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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