Canada: BC's New Insurance Act: Making The Transition To The New World Order

Executive Summary

In 2003, a lawyer's negligence case involving a missed limitation period resulted in a Supreme Court of Canada decision declaring that BC's Insurance Act was "outmoded", "incapable of coherently addressing the modern multi-peril policy", and resulted in "unproductive, wasteful litigation about technicalities" KP Pacific Holdings Ltd. v. Guardian Insurance [2003] 1 S.C.R. 433 ("KP Pacific").

The case dealt with the limitation period applicable to the coverage enforcement action under an all risk property policy. The Court held that such a policy could not be "shoe-horned" into the Fire Part of the Insurance Act and instead applied the longer limitation period stipulated by the General Provisions (Part 2) of the Act. It specifically urged the legislatures across the country to "rectify this situation".

In 2009 the BC Legislature finally got around to amending the Insurance Act. These amendments included some significant changes, including such things as:

  • Eliminating the "Fire Part" of the Act altogether and instead expanding the "General Provisions" part of the Act so as to apply to virtually all types of property and liability insurance;
  • Importing the requirement of Statutory Conditions for both property and liability policies;
  • Importing "proportionate contributions" as between overlapping policies;
  • Imposing a base two (2) year limitation period for coverage enforcement lawsuits against the insurer;
  • Enacting an "unjust contract provision" preventing coverage denials where they are considered either unjust or unreasonable in the circumstances of any given case;
  • Introducing the concept of "innocent persons" to whom the "criminal or intentional act" exclusion would not be applicable and who would be allowed to recover their "proportionate interest" in lost or damaged property;
  • Mandating coverage for all fire losses except those permitted to be excluded by regulations; and
  • Allowing electronic delivery of certain insurance records or documents.

Some of the amendments to the Act contemplated terms, conditions or exceptions to be clarified by government regulation. It has taken almost three (3) years for those regulations to be enacted by the BC Government, but they were finally issued at the beginning of December 2011. The whole regime (amendments plus regulations) will take effect July 1, 2012, by which time insurers will have to revise policy wordings to reflect the necessary changes.

The new regulations include the following changes to BC's property and casualty insurance regime:

  • The statutory conditions are excluded for certain classes of insurance but will still be applicable to most property and all liability coverages;
  • The current fifty (50) separate classes of insurance are being reduced to twenty (20) so as to harmonize insurance classification with the federal regime;
  • Insurers must provide written notification to a claimant of the limitation period applicable to any coverage enforcement action within as little as five (5) business days of any claim denial and failure to comply with such notice provisions operate to suspend that limitation period;
  • Only "natural persons" (human beings) will have the benefit of the "innocent coinsured" provision in the Act and in order to obtain such protection, such insureds must cooperate with the loss investigation, submit to examinations under oath and produce requested documents;
  • Arson can be a fire coverage exclusion but it is subject to the "innocent co-insured" provision;
  • Fire coverage is mandatory for any fire loss occurring while the insured property is vacant for up to thirty (30) days;
  • Exclusions for fire following earthquake are not permitted;
  • Notice of termination of a contract pursuant to a statutory condition or for nonpayment of premium cannot be delivered electronically;
  • Insurers must provide the insured with written notice of the dispute resolution process (appraisal) under the Act within ten (10) days after a dispute has arisen or within seventy (70) days after submission of a Proof of Loss if no coverage/payment determination has been made; and
  • With only some limited exceptions, all insurers who are authorized to conduct business in BC must be a member of the General Insurance OmbudService for the purpose of addressing "insurer complaints".

Obviously, several of these changes will require "tweaking" of policy wording, whether with respect to statutory conditions, limitation periods or the narrowing of exclusions. Mind you, even though the Supreme Court of Canada ruled in 2003 that the one (1) year limitation found in the fire statutory conditions did not apply to coverage enforcement actions under the modern "allrisk" policy, virtually no insurers changed their wording to reflect that decision. Presumably there will be a little more interest in amending wording this time around given that the changes are effectively mandated by legislation.

Transitional provisions have been included in the New Act to cushion the blow to insurers in some cases until policies are renewed or replaced.

