Canada: Insurance: Guide to Legal Risk Management

Last Updated: October 22 2015
Practice Guide by McMillan LLP


Legal departments serve important roles managing the risks that their organization faces. Insurance is an important risk transference mechanism whereby a financial institution can assume all or part of the risk.

Insurance policies are first and foremost legal contracts but with certain special features and pitfalls. As such, the legal department’s involvement in the risk transference process is important. The legal department’s role should include the following:

  • coordinating with the risk management department/personnel to identify the risks that are proposed to be transferred via insurance;
  • ensuring that the terms of the policy in fact achieve the risk transfer - while insurance intermediaries are specialists in insurance coverages, most are not legally trained;
  • ensuring the integrity of the application process - misrepresentations in the application can undermine the whole policy;
  • presenting the insurance application facts in a way that will enhance the underwriting and maximize the coverage while minimizing the premiums;
  • presenting the coverages to management and especially the board of directors; and
  • acting as a resource to ensure that insured claims are properly handled.

Each of these topics is discussed below.

Coordinating with risk management

Risk identification and management is being recognized more and more as an important area requiring discipline, resources and expertise. Operational, reputational, liquidity, technology, regulatory, and reputation risks can damage, cripple and even kill an organization. Identifying the risks and managing them on an enterprise wide basis have become important disciplines with some organizations having separate departments and even Chief Risk Officers. The risks are ever evolving as are the publics’ and the regulators’ expectations of how companies must address them. For example, cyber-risk is a new and rapidly developing risk and in the United States the authorities from the SEC to the President have issued directives to address it. Boards of directors are focusing more and more on risk as an integral element of their governance oversight.

Since time immemorial, commercial enterprises have been developing mechanisms to share and/or transfer all or some of the risks that they face. For hundreds of years, insurance has been an important risk transfer mechanism and in the western world all enterprises obtain insurance. In common law jurisdictions both statutes and judicial decisions over the centuries have developed special rules for insurance contracts and their interpretation. These provide opportunities and pitfalls for organizations that legally trained knowledgeable professionals are well suited to deal with.

Identifying the risks that the organization faces, determining which can be insured, to what extent it can and should be insured (policy limits) and at what cost is a multidisciplinary task. The risk department/officer; the insurance intermediary; and the market all have a role to play.

The policies to transfer these risks are important legal documents that, like other important legal agreements, should involve the legal department.

Insurance Policies

Most insurance contracts are structured in a similar manner: the coverage clause(s) that specify the risk being assumed by the insurer; exclusions that cut back the risks assumed; definitions; conditions to coverage and reporting claims including the issue of defence of claims; and general terms. Depending on the origin of the policy and the breadth of coverage, a number of these elements can get intermeshed. Definitions may contain exclusions. Exclusions may have carve-backs whereby certain matters are excluded from exclusions. It is usual for general policy terms to be supplemented (amended) by endorsements, sometimes many endorsements.

Underlying all of this is important policy structures and interpretation approaches that the courts have developed over the years, including the following:1

  • Policies can be either occurrence or claims based contracts.
    • Pure occurrence-based policies respond to a claim arising from an event that occurred during the policy period regardless of when the claim is made. Property policies are usually occurrence based and some old liability policies are as well. It is important to archive these policies as otherwise the opportunity to make a claim may be compromised.
    • Pure claims-based policies respond to claims made during the policy period regardless of when the event giving rise to the claim occurred. Most liability policies including Directors & Officers and Errors & Omissions Policies are of this kind.
  • Courts have held that the general rules of contract interpretation apply to insurance policies. However, courts recognize that for the most part insurance contracts are not negotiated and are drafted by the insurers and thus, courts have developed some special rules:
    • The onus is on the insured to prove that the coverage clause applies to the claim. However, coverage clauses are to be interpreted widely in favour of the insured.
    • Once the insured has shown that the insurance clause applies, the onus shifts to the insurer to show that an exclusion applies. Exclusions are to be interpreted narrowly, again in favour of the insured.
    • In the case of an ambiguity, it is to be resolved in favour of the insured.
    • Where a policy is unclear, the reasonable expectation of the insured can be used in interpreting the policy.
  • Just because insurers have maintained a position over the years does not mean that the courts will approve it. “Accident” which is a lynchpin of a number of insurance policy coverages has been undefined for years and was only recently defined by the Supreme Court of Canada.2 The Supreme Court of Canada recently interpreted a Comprehensive General Liability policy in favour of an insured and contrary to the way the insurers have been interpreting it for decades.3
  • Insurance coverages are not written in stone. If a particular definition or term is inappropriate to your organization, raise it and get the policy endorsed to deal with it. Examples include unanimous shareholder agreements and income trusts in the context of Directors & Officers policies.
  • The insurance industry is notorious for providing a certificate of coverage but not providing the policy contract terms until later. As the claims arising from the events of 911 involving billions of dollars, which were analyzed based on whether the policy counted it as one occurrence or two, having the policy contract terms nailed down can be important. Legal departments can impose some discipline in this regard.
  • As you would expect, insurers modify their policies to address court decisions. However, older forms or older occurrence policies may have different wording and, hence, apply differently. This is particularly true for old liability policies in the area of pollution claims.

