Judge Finds that Insurer Can’t Incorporate Statutory Conditions’ One-Year Limitation Period Into Policy as Contractual Term

Mr. Justice Michael Quigley has handed down a rather significant ruling in which he dealt with the recurring issue of the limitation period that applies to property insurance policies. His decision represents, in my view, a marked departure from the traditional caselaw in this area.

In Boyce v. The Co-operators General Insurance Company, 2012 ONSC 6381 (CanLII), the plaintiffs were husband and wife and operated a women’s fashion boutique in Merrickville. Just before Hallowe’en, 2010, they discovered a foul odour emanating from the store. The police concluded that they had been victims of vandalism.

The store was insured by The Co-operators. The insurer denied the claim, contending that  the smell had been caused by a skunk and that this was not covered under their policy. In the denial letter to the insureds, Co-operators had said that “any legal proceeding against the insurer is ‘absolutely barred’ unless commenced within one year after the loss or damage occurs”.

The insureds sued Co-operators but the statement of claim was not issued until February 17, 2012, more than one year after the loss (but less than two years). On this motion, Co-operators moved before Justice Quigley for summary judgment, arguing that the claim was prescribed by the one year limitation period.

The insurer argued that although the Limitations Act, 2002 makes the limitation period two years for most claims, the one year limitation period contained in s. 148 of the Insurance Act is expressly preserved by the Limitations Act, 2002. (Section 148 sets out the statutory conditions for policies to which Part IV of the Act applies: “insurance against the loss of or damage to property arising from the peril of fire in any contract made in Ontario except [and then a number of exceptions are listed, including “where the peril of fire is an incidental peril to the coverage provided”]”)

Justice Quigley noted that the policy in question was a multi-peril one but that it listed the “Statutory Conditions” (which included statutory condition 14, containing the one-year limitation period) and added 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 insurer also submitted that s. 22 of the Limitations Act, 2002, did not prohibit an agreement with the insured, varying the limitation period, because that section does not apply to “business agreements” which, it said, this was.

The plaintiffs, on the other hand, argued that the claim was governed by the two-year limitation period in s. 4 of the Limitations Act, 2002. They said that the one-year limitation period contained in statutory condition 14 did not apply to all-risk policies, such as the one in question.

Justice Quigley found for the plaintiffs (the insureds). Not only did he dismiss Co-operators’ motion, he expressly found that the two-year limitation period applied. Thus, unless the ruling is disturbed on appeal, The Co-operators will not be able to raise a limitation defence at trial.

His Honour referred to the Supreme Court of Canada’s decision in KP Pacific Holdings Ltd. v. Guardian Insurance Company of Canada, [2003] 1 S.C.R. 433, which is certainly the leading authority in this area. That case had considered whether fire should be viewed as an “incidental peril” in a multi-peril policy. Dealing with a B.C. statute, the Supreme Court ruled that the policy in question was governed by the Act’s general provisions, rather than those dealing with “fire insurance”.

Justice Quigley concluded that fire was an “incidental peril” in the Co-operators’ policy and that therefore, Part IV of the Insurance Act did not apply. The remaining question was whether the limitation period had been varied by agreement pursuant to s. 22 of the Limitations Act, 2002.

Turning his attention to that issue, Justice Quigley referred to a decision of Justice Beth Allen in Bell Canada v. Plan Group Ins., 2012 ONSC 42 (CanLII), in which Her Honour had dealt with the requirements for “agreements” under s. 22 of the Limitations Act, 2002. Justice Quigley extracted the following principles from the Bell Canada case:

My reading of that decision suggests that an “Agreement” under s. 22 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 which clearly alert the prospective claimant that they are foregoing a statutory right to a longer limitation period within which to make a claim.

Applying those criteria to the case before him, Justice Quigley found that the steps taken by The Co-operators had fallen well short. He said that the policy language “misleadingly suggests that the limitation period contained in the ‘statutory conditions’ were mandated by legislation, not by contract.”

(The latter is an issue that goes back many years. In George Demeyere Tobacco Farms Ltd. v. Continental Insurance Co., 46 O.R. (2d) 423 (H.C.), affd. 53 O.R. (2d) 800 (note), Justice Griffiths said:

I respectfully adopt the view of R.E. Holland J. in the Sayers & Associates Limited case that in the absence of statutory prohibition, it is open to an insurer to incorporate statutory conditions into the policy provided that the insured is not in any way misled by the description of the conditions as “Statutory Conditions”. As in the Sayers case, there is no evidence in this case that the plaintiff was in any way misled.

Likewise, in International Movie Conversions Ltd. v. ITT Hartford Canada, 2002 CanLII 23581 (ON CA), the Court of Appeal made comments to similar effect: “Clause 14 [the statutory condition] is clear and unambiguous. Indeed, in my view, it is difficult to conceive how it could have been made more explicit. Use of the heading ‘Statutory Conditions’ does not render it ambiguous or confusing.”