Essentially the same changes are being made in Alberta as well. That particular province has been somewhat swifter in both amending its Act and issuing the supporting regulations, but Alberta's changes also do not come into effect until July 1, 2012.

Introduction

In 2003 a lawyer's negligence case resulted in the Supreme Court of Canada declaring that B.C.'s Insurance Act was "outmoded", "incapable of coherently addressing the modern multiperil policy", and resulted in "unproductive, wasteful litigation about technicalities": KP Pacific Holdings Ltd. v. Guardian Insurance [2003] 1 S.C.R. 433 ("KP Pacific").

In KP Pacific the insured claimed for a fire loss under an all risk policy. The policy contained the standard statutory conditions mandated by the "Fire Part" of the BC Insurance Act which included the litigation limitation period of one year following occurrence of the loss. The question in the case was whether the limitation period was the one stipulated by the statutory condition or the longer limitation period stipulated in the "General Provisions" of the Act, namely, one year from the filing of a proof of loss. The more general issue was whether the modern all-risk policy was governed by the Fire Part of the Act (including the statutory conditions) or the General Provisions of the Act.

The Court ultimately held that an all-risk policy could not be "shoe-horned" into the Fire Part of the Act and instead applied the longer limitation period stipulated by the General Provisions (thereby saving the arguably negligent lawyer from liability for missing the limitation period). The Court noted the history of the legislation which was "built on the premise of discrete policies for discrete subject matters, with limited overlap" which was now an "outmoded paradigm incapable of coherently addressing the modern multi-peril policy". The Court urged,

"It is our hope that legislatures will rectify this situation by amending the Insurance Act to provide specifically for comprehensive [all-risk] policies. In an insurance era dominated by comprehensive [all-risk] 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.

It would be highly salutary for the Legislature to revisit these provisions and indicate its intent with respect to all-risks and multi-peril policies. In the meantime, the task of resolving disputes arising from this disjunction between insurance law and practice falls to the courts. Brown and Menezes lament: "Surely there can be little which is less productive, or more wasteful, than litigation about such technicalities": C. Brown and J. Menezes, Insurance Law in Canada (2nd ed. 1991), at p. 16. I wholeheartedly agree. "

It took a long time but in due course the legislatures of both Alberta and British Columbia responded to the challenge. Both provinces passed legislation amending their respective Insurance Acts. Some of the amendments to the Acts contemplated terms, conditions or exceptions to be clarified by government regulation. It took almost three years for those regulations to be introduced and the new regimes (amendments plus regulations) in Alberta and British Columbia will come into force on July 1, 2012. Significant changes are being introduced and the wordings of both property and liability policies will have to be modified.

This paper reviews the amendments and regulations which are being brought into force in British Columbia and urges insurers to revise policy wordings to reflect the necessary changes.

II. Summary of Changes by Topic:

A. Structural Reform

The Supreme Court in KP Pacific, supra noted that:

The Insurance Act was passed in 1925 (S.B.C. 1925, c. 20). Despite repeated housekeeping amendments, it remains essentially unchanged. It was designed for a world where insurers issued policies geared to specific risks and subjects, such as fire insurance, theft insurance, business loss insurance, and so on. Accordingly, it lays down rules, including limitation periods, based on different and discrete categories of insurance.

The current Insurance Act in British Columbia contains separate provisions applying to Life Insurance (Part 3), Accident and Sickness Insurance (Part 4) and Fire Insurance (Part 5), prior to it's repeal in June 2007 Auto Insurance (Part 6) and Miscellaneous Insurance (Part 7). An omnibus General Provisions (Part 2) applies to virtually all other forms of insurance, including the now commonplace "all risk" property policy, as well as all forms of general liability insurance.

Under the new regime Part 5 relating specifically to Fire Insurance is completely eliminated and consequently largely all forms of property and liability policies will now be governed by the General Insurance Provisions in Part 2 of the New Act.

The New Act sees many of the former Part 5 provisions, which related solely to property insurance, transferred in slightly amended form into the new Part 2. In several instances, it appears the legislature may not have given much thought to the application of property insurance concepts to liability insurance policies.

