Beyond Limits

OVERVIEW

Last November, Justice Michael Quigley of Ontario’s Superior Court of Justice held that the two-year limitation period in the province’s Limitations Act, 2002 applied to a claim under a business insurance policy that included multi-peril property coverage. In Boyce v. Co-operators General Insurance, the insurer had asserted that the one-year limitation incorporated into the policy by way of the fire insurance statutory conditions applied.

The claim revolved around the removal of a foul odour from a fashion boutique owned by the plaintiff insured. The plaintiffs argued that the odour was the result of vandalism, but The Co-operators, taking the position that the odour was caused by a skunk, denied the claim.

The plaintiffs sued their insurer more than one year and less than two years from the date of loss. The insurer responded by moving for a summary dismissal on the basis that the limitation period had expired.

The Co-operators took the position that the fire statutory conditions incorporated into the policy, which provided for a one-year limitation period, meant that the basic two-year limitation period did not apply. The insurer also took the position that the insurance policy was a “business agreement” under section 22 of the Limitations Act, 2002, which allows for an agreement that varies or excludes the basic two-year limitation period.

Justice Quigley dismissed the defendant’s motion and rejected both its arguments. First, the judge found that the fire statutory conditions did not apply to a multi-peril policy; second, he concluded the policy could not be considered a “business agreement” because it did not meet the requisite criteria of such an agreement.

BACKGROUND FACTS

The plaintiffs operated a women’s fashion boutique in Merrickville, Ontario. On October 29, 2010, the insureds locked up the store at the close of business. Returning the next day, they noticed a foul odour was emanating from the store.

The police were called and the defendant insurer, The Co-operators, was notified. The police investigated and concluded that the smell was a result of vandalism a couple of days before Halloween.

The Co-operators denied the claim on the basis that the smell had been caused by a skunk, which was not covered under the plaintiffs’ policy. In its November 11, 2010 denial letter to the plaintiffs, The Co-operators advised them that any legal proceeding against the insurer is “absolutely barred” unless commenced within one year after the loss or damage occurs.

The plaintiffs issued their statement of claim on February 17, 2012 — more than a year after the date of loss, but within two years of that date. The Co-operators brought a motion for summary judgment, arguing in general that the claim was prescribed by the one-year limitation period, but more specifically that the plaintiffs were bound by the inclusion of section 14 of the fire “statutory conditions” in the policy.

The insurer further argued the policy constituted a “business agreement” and, as such, it was an exception to the prohibition on agreements to vary limitation periods under section 22 of the Limitations Act, 2002.

ISSUES

The Superior Court of Justice was asked to determine three issues between the parties, the first two of which are discussed below:

1) whether the one-year limitation period contained in statutory condition 14 applies to multi-peril policies of insurance; and

2) whether the limitation period was varied by agreement pursuant to section 22 of the Limitations Act, 2002.

Applicability of the Statutory Conditions

The Co-operators argued that although most claims fall under the purview of the basic two-year limitation period under Ontario’s Limitations Act, 2002, the one-year limitation period found in section 148 of the Insurance Act is expressly preserved by the Limitations Act, 2002.

While the policy in question was a multi-peril policy, the defendant included all of the statutory conditions contained in section 148, including statutory condition 14, which sets out a one-year limitation period. In addition, the policy contained the following provision: the statutory conditions apply to the peril of fire and, as modified or supplemented by forms or endorsements attached, apply as policy conditions to all other perils insured by this policy.

The defendant took the position that these statutory conditions were binding on the insureds. In rebuttal, the plaintiffs argued the claim was governed by the basic two-year limitation period set out in section 4 of the Limitations Act, 2002. They stated that the one-year limitation period contained in statutory condition 14 did not apply to multi-peril policies.

In arguing this, the plaintiffs relied on KP Pacific Holdings v. Guardian General Insurance Company of Canada, a 2003 decision by the Supreme Court of Canada that held a multi-peril policy was not governed by British Columbia’s fire insurance legislation, which included a shortened limitation period, but by the general provisions of the province’s Insurance Act.