The Application Process

Accuracy in the insurance application is crucial to ensure coverage. The courts have held that misrepresentation (including non-disclosure) of a material fact that is objectively reasonable for an underwriter to determine whether or not to accept the risk or to set the premium enables the insurer to void the policy whether or not the application expressly addresses the fact.

Since the application is the lynchpin of the coverage, the legal department should understand what the policy provides, who needs to be part of the disclosure and that mechanisms are in place for such full disclosure to be made.

Lawyers are also trained to make disclosure in a way that is most favourable to the company, and in particularly complicated areas of the application form, it may be especially important to involve persons with a legal training.4

The disclosure may involve proprietary, sensitive or privileged information. As in other cases of disclosure, the legal department should ensure that the appropriate legal safeguards are put in place to protect the company or the privilege.

If it is subsequently determined that a material misrepresentation may have been made, the legal department may be able to remedy the matter before a claim arises after which remedies will be difficult if not impossible to effect.

Understanding and Explaining the Coverages

The various components of the organization may not all have the same interests in particular circumstances. Boards of directors are a good example. Not unreasonably, directors may assume that they are covered by the organization’s D&O policy. However, most directors would not have much knowledge about what the policy covers, who the policy covers and the implications.

When the insurance market is soft, as the D&O market is now, insurers add coverage to justify maintaining the premium level. This is how the Side B coverage reimbursing the company for its director indemnification obligations arose. However, as these coverages are added, they all share the same policy limit. Directors might be surprised to learn that events partly related or unrelated to their activities might cannibalize the policy limits.

They might also be interested in understanding what is excluded and how that risk is addressed, if need be by an additional policy. An example is pension plan liabilities where the company is the plan sponsor.

The legal department may be the appropriate place to have such policies reviewed periodically and presented to the board in a format that assists the directors in understanding and addressing the risks that they face.


Policies cover risks in two very important ways:

  • they provide for how the claim is to be defended. Litigation is expensive and a vigorous defence may be your organization’s most important protection. Who has the duty to defend - the company or the insurer? What conditions must be met before defence counsel is engaged? Who is the defence counsel? Is there a need for more than one? How is/are defence counsel paid? The law department is equipped to deal with litigation matters including those covered by insurance policies; and
  • they provide indemnification if the claim proves to be successful. Insurers sometimes deny claims, sometimes provide a defence with reservation of rights, sometimes resist or try and control counsel and minimize their costs. Legal departments can be very helpful in understanding and resolving these types of issues and should be involved.

Policies contain claim reporting procedures, conditions and requirements that need to be adhered to, like contract provisions in general, failing which, rights might be lost or compromised.


1 The leading case is the Supreme Court of Canada’s decision in Reid Crowther & Partners Ltd. v Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252, 99 DLR (4th) 741.

2 Co‑operators Life Insurance Co. v Gibbens, 2009 SCC 59, [2009] 3 SCR 605.

3 Progressive Homes Ltd. v Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 SCR 245.

4 See Lloyds Syndicate 1221 (Millennium Syndicate) v Coventree Inc., 2012 ONCA 341, 291 OAC 178 (leave to appeal refused) and Frank Palmay, “Coventree D & O coverage – important lessons to be learned” (2012), online:

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Contact the Author?
Click here to email the Author
In Association with
In Partnership with
Supporting Documents
Other Canada Advice Centres
Competition and Antitrust
Mergers and Acquisitions
Labour and Employment
More Advice Centers
Significant Recent Cases
A list of the publicly disclosed deals and cases.
Useful Resources
Learn how to identify the type of IP you have and how to protect it.
Risk, in insurance terms, is the possibility that a loss or other adverse ev​​ent may potentially interfere with an organization’s ability to fulfill its objectives. Risk is also an event for which an insurance claim may be submitted.​​
Upcoming Events
Seminars and conferences keeping you up-to-date on the latest legal trends affecting your business.
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.