Now, those cases were all decided before the enactment of the Limitations Act, 2002 and in particular, s. 22 of that statute. So, it remains to be seen whether the Court of Appeal would still consider this issue from the perspective of whether or not the insured had adduced evidence of having been “misled”. I think it is very unlikely that the old approach would still be followed.)

Justice Quigley went further and said that “any agreement to forego the statutory protection contained in the Limitations Act, 2002, ought, at a minimum, to be signed by the person(s) foregoing such a right in order to make clear that he/she understands the forfeiture of that statutory right.” And he said that he had “serious reservations as to whether the “Statutory Conditions” should form a part of the policy at all”:

The issue of whether attaching “Statutory Conditions” to a multi-peril policy is sufficient to find that the provisions have been contractually adopted has been called into question. See Co-operators v, Burry [2007] N.J. No. 277 (NLCA). The practice of inserting provisions into a policy of insurance and labelling them “statutory conditions” when the statutory conditions contained in s.148 of the Insurance Act do not apply to multi-peril policies at all should be further evaluated. It is difficult to see how a policy holder 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. To the contrary, the statute provides for a longer limitation period. This is particularly of concern in light of the insurer’s overriding duty of good faith to its insureds.

As can be seen, this is a very different approach from the one that was taken in the pre-Limitations Act, 2002 era, where the courts did not question the right of insurers to include the statutory conditions in non-fire insurance policies and placed the onus on the insured to establish that he or she had been misled about the conditions being made contractual terms.

Justice Quigley then turned his attention to the question of whether insurance contracts are “business agreements” at all, within the meaning of s. 22. He held that they are not, that they are “peace of mind” contracts to which s. 22 does not apply. So, even if The Co-operators had taken the steps contemplated by Justice Allen in Bell Canada v. Plan Group, those efforts would not have allowed it to vary the two-year limitation period.

Thus, Justice Quigley’s approach represents a very substantial change in direction from the older caselaw. It remains to be seen whether an appellate court will agree with him. If it does, one has to wonder whether this is the death-knell for the one-year limitation period in insurance contracts. “Fire insurance” policies are almost unheard of these days. I have never seen a policy to which the limitation period in the statutory condition itself applies. The question is always, “Was the limitation period validly incorporated into the policy as a contractual term?” If Justice Quigley is correct, this can never be done, so insureds will never face a one-year limitation period.

For what it’s worth, I’ve found that over the last year or so, a number of insurers are voluntarily acknowledging that the applicable limitation period is two years, not one.


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16 Responses to Judge Finds that Insurer Can’t Incorporate Statutory Conditions’ One-Year Limitation Period Into Policy as Contractual Term

  1. David Cheifetz says:

    1. The wording of the British Columbia Insurance Act, as it was at the time of KP Pacific, is different in a relevant way. That much is well know, regardless of Justice Quigley’s views.

    2. One would think that with the presence of the saving provision in s. 19 of the LA2002, given that the Schedule specifically refers to to the Insurance Act statutory conditions, would have led the motion judge to consider whether those facts implied something about the legislature’s intention, even if no material was put to him on the issue. Add to that whatever inference one might be allowed to draw from the fact the Limitations Act 2002 was amended to add the right to vary the statutory limitation period.

    3. If the motion judge were going to make the comments he did about the relevance of the Statutory Conditons at all, one would think he ought to have provided some basis beyond a reference to a decision of another provincial appellate court. I can’t tell from the reasons if there was any legislative material put to him.

    4. In any event, this is one reason for Courts of Appeal.

    5. Any also in any event, does anybody care to guess whether it “informed” (in the current jargon) the motion judge’s decision that the fight is likely between two insurers – between Co-Operators and Law Pro? I’m making the perhaps wrong assumption that the lawyer referred to in para. 14 of the reasons was not retained ONLY for the purpose of filing the plaintiffs proof.

  2. The answer to Mr. Cheifetz’s point #2 I suspect lies in the allusion by His Honour to Co-Op’s likely failure to show good faith to its insured in misleadingly putting the label ‘statutory’ on a condition not mandated by the statute.

    There is no need to speculate on the intentions of our good legislators (most of whom are probably out of their depth in these types of analyses) if we look at this as straight insurer mischief, which no legislator I know intends ever to promote.

    His Honour’s Reasons were kinder to Co-Op than it likely deserves, but let’s not try to extract a pro insurer argument from that show of mercy.

  3. David Cheifetz says:

    Mr. Binavince:

    Your bias slip is showing.

