This paper summarizes the legal and legislative history resulting in the coming enactment of the BC Insurance Amendment Act, 2009, effective July 1, 2012. It will then review some of the more significant changes which are:
- Restructuring of the Act and the elimination of Part 5-Fire Insurance and the merger with the General Insurance Provisions
- The implementation of statutory conditions to all contracts under the General Insurance Provisions
- Limitation periods
- Relief from forfeiture
- Unjust or unreasonable conditions
- Dispute resolution
- Proportionate contributions
- Restrictions on exclusions for fire
- Recovery by innocent persons
- Electronic communications
- Notification of limitation periods
The Long Road to Enactment of the BC Insurance Amendment Act, 2009
In KP Pacific Holdings Ltd v. Guardian Insurance Co. of Canada, 2003 SCC 25, the Supreme Court of Canada observed that the BC Insurance Act of 1925 had remained essentially unchanged since it was passed. Although insurance practices had changed substantially over the past eight decades, the Insurance Act had not, and was still based on outmoded classes of insurance in which different rules applied depending on discrete categories of insurance. Thus, in a fire loss case, difficulties arose determining whether the applicable limitation period was in Part 2-General Provisions (one year from the providing of reasonably sufficient proof of loss) or Part 5-Fire Insurance (one year from the date of loss). In the result, the Court held that modern policies such as the multi-peril policy could not be reasonably "shoehorned" into Part 5 and thus the longer limitation periods in Part 2 applied.
In the course of attempting to penetrate the "tangled historical thicket" of statutory interpretation, over which "much ink" had been spilled, the Court said:
"It would be highly salutary for the Legislature to revisit these provisions and indicate its intent with respect to all risk and multi-peril policies. In the meantime, the task of resolving disputes arising from the disjunction between insurance law and practices falls to the courts. . .To repeat, it is our hope that legislators will rectify the situation by amending the Insurance Act to provide specifically for comprehensive policies. In an insurance era dominated by comprehensive policies, it is imperative that Canada's Insurance Acts specifically and unambiguously address how these statutes are to operate and the rules by which comprehensive policies are to be governed. "
This led to a lengthy review of the Insurance Act and the Insurance Act Review Discussion Paper published by the Ministry of Finance in March 2007 seeking input into proposed changes. As stated in the Discussion Paper, the primary objectives were to "maintain and enhance consumer protection and to ensure that the rights and obligations of the parties to the contract are well-understood and clear." Most of the proposals were passed in the Insurance Amendment Act 2009 which was to come into force by regulations at a future date. By order in council dated Dec. 1, 2011, the Insurance Amendment Act 2009 and Regulations will come into force effective July 1, 2012. The Alberta Insurance Amendment Act, which is largely uniform with the BC legislation, come into effect at the same date.
Insurance Amendment Act, 2009: http://www.leg.bc.ca/38th4th/1st_read/gov40-1.htm
Some of the substantial changes to the BC Insurance Act will include the following:
Restructuring of the Act
The centerpiece of the amendments is the elimination of Part 5-Fire Insurance, and the merger of those provisions into Part 2-General Insurance Provisions. The General Provisions will apply to every contract, with the primary exceptions of life insurance, accident and sickness insurance, and reinsurance. The provisions relating to Part 3-Life Insurance, and Part 4-Accident and Sickness Insurance have been significantly revised. Part 6-Automobile Insurance was previously repealed with the enactment of the Insurance (Vehicle) Act in 2007.
The Statutory Conditions which formerly only existed under Part 5-Fire Insurance of the Act will now be applicable to all polices under Part 2-General Insurance Provisions of the Act. The exceptions will be aircraft insurance, boiler and machinery insurance, credit insurance, credit protection insurance, hail insurance, mortgage insurance, product warranty insurance, title insurance, travel insurance, and vehicle warranty insurance.
Under the General Insurance Provisions, the limitation period will now be uniform and will be, in the case of loss or damage to the insured property, not less than 2 years after the date the insured knew or ought to have known the loss or damage occurred, and, in any other case, not later than 2 years after the date the cause of action against the insurer arose. In simple terms, for property claims, the limitation date is 2 years from when the insured knew the loss or damage occurred. For liability claims, the limitation date will be 2 years from when the cause of action against the insurer arose.
The limitation date for property claims should lead to greater certainty in most claims. Problems may still arise in determining the limitation date for liability claims.
Further, s. 7 of the Limitation Act will apply generally which extends the time for minors and those under a disability.
Relief from Forfeiture
Under the present provisions of the Insurance Act, the Court only had jurisdiction to grant relief from forfeiture in limited circumstances where there had been imperfect compliance with a statutory condition. Under the new General Insurance Provisions, section 24 of the Law and Equity Act will be applicable which gives broad jurisdiction to relieve against all penalties and forfeitures. Historically, the courts had not applied the Law and Equity Act to insurance contracts. While the inclusion of s. 24 of the Law and Equity Act may enhance consumer protection, it may lead to considerable difficulties with respect to a clear understanding of the rights and obligations of the parties to the insurance contract.
