits conditional upon the Plaintiff dropping her claim for aggravated damages. The Plaintiff refused.

120 SGI V. WILSON, 2012 ONCA 106 The trial judge found SGI acted in bad faith but that the Plaintiff had not suffered sufficient mental distress to merit an award of aggravated damages. However, judge awarded, – $15,333 in punitive damages made up of a general award of $7,500 plus $7,833 to compensate full legal costs to the date SGI offered to reinstate benefits; and – a mix of full and double party/part costs based on SGIs conduct at trial. SGI appealed.

121 SGI V. WILSON, 2012 ONCA 106 On appeal, SGI argued that breach of duty of good faith could not arise in absence of damages flowing from the breach of an express term in the underlying insurance policy. Because benefits were never cut off, there was no breach. Court of Appeal (CA) ruled that SGI made an anticipatory breach of the policy when it announced benefits would be suspended. Even without actual suspension of benefits, SGI had breached the policy and acted in bad faith.

122 SGI V. WILSON, 2012 ONCA 106 However, the Plaintiff had made no express claim for punitive damages in her pleadings and so the CA overruled the punitive damage award. This dispensed with the $7500 award for general punitive damages but the CA allowed the full pre-trial legal expense award on another ground - that these were the costs of mitigating against an anticipated loss flowing from the policy breach.

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

124 THANK YOU Presented By: Nigel Kent Satinder Sidhu D. Lawrence Munn Raman Johal Glen Boswall


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