    I made neither a pro nor contra insurer argument. I pointed out what ought to have been done, in my view, to present a full record. The moving party has an obligation to do so. This is a form approved for use in Ontario by the Superintendent of Insurance. There’s a procedure. That procedure might have generated some relevant material either way. Both sides ought to have checked. There’s nothing in the reasons that indicates whether they did. It’s very easy to do that. The motion judge ought to have noted what he wasn’t given if he wasn’t given the material. Maybe this will be another Polowin. Maybe it won’t.

    If there is relevant material, somebody wasted the court’s time. And the client’s money.

    David Cheifetz

    • Mr. Cheifetz,

      My point is simply that with the presence of bad faith the need to parse the record for legislative intent is not apparent to me.

      The legislative record is a last resort when the statutory language is unclear, but here we have common law rules on bad faith and misrepresentation that can be dispositive. The Judge’s decision is not clearly based on a bad faith finding, but as I suggested his was likely an act of kindness on His Honour’s part.

      Overlooking this kindness, and finding fault with the decision on the basis of its supposedly being based on an inadequate evidentiary record can fairly in my view be called making a pro insurer argument, given that the decision is not favourable to that industry.

      With that said, I will agree that the motivations of the advocate do not matter when assessing the merits or demerits of the argument.

  4. David Cheifetz says:

    Whatever might be the principles elsewhere in the world, bad faith isn’t relevant in common law Canada until after the meaning of the legislation is determined. The process by which a decision on the meaning of legislation is made, where the decision doesn’t take into account all relevant legislative material is, by definition, flawed. The process is flawed even if the decision happens to be the decision which should have been made on all the relevant material.

    You and I seem to disagree on what is required for the lawyers to do their job properly. The judge decides the case on the material before him or her, assuming that material is sufficient to allow a valid decision. That not-to-small problem is why many judges end up doing their own research on the law, so that the end up citing cases not referred to be counsel. Can a judge go farther and send a research lawyer / clerk out to check for legislative material not in the record? I suppose that depends on one’s view of the extent of judicial notice. If that material is within the scope of judicial notice, then isn’t the answer yes?

    A statement that decision ought to have been made on all the relevant material, assuming there was more, is not “pro” either side. I have made the same statement regardless of who one.

    In any event, my view, a decision on the meaning of legislation on a record which contains no legislative material (other than the statute) is by definition deficient. I remind you, again, of the Polowin mess.

    By the way, assume, for argument’s sake, that there’s an appeal because it turns out there is relevant legislative material. If that material requires the decision be reversed, do you think the appellate court is going to award anybody any costs of either hearing?

    If you were plaintiff’s counsel, would you refund the fee you received? (Let’s assume you didn’t take the file under a limited retainer which relieved you of the need to check for legislative material.)

    If you disagree, you disagree.



  5. I would not subordinate common law rules to statutory provisions as you do. If anything, common law is a superior source of justice as it has stood the test of time, is continually refined, and is untainted by the political lobbying which drives so much of our lawmaking on the legislative side.

    If the US Supreme Court can find the right to privacy in the “penumbras and emanations” of the Bill of Rights without having resort to the floor debates leading to the passage of that document into law then a Judge of this province’s Superior Court can surely make a basic ruling on an everyday contractual matter by referencing common law rules and the text of the relevant legislation.

    At my law school the joke was that a Harvard-trained lawyer will look at legislative history when the text of the statute is unclear, but a Yale-trained lawyer will only look at the statute when the legislative history is unclear.

    At the risk of being disloyal to my alma mater, I opt for the Cambridge approach over the New Haven. Somehow I doubt that the Hansard equivalent of the Ontario Legislature contains any Demosthenes-caliber gems from the floor speeches on the piece of legislation under discussion. Given the strict discipline imposed on members in our Parliamentary system (a discipline which is being raised to new heights these days by the federal Tories) the uselessness of floor speeches in ascertaining the meaning of a statute may well be absolute.
    The Republicans freed the slaves, maybe it’s time for some republicanism to free the back benchers (to add what pearls of wisdom to the debate we can only guess)


  6. David Cheifetz says:

    We’re dealing with Ontario law. The motion judge was required to apply applicable Ontario law, while deciding the motion in the manner required by Ontario law. That includes taking into account any relevant legislative material, if there was any, in the manner set out by applicable Ontario law. There’s more to relevant legislative material than Hansard, too; but I won’t belabour the point as I’ve said all I want to say on this decision, in this forum.


    • A Judge is not required to search the legislative history of a statute (which I would think involves considerable resources in terms of law clerk time to do when it is done) though this searching can (and arguably should) be done when the meaning of a statute is unclear. The preceding is true in all common law jurisdictions I know of, both in this country and the US. Maybe Que and Louisiana are different.

      SCJ Judges don’t get teams of clerks, or even one clerk exclusive to them, in my understanding.