Unjust or Unreasonable Conditions
The General Insurance Provisions also incorporate what was s. 129 from the Fire Part which provides the court with authority to provide relief with respect to unjust conditions or exclusions. In Marche v. Halifax Insurance Co., 2005 SCC 6, held that this provision provided the courts with discretion to provide relief from conditions, statutory or otherwise, which are unjust or unreasonable in their application or in terms of their consequences. Notwithstanding Marche, there had been considerable debate as to whether this provision historically applied to multi-peril policies. Under the new Act, this debate comes to an end.
As with the inclusion of s. 24 of the Law and Equity Act providing broad jurisdiction to grant relief against forfeiture, there is little or no guidance on how the courts will apply these provisions to insurance contracts in the future. There is a considerable risk that these provisions may well lead to increasing litigation in the future.
The Insurance Amendment Act contains what have been referred to as enhanced dispute resolution provisions which replace the appraisal provisions. Under these provisions, disagreements as to the value of the insured property, the value of the property saved, the nature and extent of the repairs or replacements, the adequacy of those repairs or replacements, or the amount of the loss or damage, must be determined using the dispute resolution process.
While the language may appear to be mandatory, the new Act also provides that there is no right to a dispute resolution process until a specific demand for it is made in writing. This is not dissimilar in some respects from the present appraisal process which states that "an appraisal must be conducted . . .before any recovery is made under the contract." Once again, the appraisal process, although appearing mandatory, was only triggered on written demand.
Thus, it remains to be seen whether the dispute resolution process will be used to any greater degree than the appraisal process.
The new Act provides that if on the happening of loss of damage, there is in force more than one contract covering the loss or damage, the insurers are each liable to the insured for their rateable proportions of the loss, unless it is otherwise specifically agreed in writing between the insurers. This provision will apply to overlapping policies. In the past, some insurers attempted to draft their policies in such a way so that one overlapping policy would become excess and the other primary. This provision, now applicable to multi-peril policies and liability policies, would appear to end this practice, subject to agreement in writing between the insurers.
Restrictions on Exclusions for Fire
Pursuant to s. 28.4 of the Act, an insurer cannot exclude coverage for fire or explosion unless those exclusions are allowed by the Regulations. The regulations permit exclusions for criminal acts or omission, riot, civil commotion, war, invasion, hostilities, and so forth. They do not permit exclusions for fire arising from earthquake. Further, the Regulations do not permit an exclusion for fire, unless set out above, when the property is vacant for a period not longer than 30 days.
Recovery by Innocent Persons
The new Act reenacts those provisions previously enacted in June 2011 allowing for recovery by innocent persons up to their proportionate share in the property where the insured property has been damaged by the intentional or criminal act of an insured.
Thus, in the typical case of a husband and wife having joint ownership of the matrimonial home and one of the parties intentionally damages the home, the innocent party will recover the entirety of their interest in the property. Of course, one can envision that a number of problems could arise in determining the proportionate share of the innocent party in the damaged or lost property. For damage intentionally or criminally caused by a member of the household, such as a child, it will likely be held that they had no proportionate share at all, albeit they had an insurable or beneficial interest. Thus, cases such as Scott v. Wawanesa Mutual Insurance Co.  1 SCR 1445—where the insured parents were denied coverage where there home had been deliberately set on fire by their son—will only be of historical interest.
The Act allows for the transmission of records, which includes contracts or declarations, in electronic form. The Regulations, however, specifically provide that electronic transmission will not apply in respect of an insurers notice terminating a contract.
The Regulations also come into force at the same time as the Insurance Amendment Act. In addition to some of the Regulations referred to above, other significant Regulations include the following:
- Notice of Dispute Resolution Process: The insurer must give written notice of the availability of the dispute resolution process:
a) within 10 days after the insurer determines that there is a dispute to which the dispute resolution process applies; or
b) within 70 days after the insured submits a proof of loss, if at that time the insurer has not yet made a decision with respect to a matter to which the dispute resolution process applies.
- Notification of Limitation Periods: The insurer must give written notice to the insured of the applicable limitation period:
a) within 5 business days after the insurer denies liability for all or a part of the claim; and
b) within 10 business days of the first anniversary of the date the insurer has received notice of a claim.
These provisions do not apply if the insured is represented by counsel.
If the insurer fails to provide notification of the limitation period, the running of time is suspended until the insurer provides such notice.
The insurer need not specify the limitation date. The notice by the insurer need only contain a statement that the limitation period is set out in the Act.
- Recovery by Innocent Persons: The provisions of the newAct relating to coverage for the innocent insured only applies to natural persons. In order to benefit from these provisions, the innocent insured must cooperate in the investigation including submitting to an examination under oath, if required by the insurer, and producing all relevant documents for examination within a reasonable time and place designated by the insurer.
- The Ombudservice: A separate regulation requires insurers to become members of an "ombudservice" organization for the purposes of resolving insurance disputes.
The Insurance Amendment Act, 2009, and the Regulations take us into uncharted waters in many respects and some of the provisions may lead to greater uncertainty, particularly those relating to relief from forfeiture and unjust or unreasonable conditions or exclusions. This Bulletin has only noted some of those particular provisions that are of particular interest to property and casualty insurers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.