As we have
previously discussed, the 2014 Supreme Court of Canada decision
in Sattva Capital Corp. v. Creston Moly Corp. held
that contractual interpretation is a question of mixed fact and
law, and a first-instance interpretation of a contract is
therefore to be given deference on appeal. But is a trial
judge's interpretation of an insurance contract to be reviewed
on a standard of correctness given that "[t]hese contracts are
generally widely used standard form agreements where appellate
intervention is required so as to ensure consistency of result and
certainty in the law"? The Supreme Court of Canada has granted
leave to appeal an Alberta Court of Appeal decision, Ledcor
Construction Limited, et al. v. Northbridge Indemnity Insurance
Company, et al., that wrestles with this issue.
In its October 22, 2015 decision in Ontario Society for the Prevention of Cruelty to
Animals v. Sovereign General Insurance Company, the
Ontario Court of Appeal held that interpretation of insurance
contracts is an "exercise involv[ing] the application of a
legal principle of contractual interpretation in the context of
insurance to the pleadings in issue, [therefore] a mixed question
of fact and law is engaged." Deference was thus owed to the
Court below. For a unanimous Court of Appeal, Justice Pepall
nonetheless highlighted uncertainty in the law in this area,
 In Sattva Capital Corp. v.
Creston Moly Corp., 2014 SCC 53,  2 S.C.R. 633, the
Supreme Court abandoned the historical approach that maintained
that contractual interpretation engaged a question of law.
Rothstein J. addressed the issue in the context of the
interpretation of a joint venture agreement that was the subject
matter of a commercial arbitration. At para. 50, he wrote:
"Contractual interpretation involves issues of mixed fact and
law as it is an exercise in which principles of contractual
interpretation are applied to the words of a written contract,
considered in light of the factual matrix." As such,
issues of contractual interpretation generally attract a
deferential standard of review: para. 52. Rothstein J. explained
that a central purpose of drawing a distinction between questions
of law and those of mixed fact and law is to limit the intervention
of appellate courts to cases where the results can be expected to
have an impact beyond the parties to the particular dispute: para.
 Rothstein J. recognized that an
extricable question of law may be identified in disputes over
contractual interpretation. Legal errors made in the course of
contractual interpretation include: "the application of an
incorrect principle, the failure to consider a required element of
a legal test, or the failure to consider a relevant factor":
para. 53. However, at para. 55, he added that courts should be
cautious in identifying extricable questions of law in contractual
interpretation disputes: "The close relationship between the
selection and application of principles of contractual
interpretation and the construction ultimately given to the
instrument means that the circumstances in which a question of law
can be extricated from the interpretation process will be
 In both Ledcor Construction
Ltd. v. Northbridge Indemnity Insurance Co., 2015 ABCA 121,
386 D.L.R. (4th) 482, leave to appeal granted  S.C.C.A. No.
188, and Precision Plating Ltd. v. Axa Pacific Insurance
Company, 2015 BCCA 277,  B.C.W.L.D. 4112, appellate
courts have held that the limited standard of review espoused in
Sattva may not be applicable to the interpretation of
insurance policies. These contracts are generally widely used
standard form agreements where appellate intervention is required
so as to ensure consistency of result and certainty in the law.
 However, to reiterate, Rothstein
J. stated that the circumstances in which a question of law can be
extricated from the interpretation process will be rare. Rare, of
course, does not mean non-existent. See for example 1298417
Ontario Ltd. v. Lakeshore (Town), 2014 ONCA 802.
 Where, as here, the exercise
involves the application of a legal principle of contractual
interpretation in the context of insurance to the pleadings in
issue, a mixed question of fact and law is engaged.
With deference owed to the application judge's decision,
Justice Pepall dismissed the appeal, and upheld the application
judge's order that the appellant insurance company had a duty
to defend the respondent in actions alleging that it caused harm to
three persons it had investigated. (The appellant had argued that
it should not have a duty to defend as the respondent was accused
of intentionally harming those persons.)
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