      As a taxpayer, and lawyer in our courts, I am happy that “my” resources were not uselessly and pointlessly employed when the decision in question was arrived at.

      • One final point.

        I agree that there is more to legislative history than floor speeches. In the US system, many bills exist in a House version, a Senate version and then in the version passed into law after provisions are hashed out in House-Senate conference committee. The committee reports and minutes of the sessions are great resources for legal research, both for academics and advocates.

        In this country, our federal Senate is appointed, more or less emasculated, and is made up of the types it is made up of. I don’t know what the provinces have, if anything, by way of a second chamber, but I will bet there are no Ciceros, Daniel Websters or Disraelis in any of them.

        Parliamentary democracy as practiced in this country has many virtues, and two oft-divided chambers each with real power (and with members comparatively free from party discipline) has drawbacks, but the latter overwhelmingly trumps the former when it comes to generating interesting and enlightening legislative histories.

        • Sorry, I lied. One final(?) comment.

          I checked the website of the Ontario Legislative Library. Materials and services are for elected pols. The public is not even allowed through the doors!

          Representatives of the “least dangerous branch” didn’t even rate a mention. Generously, a catalogue of what we are not permitted access to is online.

          I can just imagine the howls from the 905/get govt off our backs types if the Judge in the case under discussion had sent his 1/8 of a law clerk to Toronto for a few days on the taxpayer’s dime to try to get access to the committee reports that we the public can’t see, and the attempt failed.

          Or succeeded actually, given that the lawyers in the case would have had no such “pull” (well maybe Co-Op’s do if the San Pelligrino water at the librarians’ lounge of the OLL is donated by the IBC) to get by the gatekeepers at the OLL.

          A case decided by reference to materials that the litigants can’t see? That would have gotten some irked comments from pro insurer types in the blogosphere, assuming the decision did not favour that industry, which this one does not.

  7. Pingback: C.A. Upholds Contractual Incorporation of One-Year Limitation Period Into Property Insurance Policy | Cavillations

  8. David Cheifetz says:

    Regardless of what the Ont. Legislative Library website says – I’ve not checked – the public and lawyers have access. I’ve used it. I’m not privileged.

    You and I seem to be philosophically at odds. We’re not going to resolve that, here; not is here the appropriate place.

    In any event, as you know, the CA has spoken. Justice Quigley was wrong.


  9. David Anders says:

    Stumbled on this blog and comments after reading the Court of Appeal decision which completely over-turned Quigley J. Most appalling is the comments here that I thought were by the “deranged psychotic internet trolls” I am shocked to find that Mr. Binavince is actually a lawyer. This case was plain and obvious to any counsel with experience in insurance litigation (and that is coming from someone who is plaintiff’s counsel). God help poor innocent clients that stumble into a lawyer’s office based on the recommendation of a friend rather than a thorough review of counsel’s abilities.

    Justice Quigley was wrong and it was obvious that he was wrong.

    Now the clients can start their next lawsuit against the lawyer who told them it was a 2 year limitation period without reading the contract of a “business” insurance policy.

    I hope he or she has good notes of that first telephone call and meeting with the client to demonstrate that the one year limit had already passed.

  10. I wasn’t aware that the CoA had overturned and I thank you for the update.

    I do seem to remember the CoA overturning itself in McNaughton so maybe the same thing will happen here. I know that McNaughton part deux was pro insurer such that many may say “fat chance”, but I am ever the optimist.

  11. David Cheifetz says:

    The basis upon which the ONCA reversed McNaughton (in Polowin, 2005 CanLII 21093 (ONCA)) was the large amount of Ontario legislative material relevant to the interpretation of the policy, the regulation, and the statute which, somehow, everybody managed to not put in the record in McNaughton. This is how the ONCA summarized the new material in

    <blockquote cite=[90] The insurers filed a substantial legislative record on these appeals. This record was not before the panel in McNaughton. I will not review it in detail. However, the record shows that the effect of removing the introductory phrase “subject to” on the insurers’ right to apply a deductible was not discussed in the Legislature; that in the consultations between the IBC and the government preceding the 1993 amendments, neither side suggested that deductibles should be eliminated in total loss cases; that the actuarial studies on the impact of the Bill 164 amendments did not address deductibles; and that insurers’ rate filings after the 1993 amendments assumed deductibles would be applied in total loss cases, and were approved by the regulator."

    We can both guess where the insurers’ counsel obtained that material. We should also assume that, this time, class counsel also remembered to look under all of the rocks.

    In any event, I suggest you give Diogenes back his lantern so we can put this thread to bed.


  12. Jeffrey Gauze says:

    Leave to appeal in Boyce and Co-operators was denied last week.
    Which will presumably really put this thread to bed!

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