Justice Quigley applied the rationale from the decision. “[A]s the legislation in Ontario uses substantially the same wording as the legislation in British Columbia referred to in KP Pacific Holdings, it appears clear that a multi-peril policy, such as the one issued to the plaintiffs, cannot be considered fire insurance,” the judge reasoned. As such, the peril of fire is an “incidental peril” to the coverage provided and is excluded from the application of Part IV of the Insurance Act, which deals with fire insurance.

Justice Quigley emphasized the fact that the Supreme Court of Canada concluded the multi-peril policy could not be considered fire insurance despite the B.C. legislation contemplating that the fire insurance provisions could include insurance against other risks. Conversely, the Ontario legislation contains no such provision.

Therefore, Justice Quigley determined the policy issued to the plaintiffs could not be construed as fire insurance to trigger the one-year limitation period contained in section 148(14) of the province’s Insurance Act.

Applicability of Section 22

The Co-operators also argued that the limitation period in the plaintiffs’ policy was properly varied by operation of section 22 of the Limitations Acts, 2002. Any attempt to shorten a limitation period is not permissible unless one of five exceptions outlined in section 22 applies. The insurer argued that section 22(5), which permits a limitation period to be varied or excluded in the context of a “business agreement,” was applicable here.

As such, Justice Quigley had to determine whether or not the presence of “statutory conditions” attached to a policy of insurance constitutes an agreement to vary the limitation period. Citing the 2012 ruling by Ontario’s Superior Court of Justice, Bell Canada v. Plan Group Inc., the judge concluded that an “agreement” must include the following:

1) specific reference to the statutory limitation period;

2) clear and unequivocal language that the parties are intending to vary the application of the statutory protection contained in the applicable limitation period; and

3) provisions that clearly alert the prospective claimants they are foregoing a statutory right to a longer limitation period within which to make a claim.

Justice Quigley determined the language used in the policy did not meet these criteria; rather, he observed the policy language “misleadingly” suggests that the limitation period contained in the “statutory conditions” was mandated by legislation, not contract.

Justice Quigley also stated that he has serious reservations about whether or not the statutory conditions sho uld form a part of the policy at all. “It is difficult to see how a policyholder can be said to have truly ‘agreed’ to these provisions when they are directed to believe, at least partially, that they are mandated by statute.”

In the 2007 decision, Co-operators v. Burry, the Supreme Court of Newfoundland and Labrador (Court of Appeal) called this practice into question.

In addition, Justice Quigley questioned the notion that an insurance contract can be considered a “business agreement” to begin with. He expressed the view that insurance contracts are not “business agreements” as contemplated by Ontario’s Limitations Act, 2002. Instead, he characterized insurance contracts as “peace of mind” contracts sold to members of the public, which were not intended by the provincial legislature to be included as “business agreements.”

Last, Justice Quigley found that an “after-the-fact attempt” by the defendant insurer to unilaterally impose a limitation period on the insureds via a letter from an adjuster to one plaintiff was ineffectual and non-binding.

COMMENT

We understand that this decision has been appealed. Unless it is overturned, it appears to signal the death knell for the one-year limitation provided for in the fire statutory conditions, as policies providing for fire coverage only are now rare if not non-existent.

Although the decision on the applicability of the one-year limitation was a matter of first impression in Ontario, it has been the subject of judicial determination in several provinces. The question of the incorporation of the fire statutory conditions in other forms of property policies has also been considered in Ontario and other provinces.

In terms of whether or not the one-year limitation could apply to multi-peril policies, the Insurance Bureau of Canada had previously weighed in with the view, expressed in a June 2005 Bulletin, that the Limitations Act, 2002 limitation applies.

Ultimately, subject to the result on appeal, legislative action may be required to preserve a one-year limitation. By way of comparison, however, we note that in the recent amendments to the Insurance Acts in both B.C. and Alberta, all-risk policies are governed by the general provisions of those acts so that, for the most part, a two-year limitation would apply to all types of property and liability policies. Given that the language of provincial Insurance Acts, when dealing with these types of matters, are generally consistent, this may foretell what will occur in Ontario.

Hughes Amys LLP is a member of the ARC Group. The author thanks student-at-law, Alexander Wilkinson, for his fine assistance in the preparation of this article.