Proof of Delivery of Insurance Policy a Prerequisite to Enforcing Exclusion?

Today’s decision in Hazan v. ING Insurance Company of Canada considers (but does not decide) an interesting issue in Ontario insurance law: must an insurer prove that it has delivered a copy of the insurance policy to the insured before it is entitled to rely on a policy exclusion? In this case, a definitive answer to the question has been deferred to the trial judge. But the reasons for judgment of Mr. Justice James Carnwath on this motion for summary judgment certainly give the insured Hazan some reason for optimism.

Here, the insureds had claimed against ING for water damage to their home. The water had escaped from a frozen pipe. ING denied the claim, relying on a policy provision to the effect that “a loss or damage occurring as a result of freezing or flooding is not covered unless arrangements were made for a competent person to enter the house each day to ensure adequate heating, or the water pipes were drained and shut off, or the plumbing and heating systems were monitored by an alarm station twenty-four hours a day”.

ING moved for summary judgment to dismiss the insureds’ claim. It alleged that the insureds had not complied with the requirements described above.

The insureds denied having received the policy booklet. They said that they did know of their supervisory responsibilities.

ING said that it “would have” sent the policy to the insureds.

This factual dispute (did ING send the policy to the insureds or not?) was sufficient for Justice Carnwath to dismiss the motion. He said that the issue would have to be adjudicated at trial.

But he went on to consider and comment on some caselaw, dealing with the significance of delivery of the policy.

The problem arises out of s. 124 of the Insurance Act. It provides as follows:

All the terms and conditions of the contract of insurance shall be set out in full in the policy or by writing securely attached to it when issued, and, unless so set out, no term of the contract or condition, stipulation, warranty or proviso modifying or impairing its effect is valid or admissible in evidence to the prejudice of the insured or beneficiary. 

Does “issued” in s. 124 mean “delivered”? Justice Carnwath considered a decision from British Columbia which had held that the two terms were not synonymous and that physical delivery of the policy was not a prerequisite to policy exclusions being enforceable. However, Carnwath J. was not persuaded. He felt that “‘Issue’ may very well carry with it the concept of ‘delivery’, either to the insured or to the insured’s agent to whom the insured applied for coverage.”

He then looked at two somewhat divergent lines of authority. A 1997 Alberta case, Janmohamed v. Co-operators General Insurance Co., held that “in order to rely upon the exclusion term contained in an insurance policy, the insured must prove the policy was sent to the insured”. But a 2001 Ontario case, International Movie Conversions Ltd. v. ITT Hartford Canada (which was affirmed by the Court of Appeal in 2002), came to a somewhat different conclusion. There, Justice Molloy held that “the failure of the insurance company to provide a copy of an insurance policy to an insured prior to the loss does not operate to exclude the applicability of a limitation provision in the policy”. But in an important qualification, she added this: “The situation might be different if the clause relied upon by the insurer was an exclusion of the loss altogether as an argument could be made in that situation that the insured may have been prejudiced by not knowing that a particular risk was not covered.”

Justice Carnwath endorsed the latter statement. He also felt that it was “implicit” in both the trial and Court of Appeal decisions in International Movie Conversions, that that “’issued’ means delivery to or reception by the insured as a starting point for the analysis of whether the insured is subject to the terms and conditions of the policy”.

Saying that there was “considerable debate in Canadian jurisprudence”, Justice Carnwath dismissed ING’s motion for summary judgment and held that a trial was necessary.

It is surprising that the effect of non-delivery of the policy seems to have received so little attention since International Movie. The issue has been extensively litigated in the United States. However, it seems that an Ontario court will now have an opportunity to consider the question fully.

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