Part 2 of the New Act retains the concept of "Statutory Conditions" (the new section 27.1). Section 27.1 (3) says that Statutory Conditions 1 and 6-13 apply only to property insurance, which means that Statutory Conditions 2 (property of others), 3 (change of interest), 4 (material change and risk) and 5 (termination of insurance) all apply to liability policies. In other words, it will now be possible for a liability insurer to void coverage because there has been a "material change to the risk" that has not been promptly notified to the insurer.

Similarly, Section 28.1 of the New Act re-enacts the proportionate contributions clause into Part 2 General Provisions and provides:

(1) If, on the happening of loss or damage, there is in force more than one contract covering the loss or damage, the insurers under the respective contracts are each liable to the insured for their rateable proportion of the loss, unless it is otherwise expressly agreed in writing between the insurers.

(2) For the purpose of subsection (1), a contract is deemed to be in force despite any term or condition of it that the contract does not cover the loss or damage or attach, come into force or become insurance with respect to the loss or damage until after full or partial payment of any loss under any other contract.

(3) Nothing in subsection (1) affects

(a) the validity of any divisions of the amount of insurance into separate items,

(b) the limits of insurance on specified property,

(c) a clause referred to in section 28.2, or

(d) a contract condition limiting or prohibiting the having or placing of other insurance.

(4) Nothing in subsection (1) affects the operation of a deductible clause, And

(a) if one contract contains a deductible clause, the prorated proportion of the insurer under that contract must be first ascertained without regard to the clause, and then the clause must be applied only to affect the amount of recovery under that contract, and

(b) if more than one contract contains a deductible clause, the prorated proportions of the insurers under those contracts must be first ascertained without regard to the deductible clauses, and then the highest deductible must be prorated among the insurers with deductibles, and these prorated amounts affect the amount of recovery under those contracts.

(5) Nothing in subsection (4) is to be construed to have the effect of increasing the prorated contribution of an insurer under a contract that is not subject to a deductible clause.

(6) Despite subsection (1), insurance on identified articles is a first loss insurance as against all other insurance.

On its face, this provision applies to liability policies as well as property policies and it remains to be seen whether it has the (inadvertent?) effect of overriding the overlapping coverage analysis as set out by the Supreme Court of Canada in Family Insurance Corp. v. Lombard Canada Ltd. 2002 SCC 48.

The provisions in Part 7 involving livestock insurance are also eliminated and it is left to the legislature to make regulations applying specified provisions of Part 2 to home warranty insurance or deposit protection contracts.

The General Provisions (Part 2) will not apply to life insurance or accident and sickness insurance, which remain governed by Parts 3 and 4 respectively.

As an aside, Bill 6 also repeals the Insurance (Marine) Act. In its News Release the government stated that "(m)arine insurance contracts are exclusively a matter of federal jurisdiction, and are subject to the federal Marine Insurance Act".

Regulations concerning Structural Reform

The following classes of insurance were defined as being excluded from the application of the Statutory Conditions: aircraft insurance, boiler and machinery insurance, credit insurance, credit protection insurance, hail insurance, mortgage insurance, product warranty insurance, title insurance and travel insurance or vehicle warranty insurance. However, the Statutory Conditions will still be applicable to most property and all liability coverages.

Also, the current fifty (50) separate classes of insurance are being reduced to twenty (20) so as to harmonize insurance classification with the federal regime.

B. Clarifying Limitation Periods

In its March 2007 Discussion Paper, the BC government indicated that during the consultation process clarification of limitation periods was identified as a priority issue by many stakeholders:

Streamlining the current inconsistent limitation periods is seem as necessary to reduce confusion for consumers, advisors and insurers, all of whom need certainly in order to appropriately deal with insurance claims.

Given the uncertainty with the current state of affairs, this is not surprising. In 2003 the Supreme Court of Canada in KP Pacific Holdings, supra and Churchland v. Gore [2003] 1 S.C.R. 445, 2003 SCC 26 held that the limitation period for property claims under an all risk policy was one year from the furnishing of a "reasonably sufficient proof of a loss" on a claim under the contract. However, left uncertain was what constituted such "reasonably sufficient proof" and such debate became the cornerstone of limitation litigation.

The New Act attempts to streamline the limitation period debate so as to "reduce confusion for consumers, advisors and insurers all of whom need certainty in order to appropriately deal with insurance claims." [Discussion Paper].

Under the New Act, limitation periods will change with two years being the norm. Under Section 22 the limitation period for property policies will be two years after the insured knew or ought to have known the loss or damage occurred and, in any other case, two years after the cause of action against the insurer arose.

With life insurance the limitation period under section 65 will be two years after proof of claim is furnished or six years from the date of death or in the case of insurance money payable on a periodic basis, the date the insurer fails to make a periodic payment.

Section 2.4(1) applies section 7 of the Limitation Act to limitation periods under the New Act, which has the effect of extending those limitation periods for persons under a legal disability. For example, if the insured is a minor the limitation period only starts to run once they reach 19 years of age. In regards to other persons under a legal disability the time only begins to run once they are no longer under such a disability.

In short, the limitation provisions in the New Act can be summarized as:


Regulations concerning Limitation Periods

Under the New Act, insurers must provide written notification to a claimant of the limitation period applicable to any coverage enforcement action within as little as five (5) business days of any claim denial. Failure to comply with such notice provisions operate to suspend that limitation period.

C. Subrogation

At common law in order for the insurer to have full subrogation rights, including the exclusive right to control the litigation, the insurer must have fully indemnified the insured for the loss. This does not mean that the insurer has paid out the maximum allowable under the policy; it means that the insured must have been fully indemnified for the loss. So, at common law, and subject to statute and contract, where an insurer is attempting to enforce the insured's rights against a third party, the insurer must have fully indemnified the insured before it can recover from the third party or have exclusive control over the litigation [Farrell Estates Ltd. v. Canadian Indemnity Co.(1990), 69 D.L.R. (4th) 735 (BCCA)].

Many insurers' policies contain provisions which apply for the insurer to exercise the right of subrogation as soon as any payment is made under the policy, and not only in the instance of full indemnity. Section 130 of the Current Act eliminates the prerequisite of full indemnity for subrogation in regards to policies covered under the Fire Part.

Subrogation

130 (1) The insurer, on making any payment or assuming liability therefore under a contract of fire insurance is subrogated to all rights of recovery of the insured against any person, and may bring action in the name of the insured to enforce those rights.

(2) If the net amount recovered after deducting the costs of recovery is not sufficient to provide a complete indemnity for the loss or damage suffered, that amount must be divided between the insurer and the insured in the proportions in which the loss or damage has been borne by them respectively.

Section 28.7 of New Act provides that:

Subrogation

28.7 (1) The insurer, on making a payment or assuming liability under a contract, is subrogated to all rights of recovery of the insured against any person, and may bring an action in the name of the insured to enforce those rights.

(2) If the net amount recovered after deducting the costs of recovery is not sufficient to provide a complete indemnity for the loss or damage suffered, that amount must be divided between the insurer and the insured in the proportions in which the loss or damage has been borne by them respectively.

The re-enactment of this section within the "General Insurance Provisions" extends the right of subrogation absent full indemnity to virtually all types of insurance policies.

D. Unjust Contracts Provision

Section 3 of the New Act expressly stipulates that Part 2 (General Insurance Provisions) applies to every contract, with certain exceptions that will not be applicable to the property and casualty industry. This means the sections in question apply to not just property insurance, all-risk or otherwise, but every conceivable form of liability insurance as well, including Commercial General Liability (CGL), Directors and Officers insurance (D&O), professional Errors and Omissions insurance (E&O), excess/umbrella policies and so on.

The Fire Part of the Current Act contains a provision respecting "unjust exclusions" as follows:

129 If a contract

(b) contains any stipulation, condition or warranty that is or may be material to the risk, including, but not restricted to, a provision in respect to the use, condition, location or maintenance of the insured property,

the exclusion, stipulation, condition or warranty is not binding on the insured if it is held to be unjust or unreasonable by the court before which a question relating to it is tried.

To read this article in full please click here.

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.

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

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